Secure Your Castle

I help many small business owners and independent contractors put benefits packages together. One of the benefits that almost everyone considers, especially if they have children is Life Insurance. There is nothing wrong with having life insurance and for most people I recommend it. However the benefit that most people don’t think to add is Disability Insurance.

Your most important asset is not your home, your car, your jewelry or other asset. It’s your ability to earn a living. Think about it: All of your plans for the future-from buying a home, to putting your kids through college, to building a retirement nest egg-are based on the assumption you’ll continue to earn a paycheck until you retire. But what happen if those paychecks stopped? That’s where disability insurance comes in. It provides an income to you and your family if you are unable to work because of illness or injury.

Most people do not consider disability insurance for two reasons
1) They don’t think something will happen to them
2) They think they will be covered through Social Security, state-mandated Worker’s Compensation or employer provided group plans.

There are some holes in taken this approach. For one, you are a lot more likely to become disabled during your working career than you are to die. Over 1 in 4 workers will become disabled before they retire. Only about 39% of the 2.1 million workers who applied for Social Security Disability Insurance benefits in 2005 were approved. And those who are approved get an average benefit of just $1,064 per month – hardly enough to replace your income. Worker’s Compensation covers only work-related disabilities, but according to the National Safety Council, 73% of disabling accidents and illnesses are not work related. Only 36% of full-time employees have access to long-term disability insurance through their employers.

My recommendation: explore your options. If your employer offers disability coverage, take the time to find out if the coverage would be sufficient to meet your income replacement needs in the event of a disabling illness or accident. Another option is to purchase coverage on your own.

May is Disability Insurance Awareness Month, the perfect time for a disability insurance “reality check.” Take this opportunity to make sure you’d be OK financially in the event that a disability keeps you out of work for an extended period of time.

Families nowadays confront a financial quandary that most families did not face 30 or 40 years ago. Families must simultaneously plan for both their retirement and their children’s college tuition.

National studies reveal that most Americans are at risk of running out of money in retirement; this is thanks to a combination of factors which include record unemployment, declining wealth, low savings rates, investment losses and falling home values. A dilemma arises when all of these factors are taken into account and then add in the staggering rising college costs

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In the December and January issues of the Personal Finance magazines (Money, Smart Money, Forbes, Kiplingers, etc) feature articles about what stocks, bonds, and sectors to invest in for 2012. Here are some of the common themes that they recommend.

Dividend Paying Stocks – Turned off by the paltry yields that treasuries offer, some people are turning to stocks to pick up the slacks for income generation. On a few occasions in recent months, the average dividend yield on the Standard & Poor’s 500-stock index has exceeded the yield on the 10-year Treasury Bond; this is something that’s happened very rarely in the past 60 years. The yields on some well-regarded firms are much, much higher than the yield on the treasuries.

Marc’s thoughts – I’ve been on the Dividend Paying Stock bandwagon for a couple of years now, and I’m not jumping off in 2012. Here is an article
I wrote about what to look for when selecting dividend payers

Gold Miners – What’s gold going to do? Is a question that almost every investor has to grapple with these days. Smart Money magazine advises investors not to focus on the metal itself, but on the firms that dig it out of the group. Traditionally, when the price of gold rises then gold mining stocks rise faster. A miner’s costs are mostly fixed, so if the metal’s price goes up nearly all of those extra dollars go right to a miner’s bottom line. But over the past year, as gold’s price has jumped 15 percent, gold mining stocks, as a group are down 1%

Marc’s thoughts – The value of mining stocks in relation to the price of gold makes sense however one thing to take into account is that investors at the first sign of inflation or fear in the markets flock to the physical metal and not the stocks of gold miners. With volatility expected to continue into 2012 having some investment in actual gold and some in gold miners may not be a bad idea. The following illustration hits home the point that investors flocking to physical gold because that’s where they feel safe, versus flocking to gold mining stocks, where more value may actually be acquired.

High Yield Bonds – Another value play for 2012 is investing in high yield bonds which have generally underperformed the safety of treasuries and corporate bonds all of 2011. Some professionals think that high yield bonds will outperform equities in 2012. A weak outlook in the US and Europe, coupled with slower growth in China, means that the global economy will likely “muddle through” the next 12 months, making high yield bonds a defensive investment class with equity like upside.

Marc’s thoughts – While I do believe there is a place in most portfolio’s for high yield bonds you have to tread lightly with this asset class as there is substantial risk in these types of investments. If you are going to invest in high yield bonds, I recommend doing it through a fund like Symbol: JNK so that you spread the credit risk amongst many securities. The second thing to consider is that in a worst case scenario, such as a double dip recession, high yield bonds will get clobbered. I would not bet the farm on them even though their 10-12% yield is very appealing.

These are just a few of the asset classes that are being recommended for 2012. And if you read enough magazines and books you will find that every asset class is recommended by someone. Every investment, including cash has risk, which is why I recommend doing a thorough analysis on the risk of your investments to ensure you are comfortable.

Included in this month’s edition are articles on:

• How Smart Investors Make Money
• Key Financial Dates
• The Real Inflation Rate
• Creating your Financial Team

In an effort to start the New Year off on the best foot possible, I’m sending you a very handy reference card that I use. It’s called the 2012 Key Financial Data card and it can be quite helpful whenever you need to make informed financial and investment decisions.
Key Financial Data Card 2012

The Key Data card gives you many of the numbers investors need on Social Security, taxes, health savings, Medicare, retirement, college planning and more. Of course, you can always call me when you have questions or concerns or want to dig deeper into the numbers, however the 2012 Key Financial Data card will serve as a quick reference can be very practical in checking an assumption or marshaling your facts.

Excerpt

Included in this month’s edition are articles on:

• Third Quarter Review
• Open Enrollment
• 401k Loans
• Social Security COLA Updates

After you change jobs where you were contributing to a 401k you are left with 3 options to do with that account. (1) You can keep your money in the existing plan at your old company (permitting the company lets you do this); (2) You can roll it into the plan at your new company, or (3) You can roll it over into an IRA. There is a fourth option of cashing out your 401k and taking it as a distribution. Taking this approach may bring tax consequences, penalties, and a risk to your retirement where this is usually not the best choice.

This article will detail why most of the time it makes sense to go with option number 3 (Rolling your 401k into an IRA). The biggest advantage of a 401k plan is the company match (if you company has one). When you leave the company you will no longer get a match on your contributions. We will look at the fees and expenses associated with the 401k plan itself and also at the fact that they are usually filled with poor investment choices.

• 401k plans are expensive to administer and most of the time those administration fees are passed on to the plan participants
• Fake diversification: The choices to invest in a 401k plan are limited and many asset classes that are needed to make a diversified portfolio are not included
• The choices to invest in most 401k plan are not quality (expensive and poor performing)

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