The Week on Wall Street
Despite a historic downturn in employment, stocks managed to climb higher last week as investors were emboldened by the pace of economic re-openings, both here and abroad.
FACT OF THE WEEK
On May 11, 1752, the first US Fire Insurance Policy was issued under The Philadelphia Contributionship, the first fire insurance company in America, co-founded by Ben Franklin and several other leading citizens of Philadelphia.
The Dow Jones Industrial Average gained 2.56%, while the S&P 500 advanced 3.50%. The Nasdaq Composite Index jumped 6.00% for the week. The MSCI EAFE Index, which tracks developed overseas stock markets, slipped 1.09%.
Tech Stocks Power NASDAQ
Last week’s trading was driven by a crosscurrent of emotions - worries about weak corporate earnings pace of business re-openings as well as optimism over the pickup in economic activity and progress of developing a vaccine.
Stocks posted back-to-back daily gains to end the week despite troubling employment data. Perhaps the headline of the week was that the technology-heavy NASDAQ Composite Index moved into positive territory year-to-date.
A “Silver Lining” in the Jobs Report?
Last week brought into stark focus the number of jobs lost since the start of the economic shutdown. Since mid-March, unemployment insurance claims have reached 33.5 million. The pace of newly unemployed has slowed down, however, with recent weeks at about half the rate at the peak in late March.
April’s employment report, released on Friday, saw a spike to 14.7% in the unemployment rate. As severe as these numbers are, 88% of newly unemployed characterized their job loss as temporary rather than permanent, as opposed to 47% of the newly unemployed in March who reported that their job loss was temporary.
FINANCIAL STRATEGY OF THE WEEK
ASSESS LIFE INSURANCE NEEDS
If your family relies on your income, it is critical to consider having enough life insurance to provide for them after you pass away. But too often, life insurance is an overlooked aspect of personal finances.
In fact, according to a 2019 study conducted by Life Happens and LIMRA, which closely follows life insurance trends, nearly 50 percent of Americans report having no life insurance coverage at all, even though over two-thirds of Americans recognize the need to obtain it.
Role of Life Insurance
Realizing the role life insurance can play in your family’s finances is an essential first step. A critical second step is determining how much life insurance you may need.
Several factors will affect the cost and availability of life insurance, including age, health, and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policyholder surrenders a policy prematurely, they may be responsible for paying surrender charges and suffer income tax implications.
Before implementing a strategy involving life insurance, you should first determine whether you are insurable. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.
Rule of Thumb
One widely followed rule of thumb for estimating a person’s insurance needs is a look at income. One broad guide suggests a person may need a life insurance policy valued at five times their annual income. Others recommend up to ten times one’s annual income.
Family under umbrella
If you are looking for a more accurate estimate, consider completing a “DNA test.” A DNA test, or Detailed Needs Analysis, takes into account a wide range of financial commitments to help better estimate insurance needs.
The first step is to add up needs and obligations.
Which funds will need to be available for final expenses? These may include costs of a funeral, final medical bills, and any outstanding debts, such as credit cards or personal loans. How much to make available for short-term needs will depend on your situation.
How much will it cost to maintain your family’s standard of living? How much spending is on necessities, like housing, food, and clothing? Also, consider factoring in expenses, such as travel and entertainment. Ask yourself, “what would it cost per year to maintain this current lifestyle?”
What additional expenses may arise in the future? What are the family considerations to address, especially if there are young children? Will aging parents need some support? How about college costs? Factoring in potential new obligations allows for a more accurate picture of ongoing financial needs.
Next, subtract all current assets available.
Any assets that can be redeemed quickly, and for a predictable price, are considered liquid. Generally, houses and cars do not qualify as liquid assets, since time may be required to sell them. Also, remember that selling a home may adjust a family’s current standard of living.
Needs and obligations – minus liquid assets – can help you get a better idea of the amount of life insurance coverage you may need. While this exercise is an excellent start to understanding your insurance needs, a more detailed review may be necessary to assess your situation.
As always, please contact my office with any questions or financial concerns you may have.