As we become adults we take on the expected responsibilities like getting a job, paying our bills, and providing for ourselves. Many people go on to start families and provide for them. But what if that provider died? This has been a concern since the beginning of time.

Life insurance has been around for a long time, longer than some people realize. Dating back to ancient Rome, there were societies dedicated to cover burial expenses for their fellow comrades. Flash forward a few centuries and life insurance starts to look a little more familiar. In the mid 1700’s life insurance was developed in America, and by the 1830’s some of the insurance companies we are familiar with took shape. From here it was refined and became what is known today.

Life insurance, in essence, is pretty simple. You pay a premium every month, and in return the insurance company agrees to pay out your coverage in the event of your death. It can feel a bit macabre or depressing, but it is an important issue to address; as the old adage goes “the only two certainties in life are death and taxes.”

Life insurance is not really for the person receiving the coverage. It’s for the individual’s loved ones-their family. When a provider passes away it leaves not only a hole in the hearts and lives of a family, it can also leave a deficit in their finances. Funeral costs can range anywhere from $5,000 to $10,000. Then there are debts and bills to be paid as well as the everyday living expenses. Having proper life insurance can provide coverage for those costs and bring peace of mind, not only to you now, but to your loved ones as well.

Back in the mid 1970’s 72% of adults in the United States carried some form of life insurance. However, today only 57% of Americans have life insurance. And more than half of those insured don’t have enough coverage to meet their financial needs.

What changed? Why are fewer people getting life insurance?

Most insurance companies will have you do a physical and answer medical and family history questions in order gauge your health. This is one of the reasons getting life insurance when you're younger is a good idea. Typically when we are young we are at our physical peak, which allows for a lower premium- the better your health, the lower your premiums. All that being said, reports show that 4 out of 10 Americans don’t qualify for life insurance. There are a few different reasons why someone might not qualify, but the top reasons usually have to do with poor health that is associated with obesity, high blood pressure, or some form of metabolic disease. The good news is these are factors that are within your control and can be overcome with lifestyle changes and healthy habits.

Acquiring life insurance earlier in life is better than waiting. It's important to consider that the time to get life insurance is before you need it. If you wait until you have been diagnosed with an illness you will likely not qualify for a new policy.

Most people are familiar with the concept of life insurance. The two most recognized are “term” and “whole.” Both policies are designed to pay your beneficiaries in the event of your death. However, there are significant differences between them.

Initially, term life insurance can have lower premiums to start with, which makes it a popular choice. But those premiums go up over time because as you get older your chances of dying increase. The name “term” indicates that the insurance coverage lasts only for a set amount of time. Once the set term of your policy has expired, all the money you paid into it is gone.

Whole life insurance typically has higher premiums, but they don’t go up as you age or if you become ill. The earlier you start a whole life policy the better deal you can get. Whole life also differs from term in that it offers additional perks in the form of “cash value.” When you pay your premium a portion goes into a tax-deferred savings account where it can build up and grow interest, which can help provide more stability in your retirement years.

The goal of whole life insurance is to provide coverage for your whole life.

If you have a financial question we would love to hear it. You can email your questions to questions@yieldfa.com

“Buy on mystery, sell on history.”

-Old Wall Street Saw;

The Maxims of Wall Street, by Mark Skousen p.41

Years ago I heard Steve Forbes, the publisher of Forbes Magazine, say “everyone is a disciplined, long-term investor until the market goes down.”

When it comes to investing there are definitely some investments that are riskier than others. How do you know which investments to jump on and which ones to give a pass? It’s common for investors to make the mistake of not matching their investments with their overall objectives. It can be hard to gauge if the risk is worth the potential payout, or if you should use something with little less risk.

Financial planners use different methods to help clients understand the types of investments they should be looking into. A risk profile is one tool that gives insight into your ability and disposition towards taking on financial risks. It aids in determining the proper investments or portfolios to invest in; it can align investors with the appropriate level of risk associated with their personal goals. For example, some investments come with a much higher risk, which can produce fantastic returns, but also come with potential for financial loss. On the other hand, there are investments that carry a much lower risk, but produce a much lower return as well.

When we look at risk we can see it as a balanced scale. If you place higher risk on one side, the other side is typically balanced out with a higher payout. If you place lower risk on the scale, the other side will have a lower payout to keep it balanced. There are several types of investment risks, and some can be managed, but perhaps that is an article for a different day.

The most common way to discover your risk profile is through a Risk Profile Questionnaire. It’s like a financial personality quiz that reveals a person's ability or willingness to take risks. It consists of questions that measure your attitude and understanding of financial markets. It also helps gauge how you might react to certain investment scenarios. Your responses are calculated to determine your risk level. The results are used to develop a portfolio.

Once you know your risk profile, it’s helpful to revisit these questionnaires regularly because a person’s risk profile changes over time. This is helpful in maintaining an alignment with your investment goals.

Typically there are five types of investors. The score you receive from the Risk Profile Questionnaire will determine which type of investor you are.

Conservative

A conservative investor’s focus is on protecting principal instead of seeking higher returns. They are comfortable accepting lower returns for a higher level of security and more liquidity of their investments. Overall, a conservative investor minimizes risk of loss.

Moderate-Conservative

A moderate-conservative investor’s objective is principal preservation, but is comfortable accepting a small degree of risk to seek some degree of appreciation. This investor is willing to accept lower returns, and is willing to accept minimal losses.

Moderate

A moderate investor permits some risks in order to enhance returns.

They are prepared to accept modest risks to seek higher long-term returns. A moderate investor can endure a short-term loss for the trade-off of long-term appreciation.

Moderate-Aggressive

A moderate-aggressive investor places a higher value on long-term returns and is willing to accept significant risk. This investor believes higher long-term returns are more important than protecting principal. A Moderately-Aggressive investor may endure large losses in favor of potentially higher long-term returns.

Aggressive

An aggressive investor prizes profitability and is willing to accept substantial risk. This investor believes maximizing long-term returns is more important than protecting principal. An Aggressive investor may endure extensive volatility and significant losses.

Knowing your personal risk tolerance gives you an understanding of what’s important to you, as an investor, and will guide you to make decisions that reflect your overall goals. It is hard to classify as a moderate risk investor, and expect to “beat the market”, and then be upset at times when your account goes in a negative direction. Investors can’t have it both ways.

If you want to complete a risk profile questionnaire, you can do so here, it takes about five minutes and you will receive your score in your email.

“The only people who never get criticized are those who never do anything.”

-Linda Prevatt

Pg. 132 The Maxims of Wall Street by Mark Skousen

If you’ve started planning for retirement you may have heard of annuities. Doing a quick online search will result in a lot of information, as well as some misinformation. The reason for this is because there are a wide variety of annuities, each with their own specialized options. While this can seem overwhelming and complicated at first glance, it's what allows annuities to be customizable.

So what exactly is an annuity? Basically, an annuity is a retirement income contract offered by insurance companies. They are a long-term agreement that allows you to accumulate funds on a tax-deferred basis, which are then paid out in regular instalments, guaranteeing income during your retirement years. Annuities are structured to give your retirement plan a reliable foundation to build on. Because of this, annuities are not primarily an investment, rather they are a disbursement vehicle. In this way, they work much like corporate pension or Social Security. The payments you receive may last for a predetermined length of time, such as 20 years, or they can be ongoing for your lifetime, and/or the lifetime of your spouse.

So why would you want to consider an annuity?

The main reason people look at annuities is because they provide guaranteed income that you may not outlive. Annuities generate a consistent income stream. Some other benefits are:

• You may get back the money you put into it; you won't lose the money you started with.

• Annuities aren’t subject to an annual contribution limit, if you have more to contribute to your retirement after you’ve reached your 401(k) and IRA limits you can put it into an annuity.

• You can design annuities to fit your needs and lifestyle. You can manage how much income and how much risk, and using riders, you can add on, and customize your annuity to meet your specific needs.

• They can also provide for your loved ones when you are gone.

As mentioned before, there are different types of annuities. This is where people tend to get confused. There are fixed, variable, and indexed annuities. Each of these come with their own level of risk and payout potential. You can also choose between immediate or deferred annuities.

• A fixed annuity guarantees a set interest rate for a length of time, which may be adjusted on the annuity’s anniversary. The distributions may also be a fixed amount for the term established. With this option you are guaranteed your initial investment and it earns interest at a fixed rate.

• A variable annuity fluctuates depending on the returns of the subaccount(s) (similar to a mutual fund(s)) you have selected, making its value go up or down, which in turn could affect the payment amount you receive.

• An indexed annuity is a type of fixed annuity that has features from both the fixed and variable annuities. With indexed annuities your investment is protected when the market is down, but still has the possibility of growing your investment more when the market is up.

• An immediate annuity begins issuing payments after a lump-sum has been deposited. Once you give the insurance company a lump sum of money you start receiving payments. This option is great if you have acquired a large amount of money like an inheritance.

• A deferred annuity starts payments on a future date determined by the owner. You can purchase a deferred annuity with a lump sum, a series of periodic contributions, or a combination of the two.

Think about making a salad- Salads start with a base of leafy greens, but there are a few different choices out there, you’ll pick the one you like best. Once you’ve picked your base you can start adding on the toppings and extra things.

There are some downsides to going with an annuity. Some annuities have fees (generally variable annuities) associated with annuities, which may reduce the value of your annuity. And, like many retirement accounts, if you withdraw money before age 59 ½ you are subject to a 10% penalty penalty tax. You could also get hit with a surrender fee. However, depending on how your annuity is structured,you may be allowed to take out a certain percentage each year without paying a surrender fee, which decreases each year.

While annuities provide a lot of flexibility and options, you pay for all those extras. Those riders mentioned earlier, they can add up quickly. The more riders you add, the more expensive your annuity will be. You will have to weigh the advantages against the costs, and decide if those are really worth it.

Often an annuity works well to fill the gap between desired income, and what Social Security, and/or what a pension is paying. For example: if your planned retirement income is $6,000 per month and you are receiving $2,400 from a pension, and $1,800 from Social Security, totalling $4,200, then you can use an annuity to fill in the gap that would provide a guaranteed income of $1,800.

The word annuity comes from an ancient Roman term annaus - meaning payment, which was a gift to soldiers and their families.

“If you take care of the pennies, the dollars will take care of themselves.”

~ Russell Sage, The Maxims of Wall Street, p. 62

Money has a strong connection to our emotions. There are many aspects of money, including how we use money, that cause us to experience different emotions.

How do you feel when you’ve saved money on a purchase? How does it feel when you spend your hard earned money on something you’ve eagerly been waiting for? On the other hand, how does it feel when you have to borrow money to pay for something you need? How do you feel when you look at your bank account, knowing your finances are tight?

If money were not emotional, simply having more would make people happy, secure, and there would be no negativity associated with having more or less money. We see movies (as well as real life stories), about miserable rich people.

Researchers have identified that the most common emotions associated with money are:

embarrassment, fear, depression, guilt, shame, anger, panic, hate, jealousy, and anxiety.

Why are so many of the emotions we associate with money negative?

One factor might be that our perception of money is linked to our childhood. How did our parents or caretakers handle money? How did they feel about it, manage it, etc? If their relationship with money was negative, unknowingly that could very well bleed over into your own perception.

Too often, people find their finances in a self-destructive cycle. They tend to have money problems, which then causes them to think negatively about money. And thinking negatively about money tends to cause more money problems. If we allow our negative emotions to override our critical thinking, it will negatively influence the decisions we make with our money. This could lead to a negative money cycle.

Can we break these negative cycles, and feelings by changing our perception of money? Absolutely! People who think positively about money and believe it is something they can control tend to be more successful with their money. Experiencing success with money leads them to feel more positive about money, and thus creates a positive money cycle.

Money really isn’t the problem, it's all in how we approach it and how we feel about it. Money can also make us feel happy, excited, satisfied, and mostly, secure. Money should enhance our lives, not ruin them.

We need to be careful with money. It's far better for us to control our money, than allowing it to control us. We can learn to control it through practicing self discipline in the way we manage our resources. By being aware of the role our emotions play in our finances we can have more control over our money.

“I can calculate the motion of heavenly bodies, but not the madness of people.”

~Sir Isaac Newton; The Maxims of Wall Street, p.89