A curious aspect of the human condition is how we are much better at understanding scarcity than abundance.  Our minds naturally gravitate toward what we do not have, instead of noticing what we possess.  Some observers have astutely noticed that every abundance creates a new scarcity.

However, it is an interesting thought experiment to consider what our life would be like if the things that we currently consider to be the most scarce and expensive suddenly became abundant and cheap?  How would our perceptions of value and our priorities shift?  What things that we currently ignore would we begin to shift our attention toward?

The interesting twist is that this transition has already happened in the realm of information.  Before the advent of the internet, information was scarce, expensive, and difficult to acquire.  As the global online marketplace emerged, it created a situation where a literal wealth of information was available to all people in all places.  Suddenly there was a flattening of access to a valuable commodity that had previously been the exclusive property of some, but almost completely unavailable to others?  How has our life changed since we all gained access to the insights and information of the internet?  What new things have we been able to learn?  What new insights have we been able to uncover?  How has our life been enriched?

Of course, there will certainly be those who point out the abundance of low quality content that prevails on the internet.  These observations are completely correct, but are almost totally irrelevant.  The presence of great abundance almost always means that the abundant resource will be wasted in some manner or another.  Since many people grew up in a world of expensive information, it feels unnecessarily wasteful to have low quality information floating around the internet.  The thing that most people miss is how this apparent waste is the laboratory out of which we gain new ideas and insights.

Growth and development is not a linear process.  It is a jagged line that moves up and down, backward and forward.  In order for great new things to happen, there must be the appropriate conditions for the new innovations to emerge.  Abundance allows those conditions to occur without the necessity of being planned or funded by a central authority.  By extension, this means that more experimentation happens with new ideas, and more innovative breakthroughs are discovered.  Of course, this also means that many seemingly useless ideas will be advanced.  However, this apparent ‘waste’ is actually a critical part of innovation and advances.

What Does Abundance Mean To Me?

An important point for us to consider as individuals is the impact to our persona lives if the things that we found the most scarce such as money and time, suddenly became ubiquitously available?  What would you do with your life if you never needed to work in order to live?  What would your life be like if people lived to be 500 years old?  How would your priorities change if a scarcity of today turned into an abundance of tomorrow?  What things that you neglect today would you notice tomorrow?

The reason why this thought exercise is important is because it helps us to clarify what we truly consider to be important.  There are certainly some people who would allow themselves to become idle if they no longer needed to earn money to live, but there are many others who would endeavor to help others acquire the blessings that they have come to enjoy.  When we no longer have to spin our wheels just to get by, it allows us pause to search for meaning.

The clincher is that most people seek meaning at some point in their life, and many wait for far too long before taking the intellectual journey.  This is not to say that we should neglect the things that we need to do today such as earn an income or care for our families … only to say that we should also think of the things that we will pursue when scarcity turns into abundance.  In truth, it frequently comes to pass that the things we perceive as being scarce today will be less scarce in the future, and may possibly be available in great abundance.

Each of us should take a moment to think about the things that we would want to do, and the person that we would want to be if the constraints of our present life were removed.  The power of this thought process is that it underlines how there is very little stopping us from working toward that goal today.  We may not live in a world with no scarcity, but we also do no live in a world of total scarcity.  In this way, we literally have the ability to shape ourselves into the people that we want to be tomorrow … and we are able to start today.

 

During the Thanksgiving season, many people reflect on all of the things in their life that they are thankful for.  This is a time when people are especially mindful of all the blessings that we enjoy in our lives.  For those of us who are fortunate enough to live in the developed world, there are great material blessings that are available in abundance.  Of course, the vast abundance available in the contemporary world has resulted in a crisis of sorts … a crisis of abundance.

This crisis results from the fact that vast abundance renders us blind to the blessings of our life when they are placed in contrast against those who have been fortunate enough to amass more wealth than us.  In this situation, we lose sight of all that we have by focusing on all that we don’t have.  In the midst of this abundance crisis, we lose track of something else.  This important factor is that many of the most important things in life are not material in nature and cannot be measured.

In this way, we can become blind not only to our material blessings, but the virtues in life that cannot be measured.  Things such as family, friends, cherished relationships, and treasured experiences are all highly important factors of a full and happy life.  The unfortunate reality is that an abundance crisis can invade many facets of our life, causing the things that we do not have to blot out the many blessings that we are fortunate enough to enjoy.  The critical skill for us to master is that of appreciating the blessings we have, while avoiding the temptation to resent the good fortunes of others.

What About the World’s Problems?

This philosophy of gratitude causes some people to wonder whether they should ignore all of the world’s problems while they are being thankful for their life’s blessings?  To this sentiment, one must ask whether our worrying about the world’s problems brings them any close to being solved?  This is not intended to be an excuse for us to disengage from the world, but as an exhortation to elevate ourselves from worrying about the world’s problems to actually doing something that helps.

The reciprocal expression of thankful gratitude is a genuine desire to take actions that are within our power to help those less fortunate than ourselves.  In this way, an abundance crisis can be turned into an abundant opportunity. This abundant opportunity plays out in our daily lives as we have the chance to do things both large and small that help others.

Another frequent response to this philosophy is an objection concerning the civic responsibility of voting.  Specifically that paying keen attention to the news events of the day is necessary to be an informed citizen.  Furthermore, many would argue that their voting activity is the method by which they express their desire to help those less fortunate.  However, we must ask ourselves whether an opaque vote really represents our best efforts to help other people, or if it represents a shield behind which we hide as a means of convincing ourselves that we do not need to take any more action?

Our abundance opportunity should not be stifled by a civic vote in which we are a single anonymous player among many other people in the extended marketplace.  Each of us should avert the abundance crisis by living a life of gratitude that expresses itself in actions that help other people improve their personal, professional, and financial lives.  Ultimately, we each have a choice to make with each passing day.  We can decide to do things that will help, or decide to do nothing.  The decisions we make shape the taxonomy of our future.  As each day goes by, make sure that the decisions you make are in concert with the future that you wish to create.

 

One of the oldest and most frequently cited geometric axioms is that the shortest distance between two points is a straight line.  While this is most certainly true in the sphere of mathematics and geometry, the path we take through business and life rarely (if ever) moves in a straight line.  Because of this, much of our ability to realize success is dependent on our ability to adapt to the twists and turns that we are presented with on a perpetual basis.

This is especially important for our financial calculations and decisions.  It is not a secret that most financial planning models are built on the assumption of indefinite steady compounding that is expected to make you rich after a certain calculated period of time.  Of course, real life does not work in that manner.  The stock market does not compound at 9% per year, every year, with no deviation.  In some years … or in the past decade, in many years, gains do not meet expectations or values decline.

Thus, it is not just the paper performance of our decisions, but their ability to absorb uncertainty that is highly important.  The problem is that most people do not fully understand the impact of uncertainty, and even fewer people are not aware of how to make their financial plans sufficiently robust so that they can withstand abrupt, significant changes to the marketplace.

Adaptability is Key

Regardless of whether you are talking about a manufacturing line, a small (or large) business, or a financial portfolio, it is absolutely critical to ensure that your strategy is adaptable to new market realities.  The more you allow yourself to depend on static models, the more you will be susceptible to destructive changes in the marketplace.  This concept must be internalized when planning, executing, and revising our personal and professional strategies.  As reality changes, we must be able to adapt and change with it.

A simple way to understand this concept is by internalizing the following three truisms about business/life:

1. Business/Life is a game
2. The game has rules
3. The rules are always changing

If this feels highly chaotic, that’s because in many cases it is.  We cannot suffice ourselves with learning the rules (both written and unwritten) of business/life.  We must also learn how and when the rules change so that we can adjust our personal, professional, and financial decisions.  An unfortunate fact of life is that none of us possess the power to change the larger reality … we only have the ability to change the decisions we make and influence the decisions that people close to us make so that we can adapt to the larger reality more successfully.

Learning When the Rules Change

Many people make a regular habit of following the news both in print and on the internet.  The typical result of most people’s news consumption is agreement with stories support their political views, and anger at stories that stand in contrast to their personal views.  This typically manifests itself in political arguments over current events with friends, co-workers, and family members.  The only problem is that none of us have the ability to change the political reality of the world at large.  Our vote counts as one of many, many millions, and political decisions do not vary as much many are led to believe.  Politicians are wildly different in their rhetoric (what they say), but their decisions (what they do) are much more closely tied to their incentives.

At first blush, this can easily lead to a belief that the news is useless, and it is optimal to tune out.  While temping, this view is not completely accurate.  The news is not useful from the context of my ability to change the global political reality, but it is useful from the context of understanding what changes are coming in the national and global marketplace.  From this perspective, news and information take on an entirely new light.

Signal and Noise

The key to making use of what we learn through the news is the concept of signal and noise.  Within most transmissions, there is an element of useful information (signal) and an element of useless information (noise).  In everything that we see, sense, or experience, there is something we can learn (signal) and there is everything else (noise).  The challenge that we have as people and as businesses is to act on the signal, and not on the noise.  In practice, this is much easier said than done.  In following the news, we should not be simply looking for stories that either confirm or conflict with our beliefs, but looking for useful information signals that can help us make better personal, professional, and financial decisions.

In the end, each of us will be able to achieve the best results if we realize the importance of adapting our strategy and decisions to a changing marketplace, while using the signals that we gain from our everyday experience to inform better decisions in the future.  By learning to do this on a consistent basis, it will allow us to perpetually move closer to our goals, dreams, and aspirations.

 

Steve Jobs’ impact on your life cannot be underestimated. His innovations have likely touched nearly every aspect — computers, movies, music and mobile. As a communications coach, I learned from Jobs that a presentation can, indeed, inspire. For entrepreneurs, Jobs’ greatest legacy is the set of principles that drove his success.

Over the years, I’ve become a student of sorts of Jobs’ career and life. Here’s my take on the rules and values underpinning his success. Any of us can adopt them to unleash our “inner Steve Jobs.”

1. Do what you love. Jobs once said, “People with passion can change the world for the better.” Asked about the advice he would offer would-be entrepreneurs, he said, “I’d get a job as a busboy or something until I figured out what I was really passionate about.” That’s how much it meant to him. Passion is everything.

2. Put a dent in the universe. Jobs believed in the power of vision. He once asked then-Pepsi President, John Sculley, “Do you want to spend your life selling sugar water or do you want to change the world?” Don’t lose sight of the big vision.

3. Make connections. Jobs once said creativity is connecting things. He meant that people with a broad set of life experiences can often see things that others miss. He took calligraphy classes that didn’t have any practical use in his life — until he built the Macintosh. Jobs traveled to India and Asia. He studied design and hospitality. Don’t live in a bubble. Connect ideas from different fields.

4. Say no to 1,000 things. Jobs was as proud of what Apple chose not to do as he was of what Apple did. When he returned in Apple in 1997, he took a company with 350 products and reduced them to 10 products in a two-year period. Why? So he could put the “A-Team” on each product. What are you saying “no” to?

5. Create insanely different experiences. Jobs also sought innovation in the customer-service experience. When he first came up with the concept for the Apple Stores, he said they would be different because instead of just moving boxes, the stores would enrich lives. Everything about the experience you have when you walk into an Apple store is intended to enrich your life and to create an emotional connection between you and the Apple brand. What are you doing to enrich the lives of your customers?

6. Master the message. You can have the greatest idea in the world, but if you can’t communicate your ideas, it doesn’t matter. Jobs was the world’s greatest corporate storyteller. Instead of simply delivering a presentation like most people do, he informed, he educated, he inspired and he entertained, all in one presentation.

7. Sell dreams, not products. Jobs captured our imagination because he really understood his customer. He knew that tablets would not capture our imaginations if they were too complicated. The result? One button on the front of an iPad. It’s so simple, a 2-year-old can use it. Your customers don’t care about your product. They care about themselves, their hopes, their ambitions. Jobs taught us that if you help your customers reach their dreams, you’ll win them over.

There’s one story that I think sums up Jobs’ career at Apple. An executive who had the job of reinventing the Disney Store once called up Jobs and asked for advice. His counsel? Dream bigger. I think that’s the best advice he could leave us with. See genius in your craziness, believe in yourself, believe in your vision, and be constantly prepared to defend those ideas.

Article source: Entrepreneur.com

 

Greg Carafello’s journey as a business owner has been a tumultuous one. The company he founded, AbraCadabra Digital Printing, was headquartered on the 18th floor of the World Trade Center’s South Tower in New York City. On Sept. 11, 2001, he was wrapping up a morning meeting with his business manager when the first plane slammed into the North Tower at 8:46 a.m. Seventeen minutes later, as Carafello and his manager stood panicked on the street, a second plane crashed into the South Tower.

The company Carafello had grown to include four other locations in New Jersey and about 30 employees was put to the test. The printing industry contracted dramatically in the ensuing recession, he says. “After 9/11, the business world was dead,” says Carafello, who is 51.

Revenues at AbraCadabra plummeted from about $3 million a year before the attacks to only $600,000 in 2003. Carafello sold the company that summer for $450,000.

Carafello’s entrepreneurial spirit pushed on. That same year, he became a master franchisee of Cartridge World, an ink and toner printer-cartridge retailer, and spent the next several years developing more than 30 stores in New Jersey. But he wasn’t ready to return to Manhattan. He couldn’t get past the trauma of the attacks and his disappointment of having to let go of the business he founded.

Finally in 2008, Carafello decided he was ready to return to the Big Apple. He opened four Cartridge World stores there and has plans for two more before the end of the year.

We spoke with Carafello about how attacks have changed his perspective as a business owner.

Did you think you’d ever own a business again?
The worst days of my career were letting people go who made the business what it was by working all night and weekends. They bought houses on my idea and raised families.

But the answer to the question is yes. I know I can open, turn around and drive businesses to success. I am a student of business. I love it.

Was returning to New York City a difficult decision for you?
I wasn’t sure if I could ever own a business there again. When I go downtown to the Trade Center area, I have so many memories that it’s hard not to go back in time — both good and bad. I still get shaky when up 50 floors on, say, a sales call with a franchisee. It took a while before I had any comfort when higher up in buildings.

But the market in New York City is so large that there are millions of printer cartridges sold there every year. The math works out well for the industry. I can’t ignore that.

Looking back over the last decade, how has 9/11 changed your perspective on business and life?
The attacks are with me for life, but they also make me stronger. I admire people who persevere and can make life better after getting knocked down. ‘It is only over when you say it’s over,’ as they say. I am less intense on certain issues now and take more time with customers and other people in my life than I did before.

I see great opportunities in business today. A recession is the best time to open businesses. Depending on your business, you can take advantage of cheaper rents, more flexibility with people’s income demands, and increased willingness of vendors and advertisers to work with you. The ‘American Dream’ still exists for people who want to grow a business and be responsible for making it successful.

How did the attacks on Sept. 11, 2001, change or help shape your perspective on business? Let us know in the comments section below.

Article source: Entrepreneur.com

 

It is difficult to walk through a bookstore without encountering numerous books about achievement.  Some are general, concentrating on what it takes to be a winner, while others are specific to certain types of business or certain types of investments.  Sprinkled throughout these shelves at regular intervals will be biographies and autobiographies of highly famous or highly successful people.  Implicit in all of these stories is the ‘formula’ that these people used to achieve success.

The reason why these types of books are so popular is because people want to achieve success themselves.  Everybody naturally wants to do better than they are doing today and acquire more than they already have.  This fundamental desire is what drives the constant improvements of a capitalist economic system.  This desire for achievement is fundamental to the human condition, and is worth studying.

This concept is explored deeper by two books that were both published in 2008.  One is Outliers by Malcolm Gladwell, and the other is  Talent is Overrated by Geoff Colvin.  Both of these books explore the science of achievement in much greater depth than the traditional beliefs that most people have come to accept.  The fundamental thesis communicated throughout the book was that aside from physical characteristics, talent or ability is principally a function of dedicated, targeted practice.  The people who are hailed to the world as “child prodigies” frequently begin a regimen of intense practice at a very young age.  This means that by the time they reach adulthood, they will have practiced far more than their peers.  This is what serves as the foundation for the skills of great musicians, and other people who are regarded as being highly talented at a young age.

Another important characteristic of most child prodigies is that they specialized in an area where their parents possessed considerable knowledge or ability, and their parents were willing to make extensive sacrifices for the sake of their training.  Within the social circles of high achievers, this secret has never been a secret.  All people who achieve great heights and develop exceptional skill are aware of the time, effort, energy, and practice that is required.  As more people are becoming aware of what really creates great achievement, it has spawned a new question that is equally important to answer.  Namely, whether singular focus on a particular line of achievement and mastery is the best way to live your life.

In keeping with this train of thought, what happens when the dreams and ambitions of a highly skilled and practiced artist are realized, but their personal and financial life are ruined because of neglect in pursuit of greater artistic prowess?  What happens when the corporate executive receives multiple promotions, and then is divorced and re-married multiple times?  What about when a championship caliber athlete incurs a career-ending injury and is unprepared for a career that is not playing sports since their education, personal life, family life, and financial skills were all sacrificed to gain greater sports prowess?

In response to these tales of caution, most people will reply that people should live a balanced life.  And this is where the point hits home.  Becoming a great achiever requires that your life be markedly un-balanced … otherwise there is no possible way that you can acquire enough practice and experience to develop elite skill.  Thus, the question becomes more than a simple one of how I can achieve great things, and develops into one of whether I should make the sacrifices that are necessary to achieve great things.  Fundamentally, there are two paradigms at work.  One is the paradigm involves the relentless pursuit of achievement, and the other paradigm is driven by the priority of your achievements.

Relentless Pursuit of Achievement

This is the “ends justify the means” school of achievement, and is the implicit pre-requisite for most people who have biographies written about them.  Under this paradigm, nearly all other aspects of your life are subordinated to the one singular goal upon which your mind has been fixed.  An example of this may be to be a world class pianist, or to be President of the United States.  In order to reach what most consider to pinnacle of achievement, there will be many areas of your life that must be sacrificed.  If you aspire to be President, you must attend many campaign functions, you must associate with many people whom you would otherwise prefer to avoid in order to raise funds, you must place the acquisition of political objective above your spouse, family, friends, and most other associations not directly tied with your goal.  If your goal is achieved, the office must come before everything else in your life.  When you finish your term of service, you will never have the option of becoming anonymous.  The consuming desire to achieve a great goal will eventually result in becoming consumed by that which you originally sought, once it is achieved.

It is important to note that this is not intended to be a “hatchet piece” that rips apart great achievers.  Rather, it is intended to highlight the sacrifices that are necessary to reach very high goals, and understand that the effort spent in pursuit of a single magnificent obsession is effort that cannot be spent on other aspects of your life.  Thus, in order for one to be “great” it is necessarily impossible to be well rounded.  Similarly, if one is to be well rounded it will be exceedingly difficult to become what most consider to be great.

Priority of Achievement

An alternative paradigm to the relentless pursuit of achievement is placing a priority on your achievements.  In this mode of thinking, each aspect of your life has a separate priority weighting.  In some cases, family may be the top priority and in others it may be finishing your degree, or achieving the next step in your career.  The important aspect of these priorities is that they are consciously decided, and they are fluid.  What this means is that your priorities should drive your decisions, and those priorities are likely to change over time as your personal, professional, and financial life evolves.

In a tangential way, relentlessly pursuing a particular achievement is a variant of priority based achievement.  The only wrinkle is that the one singular goal stand by itself as the top priority, and the priorities never change.  The hallmark of priority based achievement is to decide what things (plural) are most important in your life, and pursue them simultaneously with the understanding that some of them will have to wait until later, and that it is extremely unlikely that you will develop world class skill in any of them.  It should be noted that one can be far short of world class skill and still possess exceptional skill.  One can be far from the best and still be very competent.  One can pursue many priorities and be successful at them, even if they are not the best at any.  The point that is most important for us to consider is whether we are living the kind of life that we want to.

This is where a bright ray of sunlight shines for all the ‘normal’ people of the world.  Most people in the business world make very minimal efforts to improve their skills and abilities as they go throughout their career.  This means that it is very possible to develop a substantial competitive advantage with a modest amount of carefully focused practice on the key skills and competencies that will allow you to succeed in your career.  The key is to ensure that your practice is very  careful, very focus, and very concentrated in key competencies that are critical to success.  For those who are willing to learn the focus and discipline necessary to hone and develop the specific skills that are critical to success in their career, it is quite possible to achieve a level of success that is vastly greater than what is considered to be ‘normal’ while still maintaining the balance that is necessary for a complete life.

The real world is a place where we all need to make choices.  Every choice that we make represents a different choice that we cannot make.  Every hour that we spend doing one thing is an hour that cannot be spent doing something else.  Reaching the pinnacle of accomplishment for world class achievers is a goal that requires much more effort and energy than most people imagine.  Each person must decide where their personal priorities should be placed, and adjust their decisions accordingly.

 

While consumers have been fretting about the safety of their policies at large, publicly traded insurers, some smaller, less-watched companies have been running into trouble too.

Insurers of all sizes are being slammed by investment losses. Some also are being dragged down by higher-than-expected claims in areas like long-term-care insurance. Regulators have taken over companies with policies owned by more than half a million people in more than 30 states, including life insurance and annuities. At one insurer, a receiver has imposed a moratorium on policyholders taking cash out of their policies or turning them in for cash.

Shenandoah Life Insurance Co., a small insurer based in Roanoke, Va., recently fell below state requirements for capital and cash reserves because of its investments in mortgage-backed securities, which were hammered in the housing meltdown. Shenandoah has stopped selling new policies and has instituted a moratorium on policyholders cashing out, selling, surrendering or borrowing from their contracts. The company is continuing to pay death and annuity benefits as well as health-insurance claims. The state receiver who has been running Shenandoah since last month declined to comment.

The life-insurance industry’s troubles are causing angst for policyholders, even at institutions still regarded as solid, driving some consumers to delve deeper into the financial health of their insurers. Phyllis Myers of Washington, D.C., says she and her husband, who both work for nonprofit institutions, recently looked into the financial strength of Teachers Insurance Annuity Association, part of retirement giant TIAA-CREF, which issues their annuities — an insurance contract that promises a stream of income over a period of time.

Ms. Myers, an environmental consultant, says she was somewhat reassured by TIAA’s triple-A ratings. But, she adds, “we are not sure right now how much confidence we have in the ratings based on what I am reading in the paper and hearing on the television.”

Such behemoths as MetLife Inc., Hartford Financial Services Group Inc. and Prudential Financial Inc. have all been hit with slumping share prices and downgrades in their financial-strength ratings — the main gauge used to assess an insurer’s ability to pay claims — though the ratings remain strong or very strong.

Worst Blowups

Some of the worst blowups so far have taken place at insurers that offer long-term-care policies to defray nursing-home expenses. The problem here was a higher-than-expected level of claims, partly because of owners’ longevity, and partly because few customers are letting their policies lapse. Senior Health Insurance Co. in Pennsylvania, a unit of Conseco Inc. That prompted worries that policies won’t pay off when they’re needed, or that people will get a much-smaller benefit than they expected for their premiums.

“In good times the issues get swept under the rug, and in bad times rough spots show up,” says Martin Weiss, president of Weiss Research Inc. in Jupiter, Fla., an investment-research firm that also rates insurers.

More trouble could be on the horizon. More than a dozen major insurers have seen ratings downgrades in recent weeks, and several have dropped into categories reflecting relatively weaker financial health. Analysts say their ability to pay claims could be affected by continuing investment losses.

They include Phoenix Cos., of Hartford, Conn., and its subsidiaries, which sell life insurance and annuities to the affluent, and Security Benefit Life Insurance Co. of Topeka, Kan. Phoenix has been weighed down by problematic investments in mortgage-backed securities. The company recently announced that its top two distributors had ceased to sell its policies. A Phoenix spokeswoman says the company’s key financial “metrics remain solid.”

Security Benefit, which sells 403(b) retirement plans and annuities, and which recently acquired mutual-fund company Rydex Investments, was recently downgraded for the fourth time since 2005. It is now at the top of the “vulnerable” range, according to the scale used by A.M. Best — the range at which ratings agencies have determined that an insurer’s financial condition could be subject to outside economic factors. Its problems stem from exposure to financial derivatives and subprime mortgages. Security Benefit executives and Kansas state regulators say they expect the company to be able to manage its way through.

In an unusual situation, Shenandoah was suddenly taken over by Virginia regulators last month after receiving a “good” financial-strength rating from a ratings firm just weeks earlier. The company has about 200,000 individual and group life-insurance policies and 21,000 annuity contracts in force in more than 30 states, mostly in the South. Regulators stepped in after a proposed merger with an Indianapolis financial-services company fell through. They said they hope to get the company back on its feet and avoid liquidation, but “it is too early to determine whether that can be achieved.”

Virginia’s state guaranty association, which compensates policy owners when an insurer is liquidated, protects life insurance and individual annuity cash values up to $100,000, and death benefits up to $300,000. Guaranty-fund limits vary by state; Virginia’s are typical. For those in your state check the Web site of the National Organization of Life and Health Insurance Guaranty Associations, www.nolhga.com.

Financial Stability

“The industry continues to hold capital and surplus well in excess of the minimum requirements — even after the detrimental effects from 2008,” says Therese M. Vaughan, the CEO of the National Association of Insurance Commissioners.

Even if they’re not panicking, financial advisers and their clients are doing some soul-searching after hearing about some big insurers’ troubles. Henry Montag, a certified financial planner in Jericho, N.Y., said he hasn’t switched or sold any of his own or clients’ contracts lately, but he is discussing the solvency issue with clients.

“We are in uncharted waters,” he says. “So many of the major companies like the Prudentials and Hartfords have been downgraded, that I am bringing it up rather than waiting for clients to bring it up.” Mr. Montag is now pairing new clients with insurers “that are more financially stable and secure even if the premiums are higher.”

By M.P. MCQUEEN

Article source: Wall Street Journal

 

When Felipe Matos enrolled in the New York Institute of Technology to study graphic design, he never thought that degree would be the very thing that prevented him from pursuing his dream career.

But more than $50,000 in student debt later, he has found himself working as an assistant building manager in New York City — with half his salary going toward debt repayment.

“In order to get into my field, I’d have to intern,” says Mr. Matos, adding that his dream job would be at Pixar, the cutting-edge animation studio. But in order to avoid defaulting on his loans, he has had to defer his dreams. “I often get depressed because I always wanted to make cartoons and 3D animations for a living but can’t,” he says. His debt load also is affecting his life plans beyond his career: “I have a very loving and serious girlfriend, but I’m afraid we can’t have kids or get married until we are in our late 30s.”

Graduates hold their diplomas at Booker T. Washington High School graduation ceremony in Memphis, Tennessee.

Managing your finances isn’t just about compound interest or credit cards, individual retirement plans or 401(k) plans. It’s really about the kind of life you want to have.

There are tons of guides for what you should do with your money, but few draw the deeply rooted connection between how you manage money and how you manage your dreams.

It’s not easy to do both well, but if you want to make a good financial start, here are five things every high-school graduate should try to remember:

1. Debt is slavery: “The borrower is slave to the lender,” says the Bible. When you have monthly payments to make, your life choices are greatly reduced. You can end up chained to a job you don’t like — unable to take the low-paying, entry-level job in your dream field or pursue further education to gain the qualifications for the career you really want.

“Constrained after College,” a study by researchers from Princeton University and the University of California at Berkeley, found that graduates who borrowed heavily to pay for college were less likely to take public-service jobs than those who didn’t borrow.

A survey conducted by Nellie Mae, a subsidiary of student-loan behemoth Sallie Mae, found that high debt from undergraduate degrees is one of the leading reasons people don’t attend graduate school.

2. College debt takes its toll: Going deeply into debt to pay for a prestigious college degree rarely pays off in the long run. Not only does it saddle you with a large, pressing debt that limits your options upon graduation, you’re not likely to be any more successful either.

A recent study by economists Stacy Dale and Alan Krueger found that, once you control for aptitude, career earnings don’t vary based on the college attended: if you’re smart enough to get into a brand-name private university, you’ll do just fine going to a state college. What will determine your success will be your aptitude and your work ethic, not the name on your diploma.

Alli Mulder graduated from Indiana Wesleyan University four years ago — debt-free. “After graduation I did not have to worry about finding any old job immediately just to pay my student-loan bill,” she says. “The freedom of not having those payments has allowed me to put my money and my attention toward my dreams.” She now works as an enrollment counselor at her alma mater.

Thinking about the huge lifestyle benefits of a life without monthly payments might help inspire you to pick an affordable college instead of, in effect, borrowing $50,000 for a sweatshirt to impress the crowd at the coffeehouse.

3. Rich friends may be broke: When I was in high school, I hung out with a girl whose parents lived modestly and drove a beat-up station wagon that you could hear coming from a mile away. Our other friend drove a BMW Z3 — and made fun of the junky cars we drove. That upset the girl. “Look,” I said to her, “you have no idea whether his dad’s actually richer than yours. The car’s probably a lease, and their houses are probably leveraged to the hilt.”

And four years, a real-estate crisis and a few foreclosures later, the Z3′s gone. My friend’s parents who drove the station wagon sidestepped the crisis; they owned their home outright.

The dangers of conspicuous consumption are best learned vicariously, and here are a couple of factoids that might get you thinking. According to Thomas J. Stanley, author of “The Millionaire Next Door,” the most popular car among millionaires is the Toyota Camry, and only 7.3% of millionaires own a bottle of wine that cost more than $100.

4. Materialism is misery: Lives of thrift and conscientiousness lead to less stress, greater enjoyment of the things we do have and a lighter carbon footprint. But most of our societal associations with wealth are deeply connected with materialism: luxury goods, power and status.

“The more materialistic values are at the center of our lives, the more our quality of life is diminished,” says Knox College psychologist Tim Kasser, author of “The High Price of Materialism.”

Recognize the real benefits of wealth — freedom and flexibility — and don’t let the pursuit of its illusory trappings interfere with your ability to reap those rewards.

5. TV makes you feel poor: One of the fastest ways to make yourself better with money is to smash your television — or just watch it less.

A 1997 study by researchers Thomas O’Guinn and L.J. Shrum found that people who watch more TV believe that a higher percentage of Americans have tennis courts, luxury cars, maids and swimming pools.

And that perception can lead to feelings of inadequacy when you don’t have those goodies — and a willingness to stretch beyond your means as the Real Housewives become your social reference group.

A Merck Family Fund poll found that 56% of people who reported that they were “heavily in debt” also copped to watching “too much TV.”

—Zac Bissonnette is graduating this spring from the University of Massachusetts at Amherst. He is the author of “Debt-Free U: How I Paid for an Outstanding College Education without Loans, Scholarships or Mooching off My Parents.” Email: forum.sunday03@wsj.com.

Article source: Wall Street Journal

 

By M.P. MCQUEEN

If you’ve been in the habit of shopping around for a new term-life insurance policy every few years, you may want to reconsider that strategy: After years of falling premiums, many insurers are raising prices on term policies.

Premium increases averaging about 5% to 15% started in January and are sweeping through the industry. One reason is that higher capital and reinsurance costs for insurance companies linked to tighter credit markets are making it more expensive for insurers to maintain needed cash reserves. Another is that insurers are receiving lower returns on their investments, putting additional pressure on them to raise money.

For consumers, that means the era of counting on lower rates five or 10 years down the line could be over for a while. It also means locking in premiums before they go up.

Steve Johnson, a 51-year-old business consultant in Lilburn, Ga., was trying to beat an impending price increase when he rushed in his application to online insurance broker AccuQuote.com for a new $500,000, 10-year term life policy from ING Groep NV’s ReliaStar Life Insurance Co. in April.

But a series of canceled appointments delayed the necessary medical exam by several weeks, Mr. Johnson says. In the end, his application arrived a day late, and his annual premium rose to $864 from the $744 he had been quoted.

Unlike many other forms of life insurance, including “permanent” whole and universal life, traditional term life — the least-expensive type of individual life insurance — doesn’t include a savings or investment component and pays a death benefit only if the policyholder dies within a specific time period.

“I think we have pretty much bottomed out on how low life-insurance [prices] can go,” says Donald W. Britton, chief executive officer of ING’s U.S. insurance division. ReliaStar and other ING subsidiaries are raising term-life insurance rates an average of 5% this year, Mr. Britton says, “primarily driven by our cost of capital, which is much, much more difficult to get and more expensive than it was a year ago and prior.”

Other companies that have announced recent or impending price increases for new term-life policies include Prudential Financial Inc. — which raised premiums an average of 4% for term-life insurance policies on May 1 — and Lincoln National Corp.’s life-insurance-issuing units. American International Group Inc.’s American General Life Insurance Co. and United States Life Insurance Co. subsidiaries are raising rates by as much as 35% for customized “return of premium” term insurance, a spokeswoman says, but not for ordinary term.

Return-of-premium policies promise to return all or most of the premiums paid at the end of the term if the owner is still living and the policy is still in force. A relatively new product, return of premium has been gaining in popularity in recent years despite costing about 50% more than a regular term policy. Some insurers have said they plan to discontinue sales of the product. Return-of-premium policies now account for 5% to 10% of sales at AccuQuote, the company says.

Before the financial crisis erupted last year, term-life rates had been falling for two decades largely as a result of improved mortality rates and Internet sales. Premiums for costlier permanent insurance are also rising.

The Start of a New Era?

Economists and industry experts aren’t certain whether the price increases mark the start of a new era of rising rates or are merely a temporary blip. Prices also rose shortly after Jan. 1, 2000, when most states imposed new regulations requiring insurers to keep larger cash reserves for longer-term level-premium policies. Many insurers raised premiums and some stopped selling 30-year-term policies after the new rules took effect. But prices for many new term policies rolled back again within a couple of years.

Robert Bland, CEO of Insure.com, a national online insurance brokerage, says more than three-quarters of the 30 companies whose policies his brokerage sells have already either imposed or announced impending premium increases for term life, and that he expects most others to follow suit by the end of the year. Premiums for some age and risk groups and policy amounts also are increasing sharply, he says.

One company, for example, raised premiums 57% for a $250,000 15-year-term policy for 35-year-old males in the best health class, but it raised premiums only 36% for a $1 million policy. The premium for the same male buying a $250,000 30-year-term policy from the same company increased 10%, but only 1% for a $1 million policy.

Not all companies have raised prices or have raised them uniformly, so it pays to comparison-shop. Northwestern Mutual Life Insurance Co., for example, hasn’t raised rates, a spokeswoman says. Some other mutual companies — those owned by the policyholders — and publicly traded insurers also say they haven’t raised rates.

In recent years, insurers also have been tightening underwriting requirements and taking a harder line on risk factors such as obesity and high blood pressure, industry sources say, prodded by tougher requirements from reinsurers.

Until several years ago, applicants might have been forgiven, say, a little extra weight and given a lower rate. That’s no longer the case, says Dave Evans, senior vice president of the Independent Insurance Agents Brokers of America. He says only 6% to 7% of applicants qualify for the very lowest rates.

Changing Buying Habits

Mr. Bland says consumers, conditioned by years of falling prices, may have to change their life-insurance buying habits. “A lot of people would think they could shop around every five years. That game is going to come to an end,” he says.

Rising premiums mean there’s less incentive to change policies often. Not only will you be older, but premiums may be higher overall because of market changes, and insurers may take a harder stance on your cholesterol or blood pressure than the last time you applied for a policy. If you think you need coverage for 20 years, you’d probably be better off now buying a 20-year level-term policy than buying a 10-year policy and thinking you will buy another one 10 years from now, Mr. Bland says.

Insurers generally won’t raise premiums on a policy once they have received a completed application, so agents are urging shoppers to get new applications in quickly. The application process generally takes at least 30 days.

Write to M.P. McQueen at mp.mcqueen@wsj.com

Printed in The Wall Street Journal, page D1

Article source: Wall Street Journal

 

Retirees with pension envy increasingly are turning to annuities to restore some financial security to what are supposed to be their golden years. But with payouts near multiyear lows, it’s important for them to consider how much to buy and when to pull the trigger—and whether a different strategy might better suit their needs.

Politicians and economists have proposed using so-called immediate fixed annuities to help prevent workers from running out of money during retirement. The gist: You trade a lump sum to an insurance company for a fixed income for life, which is typically an irrevocable move.

Currently, a 65-year-old man paying $100,000 for an immediate fixed annuity can get about $7,600 a year for life, according to ImmediateAnnuities.com, a website that provides free quotes from insurers. That’s much more than he would be able to produce from an investment portfolio of the same size, assuming he withdraws no more than 4% a year, the limit financial advisers generally recommend.

Alex Nabaum

From 2005 to 2010, sales of immediate annuities grew by 43% to $7.6 billion. This past week, New York Life Insurance Co., the nation’s top seller of these annuities, announced that its first-quarter sales of the product rose 45% compared with the first quarter of 2010. (Immediate annuities are different from variable annuities, whose value fluctuates along with their underlying investments.)

A variety of financial-services companies are getting in on the act. In recent months, Fidelity Investments, Financial Engines Inc. and Allianz SE’s Pacific Investment Management Co. have launched products and advisory services that use annuities, in conjunction with other products, to help retirees convert their savings into a reliable stream of lifelong income. Others, including BlackRock Inc. and UBS AG, have added versions of these products to their 401(k) target-date investment options.

There’s just one problem: Given current ultra-low interest rates, the payouts on these annuities are only slightly above recent multiyear lows—and buying one today locks in the low interest rate for the buyer’s lifetime.

There are strategies to help blunt the impact. Some advisers recommend staggering an annuity purchase over a number of years, borrowing the “laddering” technique that many use when investing in bonds and bank certificates of deposit. With such a strategy, you can lock in some of the income you need right away. But if interest rates rise—as many predict—so will the payments from future purchases.

When David Babbel, 62, retires in three years, the University of Pennsylvania Wharton School professor of insurance plans to put about half of his retirement savings into an immediate annuity. “I’m going to annuitize enough so that, together with Social Security, I will have enough income to maintain the lifestyle I want,” he says.

Prof. Babbel says he will divide the rest of his savings into five equal amounts and purchase fixed deferred annuities. These are akin to bank CDs, with three added benefits: Earnings grow tax-deferred, interest rates are often higher, and the money can typically be converted, tax-free, to an immediate annuity.

If inflation erodes the purchasing power of his initial annuity, Mr. Babbel says he will convert one of these five investments into a second immediate annuity. At that point, he figures he will be able to lock in a higher payout because his principal will have grown and immediate-annuity payout rates rise with age. Moreover, inflation tends to result in higher interest rates, which also boost payouts.

Of course, staggered purchases aren’t foolproof. Interest rates, although low, could decline further. And those who wait to buy often spend some of the money they otherwise would put into an annuity, potentially resulting in a lower future payout, says Jason Scott, managing director of the Retiree Research Center at Financial Engines Inc., a California firm that manages 401(k) accounts.

Due to the way immediate-annuity payments are structured, “you can delay purchasing annuities in your 60s without too much of a cost,” says Mr. Scott. Beyond that, those who spend down their annuity money while waiting to buy are more likely to receive progressively less than earlier buyers did.

For those concerned about today’s low interest rates, New York Life offers another option. In exchange for a slightly lower starting annual income, immediate-annuity buyers can obtain a rider that permanently raises the payment on the contract’s fifth anniversary, provided interest rates have jumped by two percentage points or more since the contract’s inception.

A deferred-income annuity—also known as “longevity insurance”—is also worth considering. As with a conventional immediate annuity, this product produces income for life, but payments don’t typically kick in until years later. Most of the small but growing number of insurers that offer this feature permit policyholders to elect to begin receiving payments anywhere from one to 40 years from the time of purchase.

When payments begin, they are more generous than those on a conventional immediate annuity. For $120,000, for example, a 70-year-old man can get $60,000 a year starting at age 85 with a deferred-income annuity. With an immediate annuity, by contrast, he’d have to spend $700,000 to obtain the same income, according to New York Life, which plans to introduce its own version—Guaranteed Future Income Annuity—in July.

Whether you buy now or later, stick with insurers with triple-A or double-A claims-paying ability ratings, such as New York Life, MetLife Inc., Northwestern Mutual Life Insurance Co., TIAA-CREF and USAA, advisers say.

You can also protect your annuity investment by buying from different carriers. In the event of an insurer’s insolvency, industry-backed guaranty associations in each state provide at least $100,000 in coverage for such annuities. Go to www.nolhga.com for links to the association and coverage limit in your state.

By ANNE TERGESEN And LESLIE SCISM

Article source: Wall Street Journal