The Wall Street Journal - 09.03.2020

R2| Monday, March 9, 2020 THE WALL STREET JOURNAL.

Also: answering a reader’s

question on Social Security

benefits, and whether Medicare

pays for eyeglasses

health-care expenses.

(A 65-year-old couple who retired

in 2019, with a life expectancy of

about 21 years for the husband and

about 23 years for the wife, can ex-

pect to spend $285,000 in health

care and medical expenses through-

out retirement— not including the

cost of long-term care, according to

Fidelity Investments.)

If you still expect to have money

left over, you might want to consider

something more meaningful than

simply writing a check: funding fam-

ily vacations, college tuition, medical

bills, house down payments, or

startup capital for a small business—

contributions that could have a major

impact on your children’s or grand-

children’s lives in your lifetime.

We spoke with a couple in Texas

who, after retiring, bought a travel

trailer with part of their savings. They

used their home on wheels to intro-

duce their five grandchildren to

swaths of the country, including New

York, the Grand Canyon and Califor-

nia—on monthlong trips. I can only

imagine the memories that the grand-

parents and the grandchildren all have.

The grandmother put it this way:

“I think you need to share your

money as you go, not just stick it all

in the bank and not ever use it.”

iii

I was interested in your recent column

about Social Security and benefits for

survivors. Please tell your readers that

these benefits also apply to divorced

spouses whose former spouse dies. I had

no idea, but someone’s chance remark

sent me to my Social Security office to

find that I had been eligible for a year

for my ex-spouse’s benefit amount—a

raise of $600 a month for me.

Happy to do so. You are correct: Divorced

spouses—if their former husband or wife

dies—are eligible for the same benefits as

Giving While Living

Asked when they would prefer to distrib-

ute their estate to heirs, the following

percentages of surveyed adults age 55 and

older said:

Source: Merrill Lynch Wealth Management/Age Wave 'Leaving a

Legacy: A Lasting Gift to Loved Ones' 2019

Give some of

it away

while I'm alive

65%

Give it all awaywhile I'm alive

Give it all away

afterIpassaway

27%

8%

a widow or widower, provided the

marriage lasted 10 years or more.

And in case you’re wondering: Bene-

fits paid to you as a surviving di-

vorced spouse won’t affect the bene-

fit amount for other survivors who

are receiving (or who might be eligi-

ble for) benefits based on the de-

ceased person’s earnings history.

Of course, the usual rules involving

survivors and Social Security apply

here. Typically a person will receive

the larger of two benefits: the one

based on her/his own earnings his-

tory, or the benefit due as a survivor.

Our reader, for instance, ended up

with a “raise” of $600; that’s because

her benefit as a survivor, apparently,

was larger than the benefit she was

collecting as a retired worker.

But...let’s change the circumstances.

Let’s say a divorced woman is cur-

rently collecting a retirement benefit,

based on her earnings history, of

$2,200 a month, and let’s say her ex-

husband is collecting (or eligible for)

a benefit of $2,000 a month. If the

ex-husband dies, the former wife

simply would keep her existing bene-

fit, which is larger than the one she

would receive as a survivor.

The point: If there’s a major change

in your life—and the death of a former

spouse certainly qualifies—it’s always

a good idea to tell the Social Security

Administration and ask how the

change could affect your benefits.

iii

My friend tells me that traditional

Medicare will help pay for eye-

glasses or contact lenses. I say he’s

wrong. What’s the correct answer?

In most cases, traditional Medicare

won’t pay for eyeglasses or contact

lenses. But...if you have had cataract

surgery to implant an intraocular

lens (an artificial lens that replaces a

person’s natural lens), Medicare will,

in fact, help pay for corrective lenses.

To be specific, you would be re-

sponsible for 20% of the Medicare-

approved amount for eyeglasses or

contact lenses after cataract surgery.

(This assumes you have already met

your Part B deductible for the year.)

If you wish to upgrade the frames,

the cost is on you. And Medicare will

pay only for corrective lenses from a

supplier enrolled in Medicare.

Traditional Medicare also will help

pay for the cataract surgery itself—

and will help pay for an annual glau-

coma test for people at high risk (for

example, a person with diabetes), as

well as an annual eye exam that

looks for damaged blood vessels,

again, in people with diabetes.

Note: Again, all of the above ap-

plies to traditional Medicare. Some

Medicare Advantage plans offer ben-

efits—including vision care—that tra-

ditional Medicare doesn’t.

Mr. Ruffenach is a former reporter

and editor for The Wall Street

Journal. His column looks at financial

issues for those thinking about,

planning and living their retirement.

Send questions and comments to

[email protected].

trated, making it more difficult to

achieve the level of diversification

that would otherwise ease bear-mar-

ket losses. For example, the five

companies in the S&P 500 with the

largest market cap now make up

more than 18% of the combined mar-

ket cap of all component companies.

That is the most in U.S. history, ac-

cording to Morgan Stanley Re-

search—higher even than at the top

of the internet-stock bubble.

That means the S&P is becoming

more vulnerable to the idiosyncratic

failures of a few large companies.

Still, even though the trend is worri-

some, today’s S&P is more diversi-

fied than Nasdaq was: In contrast to

the 18% of combined market cap

that the five largest companies in

the S&P represent, the comparable

proportion for Nasdaq was more

than 40%.

Valuations matter

The other investment lesson is that

valuations matter, even though they

don’t seem to when things are hum-

ming and some investors are con-

vinced that the rules have changed.

At the top of the internet bubble, for

example, Nasdaq had a price/earn-

ings ratio of more than 100 when

calculated on trailing 12 months’

earnings—and still 75 when based

on estimates of subsequent 12-

month earnings. Both were many or-

ders of magnitude higher than the

broad market’s long-term P/E aver-

age of below 20.

To be sure, no valuation metric is

perfect. But in hindsight, the P/E ra-

Note carefully, furthermore, that

these recovery times were from the

worst bear markets of the past cen-

tury. Taking into account all U.S.

bear markets since the mid-1920s,

I calculate it took an average of

just 3.1 years for the broad market

on a dividend- and inflation-ad-

justed basis to make its way back

to where it stood before the bear

market began.

So, the Nasdaq’s plunge in 2000,

and subsequent slow recovery, is an

outlier. No other bear-market recov-

ery in U.S. history took as long.

Diversification is still the key

To make a portfolio less vulnerable

to the same kind of long, drawn-out

recovery as the Nasdaq market suf-

fered, diversification will be as im-

portant as it has always been.

Being narrowly concentrated in

a relatively small number of mostly

younger companies, the Nasdaq

market required more than twice as

long as the broader market to re-

cover from the dot-com crash.

And let there be no doubt that

the Nasdaq market was poorly di-

versified 20 years ago. Cisco Sys-

tems , the internet hardware and

software company, had the largest

market cap of any stock in March

2000, and represented the largest

share of any in the Nasdaq Com-

Continued from page R1 posite, which is a cap-weighted in-

dex. Over the two years subsequent

to the bursting of the internet bub-

ble, the stock dropped more than

90%.

This investment lesson unfortu-

nately comes with a disturbing foot-

note: The overall stock market today

has become increasingly concen-

20 Years After the Dot-Com Bust:

Are Investors Any Smarter?

I’m considering giving my heirs part of

their inheritance before I die. Any

thoughts? Have you spoken with retirees

about this?

An interesting question. Of course, recent

changes in the tax code make it easier to

gift money to heirs before you pass on. In

2020, the “annual exclusion” is $15,000; in

other words, you can give as much as

$15,000 to as many individuals as you wish

(and your spouse can, too)

without triggering any gift

taxes. What’s more, the lifetime

exemption from gift and estate

taxes increases to $11.58 million

in 2020 from $11.4 million in

2019.

Still, it is worth pausing be-

fore you begin parceling out

your estate.

First, you need to make sure

youwon’tneedanyofthat

money to take care of yourself,

keeping in mind the six-figure

amounts that some retirees wind up spend-

ing on long-term care or simply on basic

One retired

couple tapped

their savings

to take

grandchildren

across the

country on

monthlong

trips.

JOURNAL REPORT |INVESTING IN FUNDS & ETFS

tio was a good indicator of the mar-

ket’s overvaluation, and of weaker

returns ahead: Since its March 2000

high, the Nasdaq Composite, on an

inflation- and dividend-adjusted ba-

sis, has produced a return of just

1.3% annualized. The comparable re-

turn for the S&P is 4.1% annualized,

which is itself lower than the 6.8%

average annualized return for the

past two centuries.

Fortunately, the Nasdaq market’s

P/E ratio is a lot lower today than 20

years ago: It stands at 26.4, when

calculated based on trailing 12-

month earnings, and 22.2 when

based on forward estimates, accord-

ing to Birinyi Associates. While

these ratios are significantly above

average, they aren’t nearly as in-

flated as they were in March 2000.

Bottom line

The stock market is not as over-

valued as it was 20 years ago, and

so long as you invest in a widely

diversified index fund, your recov-

ery from the next bear market

should be a lot faster than the Nas-

daq market’s was from the bursting

of the internet bubble. More

broadly, the past 20 years have

taught us the importance of diver-

sification and paying attention to

valuations. We should resolve never

to forget.

Mr. Hulbertis a columnist whose

Hulbert Ratings tracks investment

newsletters that pay a flat fee to

be audited. He can be reached at

[email protected]. MARTIN TOGNOLA

ASK ENCORE|GLENN RUFFENACH

How to Give Heirs

An Early Payout

Nasdaq’s Long Recovery

Performance since March 2000 of Nasdaq Composite Index, after adjusting for

inflation and dividends

Total return

Sources: FactSet; Bureau of Labor Statistics; HulbertRatings.com

Note: 100 = Nasdaq Composite Index's high on March 10, 2000

140

0

20

40

60

80

100

120

%

2000 ’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20

Recovery takes17 years and five months

RECESSION

The Wall Street Journal’s annual review

after 1999, when Nasdaq soared 85.6%.