Investments to Match Your Money StyleInvestments to Match Your Money Style I magine you’re a...

Investments to MatchYour Money Style

Imagine you’re a contestant on a game show. You’re offered$1,000 in cash now or a chance to win much more later. Whichwould you choose? According to two university-level personal finance professors,

Dr. Ruth Lytton at Virginia Tech in Blacksburg, Va., and Dr. JohnGrable at Kansas State University in Manhattan, Kan., youranswer may depend on your “risk tolerance.” Knowing how you

42 www.doctorsdigest.net

FINANCIAL VISIONING

Fast Facts� While we’re still a long way from the early 80’s when money

market funds were yielding 17 percent, recent increases in in-terest rates have made cash investments a better option than afew years ago. Page 48.

� If you are concerned that inflation could accelerate and pinchyour retirement lifestyle, a relatively new type of investmentcan alleviate your fears: Treasury-Inflation Protected Securi-ties (TIPS). Page 55.

� Some physicians want the rewards of investing without thehassles. A separately managed account (SMA) might offer justthat. An extra bonus, too: The fees charged may be tax de-ductible. Page 60.

Everyone has a different personality when it comes to handlinghis or her money. Once you know your money personality, youcan make investment decisions that are suitable for your tem-perament and your risk tolerance. Not only will this increase thelikelihood of getting where you’d like to be, but you’ll also bemore comfortable along the way.

DDPCP_05_06_ 5/11/07 2:34 PM Page 42

FINANCIAL VISIONING

www.doctorsdigest.net 43

feel about taking risks with your investments can help you makechoices that reflect your own personal investing style.

In order to help identify your risk tolerance, Dr. Lytton andDr. Grable have developed a quiz. Even if you’ve taken a simi-lar quiz before, you may find it useful to take it again now.According to a 2004 article from the Journal of BehavioralFinance, Dr. Grable, Dr. Lytton, and Barbara O’Neill of RutgersCooperative Extension in New Brunswick, N.J., have found thatrisk tolerance changes with such variables as income and recentstock market performance.

Cashing InPeople who favor cash equivalents may be considered savers

rather than investors. Fortunately, savers are enjoying a sunnyclimate now. As of this writing, interest rates on one-year bankcertificates of deposit (CDs) are around 5%, according toBankrate.com. With a few mouse clicks, you can lock in annualpercentage yields as high as 5.4% on a five-year CD. Similarly,money market funds now offer average yields around 4.7%, andpayouts over 5% are widely available.

“At our firm, clients are putting new money into cash equiva-lents,” reports Mal Makin, president of Professional PlanningGroup, Westerly, R.I. “One client, with a $1.8 million portfolio,has a 40% allocation to six-month Treasuries and one-year paper[investments that pay yields and mature within a year], includ-ing jumbo CDs.”

That hasn’t always been the case. “A few years ago,” says Mr.Makin, “when yields were under 1%, we avoided cash. Clientsneeded some liquidity in their portfolios, but we did not want totrade off performance by going into low-yielding assets.”

After 17 interest-rate increases by the Federal Reserve, thatdilemma has been resolved. “Rising rates have allowed us to usecash more effectively,” says Mr. Makin. “We have not had tolook for alternatives to house the percentage of clients’ assets wewant to hold in cash.”

On the contrary, cash has flowed into other areas of clients’portfolios. “Recently,” says Mr. Makin, “two-year bonds wereyielding more than 10-year bonds. Even now, the yield curve isflat. So we’re keeping fixed-income holdings under one year

DDPCP_05_06_ 5/11/07 2:34 PM Page 43

TOPAMAX Tablets and TOPAMAX Sprinkle Capsules are indicated for adults for the prophylaxis of migraine headache. The usefulness of TOPAMAX in the acute treatment of migraine headache has not been studied.TOPAMAX is contraindicated in patients with a history of hypersensitivity to any component of this product.

IMPORTANT SAFETY INFORMATION

TOPAMAX has been associated with serious adverse events, including:

• Hyperchloremic, non-anion gap metabolic acidosis—lowering of bicarbonate levels in the blood. Measurement of baseline and periodic serum bicarbonate is recommended.

• Acute myopia and secondary angle-closure glaucoma—patients should be cautioned to seek medical attention if they experience blurred vision or ocular pain.

• Oligohidrosis and hyperthermia—decreased sweating and increased body temperature, especially in hot weather. The majority of reports have been in children.

• Cognitive/psychiatric side effects including cognitive dysfunction, psychiatric/behavioral disturbances including suicidal thoughts or behavior, and somnolence and fatigue.Most common adverse events associated with TOPAMAX 100 mg vs placebo were: paresthesia, 51% vs 6%; anorexia,* 15% vs 6%; fatigue, 15% vs 11%; nausea, 13% vs 8%; diarrhea, 11% vs 4%; weight decrease, 9% vs 1%; taste alteration, 8% vs 1%.The possibility of decreased contraceptive effi cacy and increased breakthrough bleeding should be considered in patients taking combination oral contraceptive products with TOPAMAX.Patients should be instructed to maintain an adequate fl uid intake in order to minimize the risk of renal stone formation.

*Anorexia is defi ned as loss of appetite.

DDPCP_05_06_ 5/11/07 2:46 PM Page 44

www.topamax360.com

ImportantAvoid confusion with Toprol-XL® (metoprolol succinate)by spelling out TOPAMAX® (topiramate) on your prescription.Toprol-XL is a registered trademark of the AstraZenecagroup of companies.

© OMN, Inc. 2007 March 2007 02M931AD

References: 1. Silberstein SD, Neto W, Schmitt J, Jacobs D, for the MIGR-001 Study Group. Topiramate in migraine prevention: results of a large controlled trial. Arch Neurol. 2004;61:490-495. 2. Brandes JL, Saper JR, Diamond M, et al, for the MIGR-002 Study Group. Topiramate for migraine prevention: a randomized controlled trial. JAMA. 2004;291:965-973.

Managing Migraines may require more than a quick fi x.

Ask how frequent, disruptive migraines may impact her both during and between attacks. Choose TOPAMAX to help reduce migraine frequency.1,2

Please see brief summary of full Prescribing Information on following pages.

DDPCP_05_06_ 5/11/07 2:48 PM 5

Brief Summary of Full Prescribing Information for Migraine. CLINICAL STUDIES FOR OTHERINDICATIONS WILL HAVE DIFFERING ADVERSE EVENTS AND SAFETY CONCERNS. PLEASESEE FULL PI FOR THIS INFORMATION REGARDING TOPAMAX® FOR EPILEPSY.INDICATIONS AND USAGEMigraine: TOPAMAX® (topiramate) Tablets and TOPAMAX® (topiramate capsules) Sprinkle Capsulesare indicated for adults for the prophylaxis of migraine headache. The usefulness of TOPAMAX® inthe acute treatment of migraine headache has not been studied.CONTRAINDICATIONS: TOPAMAX® is contraindicated in patients with a history of hypersensitivity toany component of this product.WARNINGS: Metabolic Acidosis: Hyperchloremic, non-anion gap, metabolic acidosis (i.e.,decreased serum bicarbonate below the normal reference range in the absence of chronic respiratoryalkalosis) is associated with topiramate treatment. This metabolic acidosis is caused by renalbicarbonate loss due to the inhibitory effect of topiramate on carbonic anhydrase. Such electrolyteimbalance has been observed with the use of topiramate in placebo-controlled clinical trials and in thepost-marketing period. Generally, topiramate-induced metabolic acidosis occurs early in treatmentalthough cases can occur at any time during treatment. Bicarbonate decrements are usually mild-moderate (average decrease of 4 mEq/L at daily doses of 400 mg in adults and at approximately6 mg/kg/day in pediatric patients); rarely, patients can experience severe decrements to values below10 mEq/L. Conditions or therapies that predispose to acidosis (such as renal disease, severerespiratory disorders, status epilepticus, diarrhea, surgery, ketogenic diet, or drugs) may be additive tothe bicarbonate lowering effects of topiramate. Metabolic acidosis has been observed at doses as lowas 50 mg/day. Serum bicarbonate levels have not been systematically evaluated at daily doses greaterthan 400 mg/day. The incidence of persistent treatment-emergent decreases in serum bicarbonate inplacebo-controlled trials for adults for prophylaxis of migraine was 44% for 200 mg/day, 39% for100 mg/day, 23% for 50 mg/day, and 7% for placebo. The incidence of a markedly abnormally lowserum bicarbonate (i.e., absolute value <17 mEq/L and >5 mEq/L decrease from pretreatment) inthese trials was 11% for 200 mg/day, 9% for 100 mg/day, 2% for 50 mg/day, and <1% for placebo. Somemanifestations of acute or chronic metabolic acidosis may include hyperventilation, nonspecificsymptoms such as fatigue and anorexia, or more severe sequelae including cardiac arrhythmias orstupor. Chronic, untreated metabolic acidosis may increase the risk for nephrolithiasis ornephrocalcinosis, and may also result in osteomalacia (referred to as rickets in pediatric patients) and/orosteoporosis with an increased risk for fractures. Chronic metabolic acidosis in pediatric patients mayalso reduce growth rates. A reduction in growth rate may eventually decrease the maximal heightachieved. The effect of topiramate on growth and bone-related sequelae has not been systematicallyinvestigated. Measurement of baseline and periodic serum bicarbonate during topiramate treatment isrecommended. If metabolic acidosis develops and persists, consideration should be given to reducingthe dose or discontinuing topiramate (using dose tapering). If the decision is made to continue patientson topiramate in the face of persistent acidosis, alkali treatment should be considered. Acute Myopiaand Secondary Angle Closure Glaucoma: A syndrome consisting of acute myopia associated withsecondary angle closure glaucoma has been reported in patients receiving TOPAMAX®. Symptomsinclude acute onset of decreased visual acuity and/or ocular pain. Ophthalmologic findings can includemyopia, anterior chamber shallowing, ocular hyperemia (redness) and increased intraocular pressure.Mydriasis may or may not be present. This syndrome may be associated with supraciliary effusionresulting in anterior displacement of the lens and iris, with secondary angle closure glaucoma.Symptoms typically occur within 1 month of initiating TOPAMAX® therapy. In contrast to primary narrowangle glaucoma, which is rare under 40 years of age, secondary angle closure glaucoma associatedwith topiramate has been reported in pediatric patients as well as adults. The primary treatment toreverse symptoms is discontinuation of TOPAMAX® as rapidly as possible, according to the judgment ofthe treating physician. Other measures, in conjunction with discontinuation of TOPAMAX®, may behelpful. Elevated intraocular pressure of any etiology, if left untreated, can lead to serious sequelaeincluding permanent vision loss. Oligohidrosis and Hyperthermia: Oligohidrosis (decreasedsweating), infrequently resulting in hospitalization, has been reported in association with TOPAMAX®

use. Decreased sweating and an elevation in body temperature above normal characterized thesecases. Some of the cases were reported after exposure to elevated environmental temperatures. Themajority of the reports have been in children. Patients, especially pediatric patients, treated withTOPAMAX® should be monitored closely for evidence of decreased sweating and increased bodytemperature, especially in hot weather. Caution should be used when TOPAMAX® is prescribed withother drugs that predispose patients to heat-related disorders; these drugs include, but are not limitedto, other carbonic anhydrase inhibitors and drugs with anticholinergic activity.Cognitive/Neuropsychiatric Adverse Events: Adults: Adverse events most often associated with theuse of TOPAMAX® were related to the central nervous system. In adults, the most frequent of these canbe classified into three general categories: 1) Cognitive-related dysfunction (e.g., confusion,psychomotor slowing, difficulty with concentration/attention, difficulty with memory, speech or languageproblems, particularly word-finding difficulties); 2) Psychiatric/behavioral disturbances (e.g., depressionor mood problems); and 3) Somnolence or fatigue. Cognitive-Related Dysfunction: The majority ofcognitive-related adverse events were mild to moderate in severity, and they frequently occurred inisolation. Rapid titration rate and higher initial dose were associated with higher incidences of theseevents. Many of these events contributed to withdrawal from treatment (see ADVERSE REACTIONS,Table 1). In the 6-month migraine prophylaxis controlled trials using a slower titration regimen (25 mg/dayweekly increments), the proportion of patients who experienced one or more cognitive-related adverseevents was 19% for TOPAMAX® 50 mg/day, 22% for 100 mg/day, 28% for 200 mg/day, and 10% forplacebo. These dose-related adverse reactions typically began in the titration phase and often persistedinto the maintenance phase, but infrequently began in the maintenance phase. Some patientsexperienced a recurrence of one or more of these cognitive adverse events and this recurrence wastypically in the titration phase. A relatively small proportion of topiramate-treated patients experiencedmore than one concurrent cognitive adverse event. The most common cognitive adverse eventsoccurring together included difficulty with memory along with difficulty with concentration/attention,difficulty with memory along with language problems, and difficulty with concentration/attention alongwith language problems. Rarely, topiramate-treated patients experienced three concurrent cognitiveevents. Psychiatric/Behavioral Disturbances: Psychiatric/behavioral disturbances (depression or moodproblems) were dose-related for both the epilepsy and migraine populations. In the double blind phasesof clinical trials with topiramate in approved and investigational indications, suicide attempts occurred ata rate of 3/1000 patient years (13 events/3999 patient years) on topiramate versus 0 (0 events/1430patient years) on placebo. One completed suicide was reported in a bipolar disorder trial in a patient ontopiramate. Somnolence/Fatigue: Fatigue and somnolence were dose-related and more common in thetitration phase.PRECAUTIONS: Hyperammonemia and Encephalopathy Associated with Concomitant Valproic AcidUse: Concomitant administration of topiramate and valproic acid has been associated withhyperammonemia with or without encephalopathy in patients who have tolerated either drug alone.

Clinical symptoms of hyperammonemic encephalopathy often include acute alterations in level ofconsciousness and/or cognitive function with lethargy or vomiting. In most cases, symptoms and signsabated with discontinuation of either drug. This adverse event is not due to a pharmacokineticinteraction. It is not known if topiramate monotherapy is associated with hyperammonemia. Patientswith inborn errors of metabolism or reduced hepatic mitochondrial activity may be at an increased riskfor hyperammonemia with or without encephalopathy. Although not studied, an interaction oftopiramate and valproic acid may exacerbate existing defects or unmask deficiencies in susceptiblepersons. In patients who develop unexplained lethargy, vomiting, or changes in mental status,hyperammonemic encephalopathy should be considered and an ammonia level should be measured.Kidney Stones: As in the general population, the incidence of stone formation among topiramatetreated patients was higher in men. Kidney stones have also been reported in pediatric patients. Anexplanation for the association of TOPAMAX® and kidney stones may lie in the fact that topiramate is acarbonic anhydrase inhibitor. Carbonic anhydrase inhibitors, e.g., acetazolamide or dichlorphenamide,promote stone formation by reducing urinary citrate excretion and by increasing urinary pH. Theconcomitant use of TOPAMAX® with other carbonic anhydrase inhibitors or potentially in patients on aketogenic diet may create a physiological environment that increases the risk of kidney stoneformation, and should therefore be avoided. Increased fluid intake increases the urinary output,lowering the concentration of substances involved in stone formation. Hydration is recommended toreduce new stone formation. Paresthesia: Paresthesia (usually tingling of the extremities), an effectassociated with the use of other carbonic anhydrase inhibitors, appears to be a common effect ofTOPAMAX®. Paresthesia was more frequently reported in the monotherapy epilepsy trials andmigraine prophylaxis trials versus the adjunctive therapy epilepsy trials. In the majority of instances,paresthesia did not lead to treatment discontinuation. Adjustment of Dose in Renal Failure: The majorroute of elimination of unchanged topiramate and its metabolites is via the kidney. Dosage adjustmentmay be required in patients with reduced renal function (see DOSAGE AND ADMINISTRATION).Decreased Hepatic Function: In hepatically impaired patients, topiramate should be administered withcaution as the clearance of topiramate may be decreased. Information for Patients: Patients takingTOPAMAX® should be told to seek immediate medical attention if they experience blurred vision orperiorbital pain. Patients, especially pediatric patients, treated with TOPAMAX® should be monitoredclosely for evidence of decreased sweating and increased body temperature, especially in hotweather. Patients, particularly those with predisposing factors, should be instructed to maintain anadequate fluid intake in order to minimize the risk of renal stone formation [see PRECAUTIONS:Kidney Stones, for support regarding hydration as a preventative measure]. Patients should be warnedabout the potential for somnolence, dizziness, confusion, and difficulty concentrating and advised notto drive or operate machinery until they have gained sufficient experience on topiramate to gaugewhether it adversely affects their mental and/or motor performance. Additional food intake may beconsidered if the patient is losing weight while on this medication. Laboratory Tests: Measurement ofbaseline and periodic serum bicarbonate during topiramate treatment is recommended (seeWARNINGS). Drug Interactions: In vitro studies indicate that topiramate does not inhibit enzymeactivity for CYP1A2, CYP2A6, CYP2B6, CYP2C9, CYP2C19, CYP2D6, CYP2E1 and CYP3A4/5isozymes. Other Drug Interactions: Digoxin: In a single-dose study, serum digoxin AUC wasdecreased by 12% with concomitant TOPAMAX® administration. The clinical relevance of thisobservation has not been established. CNS Depressants: Concomitant administration of TOPAMAX®

and alcohol or other CNS depressant drugs has not been evaluated in clinical studies. Because of thepotential of topiramate to cause CNS depression, as well as other cognitive and/or neuropsychiatricadverse events, topiramate should be used with extreme caution if used in combination with alcoholand other CNS depressants. Oral Contraceptives: In a pharmacokinetic interaction study in healthyvolunteers with a concomitantly administered combination oral contraceptive product containing 1 mgnorethindrone (NET) plus 35 mcg ethinyl estradiol (EE), TOPAMAX® given in the absence of othermedications at doses of 50 to 200 mg/day was not associated with statistically significant changes inmean exposure (AUC) to either component of the oral contraceptive. In another study, exposure to EEwas statistically significantly decreased at doses of 200, 400, and 800 mg/day (18%, 21%, and 30%,respectively) when given as adjunctive therapy in patients taking valproic acid. In both studies,TOPAMAX® (50 mg/day to 800 mg/day) did not significantly affect exposure to NET. Although therewas a dose dependent decrease in EE exposure for doses between 200-800 mg/day, there was nosignificant dose dependent change in EE exposure for doses of 50-200 mg/day. The clinicalsignificance of the changes observed is not known. The possibility of decreased contraceptive efficacyand increased breakthrough bleeding should be considered in patients taking combination oralcontraceptive products with TOPAMAX®. Patients taking estrogen containing contraceptives should beasked to report any change in their bleeding patterns. Contraceptive efficacy can be decreased even inthe absence of breakthrough bleeding. Hydrochlorothiazide (HCTZ): A drug-drug interaction studyconducted in healthy volunteers evaluated the steady-state pharmacokinetics of HCTZ (25 mg q24h)and topiramate (96 mg q12h) when administered alone and concomitantly. The results of this studyindicate that topiramate Cmax increased by 27% and AUC increased by 29% when HCTZ was added totopiramate. The clinical significance of this change is unknown. The addition of HCTZ to topiramatetherapy may require an adjustment of the topiramate dose. The steady-state pharmacokinetics ofHCTZ were not significantly influenced by the concomitant administration of topiramate. Clinicallaboratory results indicated decreases in serum potassium after topiramate or HCTZ administration,which were greater when HCTZ and topiramate were administered in combination. Metformin: Adrug-drug interaction study conducted in healthy volunteers evaluated the steady-statepharmacokinetics of metformin and topiramate in plasma when metformin was given alone and whenmetformin and topiramate were given simultaneously. The results of this study indicated that metforminmean Cmax and mean AUC0-12h increased by 18% and 25%, respectively, while mean CL/F decreased20% when metformin was co-administered with topiramate. Topiramate did not affect metformin tmax.The clinical significance of the effect of topiramate on metformin pharmacokinetics is unclear. Oralplasma clearance of topiramate appears to be reduced when administered with metformin. The extentof change in the clearance is unknown. The clinical significance of the effect of metformin ontopiramate pharmacokinetics is unclear. When TOPAMAX® is added or withdrawn in patients onmetformin therapy, careful attention should be given to the routine monitoring for adequate control oftheir diabetic disease state. Pioglitazone: A drug-drug interaction study conducted in healthyvolunteers evaluated the steady-state pharmacokinetics of topiramate and pioglitazone whenadministered alone and concomitantly. A 15% decrease in the AUCτ,ss of pioglitazone with no alterationin Cmax,ss was observed. This finding was not statistically significant. In addition, a 13% and 16%decrease in Cmax,ss and AUCτ,ss respectively, of the active hydroxy-metabolite was noted as well as a60% decrease in Cmax,ss and AUCτ,ss of the active keto-metabolite. The clinical significance of thesefindings is not known. When TOPAMAX® is added to pioglitazone therapy or pioglitazone is added toTOPAMAX® therapy, careful attention should be given to the routine monitoring of patients foradequate control of their diabetic disease state. Lithium: Multiple dosing of topiramate 100 mg every12 hrs decreased the AUC and Cmax of Lithium (300 mg every 8 hrs) by 20% (N=12, 6 M; 6 F).Haloperidol: The pharmacokinetics of a single dose of haloperidol (5 mg) were not affected followingmultiple dosing of topiramate (100 mg every 12 hr) in 13 healthy adults (6 M, 7 F). Amitriptyline:There was a 12% increase in AUC and Cmax for amitriptyline (25 mg per day) in 18 normal subjects(9 male; 9 female) receiving 200 mg/day of topiramate. Some subjects may experience a large

TOPAMAX®

(topiramate)Tablets

TOPAMAX®

(topiramate capsules)Sprinkle Capsules

DDPCP_05_06_ 5/11/07 2:48 PM Page 46

increase in amitriptyline concentration in the presence of topiramate and any adjustments inamitriptyline dose should be made according to the patient's clinical response and not on the basis ofplasma levels. Sumatriptan: Multiple dosing of topiramate (100 mg every 12 hrs) in 24 healthyvolunteers (14 M, 10 F) did not affect the pharmacokinetics of single dose sumatriptan either orally(100 mg) or subcutaneously (6 mg). Risperidone: There was a 25% decrease in exposure torisperidone (2 mg single dose) in 12 healthy volunteers (6 M, 6 F) receiving 200 mg/day of topiramate.Therefore, patients receiving risperidone in combination with topiramate should be closely monitoredfor clinical response. Propranolol: Multiple dosing of topiramate (200 mg/day) in 34 healthy volunteers(17 M, 17 F) did not affect the pharmacokinetics of propranolol following daily 160 mg doses.Propranolol doses of 160 mg/day in 39 volunteers (27M, 12F) had no effect on the exposure totopiramate at a dose of 200 mg/day of topiramate. Dihydroergotamine: Multiple dosing of topiramate(200 mg/day) in 24 healthy volunteers (12 M, 12 F) did not affect the pharmacokinetics of a 1 mgsubcutaneous dose of dihydroergotamine. Similarly, a 1 mg subcutaneous dose of dihydroergotaminedid not effect the pharmacokinetics of a 200 mg/day dose of topiramate in the same study. Others:Concomitant use of TOPAMAX®, a carbonic anhydrase inhibitor, with other carbonic anhydraseinhibitors, e.g., acetazolamide or dichlorphenamide, may create a physiological environment thatincreases the risk of renal stone formation, and should therefore be avoided. Drug/Laboratory TestsInteractions: There are no known interactions of topiramate with commonly used laboratory tests.Carcinogenesis, Mutagenesis, Impairment of Fertility: An increase in urinary bladder tumors wasobserved in mice given topiramate (20, 75, and 300 mg/kg) in the diet for 21 months. The elevatedbladder tumor incidence, which was statistically significant in males and females receiving 300 mg/kg,was pr imarily due to the increased occurrence of a smooth muscle tumor consideredhistomorphologically unique to mice. Plasma exposures in mice receiving 300 mg/kg wereapproximately 0.5 to 1 times steady-state exposures measured in patients receiving topiramatemonotherapy at the recommended human dose (RHD) of 400 mg, and 1.5 to 2 times steady-statetopiramate exposures in patients receiving 400 mg of topiramate plus phenytoin. The relevance of thisfinding to human carcinogenic risk is uncertain. No evidence of carcinogenicity was seen in ratsfollowing oral administration of topiramate for 2 years at doses up to 120 mg/kg (approximately 3 timesthe RHD on a mg/m2 basis). Topiramate did not demonstrate genotoxic potential when tested in abattery of in vitro and in vivo assays. Topiramate was not mutagenic in the Ames test or the in vitromouse lymphoma assay; it did not increase unscheduled DNA synthesis in rat hepatocytes in vitro;and it did not increase chromosomal aberrations in human lymphocytes in vitro or in rat bone marrowin vivo. No adverse effects on male or female fertility were observed in rats at doses up to 100 mg/kg(2.5 times the RHD on a mg/m2 basis). Pregnancy: Pregnancy Category C. Topiramate hasdemonstrated selective developmental toxicity, including teratogenicity, in experimental animal studies.When oral doses of 20, 100, or 500 mg/kg were administered to pregnant mice during the period oforganogenesis, the incidence of fetal malformations (primarily craniofacial defects) was increased atall doses. The low dose is approximately 0.2 times the recommended human dose (RHD=400 mg/day)on a mg/m2 basis. Fetal body weights and skeletal ossification were reduced at 500 mg/kg inconjunction with decreased maternal body weight gain. In rat studies (oral doses of 20, 100, and500 mg/kg or 0.2, 2.5, 30, and 400 mg/kg), the frequency of limb malformations (ectrodactyly,micromelia, and amelia) was increased among the offspring of dams treated with 400 mg/kg (10 timesthe RHD on a mg/m2 basis) or greater during the organogenesis period of pregnancy. Embryotoxicity(reduced fetal body weights, increased incidence of structural variations) was observed at doses aslow as 20 mg/kg (0.5 times the RHD on a mg/m2 basis). Clinical signs of maternal toxicity were seen at400 mg/kg and above, and maternal body weight gain was reduced during treatment with 100 mg/kgor greater. In rabbit studies (20, 60, and 180 mg/kg or 10, 35, and 120 mg/kg orally duringorganogenesis), embryo/fetal mortality was increased at 35 mg/kg (2 times the RHD on a mg/m2

basis) or greater, and teratogenic effects (primarily rib and vertebral malformations) were observed at120 mg/kg (6 times the RHD on a mg/m2 basis). Evidence of maternal toxicity (decreased body weightgain, clinical signs, and/or mortality) was seen at 35 mg/kg and above. When female rats were treatedduring the latter part of gestation and throughout lactation (0.2, 4, 20, and 100 mg/kg or 2, 20, and200 mg/kg), offspring exhibited decreased viability and delayed physical development at 200 mg/kg(5 times the RHD on a mg/m2 basis) and reductions in pre- and/or postweaning body weight gain at2 mg/kg (0.05 times the RHD on a mg/m2 basis) and above. Maternal toxicity (decreased body weightgain, clinical signs) was evident at 100 mg/kg or greater. In a rat embryo/fetal development study witha postnatal component (0.2, 2.5, 30, or 400 mg/kg during organogenesis; noted above), pupsexhibited delayed physical development at 400 mg/kg (10 times the RHD on a mg/m2 basis) andpersistent reductions in body weight gain at 30 mg/kg (1 times the RHD on a mg/m2 basis) and higher.There are no studies using TOPAMAX® in pregnant women. TOPAMAX® should be used duringpregnancy only if the potential benefit outweighs the potential risk to the fetus. In post-marketingexperience, cases of hypospadias have been reported in male infants exposed in utero to topiramate,with or without other anticonvulsants; however, a causal relationship with topiramate has not beenestablished. Labor and Delivery: In studies of rats where dams were allowed to deliver pups naturally,no drug-related effects on gestation length or parturition were observed at dosage levels up to200 mg/kg/day. The effect of TOPAMAX® on labor and delivery in humans is unknown. NursingMothers: Topiramate is excreted in the milk of lactating rats.The excretion of topiramate in human milkhas not been evaluated in controlled studies. Limited observations in patients suggest an extensivesecretion of topiramate into breast milk. Since many drugs are excreted in human milk, and becausethe potential for serious adverse reactions in nursing infants to TOPAMAX® is unknown, the potentialbenefit to the mother should be weighed against the potential risk to the infant when consideringrecommendations regarding nursing. Pediatric Use: Topiramate is associated with metabolic acidosis.Chronic untreated metabolic acidosis in pediatric patients may cause osteomalacia/rickets and mayreduce growth rates. A reduction in growth rate may eventually decrease the maximal height achieved.The effect of topiramate on growth and bone-related sequelae has not been systematicallyinvestigated (see WARNINGS). Safety and effectiveness in pediatric patients have not beenestablished for the prophylaxis treatment of migraine headache. Geriatric Use: In clinical trials, 3% ofpatients were over 60. No age related difference in effectiveness or adverse effects were evident.However, clinical studies of topiramate did not include sufficient numbers of subjects aged 65 and overto determine whether they respond differently than younger subjects. Dosage adjustment may benecessary for elderly with impaired renal function (creatinine clearance rate ≤ 70 mL/min/1.73 m2) dueto reduced clearance of topiramate (see CLINICAL PHARMACOLOGY and DOSAGE ANDADMINISTRATION in the full PI). Race and Gender Effects: Evaluation of effectiveness and safety inclinical trials has shown no race or gender related effects.ADVERSE REACTIONS: The data described in the following section were obtained usingTOPAMAX® (topiramate) Tablets. Migraine: In the four multicenter, randomized, double-blind,placebo-controlled, parallel group migraine prophylaxis clinical trials, most of the adverse events withtopiramate were mild or moderate in severity. Most adverse events occurred more frequently duringthe titration period than during the maintenance period. Table 1 includes those adverse eventsreported for patients in the placebo-controlled trials where the incidence rate in any topiramatetreatment group was at least 2 % and was greater than that for placebo patients.Table 1: Incidence of Treatment-Emergent Adverse Events in Placebo-Controlled, Migraine TrialsWhere Rate Was ≥ 2 % in Any Topiramate Group and Greater than the Rate in Placebo-Treated

Patients.a Body System/Adverse Event followed by Placebo (N=445) first, TOPAMAX® Dosage(mg/day) 50 (N=235) second, 100 (N=386) third, 200 (N=514) fourth. Body as a Whole – GeneralDisorders: Fatigue 11, 14, 15, 19; Injury 7, 9, 6, 6; Asthenia 1, <1, 2, 2; Fever 1, 1, 1, 2; Influenza-Like Symptoms <1, <1, <1, 2; Allergy <1, 2, <1, <1; Central & Peripheral Nervous SystemDisorders: Paresthesia 6, 35, 51, 49; Dizziness 10, 8, 9, 12; Hypoaesthesia 2, 6, 7, 8; LanguageProblems 2, 7, 6, 7; Involuntary Muscle Contractions 1, 2, 2, 4; Ataxia < 1, 1, 2, 1; SpeechDisorders/Related Speech Problems <1, 1, <1, 2; Gastro-Intestinal System Disorders: Nausea 8,9, 13, 14; Diarrhea 4, 9, 11, 11; Abdominal Pain 5, 6, 6, 7; Dyspepsia 3, 4, 5, 3; Gastro-IntestinalSystem Disorders: Dry Mouth 2, 2, 3, 5; Vomiting 2, 1, 2, 3; Gastroenteritis 1, 3, 3, 2; Hearing andVestibular Disorders: Tinnitus 1, <1, 1, 2; Metabolic and Nutritional Disorders: Weight Decrease1, 6, 9, 11; Thirst <1, 2, 2, 1; Musculoskeletal System Disorders: Arthralgia 2, 7, 3, 1; Neoplasms:Neoplasm NOS <1, 2, <1, <1; Psychiatric Disorders: Anorexia 6, 9, 15, 14; Somnolence 5, 8, 7, 10;Difficulty with Memory NOS 2, 7, 7, 11; Difficulty with Concentration/Attention 2, 3, 6, 10; Insomnia 5,6, 7, 6; Anxiety 3, 4, 5, 6; Mood Problems 2, 3, 6, 5; Depression 4, 3, 4, 6; Nervousness 2, 4, 4, 4;Confusion 2, 2, 3, 4; Psychomotor Slowing 1, 3, 2, 4; Libido Decreased 1, 1, 1, 2; AggravatedDepression 1, 1, 2, 2; Agitation 1, 2, 2, 1; Cognitive Problems NOS 1, <1, 2, 2; ReproductiveDisorders, Female: Menstrual Disorder 2, 3, 2, 2; Reproductive Disorders, Male: EjaculationPremature 0, 3, 0, 0; Resistance Mechanism Disorders: Viral Infection 3, 4, 4, 3; Otitis Media <1,2, 1, 1; Respiratory System Disorders: Upper Respiratory Tract Infection 12, 13, 14, 12; Sinusitis 6,10, 6, 8; Pharyngitis 4, 5, 6, 2; Coughing 2, 2, 4, 3; Bronchitis 2, 3, 3, 3; Dyspnea 2, 1, 3, 2; Rhinitis 1,1, 2, 2; Skin and Appendages Disorders: Pruritis 2, 4, 2, 2; Special Sense Other, Disorders: TastePerversion 1, 15, 8, 12; Taste Loss <1, 1, 1, 2; Urinary System Disorders: Urinary Tract Infection 2,4, 2, 4: Renal Calculus 0, 0, 1, 2; Vision Disorders: Vision Abnormal <1, 1, 2, 3; Blurred Visionb 2, 4,2, 4; Conjunctivitis 1, 1, 2, 1: aValues represent the percentage of patients reporting a given adverseevent. Patients may have reported more than one adverse event during the study and can beincluded in more than one adverse event category. bBlurred vision was the most common termconsidered as vision abnormal. Blurred vision was an included term that accounted for > 50 % ofevents coded as vision abnormal, a preferred term.Of the 1,135 patients exposed to topiramate in the placebo-controlled studies, 25% discontinued dueto adverse events, compared to 10% of the 445 placebo patients. The adverse events associated withdiscontinuing therapy in the topiramate-treated patients included paresthesia (7%), fatigue (4%),nausea (4%), difficulty with concentration/attention (3%), insomnia (3%), anorexia (2%), anddizziness (2%). Patients treated with topiramate experienced mean percent reductions in body weightthat were dose-dependent. This change was not seen in the placebo group. Mean changes of 0%, -2%, - 3%, and - 4% were seen for the placebo group, topiramate 50, 100, and 200 mg groups,respectively. Table 2 shows adverse events that were dose-dependent. Several central nervoussystem adverse events, including some that represented cognitive dysfunction, were dose-related.The most common dose-related adverse events were paresthesia, fatigue, nausea, anorexia,dizziness, difficulty with memory, diarrhea, weight decrease, difficulty with concentration/attention,and somnolence.Table 2: Incidence (%) of Dose-Related Adverse Events From Placebo-Controlled, Migraine Trials.a

Adverse Event followed by Placebo (N=445) first, TOPAMAX® Dosage (mg/day) 50 (N=235) second,100 (N=386) third, 200 (N=514) fourth. Paresthesia 6, 35, 51, 49; Fatigue 11, 14, 15, 19; Nausea 8, 9,13, 14; Anorexia 6, 9, 15, 14; Dizziness 10, 8, 9, 12; Weight decrease 1, 6, 9, 11; Difficulty withMemory NOS 2, 7, 7, 11; Diarrhea 4, 9, 11, 11; Difficulty with Concentration/Attention 2, 3, 6, 10;Somnolence 5, 8, 7, 10; Hypoaesthesia 2, 6, 7, 8; Anxiety 3, 4, 5, 6; Depression 4, 3, 4, 6; MoodProblems 2, 3, 6, 5; Dry Mouth 2, 2, 3, 5; Confusion 2, 2, 3, 4; Involuntary Muscle Contractions 1, 2,2, 4; Abnormal Vision <1, 1, 2, 3; Renal Calculus 0, 0, 1, 2. aThe incidence rate of the adverse eventin the 200 mg/day group was ≥ 2% than the rate in both the placebo group and the 50 mg/day group.Other Adverse Events Observed During Migraine Clinical Trials: Topiramate, for the treatment ofprophylaxis of migraine headache, has been administered to 1,367 patients in all clinical studies(includes double-blind and open-label extension). During these studies, all adverse events wererecorded by the clinical investigators using terminology of their own choosing. To provide ameaningful estimate of the proportion of individuals having adverse events, similar types of eventswere grouped into a smaller number of standardized categories using modified WHOART dictionaryterminology. The following additional adverse events that were not described earlier were reported bygreater than 1% of the 1,367 topiramate-treated patients in the controlled clinical trials: Body as aWhole: Pain, chest pain, allergic reaction. Central & Peripheral Nervous System Disorders:Headache, vertigo, tremor, sensory disturbance, migraine aggravated. Gastrointestinal SystemDisorders: Constipation, gastroesophageal reflux, tooth disorder. Musculoskeletal SystemDisorders: Myalgia. Platelet, Bleeding, and Clotting Disorders: Epistaxis. ReproductiveDisorders, Female: Intermenstrual bleeding. Resistance Mechanism Disorders: Infection, genitalmoniliasis. Respiratory System Disorders: Pneumonia, asthma. Skin and AppendagesDisorders: Rash, alopecia. Vision Disorders: Abnormal accommodation, eye pain. Postmarketingand Other Experience: In addition to the adverse experiences reported during clinical testing ofTOPAMAX®, the following adverse experiences have been reported worldwide in patients receivingtopiramate post-approval. These adverse experiences have not been listed above and data areinsufficient to support an estimate of their incidence or to establish causation. The listing isalphabetized: bullous skin reactions (including erythema multiforme, Stevens-Johnson syndrome,toxic epidermal necrolysis), hepatic failure (including fatalities), hepatitis, pancreatitis, pemphigus,and renal tubular acidosis.DRUG ABUSE AND DEPENDENCE: The abuse and dependence potential of TOPAMAX® has notbeen evaluated in human studies.OVERDOSAGEOverdoses of TOPAMAX® have been reported. Signs and symptoms included convulsions,drowsiness, speech disturbance, blurred vision, diplopia, mentation impaired, lethargy, abnormalcoordination, stupor, hypotension, abdominal pain, agitation, dizziness and depression. The clinicalconsequences were not severe in most cases, but deaths have been reported after poly-drugoverdoses involving TOPAMAX®.Topiramate overdose has resulted in severe metabolic acidosis (see WARNINGS).A patient who ingested a dose between 96 and 110 g topiramate was admitted to hospital with comalasting 20-24 hours followed by full recovery after 3 to 4 days.In acute TOPAMAX® overdose, if the ingestion is recent, the stomach should be emptied immediatelyby lavage or by induction of emesis. Activated charcoal has been shown to adsorb topiramate in vitro.Treatment should be appropriately supportive. Hemodialysis is an effective means of removingtopiramate from the body.

ORTHO-McNEIL NEUROLOGICS, INC.Titusville, NJ 08560© OMN 2005 Revised June 2005 7517113MB

DDPCP_05_06_ 5/11/07 2:49 PM Page 47

FINANCIAL VISIONING


until the yield curve gets back to normal and we can invest inbonds out to five, six, and seven years.”

Higher yields on cash also may have an impact on stock mar-ket investments. “We used to put clients’ money to work within60 days,” says Mr. Makin, “but now we’re dollar-cost averaginginto the stock market over six months.” (In dollar-cost averag-ing, the investor purchases the same dollar amount of shares atregular intervals regardless of the fluctuating price of the invest-ment.) With higher interest rates on cash reserves, the price ofbeing cautious may be scant. Indeed, Mr. Makin says that he is“prepared to back off from equities” in favor of cash if yields onlow-risk instruments go appreciably higher.

The bottom line, then, is that cash has become a much moreversatile asset class in today’s relatively high-rate environment.(We’re still a long way from 1981, when money market fundswere yielding 17%.) Most financial planners typically adviseclients to hold cash for spending and for possible emergencies.Often the suggestion is to hold at least six to 12 months’ incomein cash.

Ultra-conservative investors need not limit themselves strictlyto pure cash equivalents. “I consider cash to be paper with matu-rities less than one year,” says Mary McGrath, executive vicepresident, Cozad Asset Management, Champaign, Ill. “Moneymarket funds will fluctuate, so yields might go down if the econ-omy weakens and the Fed starts to cut interest rates. Therefore,it might be a good time to lock in yields of 5% or more withfive-year CDs, for money that’s not needed right away.”

Indeed, three- to five-year CDs may be appealing in the cur-rent environment. If your time horizon is not a concern, you canlock in these risk-free returns. Such CDs will be especiallyattractive if the economy weakens and the Fed starts to cut inter-est rates.

Many cash equivalents mentioned above are taxable. If youearn 5% on a bank CD and pay tax to the IRS in a top 35% taxbracket, you’d net only 3.25% after tax. Your state and even yourtown may tax you, too.

Going by the math, tax-exempt money funds are suitable forphysicians in the very highest bracket. According to the MoneyFund Report newsletter, published by iMoneyNet, the average

DDPCP_05_06_ 5/11/07 2:50 PM Page 48

FINANCIAL VISIONING


seven-day compound yield among taxable money market fundsrecently was 4.73%. That would leave a top-bracket investorwith 3.07%, after paying 35% to the IRS, while the averageseven-day compound yield among tax-free money-market fundswas 3.01%. In any lower bracket, investors will net more withtaxable money funds.

Choose the response that best describes you — there are no “right”or “wrong” answers.

1. In general, how would your best friend describe you as a risktaker?a. A real gamblerb. Willing to take risks after completing adequate researchc. Cautiousd. A real risk avoider

2. You are on a TV game show and can choose one of the follow-ing. Which would you take?a. $1,000 in cashb. A 50% chance at winning $5,000c. A 25% chance at winning $10,000d. A 5% chance at winning $100,000

3. You have just finished saving for a “once-in-a-lifetime” vaca-tion. Three weeks before you plan to leave, you lose your job.You woulda. Cancel the vacationb. Take a much more modest vacationc. Go as scheduled, reasoning that you need the time to prepare

for a job searchd. Extend your vacation, because this might be your last chance

to go first-class4. If you unexpectedly received $20,000 to invest, what would you

do?a. Deposit it in a bank account, a money market account, or an

insured CDb. Invest it in safe, high-quality bonds or bond mutual fundsc. Invest it in stocks or stock mutual funds

5. In terms of experience, how comfortable are you investing instocks or stock mutual funds?a. Not at all comfortable b. Somewhat comfortablec. Very comfortable (continued on next page)

Risk Tolerance Quiz

DDPCP_05_06_ 5/11/07 2:50 PM Page 49

FINANCIAL VISIONING


6. When you think of the word “risk,” which of the following wordsfirst comes to mind?a. Lossb. Uncertaintyc. Opportunityd. Thrill

7. Some experts are predicting that prices of assets such as gold,jewels, collectibles, and real estate (hard assets) will increasein value; bond prices may fall. However, experts tend to agreethat government bonds are relatively safe. Most of your invest-ment assets are now in high-interest government bonds. Whatwould you do?a. Hold the bondsb. Sell the bonds, put half the proceeds into money market

accounts and the other half into hard assetsc. Sell the bonds and put the total proceeds into hard assetsd. Sell the bonds, put all the money into hard assets, and borrow

additional money to buy more8. Given the best- and worst-case returns of the four investment

choices below, which would you prefer?a. $200 gain best case; $0 gain/loss worst caseb. $800 gain best case; $200 loss worst casec. $2,600 gain best case; $800 loss worst cased. $4,800 gain best case; $2,400 loss worst case

9. In addition to whatever you own, you have been given $1,000.Now choose between these:a. A sure gain of $500b. A 50% chance to gain $1,000 and a 50% chance to gain nothing

10. In addition to whatever you own, you have been given $2,000.Now choose between these:a. A sure loss of $500b. A 50% chance to lose $1,000 and a 50% chance to lose nothing

11. Suppose a relative left you an inheritance of $100,000, stipu-lating in the will that you invest all the money in one of the fol-lowing choices. Which one would you select?a. A savings account or money market mutual fundb. A mutual fund that owns stocks and bondsc. A portfolio of 15 common stocksd. Commodities like gold, silver, and oil

12. If you had to invest $20,000, which of the following investmentchoices would you find most appealing?a. 60% in low-risk investments, 30% in medium-risk investments,

Risk Tolerance Quiz (continued from previous page)

DDPCP_05_06_ 5/11/07 2:51 PM Page 50

FINANCIAL VISIONING


10% in high-risk investmentsb. 30% in low-risk investments, 40% in medium-risk investments,

30% in high-risk investmentsc. 10% in low-risk investments, 40% in medium-risk investments,

50% in high-risk investments13. Your trusted friend and neighbor, an experienced geologist, is

putting together a group of investors to fund an exploratorygold-mining venture. The venture could pay back 50 to 100times the investment if successful. If the mine is a bust, theentire investment is worthless. Your friend estimates thechance of success is only 20%. If you had the money, how muchwould you invest?a. Nothingb. One month’s salaryc. Three month’s salaryd. Six month’s salary

Add up your score, using the following key:Scoring

1. a=4; b=3; c=2; d=12. a=1; b=2; c=3; d=43. a=1; b=2; c=3; d=44. a=1; b=2; c=35. a=1; b=2; c=36. a=1; b=2; c=3; d=47. a=1; b=2; c=3; d=48. a=1; b=2; c=3; d=49. a=1; b=3

10. a=1; b=311. a=1; b=2; c=3; d=412. a=1; b=2; c=313. a=1; b=2; c=3; d=4

How does your risk tolerance compare with that of others?Score Risk Tolerance Level

0–18 Low tolerance19–22 Below-average tolerance23–28 Average/moderate tolerance29–32 Above-average tolerance33–47 High toleranceNow that you know your risk tolerance score, use this information

to make investment decisions.

Source: Grable, J. E., and Lytton, R. H. (1999). Financial risk tolerance revisited: Thedevelopment of a risk assessment instrument. Financial Services Review, 8, 163-181.

Reprinted with permission of the Academy of Financial Services.

DDPCP_05_06_ 5/11/07 2:53 PM Page 51

FINANCIAL VISIONING


You need to look at state income taxes, too. Investors in statessuch as California, New York, Ohio, Pennsylvania, and Georgiamay be better off in a single-state, tax-exempt money fund.Those funds may pay interest that avoids state, local and federalincome tax.

Treasury bonds are negotiable, coupon-bearing debt obliga-tions issued by the U.S. Government and backed by its full faith

and credit. Besides offeringsafety of principal, the intereston Treasuries is exempt fromstate and local income tax.

One way to buy bonds isthrough a mutual fund thatinvests in bonds, or a bondfund. Typically the objective ofthese funds is to provide stableincome with minimal capitalrisk. Bond funds offer diversifi-cation and professional manage-ment. However, there is noguaranteed return of principal at

redemption as there is when you buy an individual bond.Beyond money market funds, auction rate securities may

provide an alternative form of cash. These are debt securities,typically issued by a municipality, in which the yield is reset oneach payment date, such as every week. Shares are usuallypriced at $25,000, which is the minimum investment. Thesefloating-rate securities (often tax-exempt) generally have aslightly higher yield, compared with money market funds; andthey haven’t had any defaults since the early 1990s. Someinvestors may be wise to diversify their cash holdings amongmoney market funds, auction rate securities, CDs, and short-term Treasuries.

Historically, the yields on tax-exempt, auction-rate “pre-ferreds,” as they’re known, have been around 35 to 40 basispoints (0.35% to 0.40%) higher than yields on tax-exemptmoney market funds. There are some risks, such as defaults anda possible shortage of buyers, but these securities generally havedelivered safety and liquidity in addition to higher payouts.

One way to buy bonds isthrough a mutual fund thatinvests in bonds, or a bondfund. Typically the objective ofthese funds is to provide stableincome with minimal capitalrisk. Bond funds offer diversifi-cation and professional manage-ment. However, there is noguaranteed return of principal atredemption as there is when youbuy an individual bond.

DDPCP_05_06_ 5/11/07 2:53 PM Page 52

FINANCIAL VISIONING


Favoring Fixed Annuities Another way to defer the tax on your savings is to invest in a

fixed annuity. These contracts, sold by insurers and financialfirms, can be acquired with one payment or a series of payments.

All the interest earned with a fixed annuity is tax deferreduntil you withdraw your money. Therefore, these vehicles maybe very helpful if you expect to postpone withdrawals untilretirement, when your tax bracket may be lower. (In addition toordinary income tax, there is usually a 10% penalty on with-drawals before age 591⁄2.)

There are several different types of fixed annuities. One vari-ety resembles a bank CD because you are guaranteed a certaininterest rate for a specific number of years.

The average yield on an annuity with a five-year guaranteewas about 4.3% in early 2007, according to Beacon Research,Evanston, Ill., which sponsors the Annuitynexus.com Website.To lock in a higher yield, around 5.5%, you could invest in anine-year fixed annuity.

When the term is up, the interest rate will be reset, just likethe process with a bank CD. With a bank CD, if you don’t likethe new rate, you can move your money to a different bank.

If you are not happy with the reset rate on a fixed annuity, youcan exchange that annuity for one from another issuer. Under thetax code, such exchanges won’t trigger income tax.

However, the issuer of your original annuity may impose a sur-render charge when you switch to another firm. For example, youmight owe a 7% fee if you took your money out after one year,6% after two years, and so on, until there would be no chargeafter seven years.

Another type of fixed annuity, the so-called fixed-indexedannuity (FIA), gives you stock market participation along witha guaranteed minimum return. FIAs can be complicated, though.

“One example might be 100% participation and an 8.75%annual cap,” says Mr. Alexander. That is, you would get the returnof an index like the S&P 500, up to 8.75% a year. Thus, yourannuity’s value would grow by 6% in a year the S&P 500 is up6%, but only 8.75% if the S&P 500 goes up 20% the next year.

In return for accepting limits on stock market upside, youwould get minimum return; again the calculation of that return

DDPCP_05_06_ 5/11/07 2:54 PM Page 53

can be complicated. “You might wind up with an annualizedreturn in the 1%-to-2% range,” says Mr. Alexander. To get eventhat guaranteed return, you probably will have to hold onto yourFIA for the entire contract term.

Depending upon your money personality, you might find anFIA appealing if one of the following is true:

� You want higher, tax-deferred yields on your cashequivalents. Over a long period,you’ll probably wind up with abetter return from an FIA thanfrom bank CDs, money marketfunds, or bond funds. Incometaxes will be deferred, too.� You are reluctant to invest instocks, but you don’t want tosettle for the low yields offeredby cash. The steep bear marketof 2000-2002 frightened many

investors, who are now wary of stocks and stock funds. Theyfear the risk of loss. FIAs provide partial exposure to stocks. Fordecades, stocks have delivered superior returns; so FIA investorscan get some of that upside without the downside.� You want to assure yourself a certain sum of money in thefuture. Say you plan to retire in seven years and you hope to buya pricey beach house then. You could invest in a seven-year FIAand be sure you’ll get your money back, plus a minimum amountof interest. Moreover, you’ll wind up with even more money ifstocks do well over those seven years.

The terms of an FIA may change during the contract term; theissuer could start out with an 8% cap, for example, and drop thatmaximum return to 7%. One way to determine if this is likely tohappen is to ask your agent or the issuer what the company hasdone in the past.

“A company that has maintained its cap or dropped it slightlyprobably has done a good job of meeting investors’ expecta-tions,” says Mr. Alexander. You likely will be better off buyingan FIA from such an annuity issuer than from a company thathas set a high initial cap but dropped it sharply.


FINANCIAL VISIONING

Another type of fixed annuity,the so-called fixed-indexed annu -ity (FIA), gives you stock marketparticipation along with a guar-anteed minimum return. FIAscan be complicated, but theymay be appealing if you’re look-ing for higher, tax-deferred yieldsfor cash equivalents, you’rereluctant to invest in stocks, oryou need a secure investment.

DDPCP_05_06_ 5/11/07 2:55 PM Page 54

Inflation FightersFor the past 25 years, inflation in the U.S. has been less than

3.5% a year. During that time, stocks and bonds have enjoyedsolid returns.

That wasn’t always the case, though. From 1973 through1981, inflation was over 9% per year. Stocks had four losingyears during that span and returned only half their long-termaverage while long-term bonds returned a paltry 2.5% a year.When you’re earning 2.5% a year and inflation is 9% a year,your portfolio is suffering a serious loss of purchasing power.

If you remember those days (or if your parents have told youthe tale), you may be extremely concerned that inflation couldaccelerate and pinch your retirement lifestyle. A relatively newtype of investment can alleviate your fears: Treasury-inflationProtected Securities (TIPS). TIPS are available with virtuallyno fees through www.treasurydirect.gov.

“TIPS can play a role in your portfolio, but you should knowhow they work before you invest,” says Lew Altfest, president,L.J. Altfest & Co., a financial planning and investment manage-ment firm in New York City.

Because they are issued by the U.S. Treasury Department,TIPS are ultra-safe, with virtually no risk of default. They areTreasury securities, so the interest is exempt from state and localincome taxes. However, TIPS are not like traditional Treasuryissues, which might pay 5% interest each year until maturity.

“With TIPS,” says Mr. Altfest, “you get a ‘real yield.’ Attoday’s rates, you’ll get about 2.5% more than the inflation rate.”Thus, if inflation shoots up to 9% per year while you hold yourTIPS, you’d wind up with a total return of 11.5% a year (9%plus 2.5%). You’d be much better off with TIPS than with a tra-ditional Treasury yielding 5%. The higher the inflation rate, thegreater the advantage of investing in TIPS.

When you invest in TIPS, your principal is adjusted for infla-tion. You also get a fixed interest rate, paid twice a year, that isdetermined by the amount of your adjusted principal.

Suppose, for example, you buy $20,000 worth of 10-yearTIPS when the interest rate (the real yield) is set at 2.5%. Alsosuppose that inflation increases at an 8% annual rate in the nextsix months. For half the year, that’s a 4% (half of 8%) increase.


FINANCIAL VISIONING

DDPCP_05_06_ 5/11/07 2:55 PM Page 55

In this scenario, the TIPS you purchased for $20,000 nowhave a principal value of $20,800, including an $800 (4%) prin-cipal adjustment. The 2.5% interest rate is applied on $20,800worth of bonds. That would be $520; so your semi-annual inter-est payment would be half that amount, or $260.

“The same process will applyevery six months,” says Mr. Alt-fest. The principal value willincrease, if inflation is positive,and your interest payments willrise. After 10 years, dependingon inflation in the interim, youmight be getting over $1,000 peryear in interest; and your TIPSmight be redeemed for $30,000,$35,000, or more at maturity.

Although TIPS offer inflationprotection, there are drawbacks.“The tax treatment of TIPS can

be a problem,” says Mr. Altfest. Each year, you’ll owe tax on theinflation adjustment and the interest you receive, even thoughthe only cash you pocket is from the interest.

In the above example, you might get a $1,600 inflation adjust-ment as well as $520 in interest. You’d owe tax on $2,120 worthof income, at rates up to 35%, although your only cash flow hasbeen $520.

“One solution to the problem is to hold TIPS in a tax-deferredretirement plan such as an IRA,” says Mr. Altfest. “You won’towe any tax until money is withdrawn from the retirementaccount, which may be many years from now, when you areretired and in a lower tax bracket.”

Holding TIPS in an IRA or other tax-deferred account willwork best if you plan to live in a no-tax or low-tax state in retire-ment. In such states, when you withdraw money from theaccount, you’ll owe little or no state or local income tax. Other-wise, in a high-tax area you’ll wind up owing a substantialamount of tax and effectively lose the valuable state-and-localtax exemption enjoyed by TIPS.

“Another approach,” says Mr. Altfest, “is to buy TIPS through

FINANCIAL VISIONING


Although TIPS offer inflationprotection, there are drawbacks.“The tax treatment of TIPS canbe a problem,” says Mr. Altfest.Each year, you’ll owe tax on theinflation adjustment and theinterest you receive, eventhough the only cash you pocketis from the interest. One solutionmay be to hold TIPS in a tax-deferred retirement plan, suchas an IRA.

DDPCP_05_06_ 5/11/07 2:56 PM Page 56

FINANCIAL VISIONING


a mutual fund.” Many funds invest in TIPS; generally, the fullamount of income from your shares (interest plus principaladjustment) is passed through to you each year. In the aboveexample, you might invest $20,000 in a TIPS fund and get a$2,120 distribution rather than collecting only $520 in interest.

If you invest in a TIPS fund, you can hold it in a retirementaccount, where the federal income tax can be deferred untilwithdrawal. “This may be a good choice if you expect to be in alower tax bracket living in a low-tax state when you retire,” saysMr. Altfest.

Going for the GoldIn today’s world, it’s not hard to imagine possible catastro-

phes. In fact, it’s difficult to read a newspaper or watch a televi-sion news program without learning of an impending disaster.

If you fear that a major or even a short-lived crisis will disruptyour financial plan, you should be prepared. Historically, oneasset has proven its worth during stressful times: gold.

Indeed, after decades of dullness, gold has a new gleam. Theprice of gold hit a 19-year low in 1999. After bouncing aroundbetween $250 and $300 an ounce for a few years, prices startedgoing up. In early 2006, the per-ounce price surged past $700before retreating. As of this writing, gold is selling at $685 anounce; and some forecasters expect the price to exceed the for-mer peak of $850, reached in 1980.

“If inflation picks up, investors might dump soft assets andmove into hard assets, sending the price of gold even higher,”says Chris Moore of Moore, Reimbold & Anderson, a financialadvisory practice of Ameriprise Financial Services in FortWayne, Ind.

If you want to include gold among your asset classes, there areseveral ways to do so. Gold coins and bars are available, forexample. However, individuals who have coins and bars mustdeal with storage and insurance issues, which can add to the costof holding gold. Typically, coin buyers will pay a premium overthe per-ounce price, a premium that can be significant.

Recently investors have gained another way to own gold:through an exchange-traded fund (ETF). With streetTRACKSGold Trust, the largest gold ETF, the bullion is stored in an

DDPCP_05_06_ 5/11/07 2:56 PM Page 57

undisclosed location in London. Investors in this ETF or its chiefcompetitor, iShares Comex Gold Trust, own shares backed bygold bullion; so they will gain or lose as the price of gold risesor falls.

Such ETFs have made gold an accessible asset class forinvestors. They’re liquid, sothey’re easy to buy and sell:shares of these ETFs trade likestocks. There are no worriesabout storage or insurance, andthe expenses for managing theseETFs are less than 0.5% a year.

There is a drawback, though,to ETFs as well as gold coins orgold bars. In the eyes of the IRS,investing in these forms of goldis classed as investing in col-

lectibles, such as artworks. For collectibles, the maximum tax onlong-term capital gains is 28%, not 15%. Therefore, it may bebest to hold such ETFs inside a tax-deferred retirement account.

While gold-linked ETFs may be a good choice for investorswho don’t want volatility, investors who can tolerate some riskare likely to do better with mining stocks or funds, if gold pricesgo up. Historically, stock price moves have been three to fivetimes as much (up or down) as gold price moves.

To understand this relationship, sometimes known as operat-ing leverage or accounting leverage, assume a hypothetical goldmine has total production and marketing costs of $300 an ounce.If gold’s price goes from $500 to $600 per ounce, this $100(20%) price increase boosts profits from $200 to $300 per ounce,a 50% increase, and the higher profits likely will be reflected inthe stock’s price.

Of course, this leverage cuts both ways; so mining stocks cantumble sharply on modest reductions in gold prices, and the sameis true for specialized mutual funds. Gold funds lost 41% in 1997and suffered further losses in three of the next seven years.

Do-it-yourself Asset AllocationIf you want higher returns, you should invest in stocks or

FINANCIAL VISIONING


While gold-linked ETFs may bea good choice for investors whodon’t want volatility, investorswho can tolerate some risk arelikely to do better with miningstocks or funds, if gold pricesgo up. Historically, stock pricemoves have been three to fivetimes as much (up or down) asgold price moves.

DDPCP_05_06_ 5/11/07 2:56 PM Page 58

FINANCIAL VISIONING


stock funds as well. Indeed, investment advisors generally advo-cate an asset allocation that includes stocks (for long-termreturns) and yield-bearing instruments (for loss protection andcurrent income).

Your asset allocation will depend upon your individual orfamily circumstances. For example, your allocation might looklike this:

Equities (stocks) 65%Large domestic companies 35%Mid-sized domestic companies 10%Small domestic companies 10%Foreign stocks 10%

Fixed-income (interest-paying) 30%Municipal bonds 25%Inflation-protected securities 5%

Cash 5%

When your asset allocation departs from the above plan, it’stime to re-allocate, depending on whether a given asset class isbelow or above its target. Chris Cordaro, chief investment offi-cer at RegentAtlantic Capital, a wealth management firm inChatham, N.J., advises clients to rebalance whenever an assetclass is more than 20% from its ideal percentage.

In the above example, your allocation to small domestic com-panies is 10%. At 12%, you would be 2 points (20%) above yourgoal; at 8%, you’d be 20% below your objective.

Astute rebalancing calls for you to add to asset classes that arebelow target, rather than sell the over-target classes. For exam-ple, small companies have been strong for several years, so theymay be 13% of your portfolio now, not 10%. If you were to sellenough small company stock to get back to 10%, you might haveto pay taxes on profits you’ve cashed in.

Instead, it makes more sense to leave the small companiesalone and add to asset classes that have lagged, such as largedomestic companies. If your large-company holdings are now28% of your portfolio instead of 35%, you could put new invest-

DDPCP_05_06_ 5/11/07 2:57 PM Page 59

FINANCIAL VISIONING


ment dollars into large-company stocks until you get back to the35% baseline allocation. As you put more dollars into large com-panies, your small-company allocation probably will dip from13% of your overall portfolio to 12%, 11%, and so on, until youare back at the 10% target allocation.

In some cases, though, merely putting new investment dollarsinto underweight asset classes won’t bring you up to the desiredlevel any time soon. If so, rebalancing will mean selling sharesfrom overweight asset classes.

Besides small companies, foreign stocks and real estate secu-rities have done very well in recent years; so you might rebal-ance by selling some of those shares and putting the salesproceeds into large domestic companies, which have lagged. Ifpossible, do this selling within a tax-deferred account, to deferthe tax obligation.

Rebalancing can help you to buy low and sell high, a formulafor long-term success in investing. However, you shouldn’toverdo this rebalancing act. Mr. Cordaro suggests that you eval-uate your portfolio every few weeks in order to see if your allo-cation has strayed from its norm, but not to make any movesuntil you’re at least 20% off target. Such a strategy will help youkeep your balance while minimizing trading costs and taxes ongains.

Hands-off: Managed Accounts As explained above, owners of investment real estate can

reduce the amount of time and effort they put into a venture byhiring a property manager—and paying a fee. Similarly, you canhire a manager to handle your investment portfolio for you.Again, you’ll pay a fee; but you may consider this outlay to bea worthwhile expense if it frees up some time for more enjoy-able activities.

Your broker or financial planner probably can introduce youto the world of managed accounts, also known as separatelymanaged accounts (SMAs). With these accounts, you paysomeone who is described as an expert to manage your money.This manager is supposed to tailor a portfolio for you, which isnot the case when you buy shares of a mutual fund.

SMAs were created to offer institutional money managers to

DDPCP_05_06_ 5/11/07 2:57 PM Page 60

FINANCIAL VISIONING


individual investors. In most cases, SMAs call for advisors tomatch clients with well-regarded money managers who willselect stocks for them. Managers who have seven- or even eight-figure minimums may become available to individuals with$100,000 to invest, or even less. “We can provide our clientswith access to great talent at low, negotiated fees,” says AlZdenek of Zdenek Financial Planning, Flemington, N.J.

Besides providing access to otherwise unattainable moneymanagers, SMAs offer added benefits. Investors can ask for cer-tain securities to be excluded, perhaps because they already owna large amount of stock in a certain company or a certain indus-try. Particular companies or industries also can be excluded: adoctor might tell the money manager to avoid companies thatdeal in cigarettes, for example.

It’s also possible to request certain tax planning moves, suchas taking losses to offset capital gains. That type of customiza-tion isn’t possible for mutual fund investors.

“Late in each year,” says Mr. Zdenek, “we go over capitalgains and losses with our clients as part of our tax planningprocess. We see if it makes sense to take losses or gains by yearend. Then we have discussions with our money managers to seewhat they think are the best securities to sell. We’ve been doingthis so regularly that the managers come to us at that time to findout what we’d like to do for each client.”

Another tax advantage enjoyed by SMA investors, accordingto Mr. Zdenek, is the ability to deduct the investment advisoryfees paid to money managers. “You can’t do that with mutualfund fees,” says Mr. Zdenek, “but you might be able to do it withseparately managed accounts if the fees are billed and paid out-side of the account. Self-employed people and business ownersare the ones most likely to be able to deduct those fees.” Besidesthe possibility of a tax deduction, billing fees outside of an SMAleaves more money on the inside, where those funds can remaininvested in assets that may provide growth.

Thus, you may have better control over taxation if you’re inindividual securities, via SMAs, rather than in a pool, with amutual fund. Advocates contend that SMA managers have muchlower turnover than mutual funds, which leads to lower tax bills.

In addition, some SMAs have an “overlay manager,” who can

DDPCP_05_06_ 5/11/07 2:58 PM Page 61

provide tax services. This manager, for example, might haveyour money managers delay sale of an appreciated security untilthe holding period is a year and a day, and thus qualifies as along-term capital gain, which gets a bargain tax rate. If you haveenough assets to justify multiple SMAs, an overlay manager also


FINANCIAL VISIONING

According to Morningstar, the Chicago-based mutual fund researchcompany, the fifth most widely held stock among large-company valuefunds is Altria Group. Savvy investors will know that Altria is the par-ent company of Philip Morris; many concerned physicians may notchoose to invest in a company that makes profits from cigarettes.(Moreover, some doctors may have reasons for not wanting theirmoney to go to Citigroup or ExxonMobil, Nos. 1 and 2 on this list.)

Increasingly, troubled investors can find mutual fund alternativesthat won’t chafe their conscience. More than 100 mutual funds areclassed as socially responsible. Among those funds, though, there aresignificant differences.

Some socially responsible investing (SRI) funds follow particularreligious values. Others avoid companies that deal in alcohol, tobacco,or gambling. Still others shun firms that are perceived as bad actors(polluters, perhaps) while other SRI funds seek to own companies thatare thought to follow certain guidelines, such as those that practiceemployment diversity.

While socially responsible investing is a matter of opinion, if yourmoney personality dictates that you invest in accordance with yourbeliefs, there probably is an SRI fund for you. The question, though,is whether your principles will have an effect on your principal. Canyou invest through SRI funds yet still earn substantial returns?

Michael Lent, principal, Progressive Asset Management, New YorkCity, believes that you can. “Some studies have concluded that SRIfunds have performed as well as non-SRI funds over long timeframes,” he says.

As an example, Mr. Lent points to Winslow Green Growth Fund.This fund has a five-year annualized return of nearly 16%, as of thiswriting, ranking in the top 4% of small-company growth funds.

Other SRI funds cited by Mr. Lent include Calvert Large-cap GrowthFund, Parnassus Fund, and Ariel Fund. (Ariel Fund, owned and man-aged by African-Americans, is not explicitly an SRI fund; the firm’smission statement cites “strengthening the neighborhoods and cities

Doing Well By Doing Good: Socially Responsible Investing

DDPCP_05_06_ 5/11/07 2:58 PM Page 62

can keep one manager from buying a security that another man-ager has recently sold for you, thus avoiding tax problems.

There may be more transparency, too. With SMAs, investorsalways know what stocks they own. Many mutual funds revealtheir holdings only twice a year.


FINANCIAL VISIONING

in which we live and work” among its goals.) “My clients do all of theirmutual fund investing through such SRI funds,” says Mr. Lent, indi-cating that those clients are pleased with the financial as well as thepsychic rewards.

Although it is possible to find well-performing SRI funds, that’s notalways the case. An evaluation by Morningstar found that just overhalf of the SRI funds that had been in existence for at least five yearsrank above average in their categories; but nearly half have lagged, soinvestors need to be selective.

When you’re drilling down, looking for SRI winners, you shouldfocus on the specific companies a fund holds, trying to avoid puttingtoo many dollars into a few favored industries such as technology andhealth care. Broader diversification is likely to reduce your long-terminvestment risk.

Of course, SRI is not confined to mutual fund investors. You alsocan invest in individual companies that you favor if they have valuesthat align with yours. You may, for example, support or avoid compa-nies that back same-sex unions. When it comes to animal testing,some doctors may choose not to own companies that use the tests forcosmetic purposes, but may feel more comfortable with those thattest animals only for medical research.

Not everyone is a fan of SRI. When you rule out certain industriesor companies, you narrow the universe of possible investments andmay miss out on some good investments. Some studies indicate thatsuch constraints can reduce overall returns.

Nevertheless, advocates contend that there is an economic argu-ment for SRI. Investors might suffer losses if they have backed a com-pany caught in a scandal regarding human trafficking abusesoverseas, for example, or a company not voluntarily complying withinternational agreements, if competitors are doing so.

On the other hand, if a company’s management acts ethically andtreats its employees fairly, it probably will have fewer fines and labordisputes than its rivals. Over time, the stocks of firms that have beenon their best behavior may generate superior returns.

DDPCP_05_06_ 5/11/07 2:58 PM Page 63


FINANCIAL VISIONING

As you might expect, such advantages come at a cost. Totalfees for SMAs generally run 1% to 3% of assets under manage-ment, per year. The larger the account, the lower the percentage.On a $100,000 SMA, for example, you might pay a total of$3,000 per year to your advisor and the money manager pickingstocks for you.

Even though you’re paying for service, you’ll have to devotesome time to keeping up with SMAs. “Clients must be able todeal with the complexity that comes with separate accounts,”says David Strege of Syverson Strege & Co., a wealth coachingfirm in West Des Moines, Io. “Mutual funds are a lot simpler.”

SMAs appear more complex because of all the paperwork thatgoes to investors each month. “Every trade is reported to theclient,” says Mr. Strege, “so the statements get bigger. We alsoprovide asset-and-liability statements to clients, to help them seetheir positions.” In addition, your money personality must besuch that you can live with sharp losses on individual stockswhen reports come in, losses that are not seen each time amutual fund sells a stock after a steep decline in price.

Although SMAs typically involve individual stocks, wherethere is the most opportunity to pick companies and managetaxes, that’s not always the case. Some SMAs deliver portfoliosof mutual funds or exchange-traded funds to clients.

In all of these formats, a financial advisor will question youand suggest some entity to manage your portfolio for you. You’llpay a fee, based on assets under management, rather than paycommissions on trades.

With this structure, everyone (your advisor, the money man-ager) has an incentive to increase the size of your portfolio.While these professionals are all laboring to boost your networth, you’ll have more time for work and play.

Bull Without the BearThe main appeal of SMAs, as described above, is their ability

to offer the services of first-rate money managers to individualsof moderate means. Even the best and brightest stock pickers canbe wrong, though. In the 2000-2002 bear market, many savvypros saw their holdings of technology, telecom, and media stockssuffer painful plunges.

DDPCP_05_06_ 5/11/07 2:59 PM Page 64

Since then, many investors are leery of stocks. If you are inthat camp, yet you’d like the chance to participate in the nextbull market, variable annuities may be worth evaluating. VAs,as they’re known, allow you toinvest in the stock market whileyou can protect your principalfrom loss.

“People want to invest in thestock market,” says Saul Simon,head of Simon Financial Group,a financial planning firm in Edi-son, N.J., “but they also wantprincipal guarantees. The desirefor guarantees is especially truefor older investors, includingthose who lost heavily in the last bear market.”

Traditionally, VAs have offered investors the opportunity tospread their money among a variety of investment accounts,including stock funds. No tax would be due until the money wasactually withdrawn.

In the wake of the 2000-2002 bear market, VA issuers beganadding “living benefits” to tax deferral. These benefits, whichare money-back guarantees or guaranteed returns, are nowoffered with most VAs.

As you’d expect, there is no free lunch: living benefits mayincrease the appeal of VAs, but they come with a cost. If you’rewilling to pay the price, you can invest for additional retirementincome via the stock market, where returns have been superior,and protect your principal from loss.

VAs historically have offered a money-back death benefit tothe investor’s beneficiary. Suppose, for example, Dr. Jonesinvested $100,000 in a VA and named his daughter Barbara ashis beneficiary. Then Dr. Jones died in the middle of a bear mar-ket, when his annuity had shrunk to $80,000.

Because of the death benefit guarantee, Barbara would receivethe full $100,000 her father had originally invested. (On theother hand, if Dr. Jones had died when his account had grown to,say, $120,000, Barbara would have received a $120,000 payout.)

Therefore, VAs have appealed to investors with a strong desire


FINANCIAL VISIONING

“People want to invest in thestock market,” says Saul Simon,head of Simon Financial Group,a financial planning firm in Edi-son, N.J., “but they also wantprincipal guarantees. The desirefor guarantees is especially truefor older investors, includingthose who lost heavily in the lastbear market.”

DDPCP_05_06_ 5/11/07 2:59 PM Page 65

to provide for a beneficiary. Indeed, many beneficiaries didinherit amounts larger than the contract value of a decedent’sannuity, during and after the recent bear market.

In recent years, VAs have added living benefits to death benefits.That is, they offer guarantees that can help the VA owner while heor she is still alive. There are a few major types of living benefits:� Guaranteed minimum in come benefit (GMIB). With thistype of living benefit, the guarantee becomes effective when a VA

is annuitized–when it is convertedinto a stream of payments. Often,that annuity stream will cover thelifetime of the annuity owner, orthe lives of the owner and spouse.The guarantee promises that theannuity will be based on eitherthe actual contract value or theminimum guaranteed return,whichever is greater.� Guaranteed minimum with-drawal benefit (GMWB). Thispromise assures the investor thata fixed percentage of the annuitypremiums can be withdrawn

annually for a specified period of time until the entire amount ofpaid premiums has been withdrawn, regardless of market per-formance. Dr. Jones might be entitled to withdraw up to 7% ofhis $100,000 a year for just over 14 years, until his withdrawalsequal his $100,000 outlay.� GMWB-for-life. Here, investors get lifetime-guaranteed with-drawals, usually with a lower withdrawal percentage. Instead ofbeing able to withdraw 7% for 14+ years, until his $100,000 hasbeen taken out, Dr. Jones might be able to withdraw 5% per yearfor as long as he lives.

“Investors are protected against loss, but they still have upsidepotential if their investment accounts gain,” says Mr. Simon. “Witha GMWB, investors do not have to annuitize to get the guaranteedliving benefit.” Therefore, you can take withdrawals for cash flowwithout having to lock yourself into fixed annuity payments.

Again, all VA guarantees come with a cost. You may pay 0.5%


FINANCIAL VISIONING

Variable annuities have appealedto investors with a strong desireto provide for a beneficiary.Indeed, many beneficiaries didinherit amounts larger than thecontract value of a decedent’sannuity, during and after therecent bear market. However, inrecent years, VAs have addedliving benefits to death benefits.That is, they offer guaranteesthat can help the VA owner whilehe or she is still alive.

DDPCP_05_06_ 5/22/07 10:50 AM Page 66

per year for living benefits, an amount that will be subtractedfrom your investment return each year.

Suppose, for example, Dr. Jones’s chosen VA investmentswould have allowed his contract value to grow by 7% this year,without any living benefit. If he had a living benefit that costs0.5%, his account would be credited with 6.5% growth, not 7%.

What’s more, the richer the VA’s guarantee, the more expen-sive the living benefit will be. A guarantee of a 5% minimumannual return, for example, will cost more than a guarantee thatyou will at least get your money back.

Therefore, you should ask your advisor or insurance agent fora full disclosure of all VA fees, including those for any livingbenefits, before buying. Be wary if the total comes to over 3% ayear. Peace of mind is important, but you should know howmuch you’re paying for it.


FINANCIAL VISIONING

If you have a low risk-tolerance level, consider investing in: � Cash equivalents such as:� Certificates of deposit� Short-term treasuries� Auction-rate securities� Money market funds� Municipal bondsIf you have an average risk-tolerance level, consider investing in:� Fixed annuities� Fixed-index annuities (FIAs)� Treasury-inflation Protected Securities (TIPS)� Stocks of large domestic companies� Stocks of mid-sized domestic companies� Investment real estate, separately managed accounts� Variable annuities� Gold coins and bars and gold exchange-traded funds (ETFs). If you have a high risk-tolerance level, consider investing in:� Stocks of small domestic companies� Foreign stocks� Gold-mining stocks and gold-mining mutual funds.

Choose the Right Investments for Your Risk-tolerance Level

DDPCP_05_06_ 5/11/07 3:02 PM Page 67

Investments to Match Your Money StyleInvestments to Match Your Money Style I magine you’re a...

Documents

Transcript of Investments to Match Your Money StyleInvestments to Match Your Money Style I magine you’re a...