There’s No Better Time Than The Present To Plan
No doubt the events of September 11 left us all contemplating many things in our lives – our connections to family, friends, and our communities. It also raised anxiety about what the fu-ture holds and how we can prepare ourselves for what’s to come.
The financial markets certainly mirrored the initial anxiety felt by investors. According to a recent study by the Investors Company Institute, a fund industry group, investors withdrew more than $29.5 billion from mutual funds in September, but reinvested most of it in October. Behavior-al finance experts would say that the rush by investors to sell their stocks following the attacks was the result of a common behavior called the cascade effect. People felt the need to take some action with their finances but didn’t know what to do, so they acted based on what they saw other people doing.
To get a sense of how anxious people are feeling about their financial situations, the Northwestern Mutual Fi-nancial Network conducted a survey of more than 600 Americans to learn more about the attitudes and behaviors of the investing public post-September 11. You might be surprised to learn that more than half of them said they were comfortable with their state of overall financial preparedness, and nearly all believe their financial situations will stay the same or im-prove over the next six months. Yet, beneath the optimism, there is a definite anxiety about what the future holds, as 80 percent admitted they are concerned about their investment approach and one-fourth are now re-thinking their retirement plans.
A time for planning
So what should you do with your financial portfolio? First, don’t panic. History has proven that the stock market can rebound and grow stronger following earth-shattering events. If you compare market performance with the time elapsed from the Cuban Missile Crisis, the Gulf War or even World War II, you’ll see a silver lining among-st this cloud of uncertainty.
Take this time to review your complete portfolio and evaluate the performance of your assets. In addition to evaluating your risk-based investments, make sure your family is adequately protected through needs-based coverage, specifically through two key avenues – disability insurance and life insurance.
Gambling Against the Odds
Taking no precautions for a disability is like gambling against the odds. An estimated one out of every four people will become disabled during their lifetime. Statistics show that a 35-year old male is almost 4 times more likely to become disabled than to die in a given year. A disability also can have a devastating impact on your family’s finances. And while many people think they can rely on disability insurance provided through their em-ployers, those plans only cover a small percentage of a worker’s salary.
In addition to disability insurance, access your life insurance needs with the help of a financial professional to make sure you’re choosing the best policy for your life situation. One op-tion is a permanent, or whole, life insurance policy, which not only provides a death benefit (tax-free payment to the beneficiaries), but it also provides a cash value which grows tax-deferred and may be accessed whenever cash is needed.
Term life insurance is commonly promoted as being less expensive than whole life insurance, and, initially, it is true that yearly renewable term premiums are considerably lower early on. However, for people who intend to keep their policy for more than 20 years, studies have shown that the overall cost of whole life insurance is actually less than a term policy. And, while an old phrase continues to be popular, heed with caution the advice to "buy term and invest the difference" (the difference between a term premium and a comparable whole life premium). The fact is, most people never do invest the difference. Something else to remember – many term policies cannot be renewed beyond a certain age (typically 70) so the policy may "expire" before the insured person does. So be sure to take these factors into consideration when making your decisions.
We will recover from these uncertain times, and feeling confident that you’ve taken the necessary steps to secure your family’s future will help reduce anxieties along the way. Take time now to make sure you’re confident with the financial plan you’ve created.
Kathleen Lundon is a Financial Representative with the Northwestern Mutual Financial Network based in Belle Harbor, NY, for The Northwest-ern Mutual Life Insurance Company, Milwaukee, Wisconsin. She can be reached at 718-634-4542 or e-mail her at email@example.com.