Investors have various ways to reduce risk – diversification, cash reserves, planning to hang tough through the dips. But experts say it pays to think outside the investing box and consider other tools, like insurance. "As we amass more assets, we have to protect those assets," says John Grace, president of Investor's Advantage Corp. in Westlake Village, California. Needs change over time, he says, as young investors need to protect children, while older ones must safeguard retirement income and a spouse. So assessing insurance needs is a lifetime project. Some insurance products are designed for investing. Annuities can provide income just like a portfolio of bonds and dividend-paying stocks, but with less risk. And some permanent life insurance policies like whole and universal life build cash value that can be tapped for emergencies or retirement. But plain vanilla insurance like homeowners and auto policies have a key role too, by reducing the danger of big unexpected expenses that otherwise might be paid out of the college or retirement fund. The trick is to be sure all the insurance products mesh with the investing strategy. If you know, for instance, that a deferred annuity will start providing income when you're 85, you might be able to spend more of your nest egg before then. You might opt to play it safer with your ordinary investments since growth wouldn't matter as much, or to gamble in hopes of leaving more to heirs, since the annuity would provide a safety net.
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January 2020
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