Blog

Stethoscope and words on the desk Life insurance term vs permanent.

<h3>Whole Life Insurance: Just Bad – Plain and Simple</h3>Whole life insurance (Permanent Insurance) is often criticized for several reasons. Here are some common arguments against whole life insurance:High Cost: Whole life insurance policies tend to be significantly more expensive than term life insurance policies. The premiums for whole life insurance are often several times higher than those for term life insurance with the same coverage amount. The high cost can make it difficult for individuals to afford adequate coverage or prioritize other financial goals such as saving for retirement or paying off debt. Complex and Opaque: Whole life insurance policies are complex financial products that can be difficult to understand. They often include investment and savings components, such as a cash value or savings account. The interplay between insurance and investment features can make it challenging to evaluate the true cost and benefits of the policy. The complexity can lead to confusion and make it harder for consumers to make informed decisions. Limited Flexibility: Whole life insurance policies come with limited flexibility compared to term life insurance. The policyholder is locked into a specific premium payment and coverage structure for the duration of the policy, which is typically for the insured’s entire life. Making changes to the policy, such as reducing coverage or accessing the cash value, can be complicated and may incur penalties or fees. This lack of flexibility can be problematic if your financial needs or circumstances change over time. Lower Returns: The investment component of whole life insurance policies often promises a cash value accumulation over time. However, the returns on these investments are generally lower compared to other investment options available in the market, such as stocks, bonds, or mutual funds. The cash value growth in a whole life insurance policy tends to be slow, and fees and expenses associated with the policy can eat into the returns. In many cases, individuals can achieve better investment returns by purchasing term life insurance and investing the premium savings elsewhere. Misaligned Purpose: Life insurance is primarily intended to provide financial protection for dependents in the event of the policyholder’s death. Whole life insurance, with its permanent coverage and investment features, can often be an unnecessary and inefficient solution for this purpose. For most individuals, term life insurance, which provides coverage for a specified period, such as 10, 20, or 30 years, is a more cost-effective option. It’s important to note that the suitability of any life insurance policy, including whole life insurance, depends on an individual’s specific circumstances, financial goals, and risk tolerance. Before getting scammed out of your hard-earned money, consulting with a financial professional like myself, can go a long way in ensuring you get what you are really looking for. I can provide personalized advice based on your specific circumstances and recommended the right products for all of your financial goals...

Whole Life Insurance: Just Bad - Plain and Simple

<h3>IUL’s – Indexed Universal Life Insurance Policies</h3>The truth about these policies’ is ugly. ALL the agents, Instagram posts and Tik-Tok videos will not tell you how these policies really work.Indexed Universal Life (IUL) policies, like any financial product, have potential drawbacks and negatives that should be considered before making a decision. Here are some of the common negatives associated with IUL policies:Complexity: IUL policies can be complex and difficult to understand. They often involve intricate calculations and a combination of life insurance and investment components. This complexity can make it challenging for policyholders to fully grasp the mechanics of the policy and evaluate its long-term benefits. Cost: IUL policies tend to be more expensive than term life insurance policies. The costs associated with IUL policies include administrative fees, insurance charges, and investment-related expenses. These costs can eat into the potential gains from the policy, reducing the overall return on investment. Limited returns: While IUL policies offer the potential for cash value growth based on the performance of an underlying index, the returns are typically capped or limited. Insurance companies often impose caps, participation rates, or spread charges that can restrict the policyholder’s ability to fully benefit from the positive movements of the index. As a result, the returns on IUL policies may not match the performance of the index they are linked to. Risk of policy lapse: IUL policies require ongoing premium payments to keep the policy in force. If the policyholder fails to pay the premiums, the policy could lapse, resulting in a loss of coverage and potentially forfeiting any accumulated cash value. This risk is especially significant if the policyholder relies on the cash value growth to cover the premiums in the later years. Overemphasis on cash value accumulation: IUL policies often place a significant emphasis on the cash value accumulation component. While the cash value can provide flexibility and potential benefits, it’s important to remember that IUL policies are primarily life insurance policies. Focusing too much on the cash value growth may overshadow the primary purpose of the policy, which is to provide a death benefit to beneficiaries in the event of the policyholder’s death. Long-term commitment: IUL policies are designed to be long-term commitments, with premiums typically paid for the duration of the policyholder’s life. If a policyholder decides to surrender the policy or cancel it prematurely, there may be surrender charges or penalties that can erode the cash value or result in financial losses. Limited investment options: The investment component of IUL policies is usually tied to specific indices, and policyholders do not have direct control over the investments. This lack of control limits the flexibility to adjust the investment strategy according to personal preferences or market conditions. Before getting scammed out of your hard-earned money, consulting with a financial professional like myself, can go a long way in ensuring you get what you are really looking for. I can provide personalized advice based on your specific circumstances and recommended the right products for all of your financial goals.

IUL's - Overall Not Good

Column chart with company progress and growth by year, 2024

<h3>Turbulent Market Conditions call for Discipline</h3>The market has been significantly volatile since the beginning of 2022. Global events have ignited the rollercoaster ride for investors. The War in Ukraine, the unpredictability of Oil Prices and Inflation on a roll have all had a major impact on market performance. Depending on which expert you listen to, things are going to be great or there is another recession on the horizon. The facts of the matter are; no one really knows or can predict what exactly is going to happen. We can only use historical events to gauge and plot possible outcomes. Throughout history, some of the best market performances have followed market crashes. The kicker is, no one knows how long each Bull or Bear market will last. It’s important to remember that the market response to both negative and positives aspects of worldly events, this is normal. For this reason, it very important to remember the “Cycle of Market Emotions”.<figure id="figure-p8yvjdmu2mlynbxdr7"><img id="p8yvjdmu2mlynbxdr7" src="https://cdn.durable.co/blocks/3bVbuUVkrJmFUwpBjEqhCU6QXanrwhy76UgwhMWrl15fBx60XCsoDEBU707JXagC.jpg" alt="person standing near the stairs" title="person standing near the stairs" class="object-cover bg-gray-100 rounded-sm md:rounded-md lg:rounded-lg" style="aspect-ratio: 3/2; object-position: 50% undefined%;" data-corners="default" data-aspect="3:2" data-caption="" data-positionx="50%" data-positiony="undefined%" data-fullwidth="false" data-mce-src="https://cdn.durable.co/blocks/3bVbuUVkrJmFUwpBjEqhCU6QXanrwhy76UgwhMWrl15fBx60XCsoDEBU707JXagC.jpg" data-mce-style="aspect-ratio: 3/2; object-position: 50% undefined%;"></figure>It’s extremely essential to have a solid plan of action, a strategy, in place and maintain the wherewithal to stay the course in the good times and in the bad times. To easily remember, what this strategy should be, we use the 3 D’s of investing. Discipline, Dollar-Cost Averaging and Diversification.Dollar-Cost AveragingSimply stated, Dollar-Cost Averaging is systematically investing an amount in regular intervals, example monthly or quarterly. You can’t predict when the market will drop or rise. However, if you are investing on a regular set schedule, you will benefit from purchasing shares when markets are down (more shares acquired for the same investment amount) or when markets are up (less shares for the same investment amount). Steady, constant investing over time regardless of market conditions removes the potential for emotions to interfere.DisciplineStaying focused on your investment goals is paramount. Too many investors are happy when the market is up and depressed when markets are down. These emotions are actually the inverse of what they should be feeling. Think of it this way, when the market is down, the market is on “Sale”. That investment you were considering might be 10,15 or even 20% off the original purchase price you were considering before the market dipped. That’s a good thing. When the market is up, think of the market as being “Overpriced”. That same stock you were considering might be 10,15 or even 20% at a premium of when you first considered purchasing. For this reason, maintaining investment discipline is important. Never get to high or too low and most of all don’t panic!DiversificationBy investing not only in mutual funds which inherently provide diversification, investing across different asset classes provides additional downturn protection. This may also increase gains. Remember, because one sector of the market might be suffering, other sectors of the market might be thriving. A perfect example of this concept now during the COVID-19 pandemic is the travel and hospitality sector versus the technology sector. The restaurant and travel industry have been taking a beating with the recommended restrictions. At the same time, technology based companies such as Zoom have taken off. &nbsp;Having a diverse portfolio, investing across different asset classes can be advantageous.These are the recommended 3 D’s of investing. If you would like a more personalized model for your investment needs, please contact me directly at Louis@louisromero.com.

3 D’s of investing

401k/403B ExplainedEvery time I sit with a new prospective client or do a group presentation on retirement, I start with the following two questions: First, "How many of you are currently taking advantage of your employer offered 401k (private/public), 403B (specific for public school educators) or 457 (governmental employees typically police and fire)?" The usual response to this simple question is yes. However, my follow-up question doesn't typically get the same overwhelming confirmation. The follow-up question: "Do you know how the funds are being invested?" This second question 9 out of 10 times is met with glossy eyes and silence. The truth is everyone knows they should be taking advantage of these type of retirement plans, and most folks are. The unfortunate part is they have little to no concept on how these plans actually work. Well fear no more!401k's, 403b's and 457's are tax-advantaged, defined-contribution retirement accounts. These plans are considered either as qualified or non-qualified deferred compensation plans. Wow, that sounds complicated. Let's break if down to a simpler concept. Think of these plans as a vehicle. These vehicles provide tax-deferred growth opportunities on the funds invested. What does tax-deferred mean? Tax-deferred means the owner of the plan (you), do not have to pay taxes on any of the growth within the plans funds until the funds are withdrawn. Also another point to remember is 401ks/403bs/457 have an annual contribution limit currently set at $19,500 by the IRS. It does not matter if you have a 401k &amp; a 403b, you can only contribute a total of $19,500 per year in these types of vehicles. So, if you have both a 401k &amp; a 403B, you have two of the same type of retirement vehicles.&nbsp;Let's look at an example:Over 30 yrs of employment, you invest $10,000 per year/(833 per month) for a total of just under $300,000. This is considered the principal. At a conservative rate of return of 6%, the future account value could be having high as $840,944. This is interested earned on the 300k and has yet to be taxed.Now, 30 years later you retire and begin to withdraw money in your retirement. The recommended rate of withdraw in retirement is 5%. Why 5%? The account earned 6% over the 30 yrs and can continue to earn that rate of return. Rule to follow for money not to dry out in retirement is to never withdraw more than what you are earning. Some experts recommended a more conservative withdraw rate of 4% to be a "safer" bet. However, for this example we will use 5%. 5% of 841K is $42,050. This annual withdraw puts you by a hair in the 22% tax bracket. (12% tax bracket threshold is currently $40,125 single filer). &nbsp;$9251 will go to the IRS leaving $32,799 in annual income or $2,733 per month. Taxes are a very important concept to always take into account. Remember, in retirement, your tax bracket is dictated by your income, not your age. If you are 80 earning 100k, you will be paying 24% income tax.Now that you have a better understanding of what 401ks/403bs/457 plans are and how they work, let's take a look on how they provided opportunities for growth of the principal. Remember I said earlier that these plans are like a vehicle. What powers all vehicles is the engine. The engine of these plans are the underlying investments. Typical investment options within these plans include; Mutual funds, Annuities, Indexes, Individuals Stocks and Money Markets. The type of investment will dictate the overall performance of the plan. NOT ALL ENGINES ARE ALIKE!!!&nbsp;What do I mean by "Not all engines are alike"? A 401k invested in mutual funds is typically going to outperform Annuities. Not to get overly complicated, Annuities are insurance products. As such, they are more expensive to operate and provided lesser rates of return than other engine types. &nbsp;Investing in Indexes (S&amp;P 500, NASDAQ 100, etc) will on the norm out perform all of these options as stand-alone investments. Individual stocks can be very productive but equally volatile based on that individual company’s financial outlook. Finally, Money Markets are a very small step above savings accounts and CD's (Certificates of Deposit) at a bank, and those are HORRIBLE!!&nbsp;Additionally, how your 401k/403b/457 portfolio is constructed will also impact it's overall rate of return. What do I mean by how the portfolio is constructed? Some less than scrupulous agents (most of the ones that visit school's teacher lounges) will sell you on the idea that you need to be "diversified" in order to better protect yourself from market fluctuations. Folks, the market is going to up and down. It has in its 100-year history. In an effort to convince you on diversification, they will sell you a cookie cutter portfolio consisting with as many as 15 different mutual funds as the engine of your plan. More funds equal more fees; more fees translate to a lesser overall rate of return due to the inefficient construction of the portfolio. Worse yet, some of these same agents will sell you on an Annuity for your engine. Annuities have their place, but are better suited for large lump sums not efficient growth. That's a whole another topic. &nbsp;&nbsp;Understanding what investment engine and the is powering your 401K and what rate of return is producing is absolutely critical. Why is this so critical? Let's look at the example below: Here you can clearly see the power of compounding interest over time. Everyone needs to understand rates of return. The engine you choose for your 401k/403b/457 will determine it's potential. I often hear the following complaint, "my 401k isn't producing anything". It's not the 401k. It's the type of engine. Once again, the unfortunate circumstances with these plans is you the consumer/investor were either given very little guidance by your employer about the plan options or what happens to many teachers, you were sold a less than desirable plan in the teachers’ lounge by a rep of XYZ company promising the world. In both cases, you think you might be on track until you meet someone like me that provides the education you so desired but never knew where to find it.Want to know what you have, how it's working (or not) and better options if applicable in a hassle free, no fees (hidden or otherwise) fashion? Please contact me via email at Louis@louisromero.com and I will be happy to help.

401K/403B Explained

5 Financial Tips for Young AdultsAn often missing but much needed component of high school curriculum's is personal finance. Combine that with similar lack of guidance at the college and university levels, it's easy to see how young adults can become overwhelmed early on in their adult lives. Learning some basic financial concepts can go a long way in avoiding the all too common debt trap and the accompanying frustration.Tip #1 - Self-DisciplineThis tip is one that even seasoned adults struggle to comprehend. Many times, desire overcomes logic. As a result, our desires lead us down the road of having to leverage our income in order to purchase that "must have" new car, or computer or big screen TV. The credit devil which leads us into the debt trap can be a trap extremely difficult to escape. &nbsp;Credit cards are very enticing. With that said, useless you can pay for the complete balance at the end of each month, eventually the power of compounding interest will work against you keeping you in the debt trap for years. Credit cards should be for unavoidable emergencies early on. Once you have established a budget, then you can begin to venture into the credit world.Tip # 2 - Know where the money goesAnother issue many young individuals encounter is not tracking expenses. The excitement of the first full-time job often gives the impression the money supply is limitless. A result, keeping a balanced checkbook quickly fades into the background. Friday happy hours, monthly subscriptions and dining out on a regular basis can be a sledgehammer to any budget. Not being able to control your own finances will make you an easy mark for someone else to take advantage of your inexperience in financial affairs. Personal finance is a skill just like any other. Learning this skill will go a long way in achieving financial awareness.Tip # 3 - Start an Emergency FundEarlier, I mentioned that credit cards can be used for unexpected emergencies. This should be the case until you are able to establish your own emergency fund. An emergency fund should be 1 to 3 months your monthly net income. Example: If you bring home $4,000 a month net income, your minimal emergency fund should be $4,000 and could be up to $12,000. Seems daunting at first, however follow a simple rule of saving 10% of your income for this very purpose. Within a 1 yr you could save up to $4,800 using this concept. The money should be in a separate savings account that isn't easily accessible to ensure desire doesn't sabotage the process.Tip # 4 - It's Never too soon to start a Retirement AccountRetirement seems so far away when your first enter the workforce either out of high school, trade school or the college/university. With that said, take it from experience, it will be here sooner that you think. When investing for the future, there are 3 key factors to consider. One - time horizon. Fancy term for when you will need the money. Example a typical 25 yr old will work approximately 40 yrs until retirement age of 65. An older person, say mid-career and 40 yrs of age will have only 20 yrs till the same exit point. Big deal when investing. Two - Amount of money being invested. The amount of money being contributed towards retirement can be a relatively small sum, when you have a long time horizon. When you have a short time horizon, the amount of contribution needs to be larger to offset the time missed. Three - Rate of Return. Your rate of return your money will be earning over those 10,20,30,40 yrs will be a final equally large determinant of when and how you will be able to retire. Someone earning 1.75% on a CD (Certificate of Deposit) at the bank will have to work much longer or contribute greater amount of funds to produce a comfortable retirement. This it is why learning on where to invest for retirement is crucial. I have posted several article of this subject. If you have a personal need, please contact me at louis@louisromero.com for a commitment free consultation.Tip # 5 - Work on your HealthYou have done all the paper and pen portion for setting up your financial future. Now it's time to dedicate some time to your mind, body and spirit. It does no one any good to work so hard and so long to save the necessary funds to not be able to enjoy the fruits of your labor because a poor health. Maintaining your health is a simple process that can't be ignored. Much like the compound effect can work for you or against you in the world of finance, it can also do the same with your health. One bad meal once in a while is no big deal, however, constantly eating less than nutritious meals can lead to health issues down the road, shortening your life span. Equally in this bucket is exercise. No one is saying you need to be a gym rat. With that said, exercise is vital component in the reduction of stress, better sleeping patterns and weight control.No one said being an adult was going to be easy. Nevertheless, establishing some guidelines early on in life can make the journey so much more enjoyable. If you have any question regarding any of the tips provided here, please contact me at Louis@louisromero.com.&nbsp;

Useful Information

Whole Life Insurance: Just Bad - Plain and Simple

IUL's - Overall Not Good

3 D’s of investing

401K/403B Explained

5 Financial Tips for Young Adults