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How Good Were Stocks in 2017

International stocks continued the hot streak and finished the year well ahead of US stocks, while both categories did much better than Bonds.   The following is an excerpt from the Matson Money quarterly statement.

“The 4th quarter of 2017 saw a continued increase in broad equity markets,  both domestically and internationally. U.S. stocks grew by 6.64% as represented by the S&P 500 index, while international stocks had another  positive quarter to book-end their stellar 2017, with the MSCI EAFE index  returning 4.23% for the quarter. After underperforming U.S. stocks for the last several years, the EAFE returned 25.03% for the year, leading the way against  U.S. stocks. Additionally, emerging market stocks outperformed both  domestic and developed international stocks, with the MSCI Emerging  Markets Index rising by 37.75% for the year.

In recent history, we have experienced an extended period of rising returns. Using the S&P 500 Index as a proxy for the stock market, there have been 14 consecutive positive months, and 21 of the last 22. Extending this time-period out longer, over the last 5 years 19 of the 20 quarters have been up. While periods of up markets returns are undoubtedly easier to go through than those of volatile and/or down markets, they can have negative consequences on investors just the same. Many investors equate the idea of “staying disciplined” to not panicking and selling equities while they are down, and indeed, this is an important trait. However, staying disciplined is equally important and can be equally as challenging during times when everything seems to be going well. Deciding upon a personal risk tolerance and time horizon for your investments is one of the earmarks of a sound financial plan. In 1996, then-Chairman of the Federal Reserve Alan Greenspan coined the phrase “Irrational Exuberance” to describe investors who let their current emotions resulting from a hot stock market supersede rational, prudent investing. In simpler terms, they were ignoring their personal risk tolerances because of a period of favorable returns. An argument can be made that managing behavior is the most important aspect of being a good investor. Unfortunately, it is probably also the most difficult part of being a good investor. Despite Greenspan’s warning, many investors loaded up on investments that were riskier than what was prudent for them. Not only by increasing equity exposure, but by investing in hot sectors such as tech start-ups. The idea of missing out on the returns that one perceives that  others are receiving can be a strong motivator.

Unfortunately, many people who overextended themselves were exposed to dramatic losses. From September 2000 to September 2002, the S&P 500 lost over 44% of its value, and the NASDAQ, which is an index of tech company stocks, fell 78% in 30 months from peak to trough, with many individual  companies going to zero. In today’s environment, there is a danger for some investors to repeat the mistakes of the past. With stocks going up 19 out of 20 quarters, it can be easy for one to ignore the downside risk of equities and try to ride the current wave of good returns.

In the 90’s, many investors saw those around them supposedly getting rich by owning start-up companies that were taking advantage of a new paradigm of technology. In the same fashion, today cryptocurrencies are the hot new technology. While no one truly knows how long stocks will continue to rise or how high Bitcoin may go, it is important for investors to not get caught up in the hysteria and stray from the level of risk that they can handle. In the end, choosing a wise financial strategy -and sticking to it -can have  tremendous impact on an investor’s long term financial health. Chasing performance through buying and selling is a risky game. Historically speaking, it will only reduce an investor’s real return. Relying on unbiased, non-emotional advice from a trusted investor coach to make good decisions can help an investor bridge that gap between what the average investor makes and the return of the market.”

References

  1. Matson Money. “Account Statement.” Letter to James Hancock. 15 Jan. 2018. MS.
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Is It Now Safe to Invest in the Stock Market?

All time highs and continued growth in the stock market seem to scare investors.  You can hear fears of a pull back on any media outlet you prefer.  But  Perhaps one of the biggest challenges that investors face is determining if “right now” is a safe time to invest (meaning not just the present, but any time). What makes it difficult for investors is a twofold issue: first, is a lack of historical knowledge and perspective, and second, their own emotions. Actually, if one looks back on an historical basis, it would have appeared that there was no safe period in which to invest. Investors are really funny in this regard (actually most advisors are really no better). In 2009 investors were in shell shock coming out of the 2008 financial debacle. By 2015 it was really too good and couldn’t last. Then came the Trump Election, which people thought would most definitely crash the market.    What investors are looking for is something that does not exist—ever—a “Goldilocks” market!

I’m going to take some historical facts and figures to provide some historical context that may enable my clients to feel more comfortable when faced with the ongoing question of “is it safe.”
The first issue that investors must confront is that there is no such thing as a “safe” investment and this applies whether funds are invested in equities, bonds, government fixed income, gold, real estate, your mattress or in a coffee can in the back yard. Your money is always subject to one form of risk or another. For a more complete discussion on this subject read Main Street Money by Mark Matson. If you don’t have a copy let me know and I will get you one.
In this blog, I’ll confine myself to discussing equities and fixed income contained within a diversified portfolio that is periodically rebalanced, with dividends and capital gains reinvested, because that is what we do with our client’s money. Let’s take a decade by decade look at all the challenges investors have faced.

1920’s
• 1917-23 Russian Civil War
• 1922 Mussolini takes control of Italy (eliminates private ownership, total government control!! Hmm!)
• 1923 Hyperinflation in Germany
• 1926+27 Chinese Civil War
• 1929 Wall Street Crash
• 1929-39 Great Depression
A horrible period to be invested in the market—manic market followed by the 1929 crash. Yet a fully diversified portfolio had $100,000 growing to $135,000 at the end of the decade.

1930’s
• 1932-33 Holodomor Starvation
• 1933 The Nazi Party come into power
• 1933-45 The Jewish Holocaust
• 1935 US Presidential Candidate Assassinated (Huey Long)
• 1935-1936 Italian/Abyssinian War
• 1936-38 Stalin Purges (including Gulag Death Camps)
• 1936-39 Spanish Civil War
• 1937 The Hindenburg Airship Explodes
• 1939-45 World War II
Talk about a horrific period to begin investing? Probably the worst ten year period, economically we have ever experienced. Yet, $100,000 invested at the beginning of the decade grew to $152,000.

1940’s
• 1933-45 The Jewish Holocaust continued
• 1939-45 World War II continued
• 1945 President Roosevelt dies before the war ends
• 1945 Eastern Europe is dominated by Communist USSR
• 1949-1993 The Cold War
What could be a worse time to begin investing as Word War II was starting, followed by the beginning of the Cold War. Let me interject an investment factoid here. The renown international investor, Sir John Templeton made his initial reputation by borrowing $10,000 and buying 100 shares of every stock on the New Your Stock Exchange selling for less than $1 at the start of the war.
If you had controlled your anxiety, like Sir John, and invested $100,000 at the start of the decade, you would have been amply rewarded by seeing that investment grow to $336,000!

1950’s
• 1949-93 The Cold War continues
• 1950-53 The Korean War
• 1951 Mao Zedong takes power in China
• 1956 Suez Canal Crisis
• 1956 Russian quashing of the Hungarian Revolution
• 1959 The Cuban Revolution
• 1959-75 The Vietnam War
This was supposedly the boring decade under President Eisenhower. However, international events didn’t take a holiday and they continued to swirl about us creating many excuses for avoiding the assumption of any investment risk.
Nevertheless, investors who ignored events and invested $100,000 at the start of the decade had $393,000 in their portfolios at the end of the decade.

1960’s
• 1949-93 The Cold War continues
• 1959-75 The Vietnam War continues
• 1961 The Berlin Wall built
• 1962 The Cuban Missile Crisis
• 1963 JFK Assassinated
• 1964 China explodes its first nuclear bomb
• 1967 Six Day Israeli/Egypt War
• 1968 MLK and RFK assassinated—rioting in major cities
• 1969 Libyan Revolution—Khaddafi comes to power
This was the decade where we got to watch both national and international occurrences in almost “real time” thanks to the expansion of television and global communications. An event filled decade both home and abroad. Plenty of excused could be found as to why it was not safe to invest. Yet again, $100,000 invested at the start of the decade produced a portfolio worth $259,000 by the end of the decade.

1970’s
• 1949-93 The Cold War continues
• 1959-75 The Vietnam War continues
• 1970 The beginning of Terrorism in the world
• 1972 Kidnap and murder of Israeli Athletes at Olympics Games
• 1972 President Nixon resigns
• 1975-79 Khmer Rued in Cambodia (Genocide)
• 1979 Saddam Hussein comes to power
• 1979-1981 Iranian kidnapping of U.S. Embassy and diplomats
This decade begins with Vietnam, followed by the Nixon resignation, then the Iranian Embassy kidnapping, and ends with President Carter’s “malaise.” Gas lines, international problems, national embarrassment and a Russian bear looking more ominous.
Yet somehow if one was courageous enough to invest $100,000 at the beginning of the decade, it would have grown to $271,000.

I could go on with the history lesson, but suffice it to say that the 80’s decade rewarded $100,000 by growing to $453,000. In the 90’s it grew to$338,000.
This last decade, which was sort of known as the “lost decade” because of the dot.com/tech bubble, the real estate bubble. This resulted in two severe bear markets. Still investors were rewarded by having their portfolio vastly outperform the underlying cost of living and inflation.
So the lesson for all is that if one pays attention to events, you can always find a reason why it is not a good time to invest—and historically, you would have always been wrong!! I will not say anything about the world we find ourselves in today because we have always found ourselves in difficult times both domestically and globally—there have always been challenges and there always will—it is just the nature of the species.
As to the basic question: Is it safe? I’ll let you draw your own conclusions!

By Jim Hancock

References

Source of returns figures for the various asset classes utilized in the hypothetical portfolio: DFA Returns Software 2.0, Feb. 2011. Past performance is no guarantee of future results. Performance included reinvestment of all dividend and capital gains.

1.Taylor, Fred. “Commentary: Is It Safe?” Message to the author. 6 Aug. 2014. E-mail.

2. Matson Money. But This Time it Really is Different. N.p.: n.p., n.d. PDF. https://www.matsonmoney.com/

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Bitcoin: Are you Missing Out?

Do you suffer from FOMO?  FOMO stands for Fear Of Missing Out.  Just about everyone suffers from this in one way or another.  Bitcoin is becoming more of a household word and it’s popularity is exploding. So what is bitcoin, and is it something you should invest in?

What is Bitcoin?

Bitcoin is a form of cryptocurrency that only exists in numbers on a computer screen, rather than an actual coin or physical dollar bill. It is a form of international currency and it is the first decentralized digital currency in the world.   You can buy bitcoin from any online bitcoin seller, by trading your dollars for bitcoin.  There are many other types of cryptocurrency now trying to surpass bitcoin in popularity.

Why is Bitcoin so popular right now?

The price of 1 Bitcoin started out close to $1 back in 2011, and now the price of 1 bitcoin is about $17,000. Even just a month ago it was well under $10,000!  That is some pretty extreme price fluctuation and growth.  Also, just recently, trading futures of Bitcoin became available, and ETF’s with Bitcoin are coming soon.

Should you invest in (buy) Bitcoin?

Investing in Bitcoin is much more similar to gambling, than it is to prudent stock market investing.   Yes, if you buy Bitcoin now, you could be filthy rich in a year, but you could also be completely broke too.   There is so many regulatory issues that Bitcoin has not made it through yet, and there have been several instances of bitcoin price manipulation and fraud.

My main suggestion when it comes to Bitcoin is to only use money that you absolutely do not need and could live without to invest in Bitcoin.  If you have the desire and want to try it out, go right ahead, but not with grocery or retirement money.

I have personally been watching the price of Bitcoin over the last few weeks, and the price swings have been pretty extreme on a daily basis.  The price volatility seems to be about 10 times more extreme than the price volatility of the stock market.   For now, most of the price swings have been up.

Over the coming weeks and months, you will hear many “investing gurus” or maybe even radio commercials hyping the potential to get rich investing in Bitcoin.

Buying Bitcoin without actually Buying Bitcoin

The prudent way to invest in Bitcoin, is by investing in a globally diversified stock portfolio.  In this way, you are in turn investing in some companies that buy, sell, and accept Bitcoin.  In this way you take a lot of the risk out of it, and get more steady returns.  Your Fear Of Missing Out senses might not be quenched, but you will be able to sleep better at night.

(Update: From the time I wrote this 2 days ago to now, the price of Bitcoin went up to over $18,000, and is now down below $17,000.)

By Jimmy Hancock

References

Solin, Dan. “Bitcoin in Perspective.” The Huffington Post, TheHuffingtonPost.com, 14 Dec. 2017, www.huffingtonpost.com/entry/bitcoin-in-perspective_us_5a2fd4e4e4b0bad787127002?utm_content=buffer00ef8&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer.

 

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Health Insurance in Idaho in 2018

As the Open Enrollment Period for enrolling in a qualified health insurance plans kicks off for 2018, I thought it would be a good time to review some basics on how health insurance in Idaho works these days.

Open Enrollment Period

If you do not currently have a health insurance plan you have until December 15th to get signed up, or else you will most likely have to wait for 2019.   If you already have a health insurance plan, the deadline to switch to a different plan is the same day, December 15th.

Who Qualifies for a premium tax credit?

APTC, or Advanced Premium Tax Credit is when your health insurance premiums are significantly reduced based on your income.  Anyone who isn’t offered coverage from work and has income between 100% and 400% of the federal poverty line based on their family size may qualify for the premium tax credit.  Coverage from work also applies to spouses and children if coverage is offered to them.   The 2018 federal poverty line for a family of 1 is $12,060 and goes up by $4,180 for each additional person in the family. 1.   So a family of 4 can make as much as $98,400 and still qualify for a premium tax credit.

Options for Coverage in Idaho

Options are pretty slim in most states, including Idaho.  There are 4 health insurance carriers (Mountain Health Co-op, Blue Cross, Select Health, and Pacific Source) offering individual and family coverage on and off the Idaho Exchange(must get coverage on exchange to get APTC) , and 1 more that offers individual coverage outside the exchange only (Regence).   Of those 5, only 3 are really competitively priced.  But then when you talk about price increases and deductibles that keep going up, there are really no “affordable” options for most people.   With that being said, whatever your current situation is you might be able to save money by looking into all your options.  The prices vary so much with each company each year that it is usually not in your best interest to stick with the same company year over year.

Saving Money

For example, I helped a family save hundreds of dollars a month by switching them from being a spouse and children on a school district employer health plan, to a family plan off the exchange with Regence, separate from their employer.  Coverage for the actual employee is usually a very good price, but if your employer offers coverage for your spouse and children, it is usually more expensive then what you could get separate from your employer.

Another option to possibly consider, is Medi-Share, which is a Christian Care Ministry.  It is not health insurance, but it works similarly at a much lower cost and has saved people thousands of dollars.

Last but not least, if you are seriously considering going without any coverage, I would suggest you look into Health Values, a supplemental insurance carrier, which covers accidents and is under $100 for the whole family no matter your age or health.

If you need help with your health insurance I am a licensed agent  and work with the Idaho health insurance companies as well as Medi-Share and Health Values.

By Jimmy Hancock

References

  1. ASPE. “2017 Poverty Guidelines.” US Department of Health and Human Services, 31 Jan. 2017. Web. 31 Oct. 2017. <https://aspe.hhs.gov/poverty-guidelines>.



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2017 Stock Market Update

The stock market has continued to have success. The big surprise of the year continues to be international stocks. The Matson Money International Stock fund is up 21.89% this year, compared to the Matson Money US Stock Fund which is up just 8.27%. The following is from the Matson Money quarterly update.

“The 3rd quarter of 2017 saw a continued increase in broad equity markets,  both at home and internationally. U.S. stocks grew by 4.48% as represented by  the S&P 500 index, and for a third consecutive quarter, international stocks  fared even better, with the MSCI EAFE index returning 5.47% for the quarter.  After lagging in recent quarters, small stocks surged ahead this quarter, with the MSCI EAFE Small Cap Index returning 7.52%, while the Russell 2000  Index delivered a 5.67% return.

The news cycle over the last quarter was dominated by natural disasters and escalating geopolitical tensions; specifically in rhetoric exchanged  between President Trump and North Korean leader Kim Jong Un. The  hurricanes that ravaged the Caribbean and displaced millions in Houston were great tragedies that impacted countless people and caused billions of dollars of damage. In times where events such as these elicit powerful negative  emotions and we see the massive damage and hurt that many people are going through, it can be difficult to not let that emotion bleed over into our perception of the overall economy or financial markets. It can seem intuitive to believe that the unexpected loss of billions of dollars of infrastructure and the collateral damage of lost businesses and millions of employees who are  temporarily out of work would have a tangible impact on our overall economy and therefore negatively impact financial markets, reversing the general upward trend.

However, as with many other seemingly logical intuitions  regarding the what’s and whys of stock market performance, this too is not reflected in reality. In both the current market and what we have experienced historically, the stock market has an uncanny ability to shake off bad news and move uncorrelated to whatever else may be happening in the news, in contrast to what people may expect.

When we look at negative catastrophic events that have occurred throughout history, whether it be war or natural disaster, equity markets have on average generated positive returns despite these calamities. When looking at the  subsequent 1-year return from the month in which the following event  occurred: Pearl Harbor, D-Day, the start of the Vietnam War, the eruption of Mount St. Helens, the S.F. Earthquake of 1989, 9/11, Hurricane Katrina, and Super Storm Sandy, we see an average return of 9.70% as measured by the S&P 500 Index. This included 6 positive years and 2 that were negative, or 75% positive years. Over the entire time-period for which we have data from 1926-2016, the average annualized return of the S&P was 10.04%, and 67 of the 91 years were positive, or 74% positive years. This data would  indicate that even some of the worst or most trying events in U.S. history did not result in the stock market behaving, on average, any differently than it did in any other year. Trying to predict the movement of the market based on geopolitical events or natural disasters proves to be the same folly as any other form of forecasting.

In the end, choosing a wise financial strategy, and sticking to it, can have tremendous impact on an investor’s long term financial health. Chasing performance through buying and selling is a risky game. Historically speaking, it will only reduce an investor’s real return. Relying on unbiased, non-emotional advice from a trusted investor coach to make good decisions can help an investor bridge that gap between what the average investor makes and the return of the market.”

References

  1. Matson Money. “Account Statement.” Letter to James Hancock. 18 Oct. 2017. MS.
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The Surprising Reason You Shouldn’t Buy the Best Mutual Funds

It seems like common sense to buy a product that is popular or seems to be doing well.  For example, a few of my friends will be buying the new I Phone X, largely because Apple has a proven track record of making successful and innovative phones.  As consumers, that is what we look for when buying things.

On a similar note, many investors think it is common sense to invest their money with a mutual fund manager that has proven to be the best by their performance, or track record.  It almost seems like that should be the only reasons to pick a mutual fund manager, is based on their track record.  But I am here to spoil that “common sense” belief when it comes to investing.

There has been recent research on this topic, which confirms decades of academic findings, suggesting you should avoid top-rated mutual funds.

“According to a new study by Baird Wealth Management Research, not only do mutual fund ratings not predict future performance, they may be reliable red lights that should warn you against buying a fund.  Baird analyst Aaron Reynolds asked the question “do fund ratings predict future performance?” Here’s what he found:”

“For US stock funds, the research found that ratings were negatively predictive of future performance, e.g. a high rated fund will perform worse than a low rated fund.”  How do you explain these results? Often, when a stock fund manager has a good year, it’s due to chance. ” 1

Further Proof

This is one of the myths of investing that Mark Matson talks about all of the time.  5 star mutual funds are the funds that have a great track record over the past few years and that seem to get everything right.  But check out this simple chart that further proves that Track Record Investing gives you below market returns.  2.

Average Annual Return       2007-2011            2012-2016

Top 30 Rated US Stock Funds from 2007-2011           5.07%                     4.35%

All US Stock Funds                                                   -0.12%                     12.04%

So the “top 30” funds from 2007 to 2011 beat the market as a whole by about 5%.   So lets say you read a magazine, saw a headline, or worse yet your investment advisor says to invest in one of these funds that “continually beats the market”.   You decide to buy in at the end of 2011.  2012 through 2016 come, and your fund gets beat by the market by 8% annually for 5 years.  That’s almost 40% total growth that you missed out on.  Plus you missed out on the 5 years that it beat the market because you got in based on the track record.

The Alternative Method for Deciding on Mutual Funds?

If looking at Track Record isn’t the best way to determine what funds to invest in, then what is?  How about academic studies?  Studies done by Nobel Prize winners show that investing in a globally diversified fund, that doesn’t try to beat the market, but just focuses on getting market returns and rebalancing is the best way to invest long term. 3.  You should not try to find a mutual fund that is going to beat the market, you need one that is going to get market returns and charge lower total fees.  Stock market returns over long periods of time are surprisingly high.  To get good long term returns, you don’t need to gamble or speculate.  Fund managers that try to beat the market not only often fail in their quest, but they incur much more costs to you the investor.

Track Record Investing could be detrimental to your long term retirement portfolio.   Don’t fall for the hot mutual fund headlines.

by Jimmy Hancock

References

1. Wasik, John. “Why You Shouldn’t Buy a Highly-Rated Mutual Fund.” Forbes. Forbes Magazine, 24 Mar. 2014. Web. 26 Mar. 2014. <http://www.forbes.com/sites/johnwasik/2014/03/24/why-you-shouldnt-buy-a-highly-rated-mutual-fund/>.

2. Matson Money. Separating Myths From Truths, The Story of Investing. N.p.: n.p., n.d. PDF. https://www.matsonmoney.com/

3. Matson, Mark. Main Street Money. Mason: Mcgriff Video Productions, 2013. Print.

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Buy Apple Stock, or Diversify?

Diversification seems to be a buzzword that is thrown around by investment gurus way too often.  It is a feel good word that advisors use to sound intelligent and sophisticated.  That is fine and all, but most investment advisors and their clients do not even understand what true diversification in an investment portfolio really means.

What is Diversification?

Diversification is “A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique contends that a portfolio of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio.” 1

How do I know if I am fully diversified?

This is where the water gets a little muddy.  This question will bring different answers from different advisors.  Some people would tell you that you need between 5 and 10 individual stocks to be properly diversified.  If you have only 10 stocks you are taking on extreme risk that is not necessary for you to have.   Odds are those 10 stocks are all in a similar place in the market.  Thus all 10 of them will be moving in a similar direction when a crash in the market comes.

Diversification is more than just the number of stocks that you are invested in, although that is very important.  As a result of the funds that our firm, Preferred Retirement Options, recommends, clients are invested in about 12,000 individual stocks.  The most important part about that is that we are invested in every sub category of the market in every free country in the world.  Large companies, small companies, international companies, distressed companies, growth companies etc.  We are investing in different economies and different technology.   It would take an extinction level event for all of those stocks to lose their value.   From the portfolios I have seen, most investors that work with an advisor are invested in only large US stocks in the amount of 500 to 1000 total stocks and call that well diversified.

Why is Diversification so important in your investment portfolio?

Take a look at this chart created by Matson Money. 2

This is a pretty technical chart so let me explain.  This is real data from 1970-2016.   If you were to invest in the S&P 500 you would have gotten a  10.3% return with standard deviation of 17.11.   Sounds great right.  But if you add bonds/fixed income, international stocks, small stocks and value stocks, you end up with a 10.49% return and a standard deviation of 11.59.   That is a higher return with less risk and less volatility.   That is what diversification can do for your portfolio.

When you hear some investment guy throw out the word diversification, now you can have an understanding of what it is, and maybe even teach them a little something about it.  If you want true diversification that lowers your risk and increases expected return, then give us a call.

By Jimmy Hancock

References

1. “Diversification Definition | Investopedia.” Investopedia. Investopedia US, n.d. Web. 25 June 2014. <http://www.investopedia.com/terms/d/diversification.asp>.

2. Matson Money. Separating Myths From Truths, The Story of Investing. N.p.: n.p., n.d. PPT.

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Life Insurance: Do You Need It?

Life insurance is a way to protect your loved ones financially if and when you pass away.

If any of the following are true in your current situation, then you should consider getting or increasing your life insurance coverage.

  • You are married and you spouse depends on your income
  • You have children or other family that is dependent on you for support
  • Your savings won’t be enough for your spouse to live on
  • You own a business
  • You have a personal loan, mortgage, or other debt for which another person would be responsible for after your death

The proceeds from life insurance can help your loved ones to continue on financially without having a huge burden in the case that you die.   Obviously funeral expenses are are another thing that must be paid for, and that usually costs at least $10,000.  Plus the huge benefit is that life insurance proceeds are not taxable.

Living without life insurance can be scary, is a risk that should not be taken.  One of the biggest paybacks for those who have life insurance is the peace of mind that comes along with knowing your loved ones will be protected and set financially in the case of your death.  Even if you have term insurance and don’t actually end up dying before the end of the term, the increased peace of mind is worth it.

Term vs Whole Life Insurance

Term coverage is life insurance for a specific number of years, and when it ends, you have to reapply or decide to go without.  Whole life is coverage guaranteed to pay out whenever you die as long as you keep paying the premium.   Term is much, much cheaper and more simple.  Whole life has many more options and side benefits.   For most people we suggest term coverage during the working years as you are building up your savings.  Then the goal should be to be “self insured” by the time you retire, by having a large amount in retirement savings that would pass on in the case you die.   But in some cases whole life is the better option.

 

I am going to go over 6 common myths that you might have heard about life insurance.

1. The coverage you get at work is enough.

Life insurance through your employer can be a big financial help, but usually doesn’t even come near the amount  of coverage you need.  It is also dependent upon your employment with that company which can never be guaranteed.  The coverage you get from work may be enough, but only if you’re single, in good financial standing, and have no dependents.  For most people, the term policy offered through their employer just won’t be enough to sustain their families’ needs.

2. Only the working spouse needs life insurance.

Life insurance on the breadwinner is there to fill in the gap left by the loss of a income, but that discounts all the valuable work a stay-at-home partner contributes to the family. How would you pay for child care, the cleaning, or even the time off of work for the grieving period, let alone the definite costs of the funeral, without a little financial help in the event of such a loss? It can be hard to monetize the many contributions of the non-breadwinner, but to overlook them would be a bad idea.

3. The value of your life insurance coverage should equal two years’ salary.

Everyone’s financial circumstances are different..  You might require more coverage than two years’ salary if you incur medical bills or other debts, have a young family, a mortgage to pay, or any number of life obligations to meet. If you don’t have any dependents, and you don’t have a mortgage, then two years’ salary may even be excessive.  A lot also depends on what gives you peace of mind regardless of your circumstances.

4. Single people without dependents don’t need to own life insurance.

While it’s true you might not have a family to provide for, odds are you’ll still have to cover the cost of your funeral, pay off debts, and maybe leave a little bit behind for your parents and or close family and friends.

5. You don’t need professional services to buy life insurance.

We do not charge a dime to get quotes or meet and go over your situation.   In the cases I have seen, most people who try to go online and get life insurance without an agent end up paying way more money then if they just contacted an agent.   We work with almost all life insurance companies to get the best price for our clients.  With the knowledge of and access to a myriad of different policies, riders, coverage amounts, prices, and benefits of different companies, a licensed agent can help you find exactly what you need for the right price.

6. Life Insurance is expensive

Compared to health insurance, life insurance is walk in the park.   Unlike health insurance, prices on life insurance have actually dropped over the last few years.  The price you pay is dependent on your age and health, but most people are surprised as to how affordable it can be.  For example, for healthy people under the age of 35 you can get $500,000 of term coverage for under $25 a month.

 

Whether you have life insurance or not, it would be a smart financial decision to talk to us about it and see if we can either get you covered, or get you quotes to see if we can save you money compared to your current policy.  What is there to lose?

By Jimmy Hancock



References

  1. Life Insurance. Digital image. Veldsteon.blog.hr. N.p., n.d. Web. 1 Aug. 2017.
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First Half of 2017 Market Recap

2017 is more than half over now, and a lot has happened.  In case you haven’t heard, international stocks are killing it.  The Matson Money International Fund is up almost 14% through the first half of the year.   The following is commentary from Matson Money on the 2nd quarter in the markets.

The 2nd quarter of 2017 saw a continued increase in broad equity markets, both at home and internationally. During this time period, U.S. stocks grew by 3.09% as represented by the S&P 500 index, and for a second consecutive  quarter, international stocks fared even better, with the MSCI EAFE index  returning 6.37% for the quarter. After lagging behind for much of the previous couple of years, Emerging Market stocks once again led the way over  developed markets for the 2nd consecutive quarter. The MSCI Emerging Markets Index saw a return of 6.38% for the quarter, and is now up over 18%  year to date.

Over the course of the last year, we’ve seen strong market returns, the  lowest unemployment numbers we’ve seen in recent history, and continued low interest rates and low inflation. By almost any normal metric the economy  is looking very healthy and has for quite some time. During extended time  periods of good economic data and favorable stock returns, investors can sometimes begin to feel euphoric – like things will stay good forever. In fact,  over the last 18 fiscal quarters, the S&P 500 had a positive return in 17 of them, with only one negative return in the 3rd quarter of 2015.

In times when markets are down and seem as if they are never coming back up, we stress  that it’s extremely important not to lose sight of one’s long term goals, not  to panic, and to use downside volatility as an opportunity to rebalance and buy  more equities. These same principles apply during bull markets as well. That  euphoric feeling that investors can feel when it seems like markets will go up  forever can lead to imprudent decisions in the same way fear can in a down  market. Investors tend to overestimate their aversity to risk in these market  conditions and take on greater exposure to equities than their true risk tolerance would dictate. In both scenarios, it is important to not get caught up  in recency bias – assuming that whatever is happening in the short term will persist into the long term. Short term trends are just that – short term.  Throughout the life of the stock market bull markets have been followed by bear markets and vice versa many times over.

It is an important distinction to understand the difference between academically proven ways in which  markets move as compared to short term trends. Over the long term, equities have outperformed risk free investments such as treasury bills, but this is not going to be true over every short time period. Similarly, small stocks and value stocks have outperformed large stocks and growth stocks respectively, but again, this isn’t necessarily true over the short term. In fact, looking back historically, sometimes investors have had to wait many years before these  various premiums have shown up, but the prudent investor who understood  that these premiums are pervasive in the long term and have ignored short  term trends have very often been rewarded for doing so. That is why it is so  important to own a diversified portfolio built specifically for your personal risk  tolerance, to stay prudent and to keep that portfolio through the ups and  downs of the market, and to rebalance when the opportunity presents itself.

In the end, choosing a wise financial strategy – and sticking to it – can have  tremendous impact on an investor’s long term financial health. Chasing  performance through buying and selling is a risky game. Historically speaking,  it will only reduce an investor’s real return. Relying on unbiased, non-emotional advice from a trusted investor coach to make good decisions can help an investor bridge that gap between what the average investor makes  and the return of the market.

By Jimmy Hancock

References

  1. 2017 Happy New Year Sign. Digital image. Vectoropenstock.com. N.p., n.d. Web. 25 July 2017.
  2. Matson Money. “Account Statement.” Letter to James Hancock. 20 Apr. 2017. MS.
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4 Investment Accounts You Need to Have

What investment accounts are available for me?  What are the tax consequences of investing?  Planning your investments to build a retirement fund can be a dizzying prospect. The various questions, options, details, accounts, and amounts are enough to make anyone’s head spin. It is important to work with an investment coach that can understand your specific needs.

Below are a few basics and suggestions on some options available to most people.

1. Fulfill Your Company’s Match Program: If you work for an employer that has a retirement plan option, this is a must.  Most companies, even small companies, offer some sort of retirement account.  Smaller companies usually have simple IRA’s or SEP IRA’s, while larger companies usually have 401k’s.  There is a high likelihood that your company has a match program as part of their plan.  This means that for each contribution you make into your account, the company will match it up to a certain amount.  So match programs offer an instant 100% return on the money invested.   Before you invest anywhere else, make sure you are investing enough in your work retirement plan to get your full match.

Warning!  If you don’t plan on working for the company long term, make sure you check out the vesting schedule.  A lot of company retirement plans don’t give you full access to the employer contributions unless you work there for a 3 to 5 years.

2. IRA to the Max: An IRA is an individual retirement account that can be opened by anyone seeking to invest.  Investing in an IRA usually gives you more investment choices and flexibility than is offered in many 401k plans.   Also, you have the Roth option.  There has been a long standing battle between the Traditional IRA’s and the Roth IRA’s. When it comes to your retirement planning, your Roth IRA should win this battle in most cases. There are a few different reasons why you should make this move. Investing in a Roth allows you to pay taxes on your income now, and avoid the higher tax rate as it grows in your retirement.  The total taxes paid with a Roth IRA from opening of account to death and beyond are almost always less than with a Traditional IRA.

Who’s eligible?  Even if you have a retirement plan at work you are eligible to contribute to a Roth IRA.

Another thing to consider if you are married is opening a Roth IRA for your spouse.  Even if they are not working you can contribute to their Roth IRA and max it out as well.

3. Open Taxable (Non-Qualified) Accounts: If you have maxed out your company plan and an IRA for your and your spouse, congratulations, you are doing very well in the retirement planning side of things.  But what if you still want to put more money away?  There are still options.   You can still invest more money in a non-qualified account.  If you are married this would be a joint account, and for the singles it is a personal account. There are a few advantages and disadvantages of this type of account.  This is not a tax sheltered account, so there is no taxable advantage.

One big advantage.  There is no tax penalty or fee for taking the money out at any age for any reason.  For that reason a lot of people use this account as an emergency fund, or in any case where they want extra flexibility.

4. Education Planning:  If you have kids, you need to think about saving money for their future, especially their college expenses.  There are Education Savings Accounts, and other ways and means of doing this that are advantageous for tax purposes.

 
There is a lot of things to know, and I haven’t even gotten into life insurance and that side of the retirement planning.   Like I mentioned before, there is a reason that no one has created a perfect plan that fits everyone. Depending on your personal income, you might not be eligible for certain accounts, like a Roth IRA.  But, for most people, these four steps are a great place to start.

By Jimmy Hancock



College Savings Piggy Bank. Digital image. Flickr. N.p., n.d. Web. 27 June 2017.