For a secure retirement think outside the stock market box

I see many clients who have allowed their retirement assets to fragment into many small holdings consisting of broadly market correlated stocks and mutual funds. This usually happens because they’ve had multiple jobs and either left assets with their previous employer’s 401K custodian or rolled the assets over to one of the big brokers. Often, they view these accounts as providing safety through diversification. But, more often than not, they are confusing complacency with strategic diversification. As long as the market is moving up they have that warm fuzzy feeling that “it’s all good.” Unfortunately, the market always corrects. And, when it does, it does so without warning and much faster than it went up. Having many small unmanaged positions with multiple brokers and advisers makes it impossible to get out quickly. That’s how many boomers lost 50% or more of their assets in 2009.

Speed trading will add a whole new dimension to the next correction. During the May 6, 2010 flash crash, which swung the DOW over 600 points in mere minutes and nearly 1000 points in one day, about 50% of the trading was algorithmic – done by machines. Today, it is estimated that only about 16% of trades are made by humans. Machines now control the market. Though they lack the collective consciousness of Skynet in the movie “The Terminator,” they are no less capable of terminating your retirement plans. These retirement terminators move vast amounts of capital in the blink of an eye. No mere human can hope to compete with these market monsters. At the next down turn they will take the market to its knees so fast you won’t even believe it. If you are not familiar with algorithmic trading, check out the following video clip from TV’s 60 Minutes.

http://www.enterprisebenefits.net/speedtraders.html

I get really upset by all this because I have too many friends that have been financially crippled by stock market swings. That’s why I started my Safe Investments business back in 2009. I had already moved the bulk of my assets out of harm’s way. But most of my friends in the Tech industry had not. They took a real beating. To this day most have not recovered.

Many of the tried and true principles of the past still do apply. The Intelligent Investor by Benjamin Graham, first published in 1949, remains invaluable reading for all who would take on the market. On page 102 of the most current edition, Graham articulates the necessity to divide one’s assets between risk and safe investments. Sixty years ago government bonds where the logical safe financial instrument. Principle is still safe when placed in bonds. But, the low returns have resulted in excessive bond interest rate risk. In 1949 Graham didn’t need to move outside of the public securities markets for the safe portion of his portfolio. I think he would find today a somewhat different kind of challenge when it comes to “safe money.”

I founded Enterprise Benefits after the 20082009 melt-down to help others do what I had done – protect their retirement funds from a market melt-down. So far I have identified only 3 asset classes that meet my requirements for safety and growth. If you’d like to know what they are, attend one of my seminars or request a meeting.

http://www.enterprisebenefits.net/Contact.html

Dow closes at lowest level in over a year

Today the Dow Jones Industrial average closed at its lowest level in over a year. The Dow fell 258.08 points, or 2.4 percent, to 10,655.30. So, where’s the market headed next? Ask any two advisors and you’re likely to get two different opinions. In the past month I heard from one of my peers, schooled in fundamental analysis, who is convinced that we are fast approaching economic boom times. He is of the opinion that the market will be up 20% to 50% by this time next year. Another peer, schooled in technical analysis, is convinced that the Dow will be trading at 2400 by that time. For my part, I’m convinced that the market will be higher, lower or substantially unchanged. It seems like a safe bet.

Actually, there’s no need to bet at all. There are safe alternatives to the market that provide great returns without all the volatility. Even if you enjoy the securities roller coaster ride, you owe it to yourself to take some money “off the table.” This money should go into safe uncorrelated alternatives. How much should you be investing in safe alternatives? The following link with take you to a 2 minute video that describes one approach to determining appropriate allocation:

http://www.enterprisebenefits.net/redgreenmoney.html

If you’d like to learn about safe investment alternatives for your IRA or other dusty money call me or reply to this email.

Answers to Senior’s Life Insurance Questions

Answers to Seniors’ Life Insurance Questions

This is the third article in a series of three articles written to address the life insurance questions of familial age groups.  The first installment addressed the needs of young families with dependents.  This second installment addressed the needs of mid life couples and families.  And, this third installment addresses the concerns of older couples and retirees.

Life insurance transfers the risk of death to an insurer.  The purpose of life Insurance is to provide for those you leave behind when you die.  Seniors seek life insurance coverage for several purposes.  Beyond simply replacing income, life insurance products can be used to provide care as we age.  In addition, life insurance can be used to pass on an inheritance to heirs and to provide for final expenses.  While simple term insurance may be an option for relatively young seniors in very good health, often health and age concerns simply make term insurance unattainable.

How much life insurance do we need?

The number of wage earners over the age of 60 is growing and will likely continue to grow well into the future.  For older workers, replacing income for a spouse or other dependent in the event of an untimely death can be very important.  Determining the right death benefit usually consists of determining how much capital will be needed to fund the future needs of dependents. The least expensive form of insurance, and often the most appropriate for this purpose, is term life Insurance.

If you are considering purchasing a term life insurance policy to replace your income should you die an untimely death, here’s a simple process to estimate the amount of coverage you may need:

1) Determine the annual amount of income needed by your dependents in the event of your death.
2) Determine the number of years this income will be needed.
3) Include any debts you would want paid off in the event of your death.
4) Estimate your burial expenses.
5) Add these four items and subtract your existing life insurance benefits.

The above process should give you a pretty good idea of how much death benefit you need and the term you need to specify.  You can fine tune this figure by adding 5 or 6 percent per year to cover inflation.

What kind of life insurance should we buy?

The appropriate type of life insurance depends on your financial objectives and your time horizon.  Term Life Insurance is relatively easy to understand.  In return for your premium, the life insurance company promises to pay a fixed sum to your designated beneficiary should you die within the term of the policy. The “term” is the period of the insurance contract, or policy. At the end of the term the policy expires. Often, term policies will carry a “conversion” option. This rider or option allows the consumer to convert the term policy to permanent, or cash value, insurance within a specified period of time. This can be a valuable provision should you become uninsurable during the term of the policy. Numerous other riders and features are available from the many providers of term life insurance.

When considering riders, keep in mind why you are buying the policy in the first place.  And, be careful not to double insure.  You may already be covered for disability.  If so, adding a disability rider doesn’t make much sense.  Return of Premium (ROP) riders are also very popular with insurance companies and agents alike.  They serve to pump the premium payment.  But, do the math and carefully consider whether or not you want to add this feature.  You may want to check with your financial adviser before committing to riders.

In addition to term life, cash value life insurance products have been developed to permit the consumer to secure
permanent insurance and accumulate savings, for a variety of purposes, on a tax deferred basis. These include: Whole Life, Universal Life and Variable Life products.

Permanent life insurance products accumulate cash value over time.  One or more of these products may be appropriate when the purpose of the insurance is to accumulate savings and provide a death benefit for heirs.  Specialized cash value products have been developed to address special situations.  For example, there is a carrier who offers a whole life product designed to provide Long Term Care benefits for those who don’t qualify for traditional Long Term Care Insurance. 

It’s important to compare the two primary elements of cash value products to financial alternatives when considering a permanent life insurance purchase.  These elements are the characteristics of the “death benefit” and the projected “cash value” accumulation.    The life insurance illustration will provide the information you need.  Just make sure you understand everything in the illustration before buying the product.  If you do make a purchase, you still have 10 days after you receive the policy to run it past your financial adviser.  If, for any reason, you decided not to keep the policy within ten days of receipt you can cancel without penalty.  Its call your “free look, and, it’s the law.

How do I get a quote?

If you do a quick Google or Yahoo search on “life insurance quote” you’ll be greeted with a huge number of hits.  Some of these hits will come from insurance companies.  Insurance carrier’s web sites promote their products.  You won’t learn much about competitive products from a carrier’s web site.  You’ll also get many hits from quote companies like QuoteAuction.com NetQuote.com and Insurme.com.  Be careful here.   You’ll be asked to enter your information to get a free quote.  But, you may get more than you bargained for.  These companies sell your information to as many as 6 agents.  So, you will likely get 5 or 6 phone calls per quote source.   You’ll also get dozens of emails.

Many agents buy leads from these quote firms in order to maintain a healthy flow of prospects.  But, leads purchased from these sources are always expensive and often of little or no value.  As a result, some agents have begun making their quote engines available to clients directly.  The author of this article makes his health insurance and life insurance source available to consumers at www.selfserveinsurance.net.

The best you can hope for online is to get a rough idea of what insurance may cost.  If you are in excellent health you can specify Preferred or Preferred Best in the risk rating box.  But, there’s no guarantee that the carrier’s underwriting department will rate you per your guess, or per your agent’s guess for that matter.  Eventually, you need to specify a carrier and file an application.   Then the underwriting process begins.

If you pay an initial two months premium with the application the agent should provide you with a signed “conditional receipt.”  The conditional receipt binds the insurance company if the risk is approved as applied for, and subject to a myriad of other conditions on the receipt.  If you are totally without life insurance it may be a good idea to pay the up front premium and get a conditional receipt.  This will at least provide a measure of comfort while the application is in underwriting.

What is involved in the underwriting process?

Depending on the amount of insurance you are seeking, you may be asked to meet with a paramedic.  The paramedic will fill out a questionnaire, measure your weight and take one or more body fluid samples.  This process is painless and usually takes only about 20 minutes.  Often it can be taken care of in your home or office.

If you indicate a medical condition on your application or to the paramedic, the underwriter may request medical records from your physician.  In any event he will certainly request your records from the Medical Information Bureau (MIB).  The MIB is a service organization that collects medical data on life and health insurance applicants for insurance companies.   Even if you do miss something in your statement to the paramedic, chances are the MIB will make the underwriter aware of your condition.  So, don’t fudge.  Tell the whole truth regarding any medical condition you may have up front.

The underwriting process can take from a few weeks to several months depending on the carrier and the degree of difficulty in obtaining medical information.  The policy will either be issued at the risk rating indicated on the application or the underwriter may issue an offer to insure at another rating.  If the underwriter offers to issue the policy at an unacceptable rating you can always apply with another carrier.  A good independent agent will likely already have one or more alternatives for you to consider.

What if I just need enough insurance to bury me?

If your health is poor, and you are trying to secure insurance to cover your final expenses, you may want to consider a guaranteed issue product. This is insurance for which you cannot be turned down.  With this kind of insurance you are essentially setting aside funds specifically for your final expenses.  You may want to limit your search for final expenses coverage to firms that work with funeral homes and provide planning services.  The grieving process is difficult enough without trying to figure out what your loved one may have wanted.  By doing the planning and setting aside final expense funds for your heirs you will save them much pain when your time comes. 

Answers to Mid-Life Couples Life Insurance Questions

This is the second article in a series of three written to address the life insurance questions of familial age groups. The first installment addressed the needs of young families with dependents. This second installment addresses the needs of mid life couples and families. And, the third installment addresses the concerns of older couples and retirees.

In its simplest form, life insurance transfers the risk of death to an insurer. Usually, the purpose of life Insurance is to provide for those you leave behind when you die. Individuals and couples at mid life have a shorter horizon than young coupes. However, the loss of a provider’s income can result in a severe change in life style for a spouse left behind. Often, medical conditions begin to occur during middle age. This can make it difficult and expensive to secure an appropriate death benefit.

How much life insurance do we need?

For those at mid life, determining the right death benefit usually consists of determining how much capital will be needed to fund the future needs of dependents. The least expensive form of insurance, and often the most appropriate for this purpose, is term life insurance.

If you are considering purchasing a term life insurance policy to replace your income should you die and untimely death, here’s a simple process to estimate the amount of coverage you may need:

1) Determine the annual amount of income needed by your dependents in the event of your death.
2) Determine the number of years this income will be needed.
3) Include any debts you would want paid off in the event of your death.
4) Estimate your burial expenses.
5) Add these four items and subtract your existing life insurance benefits.

The above process should give you a pretty good idea of how much death benefit you need and the term you need to specify. You can fine tune this figure by adding 5 or 6 percent per year to cover inflation.

What kind of life insurance should we buy?

The appropriate type of life insurance depends on your financial objectives and your time horizon. T erm Life Insurance is relatively easy to understand. In return for your premium, the life insurance company promises to pay a fixed sum to your designated beneficiary should you die within the term of the policy. The “term” is the period of the insurance contract, or policy. At the end of the term the policy expires. Often, term policies will carry a “conversion” option. This rider or option allows the consumer to convert the term policy to permanent, or cash value, insurance within a specified period of time. This can be a valuable provision should you become uninsurable during the term of the policy. Numerous other riders and features are available from the many providers of term life Insurance.

When considering riders, keep in mind why you are buying the policy in the first place. And, be careful not to double insure. You may already be covered for disability. If so, adding a disability rider doesn’t make much sense. Return of Premium (ROP) riders are also very popular with insurance companies and agents alike. They serve to pump the premium payment. But, do the math and carefully consider whether or not you want to add this feature. You may want to check with your financial adviser before committing to riders.

In addition to term life, cash value life insurance products have been developed to permit the consumer to secure permanent insurance and accumulate savings for variety of purposes on a tax deferred basis. These include: Whole Life, Universal Life and Variable Life products.

Permanent life insurance is more expensive than term for the same death benefit. Some agents like to characterize term life as “renting” and cash value products as “owning.” The comparison is drawn between renting and owning your home. This pitch is less likely to work with the middle aged than with the young. Most people are painfully aware of their mortality by the time they reach middle age. So, permanence is seen as less important than securing adequate coverage.

Permanent life insurance products accumulate cash value over time. One or more of these products may be appropriate when the purpose of the insurance is to accumulate savings and provide a death benefit for heirs. Specialized cash value products have been developed to address special situations. For example, a whole life product designed to provide Long Term Care Insurance for those who don’t qualify for traditional Long Term Care Insurance.

It’s important to compare the two primary elements of cash value products to financial alternatives when considering a permanent life insurance purchase. These elements are the characteristics of the “death benefit” and the projected “cash value” accumulation. The life insurance illustration will provide the information you need. Just make sure you understand everything in the illustration before buying the product. If you do make a purchase, you still have 10 days after you receive the policy to run it past your financial adviser. If, for any reason, you decide not to keep the policy within ten days of receipt you can cancel without penalty. It’s called your “free look,” and, it’s the law.

How do we get a quote?

If you do a quick Google or Yahoo search on “life insurance quote” you’ll be greeted with a huge number of hits. Some of these hits will come from insurance companies. Insurance carrier’s web sites promote their products. You won’t learn much about competitive products from a carrier’s web site. You’ll also get many hits from quote companies like QuoteAuction.com NetQuote.com and Insurme.com. Be careful here. You’ll be asked to enter your information to get a free quote. But, you may get more than you bargained for. These companies sell your information to as many as 6 agents. So, you will likely get 5 or 6 phone calls per quote source. You’ll also get dozens of emails.

Many agents buy leads from these quote firms in order to maintain a healthy flow of prospects. But, leads purchased from these sources are always expensive and often of little or no value. As a result, some agents have begun making their quote engines available to clients directly. The author of this article makes his health insurance and life insurance source available to consumers.  Just send the author a message requesting a Life Insurance quote.

The best you can hope for online is to get a rough idea of what insurance may cost. If you are in excellent health you can specify Preferred or Preferred Best in the risk rating box. But, there’s no guarantee that the carrier’s underwriting department will rate you per your guess, or per your agent’s guess for that matter. Eventually, you need to specify a carrier and file an application. Then the underwriting process begins.

If you pay an initial two months premium with the application the agent should provide you with a signed “conditional receipt.” The conditional receipt binds the insurance company if the risk is approved as applied for, and subject to a myriad of other conditions on the receipt. If you are totally without life insurance it may be a good idea to pay the up front premium and get a conditional receipt. This will at least provide a measure of comfort while the application is in underwriting.

What is involved in the underwriting process?

Depending on the amount of insurance you are seeking, you may be asked to meet with a paramedic. The paramedic will fill out a questionnaire, measure your weight and take one or more body fluid samples. This process is painless and usually takes only about 20 minutes. Often it can be taken care of in your home or office.

If you indicate a medical condition on your application or to the paramedic, the underwriter may request medical records from your physician. In any event he will certainly request your records from the Medical Information Bureau (MIB). Not to be confused with “Men in Black,” the MIB is a service organization that collects medical data on life and health insurance applicants for insurance companies. Even if you do miss something in your statement to the paramedic, chances are the MIB will make the underwriter aware of your condition.  So, don’t fudge.  Tell the whole truth regarding any medical condition you may have up front.

The underwriting process can take from a few weeks to several months depending on the carrier and the degree of difficulty in obtaining medical information.  The policy will either be issued at the risk rating indicated on the application or the underwriter may issue an offer to insure at another rating.  If the underwriter offers to issue the policy at an unacceptable rating you always have the alternative of applying with another carrier.  A good independent agent will likely already have one or more alternatives for you to consider.

What if I just need enough insurance to bury me?

If your health is poor and you are trying to secure insurance to cover your final expenses you may want to consider a guaranteed issue product. This is insurance for which you cannot be turned down. With this kind of insurance you are essentially setting aside funds specifically for your final expenses.  You can apply for many kinds of insurance products through the author’s on-line insurance store at:

http://www.benefitstore.net/store/enterprisebenefits

Answers to Young Families’ Life Insurance Questions

This is the first article in a series of three written to address the life insurance questions of familial age groups. This first installment addresses the unique needs of young families with dependents. The second installment will address the needs of middle aged couples and families. And, the third installment addresses the concerns of older couples and retirees.

In its simplest form, life insurance transfers the risk of death to an insurer. Usually, the purpose of life Insurance is to provide for those you leave behind when you die.  Adequate life insurance coverage is especially important for young families. The loss of a provider’s income can be devastating to a young person with one or more children. This situation is especially tragic when you consider how inexpensive and easy it is for young healthy people to secure an appropriate death benefit.

How much life insurance do we need?

For young wage earners, determining the right death benefit usually consists of determining how much capital will be needed to fund the future needs of your dependents. The least expensive form of insurance, and often the most appropriate for this purpose, is term life Insurance.

If you are considering purchasing a term life insurance policy to replace your income should you die and untimely death, here’s a simple process to estimate the amount of coverage you may need: 

1. Determine the annual amount of income needed by your dependents in the event of your death.
2. Determine the number of years this income will be needed.
3. Include any debts you would want paid off in the event of your death.
4. Estimate your burial expenses.
5. Add these four items and subtract your existing life insurance benefits.

The above process should give you a pretty good idea of how much death benefit you need and the term you need to specify. You can fine tune this figure by adding 5 or 6 percent per year to cover inflation.

In the next article I’ll discuss the needs of mid-life couples and permanent insurance such as Whole Life and Universal Life.

Seeking Safety

This blog is all about the search for good return on investment and safety.  There was a time when I didn’t worry about the safety piece.  But, as a baby boomer, I’ve come to that point in my life when safety is paramount.  I can’t afford to see my retirement funds crash to half of their previous value just before retirement, as happened to many during the crash of 2009.

Some advisors will point to “diversification” as the solution.  But, even with “proper” asset allocation among domestic and international mutual funds and bonds, many boomers lost a major piece of their retirement savings during the 2009 stock market crash.  Many had no way to exit from the limited choices in their employer’s 401K plan.  Future retirees found that, in one way or another, all of their investments were linked to the condition of the economy through interest rates, the stock market, or even through the health and viability of well known banks.   Some who held on now feel validated, as the market has recovered greatly from the lows of 2009.  That bravado often evaporates when they examine the huge oscillations in the DOW over the last 20 years.

In these uncertain times, many investors have simply turned to holding cash or classic “safe” investments such as CD’s, money market accounts, or U.S. Government securities. These investment options are safe.  Of course, the downside is that they usually offer paltry rates of return.  While these types of safe investments are occasionally advertised with rates as high as 3% or 4%, this is all too often an introductory rate that will eventually decrease once the initial honeymoon period is over.  It is more common to find rates in the 1% to 2% range, or even lower for U.S. Treasuries.  Thus, the price of “playing it safe” is a low rate of return that may not even keep pace with inflation.

So where does this leave the investor that wants true diversification from their traditional holdings while still retaining the potential for a reasonable rate of return?  Well, that’s what the search, and this blog, is all about.  I have some ideas that I’ll share in future postings to this blog.  In the meantime, I welcome your ideas and thoughts.  We are all in this search together.