CarsonAllaria Wealth Management
Partner | Wealth Advisor
Joe is a CERTIFIED FINANCIAL PLANNER™ professional who works to help clients plan for a state of complete financial fulfillment. He and his team build long-lasting relationships with their clients and collaborate with them and the other financial professionals they work with to help create a cohesive financial plan.
Joe has been featured in The Wall Street Journal, on Yahoo Finance, USAToday.com, Nasdaq.com, Christian Science Monitor and NerdWallet. Joe has a Masters of Business Administration from Southern Illinois University Edwardsville and a Bachelor’s Degree in Marketing from Southern Illinois University Carbondale and a . He holds a Life & Health Insurance License and a Series 65 Securities License.
Joe works primarily with individuals and families at or nearing retirement, and highly successful "up-and-comers" in the medical, legal, and sales industries.
Joe was born and raised in Edwardsville, Illinois and lives with his wife, Jacki and son Brooks. Joe, Jacki, and Brooks are members of Enjoy Church and Matthew Allaria Ministries (led by Joe’s brother, Matthew). His family enjoys travel, golf, playing music and spending time with family and friends.
BS, Marketing, Southern Illinois University Carbondale
MBA, Southern Illinois University Edwardsville
Assets Under Management:
Investing involves the risk of loss and investors should be prepared to bear potential losses. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. Therefore, it should not be assumed that future performance of any specific security, investment product or investment strategy referenced in the Article, either directly or indirectly, will be profitable or equal to the corresponding indicated performance level(s). No portion of any question or article shall be construed as a solicitation to buy or sell any specific security or investment product or to engage in any particular investment strategy. In addition, all articles shall not constitute the provision of personalized investment, tax or legal advice, and investors shall not assume any article serves as a substitute for personalized individual advice. Information contained in all articles may have been derived from third-party sources that CarsonAllaria Wealth Management believes to be reliable; however CarsonAllaria Wealth Management does not control such information and does not guarantee the accuracy or timeliness of such information and disclaims all liability for damages resulting from such sources. Links or references to third-party websites are provided as a convenience and do not constitute an endorsement by CarsonAllaria Wealth Management, and the Firm is not responsible for the content of any such websites. Any reference to a market index is included for illustrative purposes only, as it is not possible to directly invest in an index. Indices are unmanaged, hypothetical vehicles that serve as market indicators and do not account for the deduction of management fees or transaction costs generally associated with investable products, which otherwise have the effect of reducing the performance of an actual investment portfolio.
Joe Allaria_Investopedia profile video
This is a great question. In fact, because of how complex indexed universal life policies can be, I've even heard this question asked by other advisors. If I may, I'd like to give my true and honest assessment of indexed universal life policies.
Indexed Universal life (IULs) are a type of universal life policy. The universal portion means that premiums are flexible and the components of the life insurance policy (death benefit, savings element and premium) can be altered throughout the contract. Universal policies are also permanent insurance policies, like a whole life policy, although there are some major differences between universal life and whole life. One difference lies in the flexibility of universal life and the inflexibility of whole life.
Within universal life policies, there is a cash component as well as an insurance component. It is the cash component that makes IULs differ from VULs (Variable Universal life) and ULs (Universal life). The cash bucket inside of a indexed universal life policy grows as a result of index performance (and the indexes are usually selected by the client or advisor each year). The indexes will usually reflect broad market indexes like the S&P 500, DJIA, etc. This all seems pretty simple.
HOWEVER, the complex part kicks in when you start to study how the "interest" or "cash growth" is calculated on these policies. To truly understand this will require you to either spend ample time studying the policy you are considering purchasing inside and out or have an enormous amount of trust in the person recommending it. However, even if you trust your advisor, I would advise you to do the studying yourself. The reason is that these products all work differently and even advisors with the best intentions can overlook how these work. Let me provide some examples of what I'm talking about.
Let's say you select the S&P 500 index for your cash bucket. Your advisor tells you that you can experience the upside of the S&P 500 without any downside. That kind of sounds too good to be true. Well, it is. That's because these indexes will either have a cap on the upside earnings or a participation rate. A cap is straight forward. The S&P 500 index may have a cap of 4%. So your max upside is not what the S&P earns, it's 4%, and the downside is still 0%. If you have a participation rate instead of a cap, and the participation rate is 50%, you will earn 1/2 of what the S&P 500 gets. So, if the S&P earns 8%, you get 4%, with a downside of 0%.
Another point to consider is that the S&P 500, as used in our example, also derives some of its total return from dividend yield. So, if the S&P appreciates 4% and has a 2% dividend yield, then the total return will be 6% - BUT, this is likely not the case in an IUL since dividends are typically not part of the growth calculation.
If you study these products further, you'll also notice the phrase "point to point." This refers to the time frame that an index is evaluated. For example, staying with our S&P 500 index, let's assume you've selected the S&P 500 Annual point to point. This means that in order to calculate the interest earned, the life insurance company will evaluate the price of the S&P 500 on the day the policy becomes in force and will not apply interest until the index is re-evaluated one year later. If the index is higher, you'll get credited interest. If not, you won't. If it was higher a day before but took a brief momentary dip, you won't see any interest credited for another whole year, which negates the benefits of compound interest.
Since this has turned into a long-winded response already, let me just say these final thoughts:
1. Understand how the indexes work. Ask a lot of questions. Ask if you can choose your issue date. Know your best and worst case scenario.
2. Make sure that the illustrations that are shown to you reflect a realistic rate of return. If you the illustrations you are looking at assume a 7% annual rate of return, you need to ask them to re-run at something more conservative. Is it possible to get 7% on average over a long period of time? Yes. BUT, that is without caps and participation rates involved. To be safe and to make sure your policy does not lapse, I would suggest projecting a more conservative return (like 4%).
3. Explore other alternatives to IULs. GUL (Guaranteed Universal Life) policies, for example, are incredibly straight forward and are backed by a guarantee from the insurance company. That leaves little room for misunderstandings or misleading life insurance illustrations. UL policies are also easier to understand in my opinion. This doesn't mean GULs and ULs are better the IULs, but it means if you're unfamiliar with how IULs work, you should either do your homework or consider choosing a different policy type.
Joe Allaria, CFP®
Thanks for the question. Here are a few things to consider.
- Instant diversification: A mutual fund will provide you with a "basket of stocks" that will provide diversification in your portfolio.
- Effective for smaller accounts: Since a mutual fund provides exposure to hundreds or thousands of stocks, you don't need to go out and buy hundreds or thousands of stocks on your own, which could be very prohibitive for you if you have a smaller-sized investment account and limited capital to invest with.
- Professional money management: Mutual funds are run by investment managers who would likely be considered "experts" in their field. Mutual fund companies have resources that are above and beyond what one may have as an individual, retail investor.
- No intraday-trading on mutual funds: If you want to make a trade on your mutual fund, you'll likely not know what the "NAV" price will be when you lock in the trade. That is because the NAV (Net Asset Value) is settled at the end of each trading day. If you don't lock your trade in before the end of the stock market close, you'll receive the NAV as of the close of business the following day. This makes it difficult and/or impossible to capitalize on sudden movements in the market (if that is something you're trying to do).
- Not tax-efficient: In a non IRA account, mutual funds will process capital gain distributions about once per year, which you will then be taxed on, even if you did not take any capital gains that year. The end investor has little impact or say on how much a fund will decide to spit out in capital gain distributions. The funds have the freedom to delay capital gain distributions in some years, essentially kicking the can down the road for later years. This could adversely impact you as the end investor.
- Subject to the herd: If you are a disciplined investor and you know not to "buy high" and "sell low," then you won't panic when volatility occurs in the marketplace. However, when investing in a large mutual fund, chances are that many of your fellow investors will not have the same discipline. They will sell at a low point, causing the fund to sell positions in order to account for the redemption requests. In other words, your performance may suffer because of the lack of discipline of other investors that also own the same fund.
- Impersonal connection: When investing in a mutual fund, you do not usually have easy access to the one making the investment decisions. There may be quarterly investor calls and updates, but there will be a significant lack of interpersonal communication with the main folks in charge of the fund.
- Costs: Mutual funds always carry some kind of costs. In all cases, costs will decrease your overall rate of return. That is why it is important to limit the annual expenses of mutual funds, the potential front-end or back-end loads, and turnover costs. It takes more than a novice investor to navigate these issues, but this is one of the most important downsides to using mutual funds and thus, should certainly be evaluated and address by all investors.
Please indicate if this answer was helpful for you!
Joe Allaria, CFP®
The explanation provided here by Investopedia is well-stated. However, in more simple terms, the NAV is simply the price per share of the fund. Similarly to how stocks have a stock price, mutual funds have an NAV (net asset value). So, if you want to purchase one share of a mutual fund, you will purchase at the NAV. One difference between a mutual fund NAV and stock price is that the NAV will not change throughout the day like a stock price will. The NAV is updated at the end of each trading day. So, when you purchase a mutual fund at a listed NAV price, that listed price is actually the price as of yesterday's close. Therefore, your purchase will be based on the updated NAV at the end of the CURRENT trading day. Because of this, you may not know the exact NAV when you buy or sell shares.
It's important to know this because, for example, if you want to buy $10,000 worth of mutual fund ABCDX, and the NAV as of yesterday's close was $100, that would mean you purchase 100 shares. However, if the NAV increases drastically on the day you made your purchase, you would actually be purchasing more than the 10,000 you originally planned. For this reason, you can also buy or sell in "$" instead of "shares." This will help prevent that issue.
I hope this additional information was helpful for you, and good luck!
Joe Allaria, CFP®
Wow. This is a tough question to answer due to its very broad range of response material. But, let me list out a few things that I think might be helpful to you on this journey.
1. What is your overall knowledge level of stocks and the stock market? Before taking any action, I would recommend learning as much as you can on these topics. The best course of action would be to take some actual investment classes offered through an accredited program. I met a man once that took classes to obtain the ChFC (Chartered Financial Consultant) designation just to learn more about how to manage his own money. I think this would be the most ideal way to learn more aside from becoming securities licensed yourself. The American College is where I took many of the required courses my CERTIFIED FINANCIAL PLANNER™ designation.
2. As you do your own research, I would also encourage you to learn as much as you can about different investment philosophies (and there are lots of those out there). Learn why some prefer active management vs. passive management, why some like ETFs more than mutual funds, or individual stocks more than ETFs. Understand why some investors focus more on "mainstream" companies while others allocate more of their portfolio toward alternative investments. In other words, before you choose a strategy, you need to know what all of your options are.
3. Do a test run. It's hard to be patient when you have the itch to start investing money, but patience will be a major key of investing success. Start to map out a plan and track the performance of that plan. If you've done a good job in steps #1 and #2, you should hopefully have developed a fundamental investment approach that uses investment staples like diversification and cost reduction, but before you go all in, monitor how the day to day fluctuations would affect your bottom line. If you can't handle the volatility, you need to create a new strategy.
4. Consider hiring an advisor. Advisors come in all shapes and sizes in terms of investment philosophy and firm structure. Some advisors will give hourly advice to the "Do it yourself" type of investor. So, you don't HAVE to hire them full time in order to get your answers. Another option would be hiring them temporarily and trying to learn the ropes for a few years before trying it on your own. However, I will say that the world of investing is ever-changing and I personally believe that you should feel very confident and knowledgeable before making the decision to try and go at this alone. There is a lot to learn when it comes to buying stocks - so much so that many books have been written on the subject. Working with an advisor is a way to get the "cliff notes" version of many of these books in a shorter amount of time.
5. Know your limits. Look, if you know this isn't your cup of tea, then recognize that and don't dig yourself a hole. If you're wanting to buy stocks for entertainment, then perhaps you can open up a small stock account and commit the funds to "entertainment," understanding that you might win or might lose money, but either way, it won't derail your future. However, if this is something you want to have a significant impact in your life, then you'll have to make a significant investment into learning AND monitoring what goes on in the market. This is why many people choose not to do this on their own. The ones that do have the time, energy, and willingness to do the above-listed "leg work."
I'll close with "if it sounds too good to be true, then it probably is." I see stock recommendations all the time from various publications touting the "top reasons this stock will quadruple in the next 5 years". The truth is, most of the publications offering this kind of advice do not have your best interest at heart. They have their own interests in mind. So, don't blindly follow the next stock tip you see. Gain the knowledge to be able to evaluate investments on your own so that you can make an informed decision!
Good luck to you!
Joe Allaria, CFP®
A survivor spouse can receive the higher of the two previous benefits after the first spouse passes. So, if your husband's benefit was higher than yours, then you can begin to receive the amount he was receiving, but your benefit will go away. If your benefit was greater, than you will continue to receive your own benefit, and his would go away completely.
Please indicate if this answer was helpful for you! Good luck to you.
Joe Allaria, CFP®