As a financial advisor at The Fiduciary Firm, I often find that casual conversations can lead to profound financial discoveries. A recent poolside chat with a friend, Jenna, whose son has been in school with my son since they were babies, highlighted the importance of actively managing one’s investments and the power of guaranteed asset classes.
During our relaxing afternoon, I inquired about Jenna’s savings. She mentioned having a 401(k) and a 529 plan for her son, Zachary. Intrigued, I suggested she calculate her total investments and compare them to the current balances. What followed was a stark realization.
After reviewing her accounts, Jenna discovered that her 529 plan, into which she’d invested $11,530 over 10 years, had only gained $20, totaling $11,550. Even more concerning was her 401(k), where a $184,000 investment had dwindled to $142,000—a significant loss. Jenna was understandably shocked and relieved that I had prompted her to investigate.
The Need for Guaranteed Assets
This situation underscored the necessity of incorporating guaranteed asset classes into a portfolio. As I explained to Jenna and her husband, Bill, from across their kitchen island, relying solely on market-dependent investments can lead to substantial losses and uncertainty.
Our Solution: Whole Life Insurance
To address Jenna’s concerns, we designed a properly structured and funded whole life insurance proposal. This strategy offered two key benefits:
- Guaranteed College Funding: By the time Zachary finishes college and begins repaying student loans, the plan would guarantee $483,000. Unlike market-based investments, this amount would not be affected by market fluctuations or interest rate changes.
- Long-Term Life Insurance Protection: Jenna and Bill’s existing term life insurance policies, with only 11 years remaining, would leave them vulnerable as they aged. To mitigate this risk, we leveraged Jenna’s lower insurance cost to create the college funding within the whole life policy, and thus also provided a guaranteed death benefit for the long term.
Key Summary:
This story emphasizes the importance of regularly reviewing investment portfolios and considering guaranteed asset classes, such as whole life insurance, to mitigate market risks and secure future financial stability. A casual conversation revealed significant losses in a friend’s 401(k) and 529 plan, prompting the adoption of a whole life insurance strategy to provide guaranteed college funding and long-term life insurance protection.
5-Point Checklist: Evaluating Your Investment Portfolio
To ensure your financial well-being, consider these five crucial steps when evaluating your investment portfolio:
- 1. Conduct Regular Reviews:
- Schedule periodic reviews of your investments to track performance and identify potential issues.
- Don’t assume that because your plans where set up a long time ago, that they are still performing as you expected.
- 2. Diversify with Guaranteed Assets:
- Incorporate guaranteed asset classes, such as whole life insurance, to balance market-dependent investments.
- Understand the value of predictability in your financial planning.
- 3. Assess Risk Tolerance:
- Evaluate your comfort level with investment risk and adjust your portfolio accordingly.
- Don’t assume that you are ok with risk, because it is something you have always done.
- 4. Understand Investment Fees:
- Scrutinize fees and expenses associated with your investments to maximize returns.
- Understand how fees can erode long term returns.
- 5. Seek Professional Guidance:
- Consult with a qualified financial advisor to develop a comprehensive financial plan.
- Ensure your advisor has a fiduciary responsibility to act in your best interest.
By following these guidelines, you can proactively manage your investments and secure a more stable financial future.
How to reach us
You can reach us by:
- Phone at 410 989 1993
- Email at [email protected],
- Booking a meeting slot here.
We look forward to partnering with you on your financial journey.