Then I met Mike, an independent insurance agent. I told him I was concerned about the replacement coverage on my home should it burn down; I was concerned that the property damage limit looked low. Mike told me he would do a free estimate of how much it would cost to replace all but the land value of my home.

Mike’s estimate confirmed my suspicion of having inadequate coverage. He found that the cost of replacing my home was over $ 100,000 higher than the coverage I had through my “trusted” agent. If my home had burned down, it would have been a financial disaster. Needless to say, I switched over my homeowner’s and auto insurance to Mike. He got quotes from four quality companies and we settled on one that increased the replacement value of the home. Mike also doubled the liability insurance limit from $ 250,000 to $ 500,000. Even though my coverage increased, I saved $ 500 in annual premiums.

Does your insurance agent review your policy annually and alert you to changes? A recent article in Kiplinger’s Personal Finance magazine1 states that nearly two-thirds of homeowners are underinsured. Inflation of the cost of building materials has had a major impact on replacement costs. The June 28th issue of Forbes2 also has an excellent article on property insurance.

Just recently, I received a bill from my current insurance company. It showed an increase of almost
$ 700 in annual premiums — a 22% increase! It was an easy process to call Mike who researched other insurers and came back with three quotes. Again, Mike was able to save me hundreds of dollars per year.

Do you work with an independent insurance agent? If you have a captive agent, will he/she keep you informed of rate increases? Will a captive agent give you comparative quotes?

For me, quality service is the most important aspect of an insurance agent’s work. Cost is important, but secondary. Part of your agent’s responsibility is to keep you updated on changing costs and coverages. If your captive agent isn’t doing this, you should consider finding a trusted independent agent.

1. Kiplinger’s Personal Finance, p. 50, July 2010, “Upgrade Your Home Insurance.”
2. Forbes, p. 113, June 28, 2010, “Investment Guide.”

Visit this financial advisor blog to learn about a technique not frequently advertised by employers and 401(k) administrators that can offer significant advantages over keeping money in a sub-par retirement plan.

View the six-minute video titled “Your Path to a Worry-Free Retirement” to learn how Net Worth Advisory Group can help you reach your financial goals and add value to your retirement planning.

The sad reality is, most investors have no idea what fees they are paying, and to who. Take your 401(k), for example. Some may realize that they have to pay the managers of the mutual funds they invest in. Others, because they never write the manager a check and the money comes directly out of their investment account, do not. Right now, the average US stock mutual fund charges 1.31% annually.

However, the fees don’t stop there. To learn about the other fees being deducted from your 401(k) and other investments, visit Lon’s financial planning blog.

View the six-minute video titled “Your Path to a Worry-Free Retirement” to learn how Net Worth Advisory Group can help you reach your financial goals and add value to your retirement planning.

Counter to what you would expect, it was fairly quite around the Net Worth Advisory Group office that afternoon. Why?

Visit this link to learn why Net Worth Advisory Group’s financial planning clients were able to enjoy their lunch last Thursday.

1- Contributing enough each pay period to get the full company match is a smart decision in every case.

2- Knowing the expected rate of return of your 401(k) portfolio is essential to determining whether you will have adequate retirement income. Unfortunately, few plans provide an annual analysis to tell you the expected return and fewer participants know how to figure it out.

3- Knowing the expected range of returns of your 401(k) portfolio is important so that in a down market you are not caught off guard by having more risk in your portfolio than you can afford to take.

4- Rebalance your portfolio at least annually.

5- Be aware of the fees that are associated with your account. High-fees are a prime cause for poor performance. Remember, the investments in your 401(k) charge a management fee (the expense ratio) and the 401(k) provider also charges a fee.

6- Have funds from various asset classes in your portfolio to ensure adequate diversification.

7- Participants, regardless of how much investment education they receive, will not be able to design a portfolio as well as an unbiased professional. Unfortunately, the majority of plans are sold by salesmen who often direct investments into funds that make them more money. Speak to a fee-only financial advisor who does not get paid a commission on the products he recommends because he can provide objective advice.

8- Be sure to contribute enough to reach your retirement income goal. One way to know if you are on track is to have an annual retirement income analysis completed. This information would indicate if your current plan along with future contributions will provide the income you plan on having when you retire. After all that is the purpose of the 401(k) in the first place.

If you need help with any of the above issues, be sure to speak to a fee-only financial planner. Click here for more information about Net Worth Advisory Group’s current special: fee-only financial planners “tune up” 401(k)s.

First, do you know your 401k’s current allocation between stocks, bonds, and cash? Most people don’t. Study after study indicates having an appropriate asset allocation is the most important factor in determining investment success. If you have a portfolio that consists of a proportion of stocks to bonds that is too low or high relative to your risk tolerance, you will consistently be unhappy with your obtained return or losing sleep because your nest egg is declining faster than you can handle. Analyzing and identifying your risk tolerance is included with the $250 fee, as is determining the asset allocation of your current portfolio, as well as developing a stocks/bonds/cash mix that matches your needs.

Second, ensuring your 401k is adequately diversified is also part of the process. We make sure you are investing in not only large cap stocks, but mid caps, small caps, and international stocks as well. To the best of our ability, we’ll make sure you also have exposure to not just corporate bonds, but government and international bonds. Of course, we’ll determine the highest performing investment option in each asset category, and identify the percentage of your portfolio that should be placed into each portion of the diversification chart.

Third, do you know the costs of each investment option within your 401k? Again, most people don’t. Our process identifies the expense ratio of each mutual fund in your 401k. After all, investing in a fund that is producing high returns doesn’t do any good if the fund is charging a fee that consumes half the return.

So back to the original question: is all this worth $250? Let’s take a hypothetical client, John, make some assumptions, and see if he is ultimately happy with his decision to tune-up his 401k. John is 50 years old, has $100,000 invested in his 401k, and intends to contribute $10,000 per year until retiring at age 65. He thinks he will live until age 95, and wants to know how much his 401k is going to allow him to spend annually until death. Lastly, we’ll assume inflation of 3%, and that John currently has a portfolio that will generate an 8% return annually. With these assumptions, John would be able to withdraw the inflation-adjusted equivalent of $26,654 per year from his 401k between ages 65 and 95.

Now, let’s assume John pays $250 to tune-up his 401k, and consequently, is able to add 1% to his annualized return, either by enhancing his investments’ performance, or by reducing the cost of his portfolio. A 9% annual return would enable John to withdraw the inflation-adjusted equivalent of $33,087 per year from his nest egg between ages 65 and 95. That is $6,433 more EACH AND EVERY YEAR! I think it would be safe to assume John was happy with his decision to supercharge his 401k.

Another way to look at is asking what rate of return John achieved on his investment. A $250 investment that yielded $6,433 of income for 30 years achieved a rate of return of 2,573%. Do you know any other investments that offer that type of return?

I’ve had it. I’m calling out an all-too-popular financial fallacy these days. It goes like this: “Stocks? Diversification? Who needs ‘em! Just look at the last ten years. ‘The Lost Decade.’ The S&P 500 Index was down for the whole decade. Stocks did nothing for us.”

Did stock investors really experience a “Lost Decade” from January 2000–December 2009? No. Where did this fallacy come from, then? It came from the mistaken belief that the S&P 500 Index represents all stocks.

Let’s get a grip. Sure the S&P 500 was down slightly from 2000–2009. But is the S&P 500 the only way to invest in stocks? Not by a long shot. The S&P 500 is an index of 500 largest US stocks. It leaves out over 8,000 publicly traded stocks. Consider that small cap stocks were up 5.4%, international stocks were up 1.2%, and emerging market stocks were up 9.8%

Lost Decade? Not for diversified investors.

During this so-called Lost Decade there were plenty of positive returns to be captured around the world – and even here in the USA. The stock investor who wisely diversified across an appropriate range of the many stocks available via sensible, low-cost investments did not experience a Lost Decade. To illlustrate, a portfolio with 70 percent in the four equally weighted domestic stock asset classes and 30 percent in four equally weighted international asset classes would have ended the decade up by about 75 percent.

What does this mean? It means the investor who invested in stocks over the past ten years and didn’t make money has only himself to blame. It means the S&P 500 is not the only stock asset class. It means that, despite its many recent obituaries in the popular investment press, diversification is alive and well.

This is not to say that you should invest all your money in stocks (far from it!), or dump all your money into far-flung asset classes you don’t understand. Investing well is complicated, and you may need an expert financial advisor to help you build an intelligent portfolio of stocks and fixed income holdings that make sense for you. But don’t give up on long-term, well-diversified investments.