Financial Planning

How important is financial planning?

If I asked you to take a car ride with me and I said, “I don’t know how long we will, I don’t know where we are going, I don’t know how much gas I have, and I don’t have a gas gauge,” it is doubtful that you would want to come along.  Yet, this is how most people plan their financial future.  They have no set goals, objectives, or disciplined approach when it comes to investing and planning ahead.

How often should I move my assets around?

Often, investors see tables that list the best mutual funds or variable annuities and rush out to quickly invest in these portfolios.  Do not attempt to “chase last year’s winners.”

Why is it important to invest in several different categories?

Because no one knows what the next best-performing investment category will be (if might be international, aggressive growth, high-yield, etc.).  Smart investors know that they cannot predict the future and therefore they spread their money out among several different categories.  Such a strategy reduces risk and often increases one’s long-term return.

How much will I lose out on if I diversify?

Over any given year, your “missed opportunity” could be great; but then again, so could your “avoided disaster.”  When you look at meaningful periods of time, you will discover that very little, if any, is lost by being properly diversified.  What is gained is peace of mind and more predictable results.

What does it cost to have a financial plan drafted?

A comprehensive plan can cost anywhere from a few hundreds to a thousand dollars.  Before you pay for a financial plan, interview the planner and find out what you are getting for your money.  Find out the adviser’s background and ask for referrals.

Do investment advisers recommend annuities for retirement accounts?

YES, Brokers, financial planners, and investment adviser view annuities as compatible with the long-term objective of saving for retirement.  Indeed, contract owners cite this reason for investing  (and tax deferral) more than any other.  Many types of subaccounts work best when allowed to ride out the ups and downs of market cycles over long periods of time.

What’s the difference between yield and total return?

Yield is the income per unit credited to a contract owner, from the dividends and interest, over a specified period of time.  Yield is expressed as a percent of the current offering price per share.  Since most people do not ever make withdrawals from asn annuity, yield figures and not very important.

          The term “total return” is a measure of the per-unit change in any value from the beginning to the end of a specified period, usually a year, including distributions paid to contract owner.  This measure includes income received (or credited) from dividends, interest, and capital gains distributions (or loss).  Total return provides the best measure of overall subaccount performance.

Why don’t more people invest in foreign securities?

Ignorance.  The reality is that foreign securities (stocks and bonds), when added to domestic investments, can reduce the portfolio’s level of risk.  The stock and bond markets around the world rarely move up and down together at the same time.  It is this random correlation that helps lower risk – when U.S. stocks or bonds are going down, securities in several other parts of the world are either moving sideways or going up.

Is standard deviation the correct way to measure risk?

Not necessarily.  Standard deviation measures volatility (or predictability) of returns.  Standard deviation punishes a subaccount equally for upward volatility (by giving it a high standard deviation figure that is then translated by most financial writers as “high risk”) as well as downward volatility; no one minds upward volatility.