Finances in Focus

  • Category: Opinion
  • Published: Monday, 24 June 2013 12:03
  • Written by Edward D Jones

Summer with its prides in so many area cities and Speedo season is finally here, but before you immerse yourself in your local pride or in that pool or at your favorite beach let's take a minute to learn a few valuable lessons from swimmers — the profes¬sional kind, not we beach or pool-side loungers.

We all know that for many people, the arrival of summer means it's time for swim¬ming and if you're just a casual swimmer as I am, you probably don't have to adjust your diet before jumping in. But that's not the case with competitive swimmers, who must constantly watch what they eat and drink, particularly in the days and hour's preceding their races.
While you may not ever have to concern yourself with your 400-meter individual med¬ley ''splits," you can learn a lot from swimmers' consumption patterns — particularly if you're an investor.

For starters, to sustain energy and stamina for a relatively long period of time, com¬petitive swimmers need to eat easy-to-digest carbohydrates such as whole wheat, whole grains, apples and bananas. When you invest, you want to build a portfolio that is capable of "going the distance.'' Consequently, you need investments that provide carbohydrate-type benefits — in other words, investments with the potential to fuel a long-term investment strategy.

Such a strategy usually involves owning a mix of high-quality stocks, bonds, govern¬ment securities and certificates of deposit (CDs). By owning these vehicles, in propor¬tions appropriate for your risk tolerance and time horizon, you can help yourself make progress toward your financial goals — and lessen the risk of running out of energy "mid-stream."
Of course competitive swimmers have to be diligent not just in what they do eat but also in what they don't. That's why they avoid sweets, such as sodas and desserts, when it's close to race time. These items do not provide lasting energy — in fact; they actu¬ally sap energy once the sugar wears off.

As an investor, you, too, need to avoid the temptation of "sweets'' in the form of high- yield or "hot" investment vehicles. You may find some of these investments to be al¬luring, but you will need to carefully weigh the extra risks involved. For many people, these types of investments may not provide the long-term stability needed to help maintain a healthy, productive investment portfolio.

While what swimmers eat or don't eat is important to them, their drinking habits are also crucial. The competitive environment — warm pool water, warm air temperatures and high humidity — can quickly lead to dehydration, so swimmers need to drink sizable amounts of water and sport drinks before and during practice. And you, as an investor, need your own type of liquidity, for at least two reasons.

—First, you need enough cash or cash equivalents to take advantage of new investment opportunities as they arise. Without the ability to add new investments, your portfolio could start to "dehydrate."

—Second, you need enough liquid investments — specifically, low-risk vehicles that offer preservation of principal — to create an emergency fund, ideally containing six to 12 months' worth of living expenses. Without such a fund, you may be forced to dip into long-term investments to pay for unexpected costs, such as a major car repair, a new furnace or a large bill from the dentist.

So the next time you see competitive swimmers churning through their lanes, give a thought as to the type of diet that is helping propel them along — and think of the similarities to the type of "fueling'' you'll need to keep your investment strategy moving forward.

Meanwhile, while prides and vacations surely do show up on your calendar, I'd bet you missed the fact that May was Disability Insurance Awareness Month. And you might agree that such a month is useful, when you consider the following:

• Three in 10 workers entering the workforce today will become disabled before retir¬ing according to the Social Security Administration.

• At age 42, you are four times more likely to become seriously disabled than to die during your working years, according to National Underwriters Life & Health.

• Disability causes nearly 50% of all mortgage foreclosures, according to Health Af¬fairs, a health policy research journal.

Given these statistics, it's not surprising that the Life and Health Insurance Foundation for Education (LIFE) sponsors Disability Insurance Awareness Month to encourage Americans to address their disability income needs. Here's the bottom line: You can be really good at budgeting your money and you can be a disciplined long-term investor — but unless you've protected at least a reasonable percentage of your income, your whole financial strategy is incomplete. And all your goals, such as a comfortable retire¬ment, could be jeopardized.

Of course you may not be totally unfamiliar with disability income insurance; if you work for a large employer, a group disability policy may be part of your benefits pack¬age. If so, you should certainly accept the coverage, which may be offered to you free, or at minimal cost. However, this coverage might be inadequate to replace the income needed to allow you to maintain your lifestyle without dipping into your investments. Consequently, you might need to think about purchasing an individual disability insur¬ance policy. Here are some tips:

Look for a policy that is "non-cancellable" until you reach age 65. When you purchase a non-cancellable policy, your policy premiums can't be changed, provided you pay on time.

Pick the right waiting period. Typically, disability insurance policies don't start pay¬ing benefits immediately; there's usually a waiting (or "elimination") period ranging from 30 days to two years. Obviously, a shorter waiting period is more desirable, but it's probably also going to be more expensive. You may be able to give yourself the flexibility of choosing the longer waiting period if you have created an emergency fund containing six to 12 months' worth of living expenses, kept in a liquid account that of¬fers significant preservation of principal.

Avoid overly restrictive policies. You may want to avoid an "accident-only" policy or one with a limited benefit term (five and 10 years are common). These policies may be cheaper, but they don't cover either a disabling illness or the entirety of your work¬ing life. And consider adding appropriate "riders." It will likely add to the cost of your policy, but a cost-of-living rider will help protect your future benefits from the effects of inflation. You also might want to add a future income options (FIO) rider, which provides you with the ability to purchase additional coverage in the future with no further medical underwriting.

Whatever you do, head into summer prepared for fun and for the "what ifs" just in case one of those happens to you. Happy pride!