Personal Finance Q & A
| NEW YORK
When Insurance Is Worth Keeping
Q My husband and I have two small life-insurance policies. My husband's policy has a basic benefit of $2,618, with a cash value of $1,812. My policy has a benefit of $2,632, with a cash value of $1,508. The cash value of both policies grows very slowly. My policy, for example, increased by $38.39 the past year. Would it be best to take the cash value and invest it to get a better return?
A "If you have no other life insurance, I'd stick with these policies," says Tim Shmidl, a financial planner in Overland Park, Kan.
"Life insurance and investments are totally different financial instruments. With these two policies, the beneficiary would gain over $800 more than the cash value amount. Yes, you could get a greater return by investing in a money fund. But would you still have the money available upon the decease of either spouse? Would you have made up the extra $800? Could you qualify for more insurance if you needed it? Unless you have lots of additional insurance, keep the policies."
Q What's the importance of a beta rating when buying into a mutual fund?
New York City
The beta measures a fund's risk.
It shows you how a specific fund moves in relation to a market index, such as the Standard & Poor's 500 index.
The S&P 500 index has a beta of 1. So a fund with a beta above 1 means the fund has been, and is likely to be, more volatile than the S&P 500. Anything below 1 means the fund has less volatility.
The Fidelity Utilities Fund, for example, has a modest beta of 0.63; not surprisingly, information firm Morningstar Inc. calls the fund "below average" in terms of risk.
The Dean Witter Pacific Growth Fund Class B, which invests in Asia (Oh boy!) has a beta of 1.26. Morningstar recently said it carries "high" risk.
Many conservative investors aim for a low beta. Aggressive investors will overlook, and perhaps even welcome, a higher beta.
But a low beta is not necessarily a virtue. Gold funds, for example, have low betas, often around 0.3 or even less.
But they are also not currently making a whole lot of money. A beta should be but one way of assessing a fund, experts say.
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