Financial Focus: Adding Layers of Protection to Financial Strategy | Company

To achieve financial security for you and your family, you will need to create an overall strategy. But for this strategy to succeed, you will need to protect it from various challenges, which means you will need to incorporate different layers of protection.

What are these challenges — and what types of protection can be used to defend against them? Consider the following:

Challenge #1: Protect your ability to achieve your goals — To achieve your long-term goals, such as a comfortable retirement, you will need to build adequate financial resources. And that means you’ll need to create an investment portfolio that suits your goals, risk tolerance and time horizon. And you’ll need to keep your long-term goals in mind when adjusting your portfolio in times of volatility.

Challenge #2: Protecting Your Family’s Future If You’re Not There — I hope you’ll live a long life and always be there to support your family. But the future is not ours – and if something were to happen to you, how would your family cope? Their chances could be much better if you have adequate life insurance. Adequate coverage could help you pay off your mortgage, pay for your children’s college education and keep your family going.

Challenge #3: Protect your income in the event of temporary disability — If you become ill or temporarily disabled and are unable to work for a period of time, the disruption to your income could jeopardize your family’s living situation or, at the very least, result in an inability to pay bills in a timely manner. To protect against this threat, you may want to consider adding disability insurance. Your employer may offer a short-term disability insurance policy as a benefit, but it may be insufficient either in duration or amount of coverage, so you may want to consider a private policy.

Challenge #4: Protect your long-term investments from short-term needs – Life is full of unexpected expenses – a major car repair, a new oven, a big bill from the dentist, etc. If you didn’t have the money available to meet these costs, you might have to dip into your long-term investments, such as your IRA or 401(k). Withdrawing money from these accounts sooner than expected could result in taxes and penalties and, more importantly, could reduce the amount of money you have for retirement. To help protect these investments from short-term cash flow needs, try to build an emergency fund containing three to six months’ worth of living expenses, with the money kept in cash or a cash account.

Challenge #5: Protect your financial independence — You would probably do everything possible to avoid becoming a burden on your adult children — which is why it’s so important to maintain your financial independence throughout your life. A potential threat to this independence is the need for some type of long-term care, such as an extended stay in a nursing home, which can be extremely expensive. A finance professional can suggest hedging strategies to help you prepare for these types of costs.

It can be difficult to keep your financial strategy intact, so do whatever it takes to protect it.


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Don F. Davis