Why Dad…Why? A Life Insurance Story!

kid-handshake

Let me start off by saying I am very appreciative of all the help that friends and family have provided me over the years!  I don’t mean to sound ungrateful at all, but rather want to use my situation to teach others.

My dad recently called me and told me that he had taken out a whole life insurance policy on me right after I was born and he was turning it over to me now that I have my own family.  I was stoked!  Free Money!

It was a $25,000 whole life policy that my dad paid $189/year in the event I passed away, they would have money to bury me.  Kinda morbid, but a reality.  The sales person talked about me having the ability to use it for college and the ability to take loans from the policy tax-free…blah…blah…blah…

Today I own a whole life policy that has a death benefit of $28,002 or I could take my cash value of $6,668.62 out to use for anything I want.

Here’s the problem…

If my dad would have just put that FIRST $189 payment into an S&P 500 fund it would have grown to $10,542.42 of cash.  THAT IS JUST THE FIRST PAYMENT!

If he would have put that same $189/year into an S&P 500 fund until he turned it over to me, I would have an account balance of $74,511.36!

Again, I am not ungrateful for the gift, but that can be the difference between the next generation going to college or not…having the ability to take on the risk of a business venture or not…spending more time with kids or not.

What would an extra $67,842.74?

 

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Go Away In May?

I have several friends that are do-it-yourself investors (you know who you are).  I hear their stories of moving between mutual funds in their 401k accounts.  Or they bought this stock and sold that stock.  Some investors even believe in selling everything in May!  However, just being in the markets is enough for most people.  Play along, keep expenses low and avoid stupid mistakes with your money by leaving it alone!  The chart below was created by American Funds and helps visualize why you should not sell out of your investments (even when the markets go down).

American Funds

So what do you say…should you “sell in May and go away?”

The Big Bang Theory – On money…

The Big Bang Theory is one of my favorite television shows!  My wife and I had several years where we would put the kids to bed and then watch a couple hours of syndicated episodes on TBS (since kids don’t allow for primetime television!).  So naturally, when I saw an article written by executive producer, Dave Goetsch, that had to do with finances…it became a must read.

Turns out it is one of the better articles about the market I have read in a long time.

Now and Then

By Dave Goetsch

Dave Goetsch, Executive Producer of  The Big Bang Theory, reflects on his investment experience in the recent market downturn and contrasts his new perspective with memories of the 2008-2009 financial crisis.

Seeing all the recent headlines about the sudden downturn in the stock market has transported me back to February of 2009, when I was close to despair. It’s striking how different I feel now.

In February 2009, the stock market was down around 50% from its high, and everyone seemed to feel like the sky was falling. I was familiar with this state of panic because my relationship to the financial markets was that I didn’t trust them.

They were always going up and down in ways no one could predict, and I couldn’t trust those folks who said that they could anticipate what was going to happen. So when the market went down, I went down with it—sinking into a depression, knowing there was nothing I could do.

What a difference nine years make. I haven’t changed because the stock market rebounded. I changed because I learned that there was a different way to think about investing. I was right not to trust those people who thought they could predict what was going to happen in the markets, but I was wrong in thinking that there was nothing to do. I’ve learned that I can have a great investment experience if I just accept a few simple truths.

I have to understand the uncertainty of the market. The stock market, as measured by the S&P 500 Index, has returned about 10% per year over the last 90 years,1 but there are very few individual years in which it has ever actually returned that amount. In fact, how many of those 90 years do you think the S&P 500 was up more than 20% or down more than 20% for that year? The answer is 40. Astounding, right? I wish somebody had explained that to me decades ago. Then I would have known to look at stock market returns in terms of decades—not years, months, days, or hours. I would understand that so many of those articles and cable news pieces are just noise, designed to keep an audience obsessed and unsettled.

I haven’t changed because the stock market rebounded. I changed because I learned that there was a different way to think about investing.

In order to be a long-term investor, you have to have a long time horizon. This can be hard to remember when you’re being assaulted by noise, but if you can stay strong, the results are stunning. By results, I don’t mean the investment returns, which hopefully are good. The return I’m talking about is how I feel every day. I worry less—not just about the future, but also about the present. Of course, I know that there are no guarantees when it comes to investing, but I feel like I’m going to be okay. I have a plan.

There’s no way I could’ve done this without a financial advisor. I needed someone who could not just talk me through what my asset allocation should be, but also help me work through how I felt about investing and what exactly I could do to change my perspective.

I was a mess nine years ago. Now, my outlook is totally different. The markets haven’t changed; they still go up and down. The difference is, I don’t anymore.

Best Day to Invest…

I recently had a conversation with a client who invests her monthly contribution on the 12th of each month.  She noticed that by the 15th the market had dropped in 6 of the last 8th months.  While this is not a large enough sample set to gain any statistically significant data, it did get me wondering…What is the best day to invest?

Based on this blog post from MustardSeedMoney’s research, the answer is Monday and the 23rd of each month.  While I don’t believe in market timing, it would be fun to see what happens!  Should we double down if the 23rd falls on a Monday?

The F bomb…

I want to tell you about the “F” word.  No not that one…Fiduciary.  Fiduciary is a fancy legal term that means you LEGALLY have to do what is in the best interest for someone in your care.  For instance, attorneys to their clients, doctors to their patients, guardian to his ward, or a priest to his parishioner.

Did you know that over 90% of financial advisors are NOT Fiduciaries?!?!  This means they can put their own interest ahead of yours!  They can sell you the product that is going to get them the highest paycheck or a bonus trip to Hawaii without regard if it is best for you.

Can you imagine having cancer and your doctor telling you to take an aspirin (because the aspirin company is going to give him $100k if he gets all his patients to take it)?  You would be beside yourself!  Yet this is happening in the financial services industry to your family and friends (and maybe even you) every day!

Here is a recent article in Forbes Magazine outlining the questions you should ask your advisor.

 

Inside the Millionaire Mindset

Looking for a bit of optimism in the face of today’s daily drumbeat of negative news? Look no further than Fidelity’s latest survey on the mindset and recent investing moves of some 1,000 millionaire households. While they too see the myriad short-term risks out there for the economy and investors, they are more upbeat on the market outlook a year from now than at any time in the survey’s five-year history.

To read more about their mindset click here.

Ameriprise workers sue over fund expenses!

http://www.investmentnews.com/article/20110929/FREE/110929919/-1/INDaily01&dailycount=1&issuedate=20110929

Ironic that even the employees, past and present, of Ameriprise Financial think that their expenses are to high!  Now they are suing their own company because they didn’t pick Vanguard funds with lower expenses…

As I was looking for an image for this post I came across an entire consumer website devoted to the people who have been screwedbyameriprise.com.

Let this be a lesson to you boys and girls…make sure you are asking your financial professional about their fees.  Need help with the questions to ask?  Feel free to give me a call.