Monthly Archives: March 2020

Do You Have Full Home and Auto Coverage? (Trick Question.)

Did you know you can carry the highest coverage levels on your home or auto insurance policy and still not have “full” coverage if you’re hit with a major lawsuit? Physicians can be especially vulnerable to legal fallout from accidents that might not pose the same financial risk to people in other professions.

Most people who get into car collisions typically exchange insurance details and let the two carriers sort it out. But when injured people find out a driver is a doctor, they may be more likely to file a claim because they’re aware that doctors make a good living. That puts you at risk for losing personal assets which may include your:

  • Savings
  • Home, cars and valuables
  • Current earnings
  • Future earnings (yes, these can be garnished)

Umbrella coverage is a surprisingly affordable add-on to your current home and auto policies that helps you safeguard your financial health in the event of a lawsuit. This “insurance for your insurance” kicks in when your other policies reach their financial limits.

With an umbrella, you can be prepared for unfortunate situations that won’t be fully covered by your home or auto policies. Real-life examples include:

  • You hit a driver in her 30s who sues you for emotional distress, as well as lost wages. If her injuries deprive her of earning $50,000 a year, you might have to pay $2M+ in lost wages and $1-$5M in “potential loss.”
  • You host a paintball party in your backyard for your kids and their friends. Even though you advise them of proper safety precautions, one participant removes her headgear while leaving the game and is struck in the eye with a paintball. Between the cost of a lawsuit and medical bills, you could pay upwards of $475k.
  • You own a rental property, and a tenant claims she became ill from black mold found in her apartment. Because she suffered permanent lung damage, she lost her track scholarship to a four-year college. She sues you for over $750,000.

In these unfortunate situations, an umbrella policy can make all the difference in helping you maintain your financial wellbeing. Most policies start at a payout of $1M and go up to $10M. And the good news is, you don’t have to wait until you make your first million to buy an umbrella. You can get one as early as residency and increase your policy limits as you go.

Interested in your options for top-rated umbrella policies … and bundling your home and auto insurance in one place? 

Coronavirus Market Perspective: A Long-Term Plan

As the Coronavirus spreads, so too do does the fear of what is to come. By now, many of us are seeing real life impacts from the Coronavirus. This may be in the form of having travel plans altered, or maybe you know someone whose school has been closed. President Trump even announced a travel ban to Europe and the NBA has suspended its season.

The stock market has been hit particularly hard over the past month as well. As of the close of the market on Wednesday, the US Market is now down over 15% from the start of the year1 and down nearly 20% from its peak in February.

In times like this, it is not uncommon to feel additional stress and anxiety. No one enjoys seeing declines to their portfolio’s value. Studies have provided evidence that our tolerance for risk is challenged in times like these2. As stress increases, we may be tempted to make financial decisions out of fear. At LFG, we believe that a strong antidote to fear is preparation.

Your financial plan and portfolio strategy have been carefully crafted by your financial advisor in order to be prepared and equipped to endure times like these. And that strategy is informed by facts and observations in capital markets that are worth repeating:

  • Markets have recovered from every disruption in the past. The 5-year average annualized return after a 20% market decline is 11.76%3.

  • This is not the first time we have seen a market drawdown close to an infectious disease outbreak4. In most cases, we see a recovery within 12 months.

  • Downturns are not uncommon over time. On average, we see market corrections of 15% or more once every four years; 20% and greater corrections occur about once every six years5.

  • Volatility is part of investing. It is this risk for which we expect to be compensated. We cannot reasonably expect a higher return on stocks (vs. a safer investment like cash) without embracing the reality that stocks have more risk.
  • The capital markets are efficient. As the markets get new information, prices adjust accordingly. In this current case, markets are pricing in the impact of short-term disrupted supply chains and lost production associated with the Coronavirus. As that short-term disruption is resolved, prices should also adjust accordingly.

Although it may feel like things are different this time, it is important to remember that the markets have withstood similar circumstances in the past. Valuations of stocks are based upon decades of expected cash flows, not just what we see in the coming months as we deal with the fallout of the Coronavirus.

Many of us vividly remember the Global Financial Crisis from the late 2000s. An investor in an 80% stock/20 bond portfolio6 starting out in 2008 would have lost over 40% of their value by March 2009. By April of 2011, they would have already recovered, and had a positive return.

Obviously, no one has a crystal ball and this message is not meant to imply the market has reached the bottom. But we do believe now presents an opportune time to strategically reposition assets in the market.

Our team is working diligently to keep your portfolio in line with your strategic, long-term allocation by selling the asset classes that become overweight and buying what is underweight. We also are harvesting taxable losses in this process to help lessen your tax burden when you file in 2021.

Are you concerned Coronavirus could impact your long-term financial strategy?

1 The US Market as represented by the S&P 500. https://www.wsj.com/market-data/quotes/index/US/S&P%20US/SPX?mod=md_home_overview_quote
2 https://www.pnas.org/content/pnas/111/9/3608.full.pdf?with-ds=yes
3 https://www.mydimensional.com/us-equity-returns-following-past-downturns
Eugene Fama and Ken French are members of the Board of Directors of the general partner of, and provide consulting services to, Dimensional Fund Advisors LP. Short-term performance results should be considered in connection with longer-term performance results. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio.
4 Source: Epidemics and Stock Market Performance; First Trust Portfolios L.P. Data from Bloomberg, as of 2/24/20. Month end numbers were used for the table on the right. *12-month data is not available for the June 2019 measles. This graphic is for Informational purposes only and is an authorized reprint from First Trust Portfolios L.P. Larson Financial Group (“LFG”) and Larson Financial Securities (“LFS”) are separate from and unaffiliated with First Trust Portfolios L.P. Material is believed current and accurate but is not guaranteed. Investments are subject to various market, political, currency, economic, and business risks, and may not always be profitable; further, neither LFG nor LFS guarantee financial or investment results.
5 https://www.capitalgroup.com/advisor/insights/articles/how-stay-calm-when-markets-stumble.html?cid=sm_og_fb_sf_cap_ci_6292026
6 Figures based upon performance of VASGX (Vanguard LifeStrategy Growth Fund). Figures represented do not reflect any advisor fees, expenses, or sales charges. Returns are based on price only and do not include dividends.
The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. Consult your financial advisor regarding your specific needs. Past performance is no guarantee of future results.
Advisory Services offered through Larson Financial Group, LLC, a Registered Investment Advisor. Securities offered through Larson Financial Securities, LLC, Member FINRA/SIPC.
Larson Financial Group, LLC, Larson Financial Securities, LLC and their representatives do not provide legal or tax advice or services. Please consult the appropriate professional regarding your legal or tax planning needs.