Blog Archives - PFwise.com

Why Do I Need Annuity?

7/31/2014

Q. Why do I need to consider an annuity product?

A. Annuity is a retirement savings vehicle for people to accumulate retirement assets tax-free and create guaranteed lifetime income stream.

There are many retirement savings vehicles -

Regular bank savings
CDs
Stocks
Bonds
401(k)
Cash value insurance
Social security benefits
Annuities
etc.

But most of them either have literally no risk and therefore negligible returns, or good returns but with fair amount of risks.

At the same time, people are living longer lives, lose regular income during retirement time, and for younger generations, social security payments because less secure.

Combining the above two considerations, the unique annuity feature of reasonable rate of return and guaranteed lifetime income becomes very attractive for most retirees or people who prepare for retirements.

What are the different types of annuity?

7/30/2014

Q. What are the different types of annuity?

A. Generally, there are three types of annuities –
1.       Fixed annuity
2.       Indexed annuity
3.       Variable annuity

There are a few well known examples of annuities: Pension and Social Security Benefits are the most famous ones. Lottery payouts (if not taken with one-time payment) is another annuity example.

What is Annuity?

7/29/2014

Q. What is annuity?

A. An Annuity is a legal contract between the contract owner and an insurance company.

The insurance company promises to pay the annuitant (usually the contract owner him/herself or a family member) a lifetime income stream in the form of annuity payments.

Annuities have tax-deferred feature, this allows the annuity owner to accumulate more money compared with fully-taxed investments, making annuities popular retirement planning tools.

How to Beat S&P 500 Index Over the Long Term?

7/28/2014

Q. How to beat S&P 500 index each year?

A. S&P 500 index represents some of the large cap stocks, while it's possible to invest in S&P 500 index funds to get really close to index's performance each year, there is no sure way to beat the index year by year.

However, if you know that large cap stocks tend to have lower long term return than small cap stocks, then you can build up a diversified portfolio and expect to beat the large cap S&P 500 index comfortably over a long term.

How to build up such a diversified portfolio? Check out the 3-step approach in our Smart Investment section.

What Should I Do If I am Concerned the Market Is Near the Top

7/27/2014

Q. I just started investing and am very concerned the market is near historical high, should I buy more bond funds to protect myself?

A. This is a bad idea, especially for young investors with a long time horizon, for 3 reasons:

a. What you are thinking is to time the market. Numerous academic studies as well as brutal facts have proven - no individual can time the market. If you try it, you will get burned and end up learning a lesson and losing couple of years' valuable investment time.

b. Unless you put a large percentage of your portfolio into bond funds, the protection won't be much when a serious bear market occurs, and your long term growth prospects will be seriously hurt.

c. If you have a long investment horizon, what you need is long term growth, not short term stability. You should stay in the stock game, by doing dollar cost averaging, which implicitly means any dip of the market is a great buying opportunity for you.

If you wonder what kind of portfolio you should build that fits your style, please check out the Smart Investment recommendations.

Show Your Care

7/26/2014

Seek opportunities to show you care. The smallest gestures often make the biggest difference.

― John Wooden

How to Find the Best Fund Manager to Manage My Money

7/26/2014

Q. I don't know how to invest and want to find a money manager to help me manage my investment and beat the market, how to find the best one?

A. Unfortunately that best money manager is a very illusive concept, and doesn't exist in the real world.

While every year there are many money managers beat the market performance, there is no money manager has been able to beat the market every year, and even you back up to just want to find a money manager who has a higher chance of beating the market, the odds are low.

Here is a classic example - Bill Miller used to be the "Best Fund Manager" at Legg Mason, he managed to beat the S&P 500 index 15 years in a row.

However, the next 10 years, his performance put him to the bottom 1% of all funds in his fund's category.

The bottom line? Don't chase star performers, instead, find out what you need in terms of return, then find the way to increase your chance of achieving that return without incurring too much risk. One simple way is to invest in low cost index funds.

When is Sales Tax Holiday for My State?

7/25/2014

Q. How to find the sales tax holidays in my state?

A. It's a good idea to wait till the sales-tax holidays to get your back-to-school shopping done. You can save sales tax on clothing, school supplies, computers, and more.

Visit this site to find your state's sales-tax holidays, it's updated each year -

http://taxadmin.org/fta/rate/sales_holiday.html

Which Local Listing Sites You Should Use to List Your Business

7/24/2014

Q. I own a small business, how to target my local customers?

A. The best and easiest way is to list your business at local listing sites. There are maybe a hundred or so local listing sites, but not everything is created equal, just make sure your business is listed on some of the biggies:

Angie's List
Bing Local
Brownbook.net
Google Places and Google Local
Super-pages.com
TripAdvisor (for hotels and restaurants)
White Pages
Yahool Localworks
Yellow Pages
AnyWho.com
Yelp.com

Or you can pay Moz.com $49 a year so they can push the listing to all the local listing sites.

Can I Use One Insurance Company's Medical Exam Results For Another Firm's Application?

7/23/2014

Q. I have used one insurance company to start life insurance application and I have done medical exam, now I want to change to another insurance company as I found its premium is cheaper, can I use the same exam results?

A. Yes, most insurance companies will take your medical exam results done through another insurance company for up to six months.

Since medical exam results are confidential information, you have to request the medical exam firm to release the results to you directly. Once you receive the results, you can forward to your insurance agent and they can pass to the new insurer's Underwriting Department for review.

How Long to Keep My Past Tax Returns?

7/22/2014

Q. How long should I keep my past tax returns?

A. If you use e-file, it's advised to keep your tax returns indefinitely.

IRS generally has three years after the due date of your return to initiate an audit (it could extend to six years if you under-report more than 20% of your income). But there are many reasons to keep past tax returns for as long as possible, for example:

to establish the cost basis of investments
to contest an error on your social security benefits
to show depreciation has been taken for property
etc.

You can get past three years' returns free from IRS, but you need to pay to get older returns (only past 6 years' are available for purchase, though).

Life Insurance Beneficiary 101 - Part F

7/21/2014

Part E - what if you don't have any surviving beneficiary?

Part F - how often can you update the beneficiary name?

You can update your beneficiaries at any time, and as often as you want!

Popular Crowdfunding Sites

7/19/2014

Q. What are the popular crowdfunding sites so I can invest some of my money?

A. There are two main categories of crowdfunding sites for investors:

1) Contribute fund in exchange for a future reward, which is typically a preordered product.

2) Contribute fund to take an ownership in a company for the potential of future financial return

Some of the most famous crowdfunding sites are:

Life Insurance Beneficiary 101 - Part E

7/18/2014

Part D - what if your beneficiary is a minor.

Part E - what if a life insurance policy doesn't have a beneficiary?

If you don't name a beneficiary, or all of your primary and contingent beneficiaries predecease you, your surviving spouse generally becomes your beneficiary. If you don't have a surviving spouse, payment of your account will be made to your estate.

Part F - how often can I update my beneficiaries?

Should I Buy Term Life from My Employer or On My Own

7/17/2014

Q. Should I buy life insurance from my employer or on my own?

A. If your employer offers free group life insurance coverage, of course you should take it. However, if you have to pay out of your own pocket, it might be wise to do a simple comparison.

1. The group insurance's rates will go up as you age. Talk to your employer's HR benefits department and obtain the annual premium rate for different age bands, then calculate how much will be your total cost over, say 20, or 30, years.

2. If you purchase the term life insurance on your own from outside, your annual premium will be fixed and won't go up as you age. You can contact an independent insurance agent (contact us) and run quotes from different insurers and find the best one, then calculate your total cost of insurance in this scenario.

Choose the option with the lower total cost of insurance.

Life Insurance Beneficiary 101 - Part D

7/17/2014

Part C - do you need to have contingent beneficiaries?

Part D - what if a minor is a beneficiary?

First, you can name a minor as a beneficiary. However, at the time of your death, if any of the named beneficiaries are minors, a guardian must hold and manage the money until the beneficiary reaches the age of 18 (or 21 depending on state law).

Part E - what if you don't name a beneficiary?

Life Insurance Beneficiary 101 - Part C

7/16/2014

Part B - what if you have multiple primary beneficiaries?

Part C - do you need to name contingent beneficiaries?

The answer is NO, you don't have to name a contingent beneficiary, but naming both primary and contingent beneficiaries will help ensure that your assets pass to the individuals that you want them to go to.

Part D - what if a minor is a beneficiary?

What Happens If My Insurance Company Files Bankruptcy?

7/15/2014

Q. Will I lose all the benefits if my life insurance company goes bankrupt?

A. If you purchased a life insurance product such as a Term life or an annuity from an insurer, you are protected by your state's State Guaranty Association, in the unlikely even that the insurer has financial trouble.

State Guaranty Associations are created by state law to assure that the claims of an insolvent insurance company's policyholders will be paid, subject to the limits of the law.

Life insurance is a highly regulated industry, all insurers authorized to write life insurance, health insurance, and annuities in the state are required to be members of the association.

How to Choose Between Fund Kid's College Education and Retirement

7/15/2014

Q. My child is about to enter college soon - with expensive tuition. Any good suggestions how to handle it?

A. If you are part of the "sandwich" generation, you face heavy burdens of supporting both your children and your parents. A few principles you could consider:

1. Utilize 529 Plan
If your state has a 529 plan with state tax benefits, even you just put money into it this month and take it out next month to pay for tuition, you will reap the state tax benefits. Do it.

Obviously for a college savings plan such as 529 plan, the earlier you start saving, the better.

2. Get a student loan
The interest rates for student loans are low and parents are not liable for the loans. You can help your child pay for interest while letting them pay for the principals.

3. Apply for financial aid
Don't presume you won't qualify for financial aids, you never know, so please apply for it.

4. Don't sacrifice your retirement savings
There is no one out there helping your retirement, so that should be your priority.

5. Consult with more experts
Don't just talk to high school counselors, talk to more experts, including independent consultants, you might learn something you don't know.

Life Insurance Beneficiary 101 - Part B

7/14/2014

Part A - the difference between primary and contingent beneficiaries.

Part B - what if you have multiple primary beneficiaries?

If you have multiple primary beneficiaries, and none of them survives you, then the money goes to the contingent beneficiaries.

Now a complication - if your life insurance policy has multiple primary beneficiaries, and one of them predeceases you or dies along with you, should that primary beneficiary's share go to the remaining primary beneficiaries, the contingent beneficiaries, or the person's children?

The answer is, you can add descriptions to your beneficiary designation to take care of such situations based on whatever your desire.

Part C - do I need to name contingent beneficiaries?

Life Insurance Beneficiary 101 - Part A

7/14/2014

Part A - What is the difference between a primary and contingent beneficiary?

A primary beneficiary is the person who will receive your life insurance's death benefit payment in the event of your death.

A contingent beneficiary is a back up plan - in case the primary beneficiary person doesn't survive you.
You can name several primary beneficiaries and several contingent beneficiaries, just specify the percentage allocation among them of your death benefit payment.

Part B - what if you have multiple primary beneficiaries, and none of some of them don't survive you?

How Long Will Your Retirement Fund Last

7/14/2014

Q. I have saved 401K in all my working career, by my retirement age of 65, I estimate to have $1.5 million. How long will my retirement fund last?

A. How long will your lifetime savings last depends on a few factors:

How much money you plan to withdraw each year?
How much will be your income tax rate at retirement time? Remember, 401K withdrawals will be subject to income tax now.
How large is your balance to start with?
How much annual growth rate the remaining balance will be?

You can use the following tool to do a quick estimate about how long your retirement fund or 401K money will deplete.

Crowdfunding Investment Checklist

7/13/2014

If you have some extra money and looking for exceptional returns, you could try some crowdfunding investment opportunities. However, before you commit your money through it, make sure you do the following:

1. See the company
If possible, visit the Headquarters, talk to anyone you can get hold of.

2. Check license
Verify the business has business license from the city, county and state agencies.

3. Find out any litigation
Search the company's current and past names and see if there is any lawsuits and bankruptcy filings. Court filings can be found at www.pacer.gov.

4. Read financial statements
You should ask for corporate tax returns.

5. Evaluate investment
Make sure you are aligned with the business' short term and long term plans.

6. Understand the future
Check how much the company needs, not just this round, but also in the future.

Can I Get Money Out of 529 Plan Without Penalty if My Child Received a Scholarship?

7/12/2014

Q. If my child received a full scholarship for college, can I get my 529 Plan savings out without penalty?

A. Yes, you can!

When you tap a 529 plan, each withdrawal is a combination of contributions (always tax-free and penalty-free) and earnings (taxed and usually with a 10% penalty if not used for eligible education expenses).

However, as a scholarship reduces your out of pocket college costs, you can withdraw up to the amount of the scholarship from your 529 account without penalty on the earning portion of the withdrawal.

Financial Service Disruptors in CNBC 2014 Disruptor 50

7/11/2014

The CNBC 2014 Disruptor 50 list is out, a few of them are young startups in the financial services industry challenging those big giants, they are -

Motif (#4, lost cost trading, we have profiled it here before)
Personal Capital (#17, a 360-degree view of your personal finances)
Wealthfront (#20, you don't need a wealth manager anymore with Wealthfront)
LendingClub (#33, borrow or lend, Person to person style)
Betterment (#45, automate the financial advisor business for the masses)

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