Clear Creek Financial Blog

Financial Advice for All Life's Creeks

Financial Tips, from Father to Son: Salary Negotiation

No matter what the generation, every son needs a go-to financial adviser. Allow me to introduce you to my father: a man who guided me through my finances from an early age and helped set me on the path toward a secure future. In this post, I’ll share his advice for salary negotiations and how it can help new grads and seasoned professionals alike get more from their careers.

More Than Just an Order

When I was young, my Dad used to give me an allowance. Every two weeks, I would receive a crisp $10 bill in my hand and the words “go spend your allowance,” followed by a fist bump. In my eyes, this was more than just money. It was the seed of independence.

Speaking of independence, that’s what my Dad wanted to instill in me, and it’s the same message I want to pass on to my kids.

Never Stop Growing

When I was 18 years old, I talked to my Dad about the salary I thought I deserved. The salary was more than fair, but Dad surprised me and told me to forget about it. “Don’t worry about that right now,” he said. “I know you’re only 18, and you don’t know the right way to negotiate salary, but trust me. You will be in a very good place someday.

It’s All About Value

I didn’t know how to negotiate a salary, but I was young and eager to learn. So Dad and I met in a café, and he explained how the market works by telling me a story.

He told me that everyone thought he was successful when he was young. They thought his company was prosperous because his name came up more than once a week on the business news channels.

When you’re negotiating for a salary, it’s important to remember that it’s not about the number; it’s about the value you bring to an organization. Only seek a salary that reflects that value

When Does a 15-Year Refi Make Sense?

A mortgage refinance allows borrowers to pay off an existing loan with a new loan. A 15-year mortgage refi gives homeowners the opportunity to pay off a 30-year mortgage with a shorter 15-year loan. Refinancing can open up financial opportunities for some borrowers, but you should take careful consideration of your financial standing before deciding to use a 15-year refi.

Here are some examples in which a 15-year refi makes sense if you want to:

  • Pay down a note as you get closer to retirement. Homeowners who are nearing retirement can use a 15-year loan to support their retirement planning. The new loan’s timeline is much shorter than the original, which provides you with more financial flexibility as you approach retirement.  
  • Refinance a 30-year mortgage with 20 years or less on it to reduce its timeline. If you switch to a 15-year loan, your payments will increase but your payment window will decrease.You’ll use higher payments to pay off the loan faster. This compressed repayment schedule means you’ll be debt-free, faster. 
  • Pay down the principal balance faster on a mortgage/home you won’t be in for much longer. As a homeowner, you might consider a 15-year refi if you only plan on staying in your current home for the next 2-5 years. By reducing the repayment window, you’ll increase your monthly payments. These higher monthly payments can help you pay down the principal faster on a mortgage/home that you plan on selling within the next few years.
  • Create home equity faster. The 15-year refi, with its high monthly payments and low interest rate, helps you build home equity faster. You’ll pay down the principal balance much faster with a 15-year loan instead of a 30-year loan. Home equity allows you to use a future home equity loan, cash-out refinance, or home equity line of credit down the line if you need a cash boost.
  • Claim lower rates. Refinancing is a great way to lower your interest rates. Short-term mortgages, including 15-year loans, usually have lower interest rates than 30-year loans. Lenders typically assume less risk in extending a 15-year loan as opposed to a 30-year loan, prompting a lower interest rate. The flipside of these low interest rates is that your monthly payments will be a bit higher. 
  • Adjust monthly payments to a higher income. If you have recently increased your income, you could put that extra money to good use with a 15-year refi. By reducing the loan repayment window, you will reach financial freedom a little faster. Plus, you can more easily afford the higher monthly payments associated with a 15-year loan using your new income. A stable financial foundation can open doors for you to reduce your loan timeline.

Financial Tips, from Father to Son: Financial Investments

Fathers play an integral role in their sons’ lives. They help us make sober financial investment decisions that can change our lives. Our fathers’ invaluable lessons can help us make life-long financial investments for our coming generations. Let’s delve into the financial tips from our fathers that can elevate our future lives as we enter adulthood.


Saving enables us to build wealth to create a secure financial future. It allows us to have an alternative in handling uncertainties and various financial hurdles. Saving gives us something to fall back on in case of an unfortunate event. It is a financial discipline that helps us secure a solid future for ourselves and our families.

Be cautious about debt

Unnecessary debt strains our finances, leaving nothing to invest. When we borrow to invest, we create avenues for paying back the money comfortably. Therefore, it is essential to ensure that any debt we find ourselves into has a repayment strategy. Failure to do this can result in a financial crisis of endless debt repayments, moving from one creditor to another. As a result, we end up with nothing to invest in.


The best financial empowerment gift a father can give a son is showing them how to invest early. Putting our money in retirement investment accounts, stocks, exchange-traded funds, and other investments help us start creating wealth, giving us financial stability.

The financial tips from father to son can be a game-changer in one’s life. Saving and investing our money early is how to go regarding financial stability. With guidance from our fathers, we can be steered towards financial freedom.

Best tips for financial wellbeing- from childhood to older adulthood

Many of us have been taught the basics of managing our money from a young age. We had our first bank account before we turned 10. We’ve received advice from well-meaning relatives and participated in “hands-on” money management activities such as a lemonade stand.
Managing your finances can be a daunting task, so I wanted to share what I believe are some of the best tips for financial well-being, no matter where you are in life.


  • Save early & save often: Budgeting isn’t just for adults — it’s essential for kids as well. Teach them how to save their money and put some of their income into savings every month to have something to fall back on if they have an emergency or want to buy something special.
  • Establish an emergency fund: An emergency fund is something that every person should have. This fund is used to handle any unexpected expenses, whether they’re caused by a natural disaster or something more personal like a medical emergency. Having an emergency fund helps keep you out of debt and provide you with some peace of mind during hard times or when you get older.

Young Adulthood

  • Set aside some money for yourself first: Paying yourself first means that you automatically set aside some money before spending it on anything else. Whether this comes in the form of retirement savings, setting aside funds for future expenses or even just having an account that is used for anything but short-term spending, paying yourself first will help ensure that your future needs are covered.
  • Tackle high-interest debt: Most financial experts agree that you should prioritize paying off high-interest credit card debt before moving on to other types of loans or debts. Typically, this requires a monthly payment higher than any other type of payment you currently make. Still, it will be worth it in the long run — not only will you save money by avoiding interest charges, but your credit score will improve, and creditors may be willing to offer better deals on future loans.
  • Don’t co-sign: Co-signing a loan or credit card is a big risk, especially if you sign before you’re fully aware of the details. If you don’t pay on time, you can affect your credit score and history. Don’t co-sign for them on any loans or credit cards if you want to help out a family member or friend with their finances.
  • Invest wisely: You don’t have to have a great deal of money to invest successfully in the stock market, but it does take some research and knowledge about how the market works.

Older Adulthood

  • Life insurance: You can do several things to make sure your loved ones will be financially secure after you’re gone. This includes ensuring that they have enough life insurance protection to cover final expenses and pay off any debts that remain once you’re gone. A person can choose from several types of coverage, including term, whole life and universal life.

Financial well-being is not an overnight process. It takes time, understanding, and determination to create the lifestyle you want. Starting young is the best way to build good habits. It can be intimidating to jump in later in life if you don’t. This is important that you pay attention to the long term when making short-term decisions.

Understanding Stock Investments: Common vs Preferred

Throughout your life, there will be many financial investments to plan for, like saving for college, your wedding, a home, starting a family, retirement, and end-of-life planning. Of course, if you want to live an exciting life that’s only the basics of survival in society; if you wish, you may also want to save up for financial investments for traveling, vacations, recreation, or even creating a small business.  
Creating budgets and planning for everything life could throw at you helps out a lot, however, sometimes the unexpected will happen which will possibly throw off your plans. It’s important to note that straying from your financial plans sometimes is okay! If there was one way to plan out every step of your financial life that prepares for every possible circumstance, everyone would be rich. 
However, it is important for even people in the lower financial percentile to do their best to create and follow a financial plan, as described here. If you’re having trouble creating a plan, there are plenty of free resources online and even paid professionals to help you out.  
Making a bit of extra money, like passive income, can always be beneficial. One way people like to accomplish this is to invest in stocks. When you invest in a stock, you are actually investing in a company to help them perform; they pay you back a higher percentage than what you invested, of course, but only if they become successful, so it’s quite a gamble.  
If you are interested in investing in stocks, you should research as much as you can about common vs preferred stock to improve your chances at making the right investments. A basic bit of information you can learn about right here is that there are two different types of stocks: common vs preferred stock. Common stock owners share company profits and also have the right to vote in company decisions. Preferred stock usually does not allow you to vote and involves less risk, but also less payout. 
There is plenty of knowledge to absorb to properly trade stocks, as well as plenty of ways to create a passive income. The first step, however, is to create your financial plan. 

Balancing Personal Concerns with DIY Investment Planning During Global Disasters

The recent economic turmoil in global markets has show how volatile the financial world can be. This volatility tends to increase dramatically during a global disaster or unexpected situation. During this time, it is easy to be concerned and wary of investing. However, there are several tips that should be followed that could help you to manage your personal concerns while also being a prudent investor during these challenging times. 
Allocate Based on Time Until Goal Deadline 
One tip that should always be followed when you are saving for a long-term goal, such as retirement or paying for a child’s education, is to manage your asset allocation based on the time until the goal deadline. If your goal is to prepare for retirement and you still have multiple decades until this date comes, you can be more aggressive and invest more heavily in stocks. However, if you are less than a decade away, more of your funds should be in low-risk bods. This will ensure you do not see your portfolio wiped out during a period of intense volatility. 
Do Not Panic Sell 
One of the biggest mistakes that people make during a period of turmoil is selling their assets too soon. When the market drops several days in a row and things appear rough, many people will end up selling to avoid further losses. However, when you do this, you are bound to miss out on the gains that follow a decline. While it comes with stress, you should avoid trying to time the market.  
Continue to Buy 
When the markets are declining, you should consider this to actually be an opportunity. In many cases, the value of the company that you are buying into will be much higher than the market capitalization during a recession. These declined stock prices will allow you to buy more shares, which eventually should increase back up in value.  
Take Advantage of Recession Benefits 
While there are a lot of challenges that come with recessions, there are some economic advantages as well. During a recession, you will often see a reduction in interest rates and prices on consumer goods. At this time, you should look to refinance your mortgage or see if you can get a good deal on the purchase of a car, electronics or furniture. Due to decreased demand, there are often great promotions that will save you a lot of money. 

Should You Rent Even When You Can Buy?

To buy or not to buy a house – it is one of the most pressing questions for many Americans today when the economy seems to be so vulnerable and unstable. There are a lot of potential homebuyers who have been saving for years to purchase a house but are suddenly wondering if it will be better to keep renting instead of buying a home. If you are one of them and you are struggling to make a decision, this article is for you. Let’s discuss when renting is a better idea than purchasing 
Maximum Flexibility is What You Want 
No one knows what the future holds for you, so it is important to stay flexible. If you are not sure how long you are going to stay in one place or you are searching for a job that might require you to move, then it is better to postpone your buying decision and keep renting. You might also decide to rent instead of buying if the economy in your current state or town is not clear. It is better to wait a little bit and see how the economic situation unfolds before investing money in a certain area.  
You do Not Want to Lose Money 
If you buy a house and then decide to sell it after couple of years, then you should be ready to lose money. To show you what we mean, here is an example. Let’s say you purchased a house in Miami for $200,000 and assume it appreciates about 5% in value. So you decide to sell it for $210,000. Unfortunately, you will not be able to receive the whole amount after the sale transaction because there are some closing costs you have to pay. They include a broker commission (about 5%), City Real Estate and State Transfer Tax, and some other closing fees. It total, it will be about 7% of the purchase price of the house, which is almost $15,000 in our case. So even if you are lucky enough to sell your house for $10,000 more than you purchased it for, you will lose $15,000. If you do not want to lose this amount, then renting is your best option for now.  
We understand that buying a house is a serious life decision, especially today. Therefore, we recommend you to consider all the pros and cons, and ask yourself the following questions:  

  • Are you planning to stay in this neighborhood, town, or state, or would you consider relocating in the future? 
  • Do you feel stable and safe enough to commit to a 30-year mortgage?  
  • Will you be able to sell this home without losing a lot of money? 

Do Health Savings Accounts Make Financial Sense?

A health savings account, or HSA, is a smart choice for anyone who has a high deductible insurance plan. The HSA is used to pay for out of pocket costs not covered by insurance. Money in the health savings account is contributed pre-tax and can grow tax-free in the health savings account. Money not used each year rolls over to the next year.  
Who Can Use a Health Savings Account? 
To qualify for a health savings account you must have a high deductible health insurance policy. The benefit of a high deductible policy is that it allows both you and your employer to pay lower premiums. You then use money from your HSA to cover healthcare costs not covered by your health insurance policy.  
You can pay for many medical, vision, and dental expenses with your healthcare savings account. Another benefit of health savings accounts is that others can contribute to your account, including your employer and even relatives. You can contribute money to the account pre-tax as well as post-tax. After-tax contributions can be deducted from your gross income, which will lower your tax bill.  
Any interest earned on your health savings account is tax-free, as is money spent from the account. Your HSA will follow you, meaning you get to keep the money that is in it when you change jobs or retire.  
Health savings accounts make sense for individuals with high deductible health insurance plans. You can use the money in your health savings account to pay for office visits, prescription medications, and many other healthcare-related expenses. Money that you have in your HSA is yours to keep indefinitely.  
It is important to note that if you withdraw money from your health savings account for expenses that are not healthcare-related you will be required to pay taxes as well as a penalty. If you make the withdrawal after the age of 65, you will owe taxes but not be required to pay the penalty.  
HSAs are a great way to make healthcare more affordable for several reasons. Not only does this create a dedicated account to pay for medical expenses, which often includes matching funds from your employer, but using a high deductible insurance plan lowers your monthly premium. 

Understanding Stock Investments by Style

Do you know what kind of investor you are? Most people are not even aware that there is more than one type, but there are. In fact, many investors don’t fall perfectly into one category or another, but they have some mixture of a few. Stock investments by style can be broken down in multiple ways as well, but the two most popular are value and growth stocks.  
Growth stocks
These are the stocks of companies that are growing at a rapid clip. Many investors are happy to pay more for these types of stocks because they are getting in on a company that has been accelerating rapidly. Paying up for that growth is what people will do. The companies represented in as growth stocks are likely to be names that the average person has heard of, and that makes them more comfortable to invest in for some people.  
Value Stocks
Investors sometimes go for value stocks because they prefer to play the market this way. These are the stocks of companies that are not necessarily growing as rapidly as the growth companies, but they have value to them because they have been beaten down too violently compared to what they are truly worth.  
Those stock investments by style are the two biggest options for people attempting to get started in the market. Most people gravitate towards one style of investing or another. Money can be made investing in either style, but a lot of the choice boils down to how comfortable a person is with a particular type of investment. It is often about getting to know yourself as best as possible. You will not succeed if you don’t learn which methods really work for you and why they do. Learn that, and you are all set. 

Understanding Stock Investments by Location

Stocks are often grouped up by the location of the companies that they represent. What this means is that the average investor may take a look at their portfolio and see which parts of the world they are invested in. Most people are pretty heavy on ownership of stocks within their native country, but it is often more helpful to spread the wealth around at least to some extent.  
Stock investments by location let an investor diversify his or her portfolio in such a way that an economic shock of some kind or another is not completely devastating to that portfolio in the long run. Today, investors can actually hyper-target their stock investments by location all the way down to particular countries that they wish to put their money to work in.  
There is a certain “king of the universe” feeling that may come with investing money in various parts of the world, but that is a good thing. One should work strongly to make sure their portfolio is well balanced and makes sense. There is little reason to work so hard at constructing the portfolio itself if one does not intend to build it into a diversified machine that works well in all conditions.  
Many people are highly thankful that they have spent time diversifying their portfolio when there is an economic shock of any kind in any part of the world. It is pretty easy to understand why. No one wishes to see their hard work and life savings go down the drain because they were too heavily concentrated in one area.  
The temptation to ploy money only into domestic investments is strong, but it is a temptation that must be avoided. There are far too many other options for a person to get involved with to waste money like this. Try to keep the money spread out and working at all times for you. 

Understanding Stock Investments by Industry

Newer investors should pay attention to a number of factors before putting their money to work. One of those factors are the stock investments by industry that they make. Should they load up on stocks from the technology sector because they hear the names of those companies batted around in the news? Does it make more sense to buy some consumer staples because they are more likely to interact with these brands on a regular basis? These are the questions to think about before making stock investments by industry.  
The industry of the stock is simply the type of business that the company is involved in. It can range from health care to manufacturing, from retail to semiconductors. There are a lot of industries that companies get categorized into, and it is vital to familiarize oneself with those industries so as to better understand which industries make the most sense for your portfolio.  
The most sensible piece of advice is to only invest in industries that you reasonably understand. In other words, don’t put your money to work in something that you cannot explain to a relative in just a few sentences. You are probably stepping beyond your bounds if you lay down money in something overly complicated.  
The particular industry that you put your investments in may be balanced based on the relative performance of that industry versus the others (i.e. buying industries that are selling cheaply at the moment), or it may be related to which industries you have the most personal knowledge of. Finally, some people decide to buy into industries based on their risk tolerance. For example, technology can be seen as a high-risk, high-reward kind of investment, but on the other end of the spectrum you have utilities which are considered very stable and reliable. Sometimes it is just about setting risk tolerance parameters and running with that. 

Understanding Stock Investments by Company Size

There is a universe of thousands of stocks available to choose from for your investment portfolio. The question must be asked about what kind of stocks to include in that portfolio. Should you put your money down on companies that are well-known to you and the rest of the world? Perhaps, but could you be missing out on some of the biggest gains on your investment.  
Stock Investments by Company Size  
Large capitalization (large cap) companies are those that are well-known to the world. They have a large capitalization because they have earned the trust and investment of the public over time. They have a lot of value to them because they are established companies and brands. They are considered the among the safest plays in the stock market because they already have a long track record of success. Many of these companies also pay a quarterly dividend to their loyal shareholders just for holding the stock. That can also be a valid reason to consider getting involved with them.  
The other side of the argument about investing is that sometimes the small-cap stocks make more sense. They can be used to find a smashing hit that others have yet to notice. Some of those smaller companies have not yet done enough to prove that they deserve big investments, but they can be just around the corner from major profitability. Those who invest early can get in on the ground floor of something huge. At the same time, the smaller companies also have a higher rate of failure than do the large ones. It is possible to lose it all on a bet on a smaller company. 
The risk tolerance of the individual investor is generally a good indicator of how they should make stock investments by company size. Many recommend putting the highest-risk investments out earlier on in life when there is more time to recoup the potential losses. As a person gets closer to retirement and requires more of their money, the shift to safer investments must occur at that point. 

Bond Investment Basics: Municipal Bonds

While there are several kinds of bonds, municipal bonds are among the most popular. A municipal bond is a government issued bond that is used to fun public services and planning, often being used to build roads and school, ports and airports and other forms of infrastructure. These bonds have recently been revitalized by new solutions utilizing technology to re-energize the system and make it more efficient. This has allowed for lower pricing and more accessibility for middle income investors where other binds might be too expensive. The trade of these bonds is far less restricted than generic stocks and are thus attractive to traders that wish to buy and sell their bonds more often, even as often buying and selling the same bond several times in a week.  
There are very clear and strict laws and regulations that cover how the money collected from the issuance of bonds and transactions are public and well-recorded, making these bonds attractive to the investor concerned with transparency and understanding of how their investment is being applied. They have competitive interest rates compared to similar alternatives, with an average interest rate somewhere around 4.5%. This consistency of return helps them to be a trusted and reliable place to invest over the long term.  
For the personal investor, municipal bonds are likely to always be a strong choice for investment, especially when the transparency of the issuer is of particular concern. 

Bond Investment Basics: Mortgage-Backed Bonds

Investing for the future is important for anyone. Whether your financial goal is to eventually retire, purchase a home, or to simply improve your financial position, considering all of your investment options is very important. One form of investment that you should consider are mortgage backed bonds.  
A mortgage backed bond is a unique form of investment that provides many advantages to investors. A mortgage backed bond is formed when a mortgage lender originates many different mortgages to people all over the country. They then are able to package these mortgages together and sell the loans back to a pool of investors.  
When you buy into one of these bonds, you are essentially buying a share of a pool of these mortgages. Investors are able to choose between a variety of different structures and pools of these bonds. The pools are structured based on the typical credit profile of the underlying mortgage. 
The mortgage-backed bonds provide a variety of unique advantages to investors. One of the advantages of these bonds is that it provides a rather low-risk investment option. While there were challenges with these bonds in the past, the nationwide mortgage default rate is rather low today. Plus, your investment is allocated across hundreds or thousands of loans, which diversifies your investment and offers an attractive risk profile. 
Another advantage of mortgage-backed bonds is that they offer a good investment return. Compared to other forms of bonds, the rates on a mortgage-backed security is higher and more attractive. This can make it a good addition to any investment portfolio. 

Bond Investment Basics: Foreign/International Bonds

Bonds and the yields that an investor gets from them are impacted by risk factors associated with those bonds. This is why the savviest investors look to foreign bonds as part of their portfolio. The foreign bonds allow them to diversify their portfolio and make the greatest return while at the same time minimizing the risk associated.  
International bonds come from companies overseas that need to raise money for some reason. Most companies in the world find themselves in need of capital at some point, and plenty of them turn to the public markets to get the capital they require. The fact that US investors might decide to buy some foreign bonds just make sense.  
Right now, the rates that one can get from US Treasury Bonds is not all that impressive. There are a lot of better rates out in the world of foreign bonds. The world is currently very unstable with a lot going on all at the same time. It is pretty advisable to try to grab some investments that can pay out some guaranteed rates during these questioning times. Bonds from overseas can be the perfect solution to the problem.  
The best thing to do at any time with a portfolio is to keep it diversified. This allows it to withstand the ups and downs of any market condition. The most successful investors have always spread their money out throughout the world. Bonds from another country are a key element to making it happen for the average US investor. 

Bond Investment Basics: High-Yield Corporate “Junk” Bonds

Michael Milken, known as the “Junk Bond King”, did some serious damage to the reputation of high-yield corporate bonds as an asset class. The investing public saw the collapse of a star like that as a sign that they should steer clear of this asset class entirely. While it is absolutely the case that no one should invest in high yield corporate bonds without excellent knowledge of what they are doing, it is not fair to say that they must always be avoided under all circumstances. That is just not accurate.  
Higher yield bonds pay a larger percentage rate in interest because they have a higher default rate than the average bond. In other words, they are higher risk but also higher reward. This is how investing works across the board. The individual who puts his or her money into high-yield corporate bonds is taking a chance on a company that has a spotty credit record from the past.  
Keep in mind the fact that a company offering a high-yield bond is not necessarily a company that is being poorly managed. Virtually all companies run into some financial difficulties at some point in time. A company issuing a high-yield bond may simply need to raise cash during a particularly difficult point in the cycle of the business. In that event, it is offering investors the opportunity of their lifetime to make some serious returns on their money.  
Every single person who invests in any asset should do their proper research and perhaps even consult with a financial adviser before making any moves. 

Bond Investment Basics: Investment-Grade Corporate Bonds

The Average Joe out on the street wants to invest his money in something that generates a reasonable return for him while letting him sleep easy at night. It is often easier said than done as so many investments available today don’t cut the standard either way. Investment-grade corporate bonds are one example of something that may be able to break through the glass and actually reach both objectives for an investor.  
Federal bonds used to be a great way to get a nice return without too much risk, but lately the market has pushed yields on these fair too low to make them worthwhile for most people. Corporate bonds still provide a decent yield in some circumstances. That can satisfy the need for a return on capital, but what will provide for the safety of that money? The answer is investment-grade corporate bonds.  
The term “investment-grade” in this case means that these bonds have been received by credit agencies and analysts and determined to be worthwhile of one’s investment. That is to say that their probability of default is below a certain threshold that makes them attractive. Not every single bond available in the world meets that description, but those rated investment grade have.  
These bonds are typically issued from public companies that are relatively well-known and consistently producing profits. That means that they are likely to continue to pay the yields that they have for some time, and they stand a good chance of making it through whatever storm could come their way. They make for a great investment for many, and they still provide some very solid returns in turbulent times. 

Bond Investment Basics: Non-Treasury Government Bonds

When planning your life out, it’ll be fun thinking of your dream career, your wedding with the one you love, and all the travel you want to do. Unfortunately, all of these life decisions cost money, as well as planning for things like starting a family, retirement, and your end-of-life plans. The good news is that you can start now with making a financial plan. It doesn’t have to be daunting, and missing a step of having to accommodate for unplanned occurrences are normal and should not bring you down. 
Financial planning involves figuring out how you are going to make money. Investments and other forms of passive income are a great way to guarantee extra money in the future to help you out in a pinch. Investing in government bonds can be a great start. There are different non-treasury government bonds to choose from, including the Federal National Mortgage Association, Government National Association, the Federal Home Loan Mortgage Corporation, and a few others. These bonds, also called agency bonds, are issued by federal agencies. Non-treasury government bonds differ from treasury bonds by not being full-faith-and-credit obligations of the government, and a minimal credit risk. However, the interest gained on these bonds are taxable.  
If deciding to invest in government bonds, it’s best to do plenty of research to make sure you are choosing the right one for your needs. Government bonds can result in a great pay-off in the future, so many people find it beneficial to invest sooner rather than later. 

Bond Investment Basics: U.S. Treasury Bonds

Bonds, especially U.S. Treasury Bonds, comprise a mainstay holding, along with stocks, cash equivalents and real estate, for many investors. But just what are bonds, and how do they differ from stocks? Let’s take a deeper look. 
Bonds are essentially IOU’s. The Issuer of the bond promises to give the entire principal investment back to the investor after a specified period of time, ranging from less than a year to up to 30 years. The bond issuer pays the investor periodic dividend income for the privilege of using the investor’s money. Many investors count on this periodic income to fund their expenses. 
Different government and corporate entities issue bonds. Because not all issuers are as creditworthy than others, bonds are independently rated regarding their safety. The United States government is a big issuer of bonds. Because the risk of government default is so low, U.S. Treasury bonds carry a high safety rating. 
There are several ways to invest in Treasuries. The simplest way is to buy individual bonds directly from the federal government, collect semi-annual dividends, and hold the bonds until they mature, at which time you’ll get your full investment back. Many investors buy bond mutual funds, where individuals participate in professionally managed portfolios of bonds. Be aware that if you invest in bond mutual funds, there is no guarantee that you’ll get your exact investment back. You may get more or less in return, depending largely on the trajectory of interest rates while you hold the bond fund. 

Basics of Life Insurance

Listen to anyone trying to explain life insurance to you and it can be confusing. Variable life, term, adjustable life, universal life, second to die, whole life. Which should you choose, do you need life insurance, and how much do you need? These are difficult questions to answer but we will try to capture the issues in a nutshell.

The concept of insurance is simple. It is designed to protect against a risk, plain and simple. In life insurance, the risk is death. Insurance is not an investment. Insurance policies may have an investment component, but insurance alone is a vehicle to transfer the risk to another party.

All the policies available can be broken down into two basic types, referred to as permanent insurance or temporary insurance. Insurance in its purest form is temporary insurance, or term insurance. With temporary insurance, you pay a premium and that premium offers you protection for a specified period of time, typically one year. After that period of time, the policy will expire unless it is renewed by paying the premium for another period. Temporary insurance is cheaper in terms of current cash outlays, but the lower cost does have its drawbacks. First, the cost of temporary insurance increases as one ages. Insuring a 25 year old is less of a risk than insuring a 50 year old. Second, coverage may no longer be available at a specific age, typically 65. Finally, temporary insurance offers no wealth accumulation, which is the primary difference between temporary insurance and permanent insurance.

Permanent insurance offers the basic protection of term insurance and includes an investment component, called cash value. The annual premiums for this type of insurance are higher than temporary insurance, but a portion of the cash outlay is invested in a savings vehicle. Over the years, the cash value increases due to additional contributions and investment earnings. Eventually the investment earnings are adequate enough to cover the premium associated with the insurance component, and at that time cash outlays can be reduced or eliminated and the insured is afforded “permanent” insurance protection. It is important to remember that the insurance component of permanent insurance is still a term policy. The premiums increase as the age of the insured increases.

However, if the earnings of the cash value are adequate, the cost of the premium is offset by the investment earnings. In theory, if all goes according to plan, the insured is left with an asset in the form of the cash value and insurance which is paid every year from the investment earnings. Two other benefits associated with permanent insurance deal with renewal and taxation. Permanent insurance policies can extend beyond the age when temporary insurance ceases, age 65. This provides insurance available for estate planning purposes. The other main benefit associated with permanent insurance is that the increase in cash value is not currently taxed, so the investment earnings are tax deferred. Finally, permanent insurance policies have varying features designed to increase the choices of the underlying investment and to provide the insured with flexibility in adjusting the premiums on an annual basis. These variations are known as Universal Life, Variable Life, or Adjustable Life.

Which type of insurance should you consider? As in all cases, the answer is “it depends”. One issue is whether or not you can afford the premium. Temporary insurance is cheaper and it is more important to have the insurance protection than the investment component. Another issue is how much insurance you require and whether you need that protection after age 65 for estate planning purposes. It can be argued that even though the premiums for temporary insurance increase as the insured gets older, the need for life insurance is less if the insured has accumulated assets during his lifetime. In effect, the insured becomes self insured. For example, if the life insurance needs to provide protection for the survivors are $500,000 and if the insured has liquid assets of $500,000, then the need for insurance is $0 (this, of course, ignores the dreaded estate tax consequences, if any). Another issue to consider is the underlying investment in the permanent insurance policy. The insured needs to evaluate that investment compared to other investments including commissions, expenses, risk and income taxes.

Now that you are understand all the issues, the remaining question is how much life insurance do you need. This is a separate discussion.

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