A. It depends. Most Term life policy does not cover any death by suicide within two years of the issue date.
Q. Does Term life policy cover death of suicide?
A. It depends. Most Term life policy does not cover any death by suicide within two years of the issue date.
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Q. Is the 5-year bull market about to end soon? A. The latest Fortune magazine listed top 5 reasons why this bull market is about to end:
However, the same article also offered a reason why this bull run is not over yet - as long as there is a healthy dose of skepticism, the possibility for new highs remains! What can you do facing this situation as an ordinary investor? Heed this Fortune magazine advice: not much, stick with the basics: keep a diversified portfolio of low-fee funds and put money in at regular intervals. Right now is not a good time to be speculative, but trying to time the market is unwise. Q. ARM (adjustable rate mortgage) and Fixed Rate mortgage, which is better? A. The answer depends on your specific situation, with a few important factors to consider: 1. How long will you stay in the property? 2. What are the rate and term of the fixed rate conventional loan? 3. What are the initial rates of the ARM, what is the adjustment period, how much is the index and margin of ARM? An Adjustable Rate Mortgage 101 What is ARM? An ARM is a loan with an interest rate that changes. It typically has a low APR to start with, which will result in lower monthly payments compared with conventional fixed rate loans with the same terms. However, the ARM's interest rate may change after a preset initial period, most likely going up which could result in substantially higher mortgage payments at that time. In addition, it is important to note that many ARM have pre-payment penalties, which means that paying them off early can result in high fees. Initial Interest Rate What makes ARM appealing to some people is its low initial interest rate. This low rate period may be between one month and up to ten years. At the time of the initial rate expiring, the interest rate may rise depends on what's pre-set in the loan clauses. The amount of change will range from as low as 0.05 percent to 2 percent or even more. Two types of ARM Fully Amortizing ARM This is the most common type of ARM. The monthly payment is calculated to payoff the entire mortgage balance at the end of the term. The term is typically 30 years. After any fixed interest rate period has passed, the interest rate and payment adjusts at the frequency specified. A Fully Amortizing ARM will also have a maximum rate that it will not exceed. Below is a list of the most common types of Fully Amortizing ARMs.
Interest Only ARM An Interest Only ARM only requires monthly interest payments. Since you are not paying any principal, this can lower your monthly payment. However, since your mortgage's principal balance is not decreased, you will have a balloon payment at the end of the mortgage's term. Like a Fully Amortizing ARM, an Interest Only ARM will often have a period where the interest rate is fixed, and then it is adjusted annually. An Interest Only ARM will also have a maximum interest rate that it will not exceed. When to Use ARM Homeowners need to protect themselves from ARM pitfalls. Some lenders use deceptive tactics to lure in potential mortgage applicants with falsely low interest rates or unexplained terms. It is important for ARM buyers to realize that ARM rate may adjust significantly, resulting in a much higher monthly payment. Read all terms of the ARM before agreeing to them. However, there are a few situations ARM might be beneficial to a homeowner :
How to Compare ARM and Fixed Rate Loan Because ARM's rate will reset after the initial period, but we don't know what that rate will be, it's really hard to directly compare an ARM with a fixed rate loan. However, you could use our ARM payment scenario calculator to see what will happen to your ARM loan payments with different rates in the future and if you are ready for any potential payment shock. For entrepreneurs and investors, Wealthforgeonline is a new a crowdfunding platform that connects the two groups.
Wealthforgeonline provides tools for entrepreneurs to raise investment capital needed to either start or continue to grow businesses through a system that is compliant with all Federal and State laws. Worth a try, if you are starting your business, or looking to invest in a start up business. Q. Is it possible for a middle class family to have affordable private wealth manager services? A. It's used to be impossible unless you are willing to pay the hefty service fee such as 1% asset management fee. But thanks to Wealthfront, the next generation of financial advisory service, the answer is yes now! Wealthfront is a software-based financial advisor that provides access to the same high quality financial advice offered by major financial institutions and private wealth managers. Just like Wisebanyan, which we introduced here not long ago, Wealthfront starts with assessing your risk profile, and based on the result it designs a low-cost index fund portfolio and rebalances it for you periodically. But unlike Wisebanyan, Wealthfront also provides some additional sophisticated services such as tax-loss harvesting, with a very small monthly service fee, and still No trading costs. Wealthfront just completed series C round of finding and already has a impressive client roaster. Its minimum account balance requirement is only $5,000, but in order to qualify for the more advanced services such as tax-loss harvesting, the minimum threshold is $100,000. If you are currently using a private money manager to manage your portfolio, Wealthfront is a service to switch to! Q. Should I choose 30-year mortgage over 15-year mortgage but still pay at the 15-year mortgage amount, except I will be investing the extra amount on my own? A. Compared with the 15-year mortgage, the 30-year mortgage tends to have lower monthly payment. If you believe you can achieve certain consistent investment return, then it is advantageous to use the stated strategy:
As you can see, this strategy essentially is like taking a 15-year mortgage, but instead of sending the higher monthly payments to the lender, you are investing yourself and end up walking away with a paid-off mortgage, along with an investment account with a positive number. The key factors impacting the final result are:
You can try our online calculator to see if this strategy works for you or not. Q. What is IRA early withdrawal 72t strategy? A. The 72(t) strategy is named for the section of the tax code that sets out exceptions to the IRA early withdrawal penalty. The IRA allows you to avoid the penalty (if you are younger than 59 1/2) if you agree to take out "substantially equal periodic payments" (SEPP) from your traditional IRA. What are the conditions? The payments must be withdrawn for a minimum of five years or until you turn 59 1/2, whichever comes later. For example, if you are 50, you must take payments for at least nine and a half years. If you are 58, you must take payments until at least age 63. What are the tax consequences of 72t? Distributions will be taxed at your ordinary income tax rate. Once you start taking distributions, you cannot make new contributions to the IRA or take additional withdrawals. If you violate any of the rules, you will be charged penalty. How much are the distributions? The IRS sets three methods to calculate 72t payments. The annuitization and amortization methods are similar. You must take same amounts each year. The distribution method allows variable (and often smaller) payments each year. You can use the calculator at 72t.net to compare the numbers under the three methods. How to set up 72t payments? You can call your IRA custodian to set it up. At tax time, make sure the form 1099-R you receive has code 2 in box 7, which tells IRS the distribution is taxable but not subject to penalty. The Bottom Line The biggest disadvantage of 72t is inflexibility. If you are eligible for other early-withdrawal penalty-free conditions, consider the other methods first. Q. I am worried that the stock market may drop in the near to medium future, but I don't want to invest in bonds given the potential interest risk, what should I do? A. If you want stock-like returns but with below average risks, you could consider convertible bond funds. Convertible bonds allow investors to convert the bonds into shares of stock, usually at a preset price. They act a bit like stocks and a bit like bonds. A convertible bond holder could participate in stock market gains but also get more income than common stocks (although less yields than bonds). Convertible bond portfolios are designed to offer some of the capital-appreciation potential of stock portfolios while also supplying some of the safety and yield of bond portfolios. To do so, they focus on convertible bonds and convertible preferred stocks. Bloomberg has a list of worldwide Convertible funds. Valueline has a list of top performing Convertible funds. We have discussed before that the #1 important thing for retirement planning is liability management. What will be your liability during retirement? A recent U.S. consumer expenditure survey issued by the Bureau of Labor Statistics has some surprising revealings. For example, Americans age 65 and older: Spend 34.2% of their money on housing If you’re an empty nester or expect to be, it may make sense to downsize so that you can take advantage of the equity that you’ve built up in your home. Spend 16% of their money on transportation The majority comes from the expense of buying new cars — a temptation that many retirees succumb to. If you’re nervous about making your money last through retirement, be judicious about non-essential purchases. Often, used cars will be just as efficient (and much cheaper). Spend just 0.5% of their money on education Retirees could improve their retired lives substantially by going back to school. As technology continues to advance, spending time in a structured learning environment could bring a richer retirement. It’s important to figure out what you want to do in retirement and how much will it cost. So, how much will your retirement expenses will be? We will drill down to details in our next post. Q. What is the best startup pitch? A. Every venture capitalist will tell you that the best startup pitches focus more on the problem than on the solution. Framing the problem you solve in just one sentence is a great discipline and one that most businesses have never practiced, which is why the ones that do succeed. Some examples: Warby Parker—Why do glasses cost as much as an iPhone? Mint—‘You spend the majority of your life working for your money, but do you know how your money works for you?’ Uber—Why can’t I just push a button and get a ride? PFwise - Shouldn't personal finance be personal and number-based? What's Your Single Sentence Problem? Q. Can I contribute to HSA and my spouse contribute to FSA at the same time? A. First of all, you cannot contribute to HSA and FSA at the same time. If you did it and later on audited by IRA, you will face penalty. Now for your specific question, if your spouse has a limited FSA, then you can qualify for your own HSA. It's important to note that your spouse's limited FSA cannot cover your expenses. If you try to open both HSA and FSA accounts and later audited by IRS, you will face penalty. Q. What mistakes should I avoid when plan my retirement? A. The most serious mistake people typically make about retirement planning is aim for maximum return for investment. Don't make this mistake! Instead, focus on risk management: what’s the amount of volatility you’re willing to accept to get the performance on your account and ensure you won’t outlive your money? If you chase performance, you will live a very stressful life. Why don't you start your retirement planning with an understanding of your true retirement liability? By focusing on your expenses, you can reframe the retirement question from “How much money do I need to retire?” to “How much money do I need from year to year?", which is a more practical question everyone will face. How to do this? We will use next several blog posts to discuss. Yesterday, we posted a blog with an example to illustrate how to evaluate different auto financing deals. In a nut shell, the following factors will impact the final conclusion:
It's not always straightforward that a zero percentage auto loan is better than a 2.0% auto loan. Run our online Auto Financing Comparison calculator to check your unique situation. Q. How do I evaluate different auto financing deals and determine which option is better? A. It could be tricky to compare two auto financing offers. For example: Option 1: $30,000 auto loan with 0% interest rate for 3 years Option 2: $30,000 auto loan with 0.9% interest rate for 5 years Which option is better? The answer is - it depends on your cost of money. For the above example, you can look at it the following way: With option 1, you have $10,000 cash outflow each year during the next three years. With option 2, you have $6,138 cash outflow each year during the next five years. Don't simply add the cash outflows in each option and compare which number is great, and conclude the bigger the number, the more expensive the option is. This's the wrong approach! You need to consider your cost of money, say it's 5%. This means, if your money is not used to pay back the auto loan, you can invest and get 5% annual return. Now you may realize the $10,000 cash outflow in option 1 may not look like a good deal, since it occupies more money during each of the next three years, and you could otherwise use the extra money to invest and get 5% return! However, option 1 has an advantage in the years 4 and 5 because it stops paying back the loan. So, net net, which option is better? You can use our free online Auto Loan Financing Option comparison calculator to check the answer and play around with your own scenarios. Q. Where to park my emergency fund? A. We have discussed before a few safe options to park your emergency fund. However, a recent article on Journal of Financial Planning questions the wisdom of all cash emergency fund. It argues that emergency funds invested in a diversified stock/bond portfolio could lead to maximum lifetime value. That study might not fit people who are not very aggressive. But if you are, in addition to the few safe options we discussed before, you can use a few different perspective to look at some other emergency fund options: 1. Credit card as your emergency fund. 2. Your property's line of credit as your emergency fund (the pay as you go loan). 3. Roth IRA as your emergency fund (you can take out your contribution without penalty). 4. A multi-year guaranteed rate annuity as your emergency fund (this option is for people who really treat emergency fund as emergency use only, don't casually dip into it). If you want to know more about the last multi-year guaranteed rate annuity option and its current rates, please contact us. In last 2 blog posts, we discussed affinity frauds and penny stock scams, now the third one - Ponzi schemes The kind of Ponzi schemer most people run into is an individual or a small firm who promises extraordinary returns from real estate or obscure, highly complex trading strategies. It usually starts with friends or friends' friends, and makes your put down your inner alert system as you normally will ask "isn't it too good to be true"? Of course the Ponzi schemers may leave a few obvious shortcomings of their promised investments, the purpose is for you to catch them and be proud of how smart you are, and forget the real danger. Staying out Ponzi schemes isn't that hard to do, just remember this simple rule: if it sounds too good to be true, frankly, it is. Last blog post we discussed Affinity frauds, now - Penny Stock Scams Such scams typically run by phones, but also could appear in emails or mails. It uses your human nature greed and tips you some never heard of companies which will jump 100% in next week or so. Such obscure companies, or so called "penny stocks" are the investment equivalent of throwing money down the drain. They are usually thinly traded, highly volatile, and priced at a penny or even less. Tipsters from never heard of brokerage firms will tell you some "insider" information that will make the penny be dollar in a short period of time. The key is you need to jump in right now, otherwise you will regret the rest of your life! Well-known brokerages, such as Fidelity or Schwab, do offer access to very small stocks, but they often take great pains to qualify investors in advance of such risky trading. Retirement investors should take a big step back, unless you really want to go back to full time employment soon. |
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