When confronted with the vast array of financial products offered by the financial services industry, from bankers to insurance agents, from stockbrokers to financial planners, to quote Paul Simon, “It’s a wonder I can think at all.” And they all insist that their product is the one you need to be financially successful.
I am here to tell you that there is no one financial product that is necessary for your success. The reason is because we are all different, with different goals, aspirations, and risk tolerances. Yet there is one concept that is the cornerstone to financial success for most people, and that is a regular, systematic savings program. Basically, the Micawber Principle.
It doesn’t matter nearly as much what vehicle is used for saving as it does that the savings takes place on a regular, systematic basis. More important than the vehicle is the amount you save, how consistently you save, and how long you save.
For the right (young) person, life insurance can be an appropriate savings vehicle that will also provide a death benefit. Rather than provide a hypothetical example, I will give the actual results of a client of mine.
Joe (not his real name) bought a whole life policy when he was 28 that had a monthly premium of almost $300. At the time, that $300 represented a healthy portion of his entire savings program. Now he doesn’t even feel it.
Fast forward 25 years. He now has a little less than $150,000 in cash value. It would be more, but he stopped paying for a couple of years, resuming when interest rates nose-dived after the 2008 financial crisis.
Truth be told, he might have done even better had he picked a good mutual fund. But that would have entailed more risk and he wouldn’t have had the death benefit. As I said at the outset, we all have different risk tolerances, and the conservative cash value product was appropriate for him.
No matter which vehicle is chosen, be it a life insurance policy, a mutual fund, or a CD, perhaps the biggest risk is well meaning friends, relatives or colleagues. While their intentions may be pure, they usually don’t know your objectives and risk tolerance and thus cannot offer meaningful advice.
Additionally, provided the proper thought went into the original purchase, changing mid-stream is usually not advisable, whether it was a life insurance policy or a mutual fund.
So regardless of the vehicle(s) you choose, the real key is to save. And the sooner you start, the better.