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FINANCIAL FOCUS Archives for 2019-01

What Can Investors Learn From "Big Game" Teams?

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In February, TV stations the world over will broadcast the most-watched U.S. football game of the year. But sports fans aren’t the only ones viewing this “big game,” held in Atlanta this year. The two teams competing are watched closely by the teams that didn’t qualify. That’s because these teams can learn a lot from the contenders. In fact, “big game” teams can teach some valuable lessons to many groups and individuals – including investors. 

What investment insights can you gain from observing these teams? Here are a few to consider:  

A good “offense” is important. “Big game” teams usually have the ability to score a lot of points. They can run the ball, pass the ball and move up the field quickly. As an investor, you also need to constantly seek gains – in other words, you need an “offense” in the form of an investment portfolio capable of producing long-term growth. Consequently, you will need a reasonable percentage of growth-oriented vehicles, such as stocks and stock-based mutual funds, in your holdings. Yes, these types of investments carry risk, including the potential loss of principal. But you can help reduce your risk level by holding investments for the long term – giving them time to possibly overcome the short-term drops that will inevitably occur – and by diversifying your overall portfolio with other types of investments, such as bonds and government securities, that will likely not fluctuate in value as much as stocks.


A strong “defense” is essential. In addition to having good offenses, “big game” teams are also typically strong on defense. They may give up yardage, and going against a strong offense, they will also give up points, but they still often stop their opponents from making the big, game-breaking plays. As someone with financial goals, such as protecting your family’s lifestyle and helping send your children to college, you, too, have much to defend – and one of the best defensive moves you can make is to maintain adequate life insurance. Also, to protect your own financial independence – and to defend against the possibility of becoming a burden to your adult children – you may want to explore some type of long-term care insurance, which can help pay for the extraordinarily high costs of an extended nursing home stay.  

The ability to adjust a strategy is essential. If a “big game” team is trailing, it very well might decide to switch its game strategy – perhaps they tried to keep the ball on the ground but fell behind, requiring them to throw more passes to catch up. You also will need to evaluate your progress toward your goals to determine if you may need to adjust your strategy. To illustrate: If your current portfolio is not providing you with the returns you need to retire comfortably, you may well need to adjust your investment mix to provide more growth potential, but within the context of your risk tolerance and time horizon. 

The “big game” is the culmination of a season of hard work by two teams that have achieved the highest level of success. And by applying the lessons you’ve learned from these teams, you can help contribute to your own success. 

 

Edward Jones is a licensed insurance producer in all states and Washington, D.C., through Edward D. Jones & Co., L.P. and in California, New Mexico and Massachusetts through Edward Jones Insurance Agency of California, L.L.C.; Edward Jones Insurance Agency of New Mexico, L.L.C.; and Edward Jones Insurance Agency of Massachusetts, L.L.C.

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Insurance Can Protect Your Aspirations

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You probably already know that life insurance can protect your family if something were to happen to you. But you might not realize the many ways in which insurance can help you preserve your plans for the future – whether for yourself, the next generation, or those charitable groups you support. 

Specifically, life insurance can potentially help you address several areas, including the following:  

Help in covering final expenses – The proceeds of a life insurance policy can provide immediate funds at the time of your death to pay for your funeral costs, your debts and your final income taxes.  

Transfer wealth (with potential tax advantages) – Some wealth transfer vehicles carry significant tax consequences. But the proceeds from life insurance are typically free of income tax, so if your death benefit is $1 million, your heirs will receive the full $1 million. (Consult with your tax advisor about all potential tax consequences beneficiaries might face.)  

Provide charitable gifts – You can use life insurance in various ways to support charitable organizations. One option is to donate a policy you may no longer need. Either you or the charity would continue paying the premiums, but the charity would become both the owner and beneficiary of your policy. Alternatively, you could purchase a permanent life insurance policy and donate it to the charity, which could then use the policy’s cash value when you’re alive and receive the death benefit when you die.  

Help fund a revocable living trust – Depending on your situation, you might want to establish a revocable living trust as part of your estate plans. A revocable living trust helps you avoid the time-consuming, expensive and public process of probate. And, among other benefits, a living trust allows you to distribute your financial assets over time, and in amounts that you specify – which may be quite appealing, if, for example, you’d rather not give your children a large amount of money at once. Life insurance can help fund your living trust – you just need to name the trustee (which may well be yourself while you’re alive) as the owner and beneficiary of the policy. However, you will need to consult with your legal advisor before creating and funding a living trust.  

Help cover long-term care costs – You may never need any type of long-term care, but if you do, you’ll find it quite expensive. It now costs, on average, more than $100,000 per year for a private room in a nursing home, according to the 2018 Cost of Care Survey, produced by Genworth, an insurance company. Medicare typically pays little of these costs, so the burden will fall on you. To avoid using up your financial assets – or, even worse, having to rely on your adult children for help – you may want to purchase insurance. Some life insurance plans offer long-term care coverage, either through a special “rider” or by accelerating your death benefit, but you might also want to consider a traditional long-term care insurance policy. 

As you can see, one of the most flexible tools you have is life insurance. Start thinking soon about how you can put it to work.


Edward Jones, its employees and financial advisors are not estate planners and cannot provide tax or legal advice. You should consult your estate-planning attorney or qualified tax advisor regarding your situation.

 

Edward Jones is a licensed insurance producer in all states and Washington, D.C., through Edward D. Jones & Co., L.P. and in California, New Mexico and Massachusetts through Edward Jones Insurance Agency of California, L.L.C.; Edward Jones Insurance Agency of New Mexico, L.L.C.; and Edward Jones Insurance Agency of Massachusetts, L.L.C.

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Review Your Fixed-income Strategy as Interest Rates Rise

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When interest rates rise, the value of your fixed-income investments, such as bonds, will typically fall. If this happens, how should you respond? 

First of all, it’s important to understand this inverse correlation between interest rates and bond prices. Essentially, when interest rates rise, investors won’t pay you full price for your bonds because they can purchase newly issued ones that pay higher rates. So, if you sell your bonds before they mature, you could lose some of the principal value. 

You may be seeing a price drop among your bonds right now, because interest rates generally rose in 2018 and may continue to do so in 2019. While you might not like this decline, you don’t necessarily have to take any action, particularly if you’re planning to hold these bonds until maturity. Of course, you do have to consider credit risk – the chance that a portion of the principal and interest will not be paid back to investors – but unless the bond issuers default, which is usually unlikely, particularly with investment-grade bonds, you can expect to receive the same regular interest payments you always did, no matter where rates move. 

Holding some of your bonds – particularly your longer-term ones – until they mature may prove useful during a period of rising interest rates. Although long-term bond prices – the amount you could get if you were to sell these bonds – tend to fall more significantly than short-term bond prices, the actual income that longer-term bonds provide may still be higher, because longer-term bonds typically pay higher interest rates than shorter-term ones. 
To preserve this income and still take advantage of rising interest rates, you may want to construct a “bond ladder” consisting of short-, intermediate- and longer-term bonds. Because a ladder contains bonds with staggered maturity dates, some are maturing and can be reinvested – and in a rising-rate environment such as we’re currently experiencing, you would be replacing maturing bonds with higher-yielding ones. As is the case with all your investments, however, you must evaluate whether a bond ladder and the securities held within it are consistent with your objectives, risk tolerance and financial circumstances. 

You can build a bond ladder with individual bonds, but you might find it easier, and perhaps more affordable, to own bond-based mutual funds and exchange-traded funds (ETFs) that invest in bonds. Many bond funds and ETFs own a portfolio of bonds of various maturities, so they’re already diversified. 

Building a bond ladder can help you navigate the rising-rate environment. But you also have another incentive to continue investing in bonds, bond funds or ETFs – namely, they can help diversify a stock-heavy portfolio. If you only owned stocks, your investment statements would probably fluctuate greatly – it’s no secret that the stock market can go on some wild rides. But even in the face of escalating interest rates, bond prices generally don’t exhibit the same sharp swings as stocks, so owning an appropriate percentage of bonds based on your personal circumstances can help add some stability to your investment mix. 

As an investor, you do need to be aware of rising interest rates, but as we’ve seen, they certainly don’t mean that you should lose your interest in bonds as a valuable part of your investment strategy.

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