Having said that, what follows are ten tips* about the various kinds of life insurance products currently offered on the market and some nuances of each:

1. Life insurance policies fall into one of two camps.

There are term policies, or pure insurance coverage. Then there are the many variants of whole life policies, which combine an investment product with pure term insurance and build cash value.

2. Insurance is sold, not bought.

Agents sell the vast majority of life policies written in the U.S., because the life insurance industry has a vested interest in pushing high-commission (and high-profit) whole life policies.

3. Whole life policies are expensive.

Policies with an investment component cost many times more than term policies. As a result, many people who buy whole life often can’t afford an adequate face value, leaving themselves underinsured.

4. Whole life policies are built on assumptions.

The returns quoted by the agent are simply guesses – not reality. And some companiese keep these guesses of future returns on the high side to attract more buyers.

5. Keep your investing and insurance strictly separate.

There are better places to invest – and without the high commissions of whole life policies.

6. Buy enough term coverage to fill your needs (discuss with a fee-only adviser).

Life insurance is no place to skimp, especially with rates at historic lows.

7. Match the term of the policy to your needs.

You want the policy to last as long as it takes for your dependents to leave the nest – or for your retirement income to kick in.

8. Buy when you’re healthy.

Older people and those not in the best of health pay steeply higher rates for life insurance – so buy as early as you can, but don’t buy until you have dependents.

9. Tell the truth.

There’s no sense in shading the facts on your application to get a lower rate. Be assured that if a large claim is made, the insurance company will investigate before paying.

10. Use the web to shop.

Buying life insurance has never been easier, thanks to the Internet. You can get tons of quotes – and avoid pushy salespeople.

The important thing to take from these tips is this: before you shop around and before you buy a product that may be inappropriate or inadequate, talk with one of our certified financial planners to determine what makes sense given your personal situation. Just because your neighbor’s brother’s sister purchased a whole or universal life policy from her agent doesn’t mean that’s the way to go for you. Everyone’s situation is unique, and the best way to determine this is to come in for a review. It’s possible we may find you’re paying too much for a policy no longer needed and/or are underinsured. Doing something now will provide the financial security you want for your loved ones.

If you, or someone you know, would like to chat with FIM Group about life insurance, please feel free to contact Kevin Russell, Jim Frye or Renee Egelski in Michigan, Jeff Lokken, Kevin Mahoney, or Jason Sobolik in Wisconsin, or Alice McDermott in “paradise” (aka, Maui).

*Source: Money Lesson 101: Life Insurance, www.CNNMoney.com

Types of Annuities

There are various types of annuities, each with different benefits, depending upon where the assets are invested and when payments begin. A “fixed” annuity, for example, provides a specified rate of interest for a period of time, while a “variable” annuity offers greater opportunity for growth but also comes with higher risks. Other types include “indexed” annuities, “deferred” annuities, “single premium” annuities and “flexible premium” annuities. Keep in mind that the cost of these products often is directly proportional to their complexity – the more complex, the more money someone will pay for the product and, typically, as happens with complex products, the less a customer will understand what he or she is buying.

I’m not generally a big fan of annuities, mainly because they are expensive, have potential negative tax consequences, and are complex and confusing. For clients who come to us already owing an annuity, I’ve often asked them general questions about it, and they looked at me with glassy eyes and said they hoped I’d tell them. Without getting into to all the details and nuances of the different types of annuities, the following are some of the pros and cons of owning them in your portfolio.

Pros to owning annuities:

• An immediate lifetime annuity contract can guarantee periodic payments for life (main risks are inflation and the credit-worthiness of the company)
• Provide an option – compared to CDs – for those who are risk-averse and don’t want to risk losing part of the savings (fixed annuities still have credit and inflation risk)
• Provide a steady source of income
• Allow investments to grow tax-deferred (qualified and non-qualified annuities)
• No restrictions on who can invest (anyone can purchase a nonqualified annuity)
• Can be customized to fit your needs
• The sum value of some annuities are guaranteed to be at par or greater than the value of the amount invested (variable annuities – this benefit usually comes at a very high cost)
• Are backed (in some cases) by state guarantee funds, so if the company cannot pay, investments may not be lost (vary by state)

Cons to owning annuities:

• They are very expensive! I haven’t found one client who wasn’t completely shocked when we pointed out the fact they were paying (in most cases) between 2.5% and3.5% per year for their product
• Offer (mediocre) insurance coverage (one of the biggest selling points)
• Investment options are restrictive to mutual fund subaccounts that are often very expensive on their own (variable annuities)
• A big selling point is the tax-deferred savings, yet I find other retirement plans (especially employer-sponsored 401(k) plans) a much more attractive, less costly, less complex, simpler means of funding for retirement
• Lack of liquidity – funds are often tied up for six to eight years and are subject to a sizeable “surrender charge” if withdrawn early

For retirees, an annuity offers an assurance of a stream of income for life or for a specified period of time. For those who fear the potential loss of their money due to poor investment choices, that “guarantee” can be attractive. Keep in mind that that while the annuity income can look big, a good portion of the annuity’s income is a return of principal. The problem with buying into this (and paying too much for that guarantee, in my opinion) is that there are numerous other options that are typically more flexible and suitable that should be explored. But in the end, if having an annuity will help someone sleep better at night and bring them peace of mind, then a diversified portfolio manager at FIM Group can help find low-cost/low-load products that do not, for example, charge surrender fees or have very low expense charges. There are a handful of good products on the market, and we can help provide the due diligence before buying.

If you currently own an annuity, or are interested in learning more about these products, please feel free to call one of FIM Group’s advisors. We’d be happy to explore whether or not an annuity may be appropriate for you.

Protecting Your Assets

The majority of FIM Group accounts are held with Charles Schwab and Co., Inc., our main custodian, we feel that now is an appropriate time to remind our clients about the internal protective practices and stringent standards taken by Schwab that are designed to ensure the safety and security of your hardearned assets:

• Keeping Client Securities Separate from Broker-Dealer Securities – Client securities – such as stocks and bonds that are fully paid for or excess margin securities – are segregated from broker-dealer securities, in compliance with the SEC’s customer protection rule. In the unlikely event of insolvency of a broker-dealer, these segregated assets are not available to general creditors and are protected against creditors’ claims. This is a legal requirement for all broker-dealers.
• Account Protection by the SIPC and Lloyd’s of London – Schwab’s asset security measures offer protection for securities and cash by the Securities Investor Protection Corporation (SIPC). All Schwab accounts are insured by SIPC for securities and cash in the event a broker-dealer fails financially.Additional brokerage insurance is provided through underwriters at Lloyd’s of London. This additional protection becomes available in the event that SIPC limits are exhausted and there are no additional funds available from the estate of the failed brokerage firm.
• FDIC Coverage – The Federal Deposit Insurance Corporation (FDIC) is a U.S. federal agency that protects investors against the loss of their deposit accounts (such as checking and savings) in the event of the failure of an FDIC-insured bank. All deposit accounts held at Schwab Bank, including the Schwab Bank High Yield Investor Checking® account and the Schwab Bank High Yield Investor Savings™ account, are FDIC-insured.
• Information Security Measures – In addition to protecting clients’ assets, Schwab is committed to protecting client privacy and safeguarding information. – To learn how Schwab protects client privacy, visit >www.schwab.com/privacy – To learn how Schwab keeps client personal and financial information safe online, visit www.schwab.com/schwabsafe – To learn how Schwab plans to provide continued client service in the event of disruption to normal business operations, please visit www.schwab.com/businesscontinuity.

Invest with a margin of safety

Recently several FIM Group managers presented a webinar in which we discussed the markets, economy, investments and Roth IRAs. One of the topics we touched upon involved giving investments a margin of safety. Great investors are naturally disciplined toward investing with a margin of safety. Investing icons like Sir John Templeton and Warren Buffett, for example, talk about importance of discipline and a process of evaluation to ensure that a significant margin of safety exists for every investment made. For many investors, price is the best safety enhancer. For example, if you buy a dollar bill for 50 cents, you have less risk than if you paid $2.00. What a company is worth, of course, lies in the details and complexities of the “What is it worth?” decision. You need to evaluate if you are paying less than what it’s worth with a degree of safety that compensates you for the risk and possibility of making a poor investment choice.

At FIM Group we use both soft and hard – qualitative and quantitative – techniques when making the “What is it worth?” decision. Since the numbers are the easy part, as they are the known variables, we spend a lot of time on variables such as management, ethics, industry, product and product strategy analyses. All of this bakes into a decision that potentially involves hundreds of decision tree branches.

Based on past participation, the most popular webinar we’ve conducted to-date is titled “What’s in My Portfolio and Why?” FIM Group will continue to host webinars on relevant investment topics. Visit www. fimg.net for the most up-to-date webinar information, and be on the lookout for e-mail alerts announcing upcoming webinars. If you prefer, or if it’s easier than accessing an online webinar, you may contact any FIM Group representative, and he or she will send you a CD that you can review anytime.

What gives an investment a margin of safety?

• Sort through Millions of Opportunities
  (50,000+ stocks)
• Good Management
  (If Steve Jobs Took Over GM)
• Good Industries
  (Health Care, Food, Energy, Entertainment)
• Good Ethical Values
  (Transparency is Reality)
• Good Companies
  (Fad or Needed Goods & Services)
• Good Products and/or Services
  (Make Great Companies)
• Good Balance Sheet
  (Little Leverage)
• Free Cash Flow/Income
  (Cash to Reinvest or Pay Dividends)
• Skin in the Game
  (Insider/Family Ownership)

KEY

Buy and sell at the right price.

BOTTOM LINE

Prices fluctuate due to the liquidity of the markets, instant emotional responses and crowd behavior.

Volatility is a friend of the wealth-creating investor.

The retirement planning process involves using a retirement planning calculator and creating a road map toward your retirement goal and developing a plan to achieve that goal. The plan generally considers post-retirement budgeting, savings, tax management, debt management, pre-retirement budgeting and a host of other inputs all geared toward ensuring a quality retirement. However, planning for retirement takes time and judgment, because it involves many unknown variables. Among the top variables that may determine when retirement is feasible are lifestyle/family goals, longevity, future income tax rates, portfolio returns, the effect of inflation on expenses and future investment returns.

Let’s review the basics of these variables as they relate to your retirement plan.

Lifestyle Goals

Would you like to travel? Own one home or two? What is your retirement vision? These questions and others like them are necessary to help create a budget for your specific retirement needs.

Longevity

Attempting to gauge how long we’re going to live in retirement is a task that’s becoming more and more difficult. Medical advances have led to increased life spans and continue to increase the mortality age. This is best illustrated by the Social Security system. In its original design, participants in Social Security were expected to live only a few years after they have begun receiving benefits. People live longer now, and life spans are increasing each year. We believe it is wise to project a retirement plan that assumes you’ll live to age 100.

Future Tax Rates

Since we can only spend our “aftertax” income, it is imperative that we consider what tax rates our retirement income will be subject to. However, as government bodies at all levels change with each election, so do virtually all tax laws, including property tax, sales tax, state income tax and the granddaddy of them all, the federal income tax. Taxes such as property and sales taxes should be adjusted to account for cost of living increases. One thing is certain – taxes will exist in retirement.

Investment Returns

How much you can withdraw from your “nest egg” each year is perhaps the most critical variable to retirement projections. Like the other retirement variables, the annual return on your nest egg will not be linear. As we know, the investments most suited for providing long-term income security into retirement are going to fluctuate. Financial markets can have long periods of up and down investment return cycles. We need continual income and that is the key. That’s why we work toward constructing portfolios that can provide lifetime income security for our clients. Many retirees get caught up in “short-termism” and use CDs, shortterm bonds and fixed annuities as core holdings in their retirement portfolio. But this investment strategy is very risky. While inflation causes things to cost more, deflation can keep interest rates low for many years, requiring the need for retirees to invade their principal savings to meet their budget needs.

At FIM Group, we balance the long-term asset volatility with the more stable fixed investments to construct our clients’ portfolios. Our goal is to allow clients to live on the income generated from their diversified portfolio with a goal of providing income that can increase over time. That way clients won’t need to invade principal. Simply put, we call it living on the eggs (investment returns), not the chicken (principal).

Inflation

Loss of purchasing power caused by rising prices must be included in any retirement plan. It is safe to say that one dollar will buy less in the future. As you progress into retirement, you should factor in giving yourself a raise periodically to offset cost of living increases.

Family Constraints

Will you need to provide for or care for your parents and/or children in retirement? If so, how much will you help them? In summary, we are realistic about retirement planning and take retirement seriously. While the future is unknown, we do know that life will go on, some businesses will grow and pay great dividends, interest rates will fluctuate, politicians will fiddle with taxes, and inflation and deflation will fight it out. One thing, however, is certain: we will retire someday.

There was one western in particular about a wagon train full of characters, rich and poor, who went seeking a better life. The story was about psychology, faith, stubbornness, trust and truth. During the long journey, the wagon train endured many hardships and was repeatedly attacked by Indians and outlaws. John Wayne played a saddle-weary, leathery ex-military man who had seen it all. He lived hard, but always did what he had set out to do. There was discord among the ranks, and the rich family finally had enough of the fighting and depravation. Despite warnings from Wayne’s character, they turned back anyway. The scene ended with the sight of smoke on the horizon. The next morning the scout came back with a burnt teddy bear that belonged to the family’s daughter, indicating that the family didn’t survive. Of course, the final scene was straight from Hollywood, with the remaining families that “stayed the course” arriving in the promised land with beautiful meadows, running springs and sunny skies.

The investors that panicked out of the market collectively locked in trillions of dollars of losses. But this is not an article about panic or fear – we seem to have plenty of that to go around. Rather, it is about learning. A client asked me a few weeks ago what I had learned from this past year. Her question has since stuck in my head prompting me to articulate what I discussed with her and her husband.

First, we are long-term investors. We don’t manage money market funds, CDs or T-bills as our core business – we use them as tools. FIM Group was not founded on managing cash for clients, we have always been about long-term investing and solid wealth management advice. So our clients are primarily those who wish to accumulate a pool of resources that they can use someday to get through their own “territory” filled with ups, downs, manias, fear, greed, depressions, inflation, recessions, booms and busts. We have grown, because for 25 years we have stuck to our core competencies. When I said that to the client she said, “But Paul, what did you learn?”

I learned that people can collectively panic to an extent much more severe than I could have ever imagined. I manage money consistent with my easygoing, rational and patient disposition. I’ve worked side by side with hedge fund managers that are so short-term oriented that they have more trades in one month than we will have in one year. I have also worked in the brokerage industry where the “product of the day” is what’s important.

Back in the early 1980s, real estate, leverage, leasing oil and gas partnerships were the hot-ticket investments. If you even said the word “stocks,” “bonds” or “mutual funds” to investors, they would have turned and ran. In March 2009, the push was government bond funds and CDs, and the insurance companies were selling fixed annuities – but most people were already savvy due to the collapse of AIG. What I did learn was, based on all the phone calls from clients, that we may have not educated and prepared all of our clients as well as we should have.

While we consistently write about volatility as a side-effect of any long-term strategy, no one likes the downside volatility we experienced up until March 2009. It stands to reason that any person accumulating funds for a long-term need, like retirement, also needs a long-term strategy. Assets fluctuate in value, and to survive the “territory” you have to be flexible and stay the course . . . especially during tough climates. It is a relatively easy feat when the barrage of volatility and depression talk is not present. But realistically, that is the most important time to evaluate the path. So I learned that we need to spend more time discussing volatility, performance, and surviving and thriving as we go through the territory, especially for our new clients. In fact, we actually are going to get quite scientific about the process and are looking to partner with an Australian firm that has spent years studying and creating risk profiles for investors. The other thing I realized was that “everyone can’t manage.” Some CFAs or MBA holders might have all the training and even some experience in the field, but their skills are better for communicating, selling or writing about investing – not actually “doing it.” Suzanne Stepan and I have spent our entire careers as money managers, so our DNA is wired to make decisions.

I learned some startling information from this recent malaise. Investment advisers that pushed indexing and asset allocation were actually championing those investment strategies rather than using them as tools. Why would anyone consciously want a bunch of financial stocks in their portfolio? Or GM, AIG or other bankrupt, unethical or near bankrupt companies? Those investors seem unrealistically ignorant about owning crummy companies in crummy industries, all the while thinking that all stocks are fairly valued. The asset allocators seem equally set on the idea that to be successful or diversified you must own a little bit of everything.At the beginning of the western, the trail master went through each wagon and started throwing out all the unnecessary items – fancy dresses, shoes, a piano, heavy furniture – to ensure a faster, safer journey and to conserve space for the necessary items (like nails, pails, shovels, seeds, livestock and tools) they needed to build a new life. A portfolio that is weighted down by a bunch of retailers, financials and highly leveraged, poorly managed companies is going to have a hard time making it through the territory.

A few years ago my family went on an adventure to the Galapagos Islands. Darwin’s theories had their genesis in the Galapagos, and I will leave this essay with a quote from Darwin. “Nature teaches us that it is not the strongest of the species that survives. It is the one that is the most adaptable to change.” Getting through the territory will take intellect and strength of character, but these qualities will have little value if they are not combined with flexibility.

To learn more please visit www.FIMG.net or call 800-632-5528.

As part of the process, we help you understand where you are now, what you may need in the future and what you must do to reach your goals. The process also involves gathering relevant financial information, setting and clarifying life goals, examining your current financial status and coming up with strategies to achieve your goals. Explaining the financial planning process may touch on many areas, including budgeting, saving, taxes, investments, insurance, retirement and estate planning.

Like investing, financial planning is a dynamic process. Your financial goals may change over the years due to changes in your life or circumstances. Life events such as inheritance, marriage, birth, health, house purchase or change of job status can all have a significant effect on your financial planning strategy. It is important to revisit your financial plan as time goes by to reflect the changes in your life so that you can stay on track with your long-term goals.

To learn more please visit www.FIMG.net or call 800-632-5528.