Life Insurance

This is one topic that most scoff at or avoid. It can be a touchy subject, but it is a very important subject that needs to be discussed.

We never know when it is our time to go. What would happen to your family right now if you were to pass away? Would your family be able to live in the current house they are in; would they have enough to live on for over a year to get their feet on the ground. Will the bills be paid in full?

If you answered no to any of these then you need life insurance.

I have $120,000 of life insurance on my self so if I were to pass away my wife and child would be able to live for a year without any financial worries. I have no worries for them. When I leave the house I know that if something were to happen that they would be fine.

How do you calculate how much insurance you need?

The simplest way to get a quick idea is to take your: short-term needs + long-term needs - resources (such as social security, 401k, IRAs, cash, etc) = life insurance you need.

I strongly suggest that you all take 15 minutes and calculate how much insurance you need and then act now and get insured. There is a great feeling of peace by knowing that your family would be taken care of if you were to pass away.

Financial Advisor

What to look for in a good financial advisor.

1. A good Advisor listens
2. Will restate what you have said
3. Will ask you questions to better understand you
4. A good Advisor gives advice not commands (hence the name advisor)
5. A good advisor will not use financial jargon to confuse you, but will explain things to you
6. Involves you in the planning
7. Realistic (it is okay to go out to eat once a month, or to do something spontaneous now and then)
8. Delivers a comprehensive financial plan that is tailored to your needs.
9. Meets with you at least once a year to review how you are coming along
10. Is not afraid to direct you to a person who is a specialist in a certain area outside of their knowledgeable arena.
11. Holds a CFP, CHFC, or other designation from a respected source.

These are a few of the traits that I would look at in a financial advisor. As other traits come to my head I will post them.

Annuities

What is an annuity? The simplistic answer is that it is an investment where you make either a lump sum payment or monthly to an insurance company that puts it in a portfolio account (think of it as a savings account). Then at some future time specified by the contract the insurance company pays you back over a specified time period normally with interest.

There are many different types of annuities that one may find in the market but they can be summarized as fixed or variable.

Fixed annuities offer a very low-risk retirement because you will be receiving a fixed amount of money for the rest of your life. Downside to this is if the financial markets are doing well then you are forgoing the potential gains. Upside though is that you have a low risk fixed interest rate with a guaranteed income for life.

Variable annuities offer a chance to have your money grow while still receiving an income from the annuity. The payments you receive from the annuity will fluctuate; they will be larger when your account does well in the market or small when it does not do as well. There is typically a guaranteed minimum income stream which is obtained by having a guaranteed income benefit option.

The downside to a variable annuity is that you will have an income that fluctuates, so if you are not good at budgeting your income this might not be you. Also, if you need a fixed amount of income each month this would not be an ideal investment.

With that said if you have a great fixed income that is coming in and you would still like to have some growth exposure then a variable annuity might be a good option.

Always check with your financial advisor first before making a decision.

Caveat Emptor (let the buyer beware)

Some financial advisor will try to push you into an annuity. There are a few bad eggs out there and you need to be aware of it. Do not let them make you feel stupid and think that they know what is best for you.

I will publish an article later on this week on keys to knowing you have found a good financial advisor.

Certificates of Deposit (aka CDs)

I have been asked recently by several people what would be a good investment vehicle for their children's savings. After listening to the requirements that the investment needs to meet, I would suggest using a certificate of deposit.

The reasons being are:

1. Risk free investment (if opened through a bank)
2. Better yield (the return one receives on the CD) than a savings or money market account.
3. Automatic renewal (Worry and hassle free if you want it to continue to be renewed)
4. More liquid than a mutual fund or stocks and less risky! (liquid means that it can be turned into cash in a short amount of time)

The company that I would suggest using is ING Direct. Their CDs can be opened with as little as $1. The current APY on a 1 year bond is 5.10%

It is not as high as some companies, but the majority of banks require a minimum of $1,000 for a high rate CD. So for those that do not have a lot of money but still want a high rate this is the bank for you!

Orange Kids

Orange Kids is a website designed by ING Direct that teaches children all about money. You are taken on a journey through Planet Orange. You will visit Money Land, Investors Island, South Spending, and the Republic of Saving.

It is a fun site to visit. I strongly suggest this site to all of those that have children to get on the site and play around on it.

This would make a great family night activity!

Oakmark Funds

Oakmark Funds is only open to new investors that open accounts directly from them. The minimum that one may open an account with is $1,000.

Two funds of theirs that I prefer is their Oakmark Equity & Income I fund and the Oakmark Global I fund. They have preformed well in the past 10 years.

The Future Value of $14,000

This is for those that are currently faced with the decision on what to do with a certain sum of money. I would suggest that one invest it in a mutual fund that Morningstar has rated as a 5 star fund. This is the highest rating and difficult to achieve. Less than 10% of all funds have achieved this milestone.

If you invest $14,000 today in a mutual fund and leave it in for 20 years you would have the following sums:

With an average return of 10.5% you would have $103,127.29.
With an average return of 10% you would have $94,185.00.
With an average return of 9.5% you would have $85,982.57.
With an average return of 9% you would have $78,461.75.
With an average return of 8.5% you would have $71,568.65.
With an average return of 8% you would have $65,253.40.
With an average return of 7.5% you would have $59,469.92.
With an average return of 7% you would have $54,175.58.


One fund company that I like a lot and has several 5 star ranked funds is OakMark Funds. The website is: www.oakmark.com