Q & A with Mark VergenesSubmitted by MIRUS Financial Partners on June 9th, 2015
Question: Is it Less Expensive to Buy Life Insurance While I'm Young?
Your insurance premiums will increase as your life expectancy decreases--the older you get, the more life insurance is going to cost you. Whether you buy permanent or term life insurance, it will usually cost you less while you're young.
If you're at high risk for a medical condition that might make it too expensive or impossible for you to get insurance later (e.g., a family history of cancer), consider buying life insurance while you're still young and healthy.
If you buy term insurance, ask about a renewability provision. Although your premiums may increase at renewal time because your life expectancy is shorter, you'll be able to renew your policy without having to prove your insurability again. Please note that several factors affect the cost of life insurance, such as your current health, whether or not you are a smoker, and any pre-existing conditions.
Question: Should I Buy a Home or Continue Renting?
Most people face this question at some time in their lives. Buying a home is part of the American dream. It's also one of the biggest financial investments you'll ever make.
One of the main advantages of buying a home is that you build equity in your property. For example, if you paid rent at $1,000 per month for 10 years, you would have spent $120,000 on rent and have nothing to show for it. However, if you had purchased your home and made $1,000-per-month mortgage payments for 10 years, you would have paid off a sizable portion of your mortgage. And if you decided to sell your home, you might make a profit.
Before buying a house, remember that your lending institution will want proof that you have money saved for the down payment and closing costs. If your savings won't cover these costs, you should probably continue to rent for the short term while establishing an ambitious savings plan.
Even though buying allows you to accumulate a valuable asset, renting also has advantages. You may spend less time doing maintenance than if you owned the home, and you could relocate to another home more easily. In addition, you would probably pay less per month for rent than you would for a typical mortgage payment. This would leave you with more money to spend on whatever you choose.
Remember, it's not easy to buy and own a home. Many people continue to rent throughout their lives. But if you decide to buy a home, start saving now so that someday you will own the home of your dreams.
Question: How Much of my Portfolio Should I Keep in Stocks?
Financial professionals advise that if you are saving for retirement, the younger you are, the more money you should put in stocks. Though past performance is no guarantee of future results, over the long term, stocks have historically provided higher returns and capital appreciation than other commonly held securities. As you age, you have less time to recover from downturns in the stock market. Therefore, many planners suggest that as you approach and enter retirement, you should begin converting more of your volatile growth-oriented investments to fixed-income securities such as bonds.
A simple rule of thumb is to subtract your age from 100. The difference represents the percentage of stocks you should keep in your portfolio. For example, if you followed this rule at age 40, 60 percent (100 minus 40) of your portfolio would consist of stock. However, this estimate is not a substitute for a comprehensive investment plan, and many experts suggest modifying the result after considering other factors, such as your age, risk tolerance, financial goals, and the fact that individuals are now living longer and may have fewer safety nets to rely on than in the past.
For example, if you accept an early retirement package at age 57, it's feasible that you'll be living off your retirement fund for as long as 30 years or more. That long time frame gives your portfolio greater potential to recover from any unexpected downturns in the markets. And with inflation and the rising costs of medical care, you are likely to need more growth over 30 years than most fixed-income securities typically deliver. You may want to keep a portion of your portfolio invested in stocks well into your retirement years.
If you're investing for something other than retirement, the simple rule of thumb probably doesn't apply. If you'll need access to your investment dollars within a few years (e.g., to purchase a home or to pay your child's tuition), you should consider investing more of your portfolio in less volatile securities that focus on capital preservation. If your investment goals are short term (e.g., two to five years), you won't have time to recover from a downward swing in the markets, and you run the risk that money invested in volatile assets may not be there when you need it.