Evaluating Your Investment Knowledge
- Do you understand the investments you currently hold?
- Is the money that you’d need to tap in the event of a short-term emergency in an investment where the principal does not fluctuate in value?
- Do you know what marginal income-tax bracket you’re in?
- For money outside of retirement accounts, do you understand how these investments produce income and gains and whether these types of investments make the most sense from the standpoint of your tax situation?
- Do you have your money in different, diversified investments that aren’t dependent on one or a few securities or one type of investment (that is, bonds, stocks, real estate, and so on)?
- Is the money that you’re going to need for a major expenditure in the next few years invested in conservative investments rather than in riskier investments such as commodities?
- Is the money that you have earmarked for longer-term purposes (more than 5 years) invested to produce returns that are likely to stay ahead of inflation?
- If you currently invest in or plan to invest in individual stocks, do you understand how to evaluate a stock, including reviewing the company’s balance sheet, income statement, competitive position, price-earnings ratio versus its peer group, and so on?
- If you work with a financial advisor, do you understand what that person is recommending that you do, are you comfortable with those actions and that advisor, and is that person compensated in a way that minimises potential conflicts of interest in the strategies and investments he recommends?
Assessing Your Insurance Knowledge
- Do you understand the individual coverages, protection types, and amounts of each insurance policy you have?
- Does your current insurance protection make sense given your current financial situation (as opposed to your situation when you bought the policies)?
- If you wouldn’t be able to make it financially without your income, do you have adequate long-term disability insurance coverage?
- If you have family members who are dependent on your continued income, do you have adequate life insurance coverage to replace your income if you die?
- Do you carry enough liability insurance on your home, car (including excess liability), and business to protect all your assets?
- Have you recently (in the last year or two) shopped around for the best price on your insurance policies?
- Do you know whether your insurance companies have good track records when it comes to paying claims and keeping customers satisfied?