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Summary

Before making decisions about which individual investments to buy, think about an overall investment strategy. Then you can see whether particular investments fit your needs. Bear in mind that while there are some standard guidelines for different types of strategies, your specific strategy will be unique to your circumstances (including your health condition) and desires. We provide some sample strategies to consider as a starting point to create your own.

Reevaluate your investment strategy if you experience a change in health or in income. Even if there is no change, it is advisable to reevaluate your investment strategy at least once a year.

Don't put any money into other types of investments until you have what you consider to be an adequate emergency fund. The strategy for investing money in an Emergency+Fund should be to hold only investments in which you can access the cash immediately and that have no risk of losing principal. For example, use bank accounts, short-term CDs (certificates of deposit) and money market accounts. (For some guidance on how large your Emergency+Fund should be, see Emergency+Fund).

Consider the following strategies for the rest of your investable assets:

  • Strategy based on life expectancy.
  • Income strategy.
  • Liquidation strategy.
  • Retirement strategy.
  • Saving for a purchase.
  • Social investing.

Factors to help determine which strategy(ies) to use are:

  • Your life expectancy.
  • Your financial goals.
  • The return you require.
  • How much you can save.
  • Your risk tolerance.

The strategies and factors are discussed as follows:

NOTE: If you plan to leave bonds to your heirs, consider bonds which have a survivor's option because they protect value for your heirs. Issuers agree to purchase the bonds from your heirs at the original price - though for a lower than standard rate. One site which lists issuers of such bonds: www.internotes.com offsite link.

For additional information, see:

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Investment Basics

Factors To Help Determine An Investment Strategy

To help determine your investment strategy, consider the following:

  • Your life expectancy: Although a prognosis (prediction of life expectancy) is statistical and doesn't tell what will happen to any particular individual, it may be useful in helping to shape an investment strategy.
  • Your financial goals: What do you need your investments to accomplish? For example, are you saving for retirement, do you need immediate income, or both? To learn more, see: Your financial goals
  • The return you require: Generally, the more return you require from your investments, the riskier the investments. If the required degree of risk makes you uncomfortable, you might have to lower your expectations for the return on your investments.
  • How much you can save: If you don't have a fix on how much you can save, see Budget for assistance.
  • Your risk tolerance: Think about how much risk you are willing to bear. Would you be uncomfortable with large swings in the value of your portfolio, even if that meant a greater potential for growth in the long run? Keep in mind that if you have to access principal when you are not earning income, your potential to realize interest income decreases.

Strategy For An Emergency+Fund

Hold your Emergency+Fund in investments in which you can access the cash immediately and that have no risk of losing principal. You don't want to have to cash in an investment at the moment when it is not a good time. Use bank accounts, short-term CDs (certificates of deposit) and money market accounts. (For some guidance on how large your Emergency+Fund should be see Emergency+Fund).

Don't put any money into other types of investments until you have what you consider to be an adequate emergency fund.

Investment Strategy Based On Life Expectancy

David Petersen, a leader in the field of financial planning for people with a life-challenging condition, created the following strategy for people living with a shortened life expectancy. Keep in mind that statistical projections do not predict what will happen to you or any other individual.

Life Expectancy of 5 years or more

  • Invest like a person of your age with no health condition, except less speculatively and with more of a focus on liquidity.
  • Avoid complicated investments because you need to be able to change strategies quickly.
  • A conservative guideline is that the percentage of stock in a person's portfolio should equal 100 minus your age. For a more aggressive guideline, subtract your age from 110 and then multiply that figure by 1.25

Life Expectancy of 2 - 5 years

  • A combination of growth strategy and income strategy is appropriate.
  • Consider the extent to which you may need to access principal to meet your needs.
  • Do not focus on the short term. It is advisable to prepare for the possibility that you may live much longer than your current life expectancy.

Life Expectancy of 2 years or less

  • Maximize available cash in case you need it, particularly if your assets are limited.
  • Adopt an income strategy that maximizes liquidity and minimizes risk.
  • If you have resources that you will not need to live on, you may want to pursue a growth strategy to increase the dollar value of those assets.

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Life Expectancy

Income Strategy

If you need income from your investments - but don't want to actually liquidate your investments -- which assets you choose will depend on the time horizon for which you are investing. Do you need the maximum amount of income just for a period of a year or two, or for many years, perhaps indefinitely?

Short-Term Income Strategy

To maximize your income in the short-run without risking losing principal, look for investments that provide the most for your money with little risk, low fees and high liquidity (in case you need to liquidate some assets for additional income). Investments that fit the bill include:

  • Money market accounts: Money market accounts will generate some income and also keep your principal very safe.
  • CDs (Certificates of Deposit): You can purchase multiple CDs with different maturity dates so that you have a set amount of income that you can rely on. For example, if you purchase a three, six, and twelve month CD, you will have income at the end of each of those time periods.
  • United States treasury bills (T-Bills): T-bills will generate income based on their time to maturity and will also be exempt from state and local income taxes.
  • High-Grade Corporate bonds: Buying high-grade corporate bonds will provide a higher return than government bonds will, but will expose you to the risk of the company that backs the bond defaulting.

Long-Term Income Strategy

If you are investing for the long-run - say five years or more - but still need income, consider income-producing investments such as United States treasuries, mutual funds composed of top notch corporate bonds, and "blue-chip" stocks that have a history of paying steady dividends. Depending on your risk tolerance and how long you need your money to last, you should also consider growth stocks for at least a portion of your investments to help your portfolio grow in the long run.

Liquidation Strategy

If you need more income than you can safely earn on your investments, you will also have to consider liquidating investments over time. See Spending My Savings to get an idea of how much you can spend, based on how much money you have, how long you need it to last, and the return on your investments.

When deciding which investment to liquidate, consider the following:

  • Taxation: How much tax will you have to pay on your investment if you sell it? If you are selling a mutual fund whose value has grown since you purchased it, you might be subject to capital gains taxes. Selling bonds or other cash-type investments might not generate a capital gain at all.
    • If you sell an investment and suffer a loss, some of the loss might be deductible from your gross income on the tax return for the year in which you sell.
    • If your income is so low that you don't pay any taxes, or you are in the lowest tax bracket, taxes might not be a consideration.
  • Market Timing: Consider where the price of your investment is currently compared to where you believe it should be or will be in the future. Is it temporarily undervalued? Overvalued? If undervalued temporarily, you may want to hold it for a comeback. If it is overvalued, this may be a time to sell.
  • Your Portfolio: How will the sale of your investment affect the balance in your portfolio? If you sell one type of investment, the proportion of the other investments will increase. For example, if you have 50% stocks and 50% bonds, and sell all the bonds, you'll end up with a riskier 100% stock portfolio. Is this what you want?
  • Payout Dates: Be careful not to redeem an investment before a payout date. For example, redeeming a savings bond one day early could result in a loss of six months' interest.
  • Estate Planning: Investments that are inherited receive what's called a "step-up" in basis (the cost of an asset for tax purposes.) Instead of the basis you have in an investment, the basis for your heirs changes to the estate valuation. For example, if your heirs inherit a mutual fund worth $5,000 that you purchased for $1,000, they will only have to pay tax on the increase in value above $5,000. On the other hand, if you sell the fund when it is worth $5,000, you'll have to pay tax on $4,000 ($5,000 value minus $1,000 cost).

Retirement Strategy

Unless you are retiring within the next five years, an aggressive growth strategy is often recommended to maximize your retirement savings. With a retirement strategy, when retirement is years away, consider keeping most of your money over and above your Emergency+Fund in high-growth investments. This means mostly stocks. But, if you're not comfortable with such an aggressive strategy (even though you don't plan to tap into the money for a while), temper it with bonds.

If you are planning for retirement but disability due to your condition is a possibility down the road, consider a more conservative growth strategy.

  • One conservative idea is only to purchase stock in "blue chip" companies - larger, more solid companies with diversified holdings and a solid track record of growth and profitability
  • Another alternative is to protect your equity investments against the downside by purchasing a "collar." A collar is a sophisticated financial strategy in which you purchase a "put" (the right to sell a security at a set price at a particular time) and a "call" (the right to sell a security at a set price at a particular time). This strategy limits your upside - more importantly, it also limits your downside Look for options in the time frame that work for you, such as one year. For a list of stocks with available collars, see: www.protectyourstock.com offsite link

For more on retirement planning, see: Retirement Planning

Saving For A Purchase

If you are saving for the short-term to buy something or to pay for travel, keep your money in a savings or money market account.

It helps to keep a photograph of what you're saving for in a place that you'll see every day - such as on the refrigerator.

Social Investing

There are companies that are socially responsible. For example, companies that set livable, minimum standards for employees no matter where in the world the employees work. Or companies that are environmentally friendly.

You can look for companies that are socially beneficial while still meeting other criteria such as safety of capital or high rate of return.

If you are interested in investing in companies whose work benefits society, there are sites which list such companies. A few follow. If there are additional sites you find particularly helpful, please let us know.

There are mutual funds which use socially responsible investing. You can find them at sites such as: