Health insurance protects against medical emergencies, homeowner insurance protects against flood or fire, car insurance protects against drivers like me and what kind of insurance protects your money? Have you ever given that any thought?

It sometimes surprises us how little thought some people give to this important subject, but during these turbulent market days, I’m sure many are giving it a bit more thought than usual. After all, you work real hard for your money. Wouldn’t it make sense to protect your investments?

I suppose the next logical question would be, “Sounds good. How can I do that?”

There are a number of ways you can protect your money and I’m not talking about keeping it in a fireproof safe or watching it on a daily basis. Certainly, those could be effective ways of protecting your money, but most of us have more interesting things to do such as work, eat, go to the movies or in my case, challenge my kids to Nintendo on a weekend evening. If those activities or anything else is more interesting to you than watching your money on a daily basis, then here are a few quick thoughts on how you can protect your investments:

1. Reduce risk: I find that many people, especially those in retirement, often have too much money in the stock markets. One of the best ways to protect your money is to diversify stock investments into safer places such as bonds, CDs and a number of other possibilities not mentioned here.

2. When investing in individual stocks, a fantastic way to “insure” against possible loss is to buy something called “put options.”

When they hear the word “options,” many investors run for the hills thinking there is great risk involved. Some types of options have unlimited risk while others are very conservative, and buying a “put option” is one of those. When you buy a put option, all you are doing is giving yourself the chance that someone will be obligated to purchase your stock at a price above what it’s trading at sometime in the future.

Imagine this: you have a lot of money in a particular stock. You’ve had some real nice gains and the price per share is currently at $100. Over the next few months, for whatever reason, the stock tanks and you now find it trading at $50 per share. Sad day? Ordinarily it would be, but because you bought a “put option,” someone out there is obligated to buy that stock from you “as if” it were still trading at $100 per share.

Needless to say, there is a cost to buying the put option and as a result, there’s a chance you might have paid the “insurance” for nothing. But when it comes to “insuring” individual stocks against loss, buying a put option is often a fantastic consideration, especially for those who want to protect large gains concentrated in one stock.

3. Another way to protect an individual stock against loss is to establish something called a “stop loss.” To keep it simple, think of a “stop loss” as a safety net underneath your stock. Using the example above, if a stock is currently trading at $100 per share, you can “place” a safety net (stop loss) at $90. If the price of the stock drops and hits the safety net at $90, the position would be sold at that price, but bear in mind: there is no guarantee the stock would be sold at $90. For various technical reasons beyond the scope of this blog, the stock might “fall through” the safety net and not get sold. Chances of this happening are unlikely, but it could happen, thereby making the “put option” a more reliable choice.

4. Exchange Traded Funds: If you like the idea of investing in index funds, you may want to consider investing in index Exchange Traded Funds as opposed to an index mutual fund. In general, ETFs are indexes that trade like a stock. The primary difference between an index ETF and an index mutual fund is that ETFs trade within the day (as opposed to at the end of day when mutual funds are actually sold). In addition, given that ETFs “act” like a stock, you can also place stop losses on them and in many cases buy put options on them as well — both benefits that you cannot do when investing in index mutual funds.

So, if you are investing in index mutual funds and want more control of your investment, you may want to consider investing in index ETFs instead. However, bear one thing in mind: the “negative” of an index ETF is that if you are investing into the same position on a frequent basis, you would most likely be better off sticking with index mutual funds. This is because when you invest in an index ETF, you will incur trading costs every time you make additional investments. When you invest in an index mutual fund, typically it won’t cost you anything each time you add more money to the account.

5. Variable Annuities: An investment into a variable annuity provides tax deferment and direct investments into various stock market indexes or sub-accounts (mutual funds). Most variable annuities also have Death Benefits as well as Living Benefits. These offer a wide variety of guarantees to the investor at a cost. Benefits could include: return of the original investment to the heirs when the investor dies. This protects the heirs in the event that the account goes down in value. Other benefits could be the highest account value paid at death and also various guarantees for income in case the account goes down in value. Many companies offering variable annuities have death and living benefits that will differ widely, so be sure to closely investigate each option and its cost before making an investment.

6. “Growth CDs”: The actual terminology for this type of investment is Structured Products, but many refer to them as “Growth CDs.” This type of CD is offered by banks and sold through brokerages. They are actual Certificates of Deposits fully insured by the FDIC, but there’s one major difference between these CDs and those offered at the local bank: the interest these CDs could earn is determined by the performance of various stock market indexes. If a particular index(es) goes up in value, then you could earn more than the typical bank CD. If the index(es) go down in value and you hold the CD to maturity, you’ll get your principal back, plus in some cases a minimum amount of interest. If you are looking to invest in the market while protecting your principal, “Growth CDs” could be something to consider as part of your diversified portfolio.

7. If the concept of a “Growth CD” sounds familiar, it might be because it’s similar to that of an Index Annuity. Similar to a Growth CD, an Index Annuity offers stock market participation without risk to your principal. Also, just like some Growth CDs, market participation is typically “capped” or limited up to a certain amount. Furthermore, earnings, if any, are “locked in” on an annual basis. Also, and different from the CD, all potential earnings are tax deferred. There are far too many details about Index Annuities to outline in this blog but suffice it to say, make sure you understand a handful of important provisions before investing including, but not limited to: the length of time you are required to hold the account, the quality of the insurance company offering the annuity, the way the potential earnings are calculated, surrender fees and other important points not listed here.

Bad market got you down? Hopefully some of the above ideas will be helpful in protecting what which we all work real hard for. Stay tuned for my next post when I’ll add a few more ideas on how to protect your investments should this highly volitile market continue.

Is it a good time to pull out of the market? Is it a good time to enter the market?

During these days of market setting records where the bulls are busy steam-rolling bears, one might take a moment to consider some creative, alternative investments outside the stock market itself such as life insurance.

“Life insurance?!?”

Yes, life insurance.

The subject of life insurance typically conjures up two dark thoughts: death and pushy salesmen, both of which most people want to avoid. However, as far as I’m concerned, life insurance represents just another boring slice of a well-diversified portfolio, especially since I consider life insurance not a cost, but an investment.

Yes, an investment. Little do most people realize that with the right type of life insurance in place (Universal Life, not Term Life), there is a very likely chance that if you no longer need the life insurance policy, you can potentially sell it for a profit into what’s commonly referred to as life insurance’s “secondary market.”

Not only do we see life insurance as an investment, but we also know there could be many uses for including it within a diversified portfolio such as:

Tax deferred growth: an investment into a life insurance policy will allow its cash value to grow tax deferred. For those that need life insurance and have contributed the maximum amounts to their 401ks, IRAs and/or Roth IRAs, investing in a life insurance policy could be worthy of consideration given that an investment within Universal or Whole Life policy provides tax deferred accumulation as well.

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Tax-free income: depending on the how a life insurance policy is designed, there could significant cash built up within the policy. With cash in the account, it is highly possible one could withdraw cash from a life policy tax-free. Generating income from the cash value within a low cost, high quality life policy could make this one of the strongest features of adding some Life into your life.

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Long Term Care: some life insurance policies allow the insured to withdraw money from the death benefit in order to take care of various long-term care medical needs.

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Private Pension: one of the strongest advantages of adding some life into your life is to create what we commonly refer to as “The Private Pension.” Imagine this: at retirement, funding a “Private Pension” that through the combination of an immediate annuity and a life insurance policy creates a lifetime fixed income stream, mostly tax free, typically at attractive rates of return that one cannot outlive. The income will never change and is not subject to stock market or interest rate risk. Best of all, because you added a little Life into your life, the amount that’s used to fund the Private Pension gets returned to your family tax free upon your demise due to the death benefit.

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Instant Wealth: Recently, I had a person approach me with some cash on hand, wanting to make an investment into the stock market that would provide the best possible returns for his granddaughter. He had little need for the money, had plenty of money outside this investment and was sure this money was being put to use for one reason and one reason only: to leave behind to his granddaughter. In this case, we told him to stay away from the stock markets and instead invest into a life insurance policy. Why? …

Well, first off, the investment into the life insurance policy instantly far more than doubled his investment and guaranteed it to his granddaughter upon his demise. The risk of the markets and the length of time it would take to potentially grow the money to at least equal the life insurance’s death benefit were completely eliminated, making the investment into the life policy well worth the effort of getting it in place.

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Freeing up principal: We meet many people in retirement that are saving as much as they possibly can for family. For a fraction of the estate value, one might want to consider investing a small portion of their investments into a life insurance policy that guarantees the value of the estate at death. Doing so often provides the insured peace of mind knowing if they wind up “spending all their money” down to the last penny, they will still leave the full value of the estate due to the life insurance policy.

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Paying the tax: in most cases, at least some taxes are due upon that ugly thing called death, creating a likely burden for those left behind. Estates can be taxed, so can IRAs, annuities and a long list of other investments. Needless to say, someone has to write a check to pay the tax, and the “liquidity” of an estate is sometimes limited, especially when one passes away with generally illiquid real estate holdings. In many cases, a quality life insurance policy can be quite a beneficial “gift” to leave behind so that taxes are paid from the tax-free death benefit most life insurance policies provide.

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Perhaps best of all, if one winds up not ever needing the life insurance for any of the reasons above, they would simply sell the policy at a future date. Although there are no guarantees, chances are likely that one can sell the policy into life insurance’s secondary market, recoup their investment and potentially make an attractive profit from the sale, giving the inclusion of a life insurance policy in a diversified investment portfolio another reason for consideration.

Who are the people that purchase life insurance policies from the insured? It’s not The Sopranos or Corleone’s. It’s some of the most largest, reputable financial institutions in the world including Warren Buffet’s Berkshire Hathaway, Lehman Brothers, Credit Suisse and a long list of many others.

Is life insurance something that belongs in your diversified investment portfolio? Without knowing your personal situation, that’s something no one can really answer. But during this time of “is the market overheated or not” and “where should I invest,” perhaps it’s an alternative to consider.

Saving is not always easy. There are bills to pay, clothes to buy, movies to see and a long list of many other things that can easily get in the way. With this in mind, I wanted to point out a few ideas on how to save $100 per month.

Let’s suppose you invest $100 every month, and let’s also assume you invest it into a stock index fund that earns an average return of 8% per year. Before revealing the results, note the emphasis on “index fund.” This is important to highlight because when investing in an index such as the S&P 500, not only do you get instant diversification, but you’d also keep the fees you pay and the taxes you owe to a bare minimum as well.

Let’s also suppose the amount you save increases by 3% per year to keep in line with a hopeful increase in wages. So, invest $100 per month in an index fund such as the S&P 500 and at an 8% average rate of return, the following would result:

Looks good to me. Here’s a few creative ways to help you get there:

1. Invest your refund: Are you one of the unlucky people to get a tax-refund this year? Remember, your tax refund is merely an overpayment of estimated taxes or withholdings that earned Uncle Sam interest, not you. If you were one of the unlucky people to receive a refund, evaluate your estimated taxes or withholdings and don’t give it to Uncle Sam as a tax-free loan. Instead, invest it. Doing so could very well get you that $100 monthly savings you’ve been looking for.

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2. Brown bag it: Working? Let’s suppose you eat lunch out every day and the average meal costs $12. That’s $240 per month in food costs. To save money, would you eliminate dining out every day? Not unless you wanted to miss out on the latest business news or how Jane’s date went with Jeff. So, let’s assume you cut down on the dining and ate out once a week. Doing so would bring the total monthly food costs to right around $50. You still have to feed yourself, right? So let’s assume you spent about $100 for some groceries. Do the math, and there you have it – you’re left with a $100 dollar monthly savings.

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3. Rideshare to Work: Let’s suppose you travel 15 miles each way to work, your SUV holds 20 gallons and gets 15 miles per gallon. Two more variables needed: Let’s suppose gas costs $2.75 per gallon and there’s 22 working days in the month. How much would you save if you carpooled with two friends? Sounds like one of those SAT brain twisters, right? And you thought you were out of high school — Do the math and that’ll save you roughly $80 per month and get you a nice ride in that carpool lane as well. How great is that?

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4. Energy Checkup: Are there ways you can save a few dollars on your monthly energy costs? For me there was. A couple of small touch-ups around the house and I am now helping keep Al Gore happy. With a few mouse-clicks on the “Home Energy Checkup” at www.ase.org, I quickly learned a few interesting ways to save a couple of dollars every month on my energy bill and maybe you will too.

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5. Skip the Root Beer: It’s a rare day when I don’t have a craving for an ice-cold Root Beer. Suppose I didn’t listen to my own advice above and ate out five times a week. If a Root Beer costs $1.50, I just spent $30 per month. For savings and nutritional reasons, I should have been drinking water. While the $30 savings won’t get me my $100, it’ll definitely help get me there and make my Mother happy along the way as well.

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6. Clip Coupons: If you’re just like me, that means you eat a few boxes of Cinnamon Toast Crunch every month along with a few dozen South Beach Protein Bars and bags of Turkey Jerky. Interested in saving a few dollars on these monthly purchases? Websites such as www.coupons.com claim you can print a few of their coupons and save over $100 every week. Who says Double Stuff Oreos are bad for you? When I’m busy saving money when eating them, I would completely disagree.

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7. In-Home Beauty Regime: Thanks to a thinning hairline and my Flowbee, it’s been at least a decade since I paid someone to cut my hair. Suppose each cut costs an average of $50 and I need to cut my hair once every two months. By doing it myself, I’ve basically saved $25 per month. Care to come by for a Flowbee? Would you do it yourself? Doubtful on the former, possible on the latter. There are also a few possible things you can do to reduce your monthly beauty costs such as a do-it-yourself manicure or mudpack.

Better nutrition? Energy efficiency? Getting yourself rich instead of Uncle Sam? As far as I’m concerned, over a ten-year period of time, I can think of 21,796 reasons to save $100 per month and hopefully you can too.