Insurance in Financial Planning - Importance of Managing Investment Risks

Insurance certainly plays an important role in the financial planning process in the context of the managing of one's investment risks. In financial planning, a logical step to improve and increase one's net worth is to indulge in a careful and a well implemented investment plan. You would required time to be on your side and also the patience not to plunder into your stockstackup.com" title="investments">investments long enough to allow them to grow through compounding.

However, we do know that unforeseen events do happen. It is therefore sensible and pertinent to take the necessary precaution in managing your investment risks by including the relevant insurance policies into your financial portfolio. Purchasing the right type of insurance is of paramount importance and certainly a necessity in ensuring and achieving success in your financial goals and objectives.

Two very important insurance policies recommended in your financial investment plan portfolio and the reasons for their recommendation are stated below:

1. Term Life Insurance with TPD (Total Permanent Disability) rider.

"Buy term and invest the difference in a diversified portfolio of long term investment instruments" is the call of most well meaning financial planners. The reason for it is that term life insurance is the cheapest form of life insurance in the market and the purest form of life insurance with a protection element only without any savings features built into it. Therefore, a term life insurance policy provides more protection coverage for a smaller annual premium. This will allow you to stretch your insurance dollars the furthest and to invest the difference in savings and investment vehicles that have higher long term historical returns. A term life insurance policy with a TPD rider will provide pure protection in the event of death and also in the event for total disability.

With the right amount of term life insurance in place, you will be able to allow sufficient time for your investment portfolio to mature to achieve your financial goals within the period before the term insurance policy expire.

2. Medical Insurance

A financial plan with the intention of managing your investment risks will not be complete without a medical insurance policy with critical illness coverage and hospitalization and surgical (H&S) coverage. A financial investment plan can be derail if one should suffer the tragedy of succumbing to any life threatening illness such as cancer, diabetes, etc causing the person to lose his job and income before the financial goal of his investment plan materialize. The cost of treatment which may be exorbitant from the hospital expenses and surgery needed would cause you to use up the emergency funds and in the worst scenario may require you to withdraw from investment program before it mature if a medical policy was not purchased earlier.

The quantum of amount of term and medical insurances required will depend on the individual needs and financial dreams of the individual.

There are other types of insurances for a more comprehensive financial program but the above two types of policies above are certainly vital in the managing of your investment risks. It certainly is a folly to ignore the importance of insurance in the financial planning process.

For related articles, check out Jeremy's blog on Financial Planning Guide at http://financialplanguide.blogspot.com

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How the Z-Score Can Help Your Investment Returns

I recently came across an interesting article in the Financial Times called New study re-writes the A-Z of value investing based on thought provoking research from the investment bank Morgan Stanley.

They found that when buying undervalued companies based on valuation measures such as price to book value ("PB") and price to earnings ("PE") ratios, in economic downturns, returns are very dependent on the balance sheet financial strength of the company.

This makes intuitive sense and has been especially important in the current downturn because of the associated banking crisis.

Morgan Stanley used a measurement of financial strength called the Altman Z-score ("Z-score"). Which was developed in 1968 by Edward I. Altman, an Assistant Professor of Finance at New York University.

The Z-score is a combination of five weighted business ratios and can also be used to predict bankruptcy.

In a series of tests covering three different time periods over 31 years (up until 1999), the model was found to be 80-90% accurate in predicting bankruptcy one year prior to the event, with a error rate of 15-20%.

The z-score is calculated as follows:

Z-score = 1.2T1 + 1.4T2 + 3.3T3 +.6T4 +.999T5.

T1 = Working Capital / Total Assets.

T2 = Retained Earnings / Total Assets.

T3 = Earnings Before Interest and Taxes / Total Assets.

T4 = Market Value of Equity / Book Value of Total Liabilities.

T5 = Sales/ Total Assets.

And is interpreted as follows:

Z-score > 2.99 = Safe

1.8 < Z-score < 2.99 = Middle or grey

Z-score < 1.80 = Distress

Source:Wikipedia

Morgan Stanley ranked a basket of companies by their Z-scores and found that when they compared Z-scores with share price movements, companies with weaker balance sheets underperformed the market more than two thirds of the time.

They also found that a company with a Z-score of less than 1 tends to underperform the wider market by more than 4% over the year with a probability of 72%.

''Given the poor performance over the last year by stocks with a low Altman Z-score, the results of our back-test are now even more compelling than they were 12 months ago," argues Secker. "We calculate that the median stock with an Altman Z-score of 1 or less has underperformed the wider market by 5-6% per annum between 1990 and 2008."

When compound annual returns since 1991 were analysed, the results are more dramatic. On average, companies with Z-scores of less than 1 saw their shares fall 4.4 per cent, compared with an average rise of 1.3 per cent for their peers.

Only five of the 18 years did companies with a Z-score of 1 or less outperform the market in and this took place only in years with strong economic growth.

The study can be summarised as follows:

Unless you have a really compelling reason to buy, avoid companies with a Z-score of less than one like the plague.

I use the Z-score in my company analysis as an early warning signal. Should the Z-score be less that 3 I investigate further. However because I am relatively debt averse I seldom find reason to have to do so.

Tim du Toit is editor and founder of Eurosharelab. On his website he reveals what more than 20 years of equity investment have taught him - sometimes at considerable cost.

To discover how you can avoid costly mistakes and enjoy greater profits, sign up for his free newsletter at http://www.eurosharelab.com

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RRSP, Mortgage and TFSA - What's the Best Investment Strategy For You?

Contributing to an RRSP, paying down a mortgage and investing in a TFSA are all very important pieces of a complex investment strategy. As an investment advisor, I would help you to navigate the pros and cons of all three, bearing in mind your unique circumstances. The discussion below addresses some of the key considerations as you try to decide on the best investment strategy for you.

Paying down a mortgage:

If your goal is to pay down your mortgage quickly, there is a simple method that can be used to "tip" the math in favour of the borrower, instead of the bank. I call it "mortgage tipping". Most financial institutions that offer mortgages will provide an amortization schedule, upon request. This is simply a breakdown of monthly payments that identifies interest and principal portions, separately, for all payments. It also demonstrates how this balance changes with each mortgage payment. When you first review the amortization schedule, you might be surprised by how disproportionate the balance is between interest and principal mortgage payments, especially on a newer mortgage.

Houses are normally considered to be illiquid assets because they aren't usually the asset earmarked to eventually provide retirement income or emergency cash, since that would require selling or getting a second mortgage. This means that you will want to balance your mortgage payments with other considerations, including short term needs for liquid assets for cash and long term needs for a retirement plan. The "mortgage tipping" strategy will help you to identify the mortgage payment plan that accelerates your mortgage payments at a rate that minimizes overall interest payments but still leaves an appropriate amount of funds available for contributions to RRSP accounts and /or investing in a TFSA, depending on your investment goals.

Contributing to an RRSP:

The Retirement Savings Account (RRSP) allows for long term savings with tax advantages. Like its name, "retirement account", it is meant to be a savings tool to provide an income for retirement. It's not meant to serve short term financial needs.

Frequent early withdrawals from an RRSP account will involve taxes and, in most cases, fees. stockstackup.com" title="investments">investments removed from an RRSP prior to retirement cannot be re-contributed in a later year. The exception would be for Government approved plans such as the home buyers or life long learning programs.

When an RRSP is used correctly it can provide a great forum to:

* Shelter investment growth, such as dividends, interest income and capital gains, from being taxed

* Make contributions tax deductible on personal income tax

* Provide a pool of capital to be used as income during retirement

Investing in a TFSA account:

The Tax Free Savings Account (TFSA) is a new type of account that has more flexibility than an RRSP because frequent or early withdrawals are not penalized. There are also tax benefits to the TFSA, with some similarities to the RRSP, in the sense that investment growth is tax free. In contrast to the RRSP, this account can be used as a general savings account, which can be tailored to meet any of your financial goals rather than simply be restricted to retirement.

RRSP, Mortgage and TFSA - finding the best investment strategy for you:

RRSP, residential property and TFSA are all assets that should grow over time, at different stages and in different increments.

Ideally, it's wise to have both an RRSP account as well as a TFSA account and to contribute to both while paying down mortgage debt, at the same time. Keep in mind that an RRSP and a TFSA are simply accounts and that money can be deposited into either within the limits outlined by the Federal Government, just like a chequing or saving account. The difference is what happens to the money while it's in the RRSP and TFSA. Both can be deemed investment accounts. That means the money can be invested in suitable investment products so that it has a chance to grow depending on how your financial needs and goals balance out over the long and short term.

Allotting monthly savings to all three assets can be one of the best ways to increase personal wealth, over time.

Susan Mallin works with MGI Securities as a Toronto-based investment advisor. As an investment advisor at MGI Securities, Susan is able to offer clients a full suite of investment services and investment products. Her process was designed to guide clients through a sea of choices in order to help them make decisions, in a manner that is simple yet effective, throughout the journey of reaching their financial goals. Susan's investment practice isn't focused on account size or age. It's about desire, attitude and willingness to succeed.

Visit my blog, for relevant, understandable investment resources.

Copyright Susan Mallin. All rights reserved. You may reprint this article as long as you leave all of the links active, do not edit the article and give the author credit.

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Stock Analysis - How To Do Profitable Stock Investment Research

Stock analysis is a tedious job but understand how to analyze them can prevent you from losing money in stock market. These two methods will do exactly that.

Fundamental Stock Analysis

Fundamental analysis used to discover stock's fundamental values. How the business is doing, how competitive are they and what is going to happen in the future are some of the questions need to be answered. The objective is to reveal stock's profitability and management efficiency.

How do you know if the stock is profitable?

How do you know if the board of management is efficient?

You will find answers to both questions in annual reports.

Balance sheet, income statement and cash flow statement is the most critical part in any corporate annual reports. Mathematical formulas or known as key financial ratios will help you to identify if the stock is worth investing. Besides, these financial ratios can be used to value stocks as well.

Once you know value of the stocks, you can stockstackup.com" title="make money">make money by buying undervalued stocks and sell them if the stocks are overvalued. This approach also known as value investing, made popular by Warren Buffet and his Gurus.

Technical Stock Analysis

Technical analysis, on the other hand, focus on market sentiment. The idea is to study market behaviour and take advantage from other investor's greed and fear. Seasoned technical analyst can tell you how the market is doing now and what the stock price will be tomorrow.

They make money out of human's emotion.

But how they did that?

The secret lies in the stock price.

Expert stock traders use several of technical indicators to understand market behaviour; Relative Price Index (RSI), Moving Average Convergence Divergence (MACD) and Average Directional Index (ADX) to name few. They also use trading chart to visualize the price patterns such as Japanese Candlestick.

Either you are prefer swing trading, trend trading or momentum trading, combining fundamental analysis with your trading style will only make you rich faster.

Find out more information on fundamental analysis and technical analysis at http://www.Stock-Investment-Made-Easy.com/
Chart Profits The Easy Way with A Step-by-Step Guide to Stock Investing for Beginners

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Apt Financial Planning Investment Can Give You the Much Needed Financial Freedom

With the advent of advanced technologies, our country is fast becoming westernized with a strong influence of financial freedom beckoning it. Every individual is busy in chasing his/her own dream of becoming financially independent and one vital step toward accomplishing this aim is suitable financial planning investment.

There is no trace of nervousness or anxiety in folks who are currently employed but once the employment phase is over, folks start questioning their financial status and how they can lead a life not dependent upon anybody.

This leads to a situation where people are forced to lead a life with reduced standard of living after retirement. A situation like this can easily be avoided if professional services of a financial advisor in India are hired before it gets too late. Life won't become dependent and distressed if proper planning is done regarding financial status and future planning.

The need to financially plan your life well in advance arises because of the unstable and turbulent market conditions. As inflation is rising steadily year after year, the prices of essential products are rising gradually. The same product that we bought at a price this year is bound to get pricier the next year but post retirement life would not see a rise in income level. This particular reason may also prompt folks to take up financial investment planning well in advance.

Another reason that poses a hindrance to people who want to aptly plan their finance is the notion that apposite financial planning requires huge capital investment. This is not completely true as no sum is small enough that cannot contribute to financial planning. One can seek counseling and services of a financial advisor in India to devise a plan which are specific and customized for their type of needs and requirements.

It is imperative to consider factors like years of tenure left in a profession, current income, liquidity, safety, setting aside finance for future uses, tax advantages etc. It is always better to start young when it comes to financially plan your life. Plan your goals well in advance and start working towards them. Investing in property is one of the lucrative and alluring options that will reap rich dividends in future.

Suppose there is a professor somewhere in Rajasthan who is going to retire in a few years and has not started financial planning of his future life. He needs to consult an expert financial advisor in India who can proffer him with a wide array of ideas as to where to invest. Some of the advices might sound like investing in property around Jaipur or affluent Bharatpur investment.

Saurav Kumar Kool providing Financial Planning Investment, and Investment Bharatpur

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