Ataroke Wealth

Life insurance is an incredibly valuable and powerful tool. But it’s also wildly controversial. Properly thinking about the role life insurance plays in your life can greatly simplify the decision of how much and what kind of life insurance to buy.

Read the full article here:
https://www.ataroke.com/articles/how-to-think-about-life-insurance

As always, this post is educational and not intended to be advice. Seek advice before making any purchase decision.

The main purpose of life insurance is to replace your income if you die.

How much should you have?

Keep it simple with two questions:
1. How will the people relying on your income be affected if your income disappeared?
2. How much do you want to change the answer?

After you've answered that question then you can begin thinking about whether a temporary or permanent policy is best for you. For most people, a simple term policy is the best way to address the risk of your income disappearing if you die early.

Read on to learn more about the different types of insurance and who you should or shouldn't buy it from. (I do not sell insurance.)

How to think about life insurance — Ataroke Wealth — Fee-Only Financial Advice Life insurance is an incredibly valuable and powerful tool. But it’s also wildly controversial. I find that properly thinking about the role life insurance plays in your life can greatly simplify the decision of how much and what kind of life insurance to buy.

Personal finance is pretty simple. You'll probably be just fine if you:

1. Save 20% of your income
2. Have proper liquidity
3. Carry basic insurance (home, auto, liability, life, disability)
4. Diversify your investments and don't sell

While it may be that simple, it’s also hard. Why is it hard, and what can you do about it?

Read on:

Personal finance is simple, but hard — Ataroke Wealth — Fee-Only Financial Advice Personal finance is pretty simple. If you save 20% of your income, have proper liquidity, carry basic insurance (home, auto, liability, life, disability), and invest your long-term money in a low-cost diversified index fund (and don’t sell), you’ll probably be just fine. While it may be simple, ...

If you focus on the day-to-day movements of the market, you're in for a wild ride.

This graphic by does an incredible job of emphasizing the importance of time horizon when investing.

Most of the time when investing the goal is to avoid permanent losses. But I see people spend way to much time trying to avoid temporary changes in value (the left half of the graphic).

I'll have much to more say on this graphic soon.

Having a clear process helps us stay disciplined. Here is our 6-step investment process:

1. Define Purpose
2. Define Time horizon
3. Determine Risk
4. Determine Allocation
5. Write Investment Policy Statement
6. Execute and Monitor

What is your investment process?

Having clear investment beliefs helps us stay disciplined. Our 4 core investments beliefs are:

1. Markets go up over the long-run, up and down in the short-run
2. We can't consistently time the market
3. Fees are inversely related to performance
4. Behavior is the biggest determinant of success as an investor

What are your investment beliefs?

While this is our list, we think it's applicable to most people as well.

You'll probably notice a trend. We tend to be intentional, proactive, and non-reactive. We also look at the long-term, not what is happening day-to-do.

What is on your list of investing dos and don'ts?

Cash may appear stable, but it can actually be riskier than stocks* when considering a long holding period.

While cash is stable in the short-term, inflation gradually erodes the purchasing power of cash over the long-term.

Stocks are the opposite. While very volatile in the short-term, stocks have historically provided returns above the rate of inflation over the long-term.

*Assuming a well-diversified portfolio of stocks.
For general education purposes.
This is not investment advice.

Once again, behavior is everything in personal finance.

While the technical stuff gets all the attention, the behavioral stuff is what actually produces results. Sure, the technical stuff is necessary, but if you have a perfect "technical" plan that doesn't get implemented, then it doesn't matter.

In personal finance, behavior is everything. These three habits will go a long way in improving your financial results and leading to an overall healthier relationship with money.

1. Save first. Spend second. It’s so simple (yet so hard) to actually do. If you can save first, then you can spend guilt-free knowing you’ve already done the hard stuff.

2. Rarely check the value of long-term investments. This is one of the easiest ways to eliminate unnecessary stress and overreactions. Assuming you were properly invested to begin with, it really doesn’t matter what happens day to day or even year to year. Frequently checking your investments will just make you want to “do something” when doing nothing is almost always the proper choice.

3. Limit how much you read / watch financial news. Anymore, the “news” is just entertainment, and financial news is built to excite and scare. This excitement and fear make us want to “do something” and these reactions are usually short-sighted and not helpful in the long-term.