Paul Hundley Posts – Handling Change

DISCUSSING LIFE INSURANCE

By Paul Hundley

Life Insurance: this is a topic I avoided for most of my professional career. I always liked to view myself as an “investment” guy. I would rather focus on equity, fixed income, asset allocation, macroeconomics, and how the world around us can affect your investments. However, when I became a father almost a year and a half ago life insurance was a topic I could not continue to ignore. My daughter depends on me for everything, financial support being one of them. It is not fun to think of my mortality at just 37 years of age, but my mother passed at 48 years old and my uncle passed at 32, both due to cancer-related complications. Unfortunately, my family history is my reality and it would be irresponsible to not plan defensively, should a day come and I am unable to provide for Cadence.

The most common question I encounter regarding life insurance is determining how much insurance an individual needs, and what kind of insurance coverage they may require. There are a few simple starting points that I take into consideration.

How much are your earnings? How much does your spouse earn?
What are your current liabilities – mortgages, cars, credit cards, student loans etc.?

What are your future projected liabilities- children, college etc.?

The next issue is determining what type of life insurance coverage is needed. Do you need temporary, or more commonly referred to as term insurance? Term insurance covers you for a set number of years. Or is a permanent policy through whole or universal life more appropriate for you and your family? Permanent policies are typically for families with special needs children or possible estate planning needs.

Click Here for an explanation of different types of life insurance.

Planning for the cost of life insurance should not be a burden..There are extremely affordable policies in the marketplace, and we would be happy provide you with a number of different quotes and policy types.

Personally, life insurance is extremely unfun. But I promise you this, if for some unforeseen reason your spouse calls me with tragic news we will not be talking stock. We will be talking about how you did the right thing protecting your family.

I look forward to regularly sharing with you my views relating to personal finance. I would appreciate any feedback that you may have, and if you have a topic that you would like me to cover, please email me at

phundley@lighthousecapllc.com or find me on Facebook at Paul Hundley, Lighthouse Capital. Or read more of my blogs at the Lighthouse Capital blog.

ACCOUNT QUALIFICATION

By Paul Hundley

Question: I want to start investing but I don’t know how to take the first step?

Believe it or not the first step to investing is not finding an investment itself but the path to the investment. What type of investment account should you open? Let’s walk through the different investment accounts available and their different purposes.

Account Type: Traditional IRA, SEP IRA, Traditional 401k, 403b, 457 Plans.

These accounts typically will provide the investor a present day tax deduction. This can help an individual or family reduce their tax liability in the year the funds were placed in the account. Some of these accounts may allow contributions up until April 15th of the following tax year to help offset the tax year being prepared.

These accounts are best for high-income individuals with a long-term investment horizon. The purpose of the funds are for retirement purposes.You may be charged with taxes and penalties if you use these funds prior to age 59 and a half.

Account Type: Roth IRA, Roth 401k

Tax-free growth. Let’s do that again only go to your window open it up, stick your head out and scream “TAX-FREE GROWTH”. That feels good right. The downside is no current day benefit to you.

Roths are best served for those with lower incomes with hopes of being in a higher income tax bracket in the future. The funds, like the IRAs discussed above, are intended for retirement purposes and should be held for extended periods of time. Penalties may be incurred for distributions prior to age 59 and a half.

Account Type: Non-qualified or Brokerage

Liquidity. These funds are readily accessible for investors at any point. This type of investment can be converted to cash at any point. The downside is taxes are owed each year for any capital gains, dividends, or other possible transactions.

These types of accounts are for those with intermediate to shorter investment timelines or may need access to capital.

Before you go looking for the perfect investment, you need to find the best account path to help maximize return. If you are unsure what type of account you should open ask yourself or your advisor these simple questions:

Will I need access to this money?
What is my goal for this investment?

These things should help you determine the best course of action. More information on various account types and benefits can be located here https://www.valuepenguin.com/investing/investment-account-types.

Make it a healthy, happy, profitable day.

UNDERSTANDING ECONOMIC PHASES

By Paul Hundley

When assessing investment portfolios, we often discuss the economy and its impact on your investments. Questions typically arise about the stages or phases of the economy and how to assess where the economy is sitting. The stock market has been on a record run since the great recession of 2008 with the S&P 500 bottoming out on March 7th, 2009. The economy itself works in 4 stages, often called phases.

Early recession: this is when things go bad for the economy. Generally, this is when consumer expectations are poor, industrial production is falling, and yield curves flat line and sometimes even go inverted.
Full recession: this is when GDP has retracted in two successive quarters. This is a particularly hard time for the unemployed, corporations, and 401k balances. By this point, consumer expectations have bottomed out and the Fed typically tinkers with the yield curve with the hopes of injecting life into the economy.
Early Recovery: Industrial production is picking up, the yield curve is steep and interest rates are beginning to rise. Consumer expectations are rebounding at this point.
Late recovery: Consumer expectations are beginning to decline, along with flattening industrial output. Interest rates typically rise quickly during this phase.

How can we tell where we are at besides just eyeballing it? Economists use economic indicators to help determine phases and where the economy is currently resting. While investors may pay attention to both leading and lagging economic indicators. Insight to the difference of both leading and lagging economic indicators can be found here https://www.moneycrashers.com/leading-lagging-economic-indicators/.

Timing these phases of the economic cycle are almost impossible. In fact, even the most well-respected investors find it almost near impossible to time these cycles. That’s why I stress to my clients that these phases should never impact their investment decision making. Your investments should be built in a manner to help accomplish your short, intermediate, and long-term goals in all kinds of market environments.