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... funds can also be used in conjunction with other mutual funds that we will discuss later. Money can be profitably stored in a money-market fund while the investor considers other investment opportunities. In times of economic uncertainty or to take advantage of high interest rates, investors can use the money-market fund as a place to put their nest egg until other investment vehicles become more attractive. Money-market fund managers invest in Treasury or other government securities, short-term bank deposits, or commercial paper. Investors might get a better rate of return at a bank or savings and loan by buying a certificate of deposit, but they would not be able to withdraw their money at any time, as they can with money-market funds. Money-market funds let investors get the certificate of deposit rates they want without losing immediate access to their ... financial planning in order to best serve their clients. Agents would also be well-advised to check their Errors & Omissions coverage before embarking on any such venture. THE PRODUCT Just as there are a multitude of investment opportunities, so are there a wide variety of mutual funds. While a particular organization may offer dozens of mutual funds, there are basically four different types: money-market funds, stock funds, bond funds, and specialty funds. These categories offer investment opportunities designed to meet the goals of virtually every investor, from the most aggressive to the most conservative. When looking at these types of mutual funds, it is important to recognize that many are difficult to classify. There is no sharp delineation between some types of funds. Within the category of stock mutual funds, there are additional distinctions ...

...ife Insurance Selling magazine. Because of his love for the theatre, he identi... the saga of how the Life insurance industry has changed since the 1980s — and...

...al fund encompasses much more than just one type of investment. A mutual fund...' or 'no-load.' The low-load fund will usually have a sales charge of 2% to 4%...

... undertaking but in today's tumultuous economy, it sometimes seems like an imp...isks. If your employer does go out of business, the Pension Benefit Guaranty C...

...change, the reconfiguration of the business landscape, and globalization, U.S....and you'll enjoy a steady flow of new business.

...ason is that buyers and sellers are using “average agency value” or “fair mar...nd goals regardless of the price. CONCLUSION Buying, selling, or merging an agency is a huge undertaking. Usually, the goal is to make a profit, ...

...-deferred interest for investors, plus Life insurance. In some cases, interest...-Premium Whole Life policy with the bonus then, although there is tax on the bonus, the cash value of the policy will g...

... existing portfolio with lower average earnings from investments made in calmer times. The difference can be dramatic. Imagine having $10 million of premium income to invest with two possibilities: a new portfolio of policies and no existing investment pool backing those new policies, and an existing block of business with an average return of bonds (some dating back to the 1940s) of 6% . With U.S. Treasury Bonds yielding 14% in the early 80s, that $10 million would generate a pure 14% return each year for the next 30 years. True, the older portfolio of bonds would have an incremental increase in yield due to the new $10 million receiving new money' returns, but the portfolio rate couldn't jump immediately to the 14% level. In this environment, Universal Life ... portfolio consisting of mostly new money' would perform better than money simply blended into an existing portfolio with lower average earnings from investments made in calmer times. The difference can be dramatic. Imagine having $10 million of premium income to invest with two possibilities: a new portfolio of policies and no existing investment pool backing those new policies, and an existing block of business with an average return of bonds (some dating back to the 1940s) of 6% . With U.S. Treasury Bonds yielding 14% in the early 80s, that $10 million would generate a pure 14% return each year for the next 30 years. True, the older portfolio of bonds would have an incremental increase in yield due to the new $10 million receiving new money' returns, but the portfolio ...

... , the lower the P/E ratio. 2. Capitalization Rate Model The capitalization method is more accurate because more public information is available. The capitalization rate is similar to the return on investment (ROI) that an investor would demand if buying the agency. It consists of the risk-free rate and the risk rate for independent insurance agencies. The risk-free rate is the rate on U.S. Government Treasury Bonds of proper duration. Currently, the risk-free rate is approximately 6.3%; for independent insurance agencies, it's usually another 9 to 19 points, for a total capitalization rate of 15% to 25% . Divide the pro forma cash flows by the capitalization rate to calculate the agency's value. The riskier the agency, the higher the capitalization rate. 3. Discounted Cash Flow (DCF ... The DCF method is the third and best method. In fact, for buyers, it's the only method to use because it allows using different pro forma cash flows each year. For instance, in Year One, the pro forma cash flow might be $200,000, but in Year Two it could be $250,000. As we all know, cash flows vary from year to year, and it's important to use a valuation method that acknowledges this. Also, DCF is the only method that totally captures the time value of money. With these two advantages, it's by far the more accurate method. The drawback is its complexity. I'd recommend using a financial calculator or spreadsheet such as Lotus or Excel for this kind of calculation. Many people calculate the agency's book ...