Last week I explained a bit about annuities and am following up this week on the different types of annuities and way to contribute. When a person is contributing to an annuity they are building or increasing the number of accumulation units they buy. As the money in the account builds so does the number of accumulation units. During the payout phase the accumulation units convert into annuity units. The number of annuity units remains the same for the remainder of the annuitant’s lifetime. When it comes to annuities there are a few different kinds that are available. Potential buyers can choose from variable annuities and fixed annuities. Variable annuities allow the policy holder to contribute premiums and then have those premiums allocated to different sub-accounts that invest in various stock and bond mutual funds. The value of the annuity goes up and down with the general fluctuations of […]
financial planning
The Other Life Insurance – Annuities
The last few weeks I have been writing about the more conventional form of life insurance that most people are familiar with when I say ‘life insurance’ – which is protection against a premature death. The other life insurance is that which protects your from living too long – and that insurance is the annuity. Over the years annuities have gotten a bad rap – and rightfully so. Like life insurance, annuities are generally sold to the public via a sales force of licensed agents. In most cases, they are not the right vehicle for the individual (I know I am setting the blog up to receive the thunderous rebuttals) but there may be cases where an annuity makes sense. The other reason annuities get a bad rap is because of the pure insurance (longevity) feature that they provide – especially pure life annuities. A pure life annuity is simply […]
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Life Insurance is Not an Investment
Last week I seemed to cause a bit of a kerfuffle when I wrote about which life insurance may or may not be appropriate for the general consumer. For the readers that sent in emails and comments – thank you! It’s much appreciated and we enjoy the feedback. Twitter was also flitting and chirping with the commotion. In particular, the discussion really narrowed down to, and most of the comments we received were regarding the comment I made on life insurance not being an investment. And that’s still true. It’s not. Now there are plenty of people that will argue with me that it is an investment for this reason or that. For this writing I am hoping to explain and to clarify what I meant as an investment. From a pure investment standpoint – meaning saving and investing one’s money for retirement and or college or just saving and […]
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A Note About Designations
As you begin to seek advice regarding your savings and investments, you may come across professionals that have designations after their names – some might even have a can of alphabet soup! Here are some common designations you’ll encounter when seeking out a professional. Your advisor should have a qualified designation as a minimum requirement before you start working with him or her. CFP® – CERTIFIED FINANCIAL PLANNER™. This designation is considered the “gold standard” in the financial services industry. Holders of this designation are required to take college-level financial planning courses, have three years’ experience in financial planning, and must pass a rigorous 10 hour, 2 day examination. The designation is owned and awarded by the CFP Board of Standards. www.cfp.net ChFC® – Chartered Financial Consultant™. This designation is right in line with the CFP® with regards to the knowledge needed and required to earn the designation. Professionals that […]
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Baby Steps
One of my favorite movies has to be What About Bob? starring Richard Dreyfus and Bill Murray. Fans of the film will remember Bob Wiley, a neurotic, compulsive individual who seeks out the advice and care of Dr. Leo Marvin. The title of Dr. Marvin’s book that he gives to Bob is called Baby Steps – with the idea that anything is manageable and possible if you take baby steps. Baby steps are important in our everyday life. Whether it be pursuing a degree, saving for retirement or even trying to change or break a habit – you need to take it one step at a time in order to achieve the goal. And sometimes, just moving forward even at a snail’s pace is progress. Take saving money for example. Some people may think it’s tough to save, especially if they fill their budget is tight enough already. But these […]
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There’s No Free Lunch
Recently I had the opportunity to review a company’s website and some of their affiliations that they had with particular companies. My natural tendency is to look at what companies the firm recommended when it came to financial advising and investing. As I was perusing through the list of providers my eyes came across a rather intriguing headline that was given by one of the “preferred” vendors. The headline read, “Free Financial Plan – Over $1,000 Value!” Some of you may be wondering the same thing I was wondering: “Who in their right mind would give away $1,000?” Instantly I knew there was a catch. After doing a bit more research I found out that this “preferred” provider’s strategy was to simply create a “financial plan” that was geared toward having the clients invest and put money in financial products that paid high commissions. The take away from the article […]
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Do Advisers Practice What They Preach?
With a cornucopia of information available to us regarding investing, financial planning and money management making a choice between who’s right and who’s not even in the same area code may come down to what your personal preferences are, and just as important, if the person giving the advice practices what they preach. In a previous article, I spoke about how advisers get paid and the type of advice or products they may recommend depending on how the advisor gets paid for that advice. In this article I want to expand a bit further to whether or not the advice you’re getting is really being followed by the person giving it. Admittedly, there is some advice that may need to be given that may not pertain to the adviser giving it. One area may be debt reduction advice if the adviser doesn’t have any debt (but has practiced good money […]
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Avoid the Trap
Eating and dining out all the time can drain our money and potential retirement savings without us even being aware of it. We get asked from friends to go to lunch, coffee or we find ourselves skipping breakfast and getting in the line at the coffee shop for a scone and latte. Before we know it, we’re left asking, “Where did the money go?” Or worse, “I can’t afford to save for retirement.” What’s happened is we’ve fallen into the trap – a habit really, but it can be broken and we can relearn. Here’s how: The first thing you can do is to pass on that latte or scone all together. Instead, make yourself breakfast at home. Invest in a coffee maker if you don’t have one, and make your own coffee. Then make a nice meal of scrambled eggs and whole wheat toast, a cup of cottage cheese with […]
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What is Risk Tolerance?
What is risk tolerance and why is it important to investors? As an investor you’ve probably been asked this question by yourself, or your financial advisor. It’s not an easy question to answer and not a question that can be answered with one word or a quick sentence. Risk tolerance is simply a particular investor’s appetite for risk. Some investors have little appetite for risk and their stomach churns when they think about losing money in the market. Generally these investors are considered risk averse or risk intolerant. Other investors aren’t really concerned about the ups and downs of the market and are willing to accept these market gyrations in or to receive the benefit of potentially higher returns. This is called the risk/return trade-off. In order for investors to receive higher returns they generally have to be willing to accept more risk for those returns. In other words, these […]
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Book Review: The M Word
Subtitle: The MONEY TALK Every Family Needs to Have About Wealth and Their Financial Future This book, by Lori R. Sackler, presents to us a very insightful overview of the types of conversations that families need to have with one another – beginning with spouse to spouse, following with intergenerational conversations – about money topics. These conversations are critical to the success of most all financial plans that require some interaction between two or more people. Mrs. Sackler has a great deal of experience with the topic, having for several years hosted a radio program dealing specifically with this subject. It is this wealth of experiences, coupled with her own clients’ experiences, that really delivers a wonderful array of knowledge about the process. Throughout the book are excellent examples, which provide the reader with a portrait of each concept, in the flesh as it were. The book walks you through […]
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A Stable Pyramid
One of the basic fundamentals regarding financial planning and saving money revolves around what is known as the financial planning pyramid. You may hear other names such as the wealth management pyramid, the financial house, etc. You may also see different stages or “building blocks” added here or there, but I’ve broken it down for the purpose of this book to three basic levels for easier understanding. The first level is where we see risk management. This is the foundation of your plan. It’s important to have a strong base to build off of, otherwise the slightest of breezes or tremors can send it toppling. Risk management can be simply seen as your insurance – and this can range from your auto, home, renters, life, health, disability, and umbrella insurance, to your will, emergency fund, and debt management. The reason why insurance is the base is due to the fact […]
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Why Diversify?
Remember Enron? I think we all do. Enron was once a powerhouse company that saw its empire crumble and took the wealth of many of its employees with it. Why was that the case? Many of Enron’s employees had their 401(k) retirement savings in Enron stock. This was the classic example of having all of your eggs in one basket and zero diversification. Let’s say that the employees had half of their retirement in Enron stock and half in a mutual fund. Enron tanks but their mutual fund stays afloat. This means that they lost, but only lost half of their retirement, all else being equal. Imagine if they had only a quarter of their retirement in Enron and the remaining 75% in three separate mutual funds. Enron’s demise is only responsible for a fourth of their retirement evaporating. This could go on and on. The point is that when […]
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Financial Record Storage and Safekeeping
We’ve all got reams of papers, paystubs, receipts, sticky notes and possibly even old matchbook covers with important financial information stored on them. It’s important to keep some of these documents safe, in order to provide proof of purchase, documentation for deductions, and the like. You never know when a significant event could occur in your home that could put these documents at risk. Fire, flooding, tornadoes, blizzards, and three-year-olds can emerge out of nowhere and could possibly destroy your important documents. We’ve discussed how long to keep these documents in the past. Recently the IRS published their Summertime Tax Tip 2013-04, which details some recommendations for safe storage of your documents. The text of the Tip follows. Keep Tax and Financial Records Safe in Case of a Natural Disaster Hurricanes, tornadoes, floods and other natural disasters are more common in the summer. The IRS encourages you to take a […]
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The Crystal Ball
Every so often we get asked by our clients or prospective clients which direction the market is going to go. This is always and entertaining question to get – and some of our “regulars” already know the answer. Having a bit of a sense of humor (albeit dry sometimes) I’ll joke with clients and tell them that the day they handed out crystal balls in my investment class, it was the one time I called in sick – and you only get one chance at the coveted crystal ball. Thus, I forever lost the opportunity to predict the future of the markets. Darn. Inevitably, clients laugh and understand the joke – and take away the underlying theme of the jocularity – that we can’t predict the future, especially in securities markets. But this doesn’t mean we can’t plan ahead. So why do we invest? Why do we save for retirement? […]
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A Money Back Guarantee
You’ve heard the saying before that there are a few guarantees in life: death and taxes. I’d also like to add another: guaranteeing yourself a rate of return. I get asked this question frequently, usually by someone who’s a conservative investor or someone looking for a “sure thing”. This is what I tell them and I am telling you. Call this your money back guarantee. For the majority of readers, this will come into play as most of you have debt in some form or another. Whether it’s your mortgage, automobile, boat, credit cards, college, many Americans have different amounts of debt all at different interest rates. Typically, your consumer debt (credit cards) is going to have the highest interest rates. Here’s how to guarantee yourself a rate of return: PAY DOWN YOUR DEBT. By paying down your debt you will be guaranteeing yourself the rate of return equal […]
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How Financial Advisers Get Paid
As you begin your search for a financial professional it’s going to be important to know how the particular professional you choose will get paid. It will also be important to ask questions not only in regards to their compensation, but who actually pays the adviser. There are generally three ways in which financial advisers and planners get paid. Commission: An adviser that’s paid on commission generally gets paid based on the underlying product they sell. Commission rates vary depending on the product sold – anywhere from 5% to 50%. Term Life insurance for example, will have roughly a 40% commission rate on the annual premium for the first year. Whole Life insurance is generally 50% the first year. The difference being Term Life may have an annual premium of $1,000 where Whole Life may have an annual premium of $5,000. It can be difficult to be objective when an adviser can make $2,500 versus $400 […]
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Why You Need an Emergency Fund
You may or may not have heard that it’s wise to have an emergency fund. Even if you’ve heard it, you may not be aware of what it means and why you should have one – and more importantly why you need one. An emergency fund is just that. It’s money set aside for a rainy day, an unexpected bump in the road, or for a real emergency or an expense that you haven’t specifically planned for. Examples of those unexpected expenses (borderline redundant – I know) include a car accident, disability, storm damage to your home, losing a job, being a victim of theft, etc. So what makes up an emergency fund? Generally, a good place to start is to have a goal of at least 3 to 6 months of non-discretionary living expenses put away in a relatively liquid account such as a savings, checking or money market […]
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Why Hire a Professional?
Throughout our lives as different life events happen and the need for help arises we have the opportunity to rely on ourselves to get the tasks done, or entrust in the skill and expertise of a professional. Very often there’s a fine line as to what we’ll bother doing ourselves or to whom we’ll hire and delegate the job. For mundane tasks, the tasks that we know we can do ourselves with little to no effort, it’s second nature for us to roll up our sleeves and get the job done. Examples of this include washing the car, cleaning the house, balancing the checkbook, bandaging a small cut, and doing the dishes. It’s rare that we’ll “contract out” these tasks as they are very limited in the expertise needed to get them done, and from a frugality standpoint, most of us are willing to accept the trade-off of doing the […]
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Why Designations Matter
Throughout my career I have had the occasion to talk with several financial advisors, planners, insurance agents, brokers, and other industry professionals about some of the reasons why people choose to pursue or not to pursue designations. I have heard differing views on the topic and thought I’d share some of my insights as to why I chose and still choose to pursue designations and degrees. Before I do, let me start by talking about some of the reasons why the advisors I have spoken to decide not to earn a designation. More often than not, the typical answers that I receive are not having enough time, not sure which designation to pursue, lack of funding to afford the designation, and lack of support on earning the designation – either from their employer or family. On the latter two points, some companies may not be able to “support” the designation […]
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Holiday Spending
Now that the Holiday season is coming into full swing, I thought I spend a little bit of time talking about keeping your budget and money in control when it comes to the giving of gifts, the getting of gifts and some ideas to make your thought count without breaking the bank (or bending your credit card). The Holidays are a time of year where we can reflect on the people in our lives that we love, miss and want to give back to for all they have done for us throughout the years. It’s natural that we want to give as much as we can and often what we want to give may not equal what we can afford. In some cases, the number of people we want to give to exceeds our budget as well. This is where we can get into trouble. After the initial hype and […]
Sterling Raskie, MSFS, CFP®, ChFC®
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