So you have a spouse, children, a vehicle and a home. Auto and homeowners’ insurance will pay for the losses of car or house, but what about the loss of your income should an unexpected event occur, such as death or disability? How will things be paid for then? Will you have enough to support yourself in retirement? Many of the people whom I run across are not doing all they could to cover these manageable risks. Are you properly managing your risks?
Portfolio risks
Anyone who owns any kind of investment has two main types of portfolio risks. One is being properly diversified in a portfolio that matches your risk tolerance. I see portfolios all the time where an individual owns 10 different mutual funds in his 401(k). However, when you pull back the covers and look at what stocks are being purchased in those mutual funds, it’s common to find that six out of the 10 are buying the same stocks. So the question is, are you collecting mutual funds or investing in them? The second is longevity risk. Over the past decade, had you owned a stock portfolio and not added to it, you would have seen approximately no return on your money. However, the S&P 500 is now up more than 90 percent as compared with its March 9, 2009, bottom. What does all this mean? Many investors were driven out of the market over the past decade, and if they don’t find a way back into it, inflation will catch them. For a married couple who today are age
65, chances are that one of them is going to live to age 90. If that is the case, the surviving spouse will not be able to sustain her current retirement lifestyle on a 2 percent fixed-income bucket of money. Inflation is coming; your dollar will be worth less in 20 years than it is worth today. You need to have a plan to manage this risk.
Health risks
Continuing the example of the 65-year-old married couple: Statistics show that they have a 70 percent chance of having to use long-term care services during their lifetime. Are you prepared for this? You can look at many different ways to fund long-term care such as annuities and long-term care insurance. Have you discussed this important risk with your financial planner?
Another often overlooked health risk is disability. Young people in their 30s and 40s have a higher probability of being disabled vs. dying. Are you covered for the loss of income? Many people are fortunate to have disability insurance at work, but what if you lose your job and the insurance coverage? Many small business owners are not covered at all. Who’s going to run your business if you are sick and not able to go to work? Relatively speaking, disability is not that expensive to insure against.
Death risk
Insuring against a premature death is also very important. However, many people don’t insure enough. You can choose from different types of life polices, such as term life insurance, universal life and whole life, just to name a few. There are two schools of thought when it comes to life insurance. For instance, take a married have debt against them. They could insure just enough to cover debt and future college costs, or they could insure enough to cover debt, college costs and loss of future income. Look at it both ways with your financial advisor, and make sure that you have adequate insurance. Covering the loss of a loved one is inexpensive when you look at the financial hardship it can cause you.
Certainly, there are even more possible risks. Liability risks are covered through balloon coverage, in case you are sued because someone is hurt on your property. Health insurance: Are you properly covered? Identity theft: Are you protected?
We all occasionally think about these issues, but are you acting upon them? Sit down and take a hard look at your situation. Speak with your team of advisors so you are prepared if one of these risks roars in your life someday.
Securities, advisory services, and insurance products are offered through Investment Centers of America, Inc.® (ICA), member FINRA, SIPC, a Registered Investment Advisor, and affiliated insurance agencies. ICA and iWealth are separate companies.
The S&P 500 Index is an unmanaged index generally representative of the U.S. stock market. Its returns do not include payment of any sales charges or fees an investor would pay to purchase the securities it represents. Such costs would lower performance. It is not possible to invest directly in an index. Past performance is no guarantee of future results.
