Affiliated with Sentinel Life & Sentinel Financial Management Corp.
March/April - 2001
Commentary - Hans H. Mathisen
How Much is Enough? — LIFE LETTER for March asks that “old” question: “How much Life Insurance should each one of us have? “. Because we are individuals and are different from each other, one size doesn’t fit all. But one fact I have learned about Life insurance: in my 23 years as an advisor, I’ve never known of a person who died and had too much Life Insurance. If you have a hunch that your situation should be reviewed, please let me know. I’ll be pleased to sit down with you on a confidential one-on-one basis.
How is Your Financial Parachute? — As LIFE LETTER for April points out, your chances and my chances of becoming disabled during the next 12 months are almost nine times greater than our homes catching fire.
Are you betting against the odds? You are if you have your home insured, but have neglected to adequately insure your ability to earn an income. Statistics show that the majority of mortgage foreclosures happen as a result of home owners being unable to work and earn an income, rather than uninsured homes being destroyed by fire.
If this communication makes you feel a bit uneasy, you may sleep better if you give me a call. I’ll be pleased to show you how you can get a Financial Parachute for a lot less than you think it will cost to secure your financial future in the event you are unable to earn an income because of disability.
THE STOCK MARKETS — The financial markets world wide are still volatile. But, as stated in my January/February Newsletter, all clients of Mathisen Financial, Inc. have value in their portfolios and are properly diversified. Now, it’s up to you not to panic because the markets are down. Read this article! One of the most respected and most successful fund managers in the world, Mr. Stephen Waite of CI Global Advisors, gives us all reason to be optimistic. So, keep your seat belts fastened!
Much Is Enough?
1. Liabilities and cash needs. A person’s debts and obligation should not last longer than they do. Enough cash needs to be provided to pay off the mortgage, loans, other debts and final expenses. Additional funds are required for funding education, child or home-care funding if survivor continues working, providing an emergency fund for unpredictable expenses, and for any special bequests or charities.
2. Capital to provide income. The surviving spouse, children or life partner still have to meet day-to-day expenses. First the income needed by the survivors needs to be determined. Second, any ongoing income is deducted from this amount. This will include wages, investment income, employer provided benefits and government benefits. Third, an amount is arrived at that will provide the income needed by using an interest rate you choose. You can decide to create a sum of money that will provide interest income only or a smaller amount that will run out after a certain period of time.
Liabilities, cash needs and capital to provide income are added together to arrive at the total amount of money required. From this amount is deducted:
3. Assets usable by family/partner. We all have some assets and insurance that will offset our family’s cash needs. They include Cash (savings accounts, T- Bills, Canada Savings Bonds, etc.); RRSPs (normally transferred tax-free to surviving spouse and allowed to grow until retirement); Stocks, Bonds, or Investment Funds; Principle Residence (usually not included as survivor still needs a place to live. A portion of the value can be used if plans to downsize); Real Estate (other than home); Life Insurance (includes personal policies, group coverage, mortgage insurance and creditor insurance); Farm or Business Assets; Canada/Quebec Pension Plan Death Benefit ($2,500 in 2001); and, Other Assets.
After going through the process of measuring their needs, Bruce and Mary were able to make an informed decision on the amounts and types of life insurance to provide for each other and their family.
Too many people buy a policy here and a policy there until they have an unplanned life insurance hodgepodge. It’s both confusing and expensive. Your life insurance ought to be coordinated with your other assets and benefits to meet your long and short term objectives. The result should be an overall plan that you understand, meets your needs and saves you money.
© 1999 Bowen Financial Inc. and Donald F. Pooley, Inc.
Isn't it time to review your insurance
is Your Financial Parachute?
You have life insurance, a medical and dental plan, and full coverage on your house, cottage and vehicles. But have you secured your most valuable asset against the greatest risk? The threat of a disability is greater than the other risks you routinely cover. Just look at the risks we face each day and the chances of them happening:
• 1 in 88 homes catch fire in a year
A disabling injury or disease that lasts too long can be catastrophic. The principal breadwinner of a family, instead of being a major source of family income, becomes a drain on its remaining resources. And these resources may already be strained by other family demands.
The facts tell us that a substantial number of us are destined to have the ability to work taken away by a period of disability. For example, a 25- year old has a 53.7% chance of becoming disabled for 90 days or longer before age 65. A 35-year old has a 50.3% chance and the probability for 45- year old is 44.3%.
One might expect that most disabilities are accident-based. Nothing could be further from the truth. In mid-career, age 45, only 25% are due to accidents. Even at the higher-risk age of 25 just 46% of disability claims are accident-related. By age 62 this has dropped to a mere 12%. As less than one in sixteen of such accidents occur in the workplace, few are covered by Workers’ Compensation.
Other government plans, like Canada Pension Plan and Employment Insurance, may pay you if you become disabled. However, the benefits are minimal (maximum $935.12 per month for CPP and $413.00 per week for EI) and may be short-lived (just 15 weeks for EI). CPP disability benefits often don’t start for a year.
If you become sick or hurt and cannot work, how will you pay your bills? How long will your savings last? Who will support your family? Can your family support you? Can you afford to stay in your present home? If you do not have satisfactory answers to any of these questions, you should consider disability insurance.
© 1999 Bowen Financial Inc. and Donald F. Pooley, Inc.
Is it time to review your disability
insurance needs? Call today:
is a commentary by Stephen Waite of CI
We just got back from a presentation at the Merrill Lynch Telecommunications Conference where Cisco Systems CEO John Chambers spoke. We came away from the presentation feeling cautious in the near term but optimistic in the longer term. The overriding theme is that some of the projects that were on Cisco’s docket have been postponed, but they haven’t been cancelled.
The one important point that Chambers mentioned is that this industry tends to go through waves or cycles. In fact, in the networking area it seems to be that every three years we hit a cyclical downtrend. The question this time is how deep this downtrend is going to be and how long it will last. Chambers’ view was that it’s unlikely to be a V-shaped recovery, it’s more likely to be a U-shaped recovery because it takes time to rebuild confidence in the global economy. But the underlying trends are very, very strong. If you’re going to be investing in these industry funds - technology, telecommunications and biotechnology - you have to have a longer-term perspective, because the waves are powerful and they’re getting bigger over time. But in a downdraft, things move down very quickly.
The correction in the Nasdaq this time around is as steep as the 1973-1974 correction, but we’re seeing it in half the time. The corrections in the 1 Nasdaq historically have been quite sharp, ranging from 20% to 60%. The / rebounds have been equally strong. The average gain following a bear market on the Nasdaq has been 165%, with the largest rebound being 519% in the late J 1980s. The smallest gain was 50% in 1978. The rebound following the 1973- 74 bear market was 141% and it lasted over 45 months.
What I think you have to do as an investor is look at the secular trends and assess those. Chambers confirmed what we said, that the Internet is the most liberating productivity tool on the planet. Three years ago, he had a hard time convincing government leaders and CEOs around the world that this was the most powerful productive-enhancing tool on the planet. Nobody disputes that any longer. I like to quote GE CEO Jack Welch. He said that GE is driving the heck out of IT spending. It’5 the lifeblood of GE today. So the good companies are keeping their heads down. They’re plowing ahead with technology spending for the simple reason that it raises customer productivity and it raises corporate productivity.
We’ve never ever had a technology that was able to do what the Internet can do today. I know a lot of people think the Internet is a bubble, but you’ve got Jack Welch saying it’s the “lifeblood” of GE and this the most admired company in the world today. At a time when Warren Buffet is buying insulation, paint and brick companies, one of the most savvy managers, and certainly one of the greatest managers of all time is plowing ahead on the Internet. I think that’s an interesting juxtaposition: the greatest investor shying away from technology and the greatest manager going long on technology — that just shows you it pays off to have a diversified portfolio. On Monday everything went down. It didn’t matter if you were a growth investor or a value investor, tech or non-tech. I would re-emphasize that every year you can find a reason to stay out of the market, going back to the Great Depression. But over time, equities are the place to be. In any 20-year period, they turn out to be least risky asset, even compared to cash. Cash is the riskiest asset over the long term.
We continue to feel that the macro environment will be difficult. It depends on what the Fed says. We continue to look for lower interest rates. At some point we think confidence will stabilize arid the economy will start to improve. When that happens, you’re going to see a very sharp snapback in the technology and telecommunications sectors.
In the biotech fund, we’ve been holding a lot of cash over the past several months. We’ve been looking at the technical situation in the market and it hasn’t looked very good. We’ve held anywhere from 20% to 40% cash. Right now we’re about 40% cash. We’ll be looking to take those cash levels down. We hold great companies: Millennium Pharmaceuticals, Abgenix, Genentech, Immunex, Human Genome Sciences, CuraGen, Imclone, Medimmune, Sepracor, and Andrx. All these companies are selling at attractive prices today.
We think the future lies in the convergence of information technology, communications technology and biotechnology, and that’s where we want to be. We see no reason to change our view. In the short term, we always advise keep your seat belts fastened. In the longer term, we remain upbeat, looking for strong secular trends.
Mutual confidence is the power that binds together all harmonious human relationships.