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What should Alzheimer’s caregivers know?

But you can at least address some of the financial issues involved to help give yourself a greater sense of control.

Here are some moves to consider:
• Plan for care costs and identify insurance coverage. The list of Alzheimer’s-related medical expenses is long and includes ongoing medical treatment, medical equipment, home safety modifications, prescription drugs and personal care supplies. As a caregiver, you’ll want to know the extent of your loved one’s health insurance: Medicare, supplemental policies, veteran’s benefits if applicable, and so on. One big question is how much coverage they might have for adult day care services, in-home care services and full-time residential care services, and other long-term care options. Long-term care is one of the largest health care costs not covered by Medicare, so you’ll want to determine if your loved one has a long-term care policy or another insurance policy with a long-term care rider.
• Identify assets and debts. You’ll need to know your family member’s financial position, both what they own — bank accounts, investments, property, etc. — and what they owe, such as credit card debt, a mortgage, lines of credit, and so on. This knowledge will be essential if you’re granted power of attorney to take over your loved one’s finances.
• Look for tax breaks available to caregivers. If you’re a caregiver, you may have to pay for some care costs out of pocket. Consequently, you could receive some tax credits and deductions. These benefits vary by state, so you’ll want to consult with your tax advisor to determine your eligibility.
• Ensure necessary legal documents are in place. As a caregiver, you may need to ensure some legal documents are in place, such as a durable power of attorney for finances, which lets you make financial decisions for your loved one with Alzheimer’s, and a durable power of attorney for health care, which lets you make health care and medical decisions on their behalf. It’s important to have these and other necessary documents drawn up before someone is diagnosed with Alzheimer’s or when they’re just starting to exhibit the earliest signs of the disease, so they can understand what documents they are signing.

If you wait until they no longer have this cognitive ability, things will get much more challenging. You could apply to become a conservator, which grants decision-making abilities similar to a power of attorney, but the conservatorship process takes time and could involve court procedures. To avoid this potential difficulty, work with your tax and legal professionals to ensure all the relevant legal documents are in-force and updated.

Finally, you don’t have to go it alone. To help deal with the emotional challenges of caregiving, you can find local Alzheimer’s support groups that can offer practical suggestions for coping. As for the financial issues, consider working with a financial professional who can look at your family’s overall situation and recommend appropriate actions.

A diagnosis of Alzheimer’s will change the lives of everyone in your family. But as a caregiver, you can help ease the burden.

Should you stick with index-based investments?

To begin with, an index-based investment is a vehicle such as a mutual fund or an exchange-traded fund (ETF) that mimics the performance of a market benchmark, or index — the Dow Jones Industrial Average, the S&P 500, and so on.

(An ETF is similar to a mutual fund in that it holds a variety of investments but differs in that it is traded like a common stock.) You can also invest in index funds that track the bond market.

Index investing does offer some benefits. Most notably, it’s a buy-and-hold strategy, which is typically more effective than a market-timing approach, in which individuals try to buy investments when their prices are down and sell them when the prices rise.

Attempts to time the market this way are usually futile because nobody can really predict when high and low points will be reached.

Plus, the very act of constantly buying and selling investments can generate commissions and fees, which can lower your overall rate of return. Thus, index investing generally involves lower fees and is considered more tax efficient than a more active investing style.

Also, when the financial markets are soaring, which happened for several years until this year’s downturn, index-based investments can certainly look pretty good — after all, when the major indexes go up, index funds will do the same.

Conversely, during a correction, when the market drops at least 10% from recent highs, or during a bear market, when prices fall 20% or more, index-based investments will likely follow the same downward path.

And there are also other issues to consider with index-based investments. For one thing, if you’re investing with the objective of matching an index, you may be overlooking the key factors that should be driving your investment decisions — your goals and your risk tolerance.

An index is a completely impersonal benchmark measuring the performance of a specific set of investments — but it can’t be a measuring stick of your own progress.

Furthermore, a single index, by definition, can’t be as diversified as the type of portfolio you might need to achieve your objectives.

For example, the S&P 500 may track a lot of companies, but they’re predominantly large ones. And to achieve your objectives, you may need a portfolio consisting of large- and small-company stocks, bonds, government securities and other investments.

(Keep in mind, though, that while diversification can give you more opportunities for success and can reduce the effects of volatility on your portfolio, it can’t guarantee profits or prevent all losses.)

Ultimately, diversifying across different types of investments that align with your risk tolerance and goals — regardless of whether they track an index — is the most important consideration for your investment portfolio. Use this idea as your guiding principle as you journey through the investment world.

Are you properly insured?

The need for life insurance is pretty straightforward: If something were to happen to you, would your family be able to continue their same lifestyle? Would the mortgage still be paid? Would your children still be able to further their education?

So, if you decide that you should acquire or strengthen your life insurance, how much do you need? Your employer may provide you with some insurance as an employee benefit, but it may not be sufficient. You might have heard that you should have coverage worth seven or eight times your annual salary. But this estimate is just that — an estimate. Everyone’s situation is different, and there’s really no one formula that can tell you how much insurance you require. To determine the coverage you need, you’ll want to consider several factors, including your age, number of dependents, your income and that of your spouse and the size of your mortgage.

Knowing how much coverage you need is obviously important, but you’ll also want to consider what type of life insurance is right for you. You have two basic choices: term or permanent insurance.

As the name suggests, term insurance provides coverage for a specified amount of time, such as 10, 20 or 25 years. Term insurance only offers a death benefit — there’s no buildup of cash value in your policy.

Generally speaking, term insurance is considered to be quite affordable, especially when you’re young.
Permanent insurance, on the other hand, offers a death benefit and the opportunity to build cash value.

Because of this, premiums for permanent insurance — which includes “whole life” or “universal life” — are considerably higher than those for term life.

Which type of insurance should you choose? Again, it all depends on your situation and your preferences. Some financial experts advise people to “buy term and invest the difference” — that is, use the money saved on the lower term insurance premiums to invest in stocks and mutual funds.

Others, however, disagree, and point to the benefits of permanent insurance, such as the ability to borrow against the cash value of a policy to pay for unexpected expenses. Ultimately, in making the choice between term and permanent insurance, you’ll need to look at your entire financial picture to determine which option is best for you.

In fact, life insurance should be a key component of your overall financial strategy, along with your investment mix and the long-term goals you’ve set. Insurance can even play a role in your estate planning, as you determine the best way to distribute assets to your family members and any charitable organizations you support.

Life Insurance Awareness Month lasts 30 days — but your need for life insurance can endure for decades. Make sure you’re doing everything you can to protect your loved ones.

Should you own bonds when interest rates rise?

To begin with, let’s look at what’s happened with bond prices recently. Inflation has heated up, leading the Federal Reserve to raise interest rates to help “cool off” the economy. And rising interest rates typically raise bond yields — the total annual income that investors get from their “coupon” (interest) payments. Rising yields can cause a drop in the value of your existing bonds, because investors will want to buy the newly issued bonds that offer higher yields than yours.

And yet, despite this possible drop in their value, the bonds you own can still help you make progress toward your financial goals. Consider these benefits of bond ownership:

  • Income – No matter what happens to the value of your bonds, they will continue to provide you with income, in the form of interest payments, until they mature, provided the issuer doesn’t default — and defaults are generally unlikely with investment-grade bonds (those rated BBB or higher). Your interest payments will remain the same throughout the life of your bond, which can help you plan for your cash flow and spending.
  • Diversification – As you’ve probably heard, diversification is a key to successful investing. If you only owned one type of asset, such as growth stocks, and the stock market went into a decline, as has happened this year, your portfolio likely would have taken a big hit — even bigger than the one you may have experienced. But bond prices don’t always move in the same direction as stocks, so the presence of bonds in your portfolio — along with other investments, such as government securities and certificates of deposit — can help reduce the impact of volatility on your holdings. (Keep in mind, though, that by itself, diversification can’t guarantee profits or protect against all losses in a declining market.)
  • Reinvestment opportunities – As mentioned above, rising interest rates and higher yields may reduce the value of your current bonds, but this same development may also offer you some favorable reinvestment opportunities. If you own bonds of varying durations — short-, intermediate- and long-term — you should regularly have some bonds maturing. And in an environment such as the current one, you can reinvest the proceeds of your expiring short-term bonds into new ones issued at potentially higher interest rates. By doing so, you can potentially provide yourself with more income. Also, by owning a mix of bonds, you’ll still have the longer-term ones working for you, and these bonds typically (but not always) pay a higher interest rate than the shorter-term ones. It might not feel pleasant to see the current value of your bonds drop. But if you’re not selling them before they mature, and you take advantage of the opportunities afforded by higher yields, you’ll find that owning bonds can still be a valuable part of your investment strategy.