Coverage can be a great comfort, even in youth.
The transition to adulthood is an exciting new stage that marks true independence. You may have graduated from college, taken your first job, and even, rented your first apartment. With this new freedom comes real responsibilities, including protecting yourself from the financial risks that life presents.
Auto. Once you are no longer covered on your parents’ policy, you will need to find insurance coverage in your name. It can be expensive for a young driver, so consider shopping around for the best rates and learn the myriad of ways to reduce this cost, such as coverage and deductible elections, the type of car you own, and available discounts.
Renters. If you are moving into an apartment, you should consider renters insurance. You may not think you’ve accumulated much in value, but when you calculate the cost of replacing your computer, electronic equipment, HDTV, clothes, etc., it can total thousands of dollars. Renters insurance can be inexpensive. When shopping for a policy, ask about whether it includes liability coverage, which can protect you in the event you are sued by someone who is injured while in your apartment.1
Health. Health care coverage is frequently obtained through your employer. However, if your employer does not offer a health insurance program, you have two choices for obtaining coverage.
The first is to maintain coverage through your parents’ health insurance plan. Federal law permits parents to keep adult children on their plan up to age 26. This choice may be relatively inexpensive, so you may want to ask your parents to inquire what the monthly premium is to add you to their plan.
The second option is to purchase a policy, directly, either through a private insurer, the federal health insurance exchange (HealthCare.gov), or through a state exchange, if available in your state of residence.2
Disability. Your single most valuable asset is your future earning power. Your ability to work and earn an income is essential when it comes to your financial survival. Incurring a disability, even for a short period of time, can have substantial economic consequences, making disability insurance one of the most important insurance needs at this stage of life.
Life. Since a young, single adult typically does not have other people depending upon their ability to earn a living (e.g., children, dependent parents), some believe the need for life insurance is minimal.
However, due to a long life expectancy at this young age, life insurance coverage can be very inexpensive. You may want to consider obtaining some coverage to take advantage of low rates and good health, in advance of a time when you will have dependents.
Extended Care. Given limited financial resources, extended care insurance may be a low priority. Nevertheless, you may want to have a conversation with your parents about how extended-care insurance may protect their financial security in retirement.
Making these decisions signals that a young adult has achieved a new level of maturity and responsibility. While it may seem overwhelming at first, conversations with a trusted financial professional may assist you in finding coverage that both meets your needs and fits within your budget. It may turn out to be a decision that means a great deal to you in the years to come.
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.
Several factors will affect the cost and availability of life insurance, including age, health, and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.
1 - thebalance.com/best-rental-insurance-4158701 [9/20/2018]
2 - transamericacenterforhealthstudies.org/affordable-care-act/consumer-categories[12/13/2018]
Even the most seasoned investors are prone to their influence.
Investors are routinely warned about allowing their emotions to influence their decisions. They are less routinely cautioned about letting their preconceptions and biases color their financial choices.
In a battle between the facts & our preconceptions, our preconceptions may win. If we acknowledge this tendency, we may be able to avoid some unexamined choices when it comes to personal finance; it may actually “pay” us to recognize our biases as we invest. Here are some common examples of bias creeping into our financial lives.1
Valuing outcomes of investment decisions more than the quality of those decisions. An investor thinks, “I got a great return from that decision,” instead of thinking, “that was a good decision because ______.”
How many investment decisions do we make that have a predictable outcome? Hardly any. In retrospect, it is all too easy to prize the gain from a decision over the wisdom of the decision, and to, therefore, believe that the decisions with the best outcomes were in fact the best decisions (not necessarily true).
Valuing facts we “know” & “see” more than “abstract” facts. Information that seems abstract may seem less valid or valuable than information that relates to personal experience. This is true when we consider different types of investments, the state of the markets, and the health of the economy.
Valuing the latest information most. In the investment world, the latest news is often more valuable than old news, but when the latest news is consistently good (or consistently bad), memories of previous market climate(s) may become too distant. If we are not careful, our minds may subconsciously dismiss the eventual emergence of the next bear (or bull) market.
Being overconfident. The more experienced we are at investing, the more confidence we have about our investment choices. When the market is going up and a clear majority of our investment choices work out well, this reinforces our confidence, sometimes to a point where we may start to feel we can do little wrong, thanks to the state of the market, our investing acumen, or both. This can be dangerous.
The herd mentality. You know how this goes: if everyone is doing something, they must be doing it for sound and logical reasons. The herd mentality is what leads many investors to buy high (and sell low). It can also promote panic selling. Above all, it encourages market timing – and when investors try to time the market, they frequently realize subpar returns.
Sometimes, asking ourselves what our certainty is based on and what it reflects about ourselves can be a helpful and informative step. Examining our preconceptions may help us as we invest.
1 - forbes.com/sites/theyec/2018/12/14/three-psychological-biases-that-prevent-effective-financial-management [12/14/18]
Three common misconceptions to think about.
1 – Assuming retirement will last 10-15 years.
When Social Security was created in the 1930s, the average American could anticipate living to age 58 as a man or 62 as a woman. By 2014, life expectancy for the average American had increased to 78.6. That said, an average like may bely the fact that many retirees could live well into their nineties or beyond.1,2
Assuming you will only need 10- or 15-years’ worth of retirement money could be a big mistake.
2 – Assuming too little risk.
Holding onto your retirement money is certainly important, but so is your retirement income and quality of life. While overall inflation has been below 3% for most of the past 10 years, your personal inflation rate may be higher. In that situation, your dollar gradually buys less and less. If your income doesn’t keep up with inflation – essentially, you end up living on yesterday’s money.
For this reason, a flexible retirement strategy will likely factor in many situations and scenarios; you cannot plan for every single scenario, but considering many possibilities may give you and your financial professional numerous options down the road.
3 – Assuming you will be in excellent health. While it’s true that we lead healthier lives than our ancestors and that medical science and awareness of fitness and nutrition have improved and extended many American lives, that improvement doesn’t cover every issue that comes with advanced age. Extended-care issues can sap away retirement funds.3
Recent findings by the U.S. Department of Health and Human Services offer some perspective: over a quarter of all people who have turned 65 between 2015-2019 are probably going to need $100,000 of extended care, while 15% of that same group is looking at $250,000.3
For these reasons, a retirement strategy should include some thinking about paying for extended care of this sort. Yes, Medicare can help you with the basics, but an insurance strategy that can accommodate longer hospital stays and care should also be a part of your thinking.3
Remember that good strategies also change over time, and you will probably want some help along the way. Make time to discuss these common assumptions, and how to avoid them, with your retirement professional.
1 - ssa.gov/history/lifeexpect.html [2/19/19] 2 - pbs.org/newshour/health/american-life-expectancy-has-dropped-again-heres-why [11/29/18] 3 - kiplinger.com/article/insurance/T036-C000-S002-how-to-afford-long-term-care.html [1/31/19]
How do these investment approaches differ?
Ever heard the term “strategic investing”? How about “tactical investing”? At a glance, you might assume that both these phrases describe the same investment approach.
While both approaches involve the periodic adjustment of a portfolio and holding portfolio assets in varied investment classes, they differ in one key respect. Strategic investing is fundamentally passive; tactical investing is fundamentally active. An old saying expresses the opinion that strategic investing is about time in the market, while tactical investing is about timing the market. There is some truth to that.1
Strategic investing focuses on an investor’s long-range goals. This philosophy is sometimes characterized as “set it and forget it,” but that is inaccurate. The idea is to maintain the way the invested assets are held over time, so that through the years, they are assigned to investment classes in approximately the percentages established when the portfolio is created.1
Picture a hypothetical investor. Assume that she starts investing and saving for retirement with 60% of her invested assets held in equities and 40% in fixed-income vehicles. Now, assume that soon after she starts investing, a long bull market begins. The value of the equity investments within her portfolio increases. Years pass, and she checks up on the portfolio and learns that much more than 60% of the value of her portfolio is now held in equities. A greater percentage of her portfolio is now subject to the ups and downs of Wall Street.
As she is investing strategically, this is undesirable. Rebalancing is in order. By the tenets of strategic investing, the assets in the portfolio need to be shifted, so that they are held in that 60/40 mix again. If the assets are not rebalanced, her portfolio could expose her to more risk than she wants – and the older she gets, the less risk she may want to assume.1
Tactical investing responds to market conditions. It looks at the present and the near future. A tactical investor attempts to shift the composition of a portfolio to reduce risk exposure or to take advantage of hot sectors or new opportunities. This requires something of an educated guess – two guesses, actually. The challenge is to appropriately decide when to adjust the portfolio in light of change and when to readjust it back to the target investment mix. This is, necessarily, a hands-on style of investing.1
Is it better to buy and hold, or simply, to respond? This question has no easy answer, but it points out the divergence between strategic and tactical investing. A strategic investor may be inclined to “buy and hold” and ride out episodes of Wall Street turbulence. The danger is in holding too long – that is, not recognizing the onset of a prolonged downturn that could bring losses without much hope for a quick recovery. On the other hand, the tactical investor risks buying high and selling low, for figuring out just when to increase or decrease a portfolio position can be difficult.
Investors have debated which strategy is better for decades. One approach may be better suited than another at a particular point in time. Adherents of strategic investing point to the failure of active asset management to beat the equity benchmarks. A 2018 Dow Jones Indices SPIVA Report noted that across the five years ending June 30, 2018, more than 76% of U.S. large-cap funds failed to return better than the S&P 500. A proponent of tactical investing might counter that by arguing that this percentage might be much lower within a shorter timeframe. Ultimately, an investor has to consider their risk tolerance, objectives, and investing outlook in evaluating both approaches.2
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
1 - money.usnews.com/investing/investing-101/articles/2018-07-25/whats-the-difference-between-strategic-and-tactical-asset-allocation [7/25/18]
2 - us.spindices.com/spiva/#/reports [2/5/19]
There are those who favor value and those who favor growth.
You might be initially confused by these terms or even suspect they aren’t that different in terms of what each model offers you as an investor, but they are very distinct approaches, and it’s good to understand these two schools of thought as you invest. This understanding could help you make important investment decisions, both now and in the future.1
At first glance, some of the advantages to each approach may not be immediately obvious, depending on what sort of market you are facing. There is an element of timing to both value and growth investing, and that concept may be helpful in understanding the differences between the two.1
Investing for Value. Value investors look for bargains. That is, they attempt to find stocks that are trading below the value of the companies they represent. If they consider a stock to be underpriced, it’s an opportunity to buy; if they consider it overpriced, it’s an opportunity to sell. Once they purchase a stock, value investors seek to ride the price upward as the security returns to its “fair market” price – selling it when this price objective is reached.
Most value investors use detailed analysis to identify stocks that may be undervalued. They’ll examine the company’s balance sheet, financial statements, and cash flow statements to get a clear picture of its assets, liabilities, revenues, and expenses.
One of the key tools value investors use is financial ratios. For example, to determine a company’s book value, a value analyst would subtract the company’s liabilities from its assets. This book value can then be divided by the number of shares outstanding to determine the book-value-per-share – a ratio that would then be compared to the book-value-per-share ratios of other companies in the same industry or to the market overall.
Investing for Growth. Growth investors use today’s information to identify tomorrow’s strongest stocks. They’re looking for “winners” – stocks of companies within industries expected to experience substantial growth. They seek companies positioned to generate revenues or earnings that exceed market expectations. When growth investors find a promising stock, they buy it – even if it has already experienced rapid price appreciation – in the hope that its price will continue to rise as the company grows and attracts more investors.
Where value investors use analysis, growth investors use criteria. Growth investors are more concerned about whether a company is exhibiting behavior that suggests it will be one of tomorrow’s leaders; they are less focused on the value of the underlying company.
For example, growth investors may favor companies with a sustainable competitive advantage that are expected to experience rapid revenue growth, effective at containing cost, and staffed with an experienced management team.
Value and growth investing are opposing strategies. A stock prized by a value investor might be considered worthless by a growth investor and vice versa. So, which is right? A close review of your personal situation can help determine which strategy may be right for you.
1 - https://kiplinger.com/article/investing/T052-C000-S002-value-vs-growth-stocks-which-will-come-out-on-top.html [8/2/2018]
Being healthy not only makes you feel good, it may also help you financially.
We constantly hear how important it is to maintain a healthy lifestyle. That is not always easy, especially in the face of temptation or the easy option of procrastination. For some, the monetary benefits of maintaining a healthy lifestyle may provide an incentive.
Being healthy not only makes you feel good, it may also help you financially. For example, a recent Johns Hopkins Bloomberg School of Public Health study determined that a 40-year-old who simply moves from being obese to overweight could save an average of $18,262 in health care costs over the rest of his or her lifetime. If that person maintains a healthy weight, the average potential savings increase to $31,447.1
If you’re wondering how your health habits might be affecting your bottom line, consider the following:
Regular preventative care can help reduce potential health care costs. Even minor illnesses can lead to missed work, missed opportunities, and potentially lost wages. Serious illnesses often involve major costs like hospital stays, medical equipment, and doctor’s fees. Preventative dentistry may help you reduce dental costs as well.
In a way, staying healthy helps our potential to save for retirement. If your health declines to the point where you cannot work, that hurts your income and your ability to contribute to retirement accounts. The threat is real: the Social Security Administration notes that a quarter of us will become disabled at some point during our working years.2
Overweight workers may be subjected to wage discrimination. A LinkedIn study of almost 4,000 full-time and part-time workers found that the workers whose weights were greater than normal earned an average of $2,512 less annually than the others.3
Higher weight seems to be a factor in overall health care costs for many. Ask the Centers for Disease Control and Prevention. The CDC notes that per-year health care expenses are about 41% higher ($4,870) for an obese individual than for a person of normal weight ($3,400). The biggest factor in this difference: prescription drug costs.4
Some habits that lead to poor health can be expensive in themselves. Smoking is the classic example. A pack of cigarettes costs anywhere from $5-14, which means ballpark expenses of $2,000-5,000 or more a year in expenses for a pack-a-day smoker. Smokers also pay higher premiums for health, disability, and life insurance.5
By focusing on your health, eliminating harmful habits, and employing preventative care, you may be able to improve your self-confidence and quality of life. You may also be able to reduce expenses, enjoy more of your money, and boost your overall financial health.
1 - https://www.bankrate.com/banking/savings/healthier-lifestyle-can-save-you-money/ [9/25/18] 2 - https://www.cnbc.com/2018/11/11/protect-yourself-from-a-career-derailment-that-trips-up-1-in-4-workers.html [11/11/18]
3 - https://www.foxbusiness.com/features/employers-pay-overweight-workers-less-new-study-reveals [11/5/18] 4 - https://abcnews.go.com/Health/Healthday/story?id=8184975&page=1 [7/28/18] 5 - https://money.usnews.com/money/personal-finance/family-finance/articles/the-real-cost-of-smoking [11/20/18]