Your need for life insurance changes as your life changes. When you're young, you typically have less need for life insurance, but that changes as you take on more responsibility and your family grows. Then, as your responsibilities once again begin to diminish, your need for life insurance may decrease. Let's look at how your life insurance needs change throughout your lifetime.
The habits and values of wealthy Americans.
Just how many millionaires does America have? By the latest estimation of Spectrem Group, a research firm studying affluent and high net worth investors, it has more than ever before. In 2015, the U.S. had 10.4 million households with assets of $1 million or greater, aside from their homes. That represents a 3% increase from 2014. Impressively, 1.2 million of those households were worth between $5 million and $25 million.1
The two should not be confused.
What is risk? To the conservative investor, risk is a negative. To the opportunistic investor, risk is a factor to tolerate and accept.
Whatever the perception of risk, it should not be confused with volatility. That confusion occurs much too frequently.
Volatility can be considered a measurement of risk, but it is not risk itself. Many investors and academics measure investment risk in terms of beta; that is, in terms of an investment’s ups and downs in relation to a market sector or the entirety of the market.
If you want to measure volatility from a very wide angle, you can examine standard deviation for the S&P 500. The total return of this broad benchmark averaged 10.1% during 1926-2015, and there was a standard deviation of 20.1 from that average total return during those 90 market years.1
What does that mean? It means that if you add or subtract 20.1 from 10.1, you get the range of total return that could be expected from the S&P two-thirds of the time during the period from 1926-2015. That is quite a variance, indicating that investors should be ready for anything when investing in equities. During 1926-2015, there was a 67% chance that the S&P could return anywhere from a 30.2% yearly gain to a 10.1% yearly loss. (Again, this is total return with dividends included.)1
Just recently, there were years in which the S&P’s total return fell outside of that wide range. In 2013, the index’s total return was +32.39%. In 2008, its total return was -37.00%.2
When statisticians measure the volatility of major indices like the S&P 500, Nasdaq Composite, or Dow Jones Industrial Average, they are measuring market risk. Trying to measure investment risk is another matter.
You can argue that investment risk is not measureable. How can investors measure the probability of a loss when they invest? Even after they sell an investment, can they go back and calculate what their risk was at the time they bought it? They only know if they made money or not. Profit or loss says nothing about risk exposure.
Most experienced investors do not fear volatility. Instead, they fear loss. They think of “risk” as their potential for unrecoverable loss.
In reality, most apparent “losses” may be recoverable given enough time. True unrecoverable losses occur in one of two ways. One, an investor sells the investment for less than what he or she paid for it. Two, some kind of irrevocable change happens, either to the investment itself or to the sector to which the investment belongs. For example, a company goes totally out of business and leaves investors with worthless securities. Or, an innovation transforms an industry so profoundly that it renders what was once a leading-edge company an afterthought.
Accepting risk means accepting the possibilities of equity investing. The range of possibilities for investment performance and market performance is vast. History has shown that to be true, history being all we have to look at. It fails to tell us anything about the negative (or positive) disruptions that could come out of nowhere to upend our assumptions. A “black swan” (terrorism, a virus, an environmental crisis, a quick evaporation of investor confidence) is always a possibility. Next year, the performance of this or that sector or the small caps or blue chips could be spectacular. It could also be dismal. It could certainly fall in between those extremes. There is no way to calculate it or estimate it in advance. For the equities investor, the future is always a flashing question mark, regardless of what history tells or pundits predict.
Diversification helps investors cope with volatility & risk. Spreading assets across various investment classes may reduce a portfolio’s concentration in a hot sector, but it also lessens the possibility of a portfolio being overweighted in a cold one.
Volatility is a statistical expression of market risk, constantly measured. Volatility, however, should not be confused with risk itself.
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.
1 - fc.standardandpoors.com/sites/client/generic/axa/axa4/Article.vm?topic=5991&siteContent=8088 [3/31/16]
2 - ycharts.com/indicators/sandp_500_total_return_annual [3/31/16]
If you’re a fan of political dramas on televisions, you’ll know that the turbulent world of politics has an affect on the global financial markets. But what about in real life? How much does art - if you can call shows like Scandal, Veep, and House of Cards art - imitate life, and vice versa?
The term beneficiary crops up every now and again. Usually you’ll see it on an insurance form or hear about it in relation to a will, but despite the nonchalance we toss the term around with, beneficiaries are incredibly important. Let’s break down the details on how and why beneficiaries matter.
Here’s a thought: retirement doesn’t mean the end. It doesn’t mean an end of self-importance or purpose, it just means a new chapter—a paradigm shift of what life is beyond long days and meetings and bosses. Unless you own your own business, and even then, you are not your business. You’re not solely defined by the question, “What do you do?” But, it doesn’t mean you should stop defining the answer for such an inquiry in your retirement era.
There comes a point in life where you want to begin sharing or gifting all the things you’ve collected over the years—stories, wisdom, financial wealth. And unlike the Ancient Egyptians believed, you cannot take your worldly goods with you when your light goes out. You can share your stories wisdom in a manifesto or through funny tales to your family, but what about the money? Like most, you have (or should have) a will and most of your assets are likely going to friends and family. But, what about the causes and organizations you care about the 501(c)(3)s that depend on kind donations to continue doing the greatest good than you could do as an individual? Who is going to make your annual donation when you’re gone?
Some early financial behaviors that may promote a comfortable future.
You know you should start saving for retirement before you turn 40. What can you start doing today to make that effort more productive, to improve your chances of ending up with more retirement money, rather than less?
At the core of any successful financial enterprise, be it a household or a business, is a sound an effective budget plan that is used to drive all cash flow decisions, large and small, on a daily basis.
One of the biggest decisions many of our clients face is what to do with their 401k plan when they leave their employer.