Cashing in Whole Life Insurance, Dividend Stocks and Deere vs. Caterpillar

Question:

I just learned that my Dad has a whole life insurance in my name, and now that I am 21, I am in full control of it. Is it proper financial strategy to cash out of the Whole life insurance now (about $9,300) and invest it? If yes, how do I invest it?

Answer:

Since we do not know the health of this individual, we are assuming there is no need for life insurance at this time. We first suggest having the policy reviewed by an insurance adviser to determine the annual cash value growth, tax deferred. Depending on how old the policy is, it could be 3%-3.5%.

It is probably wise to take the cash value and invest it. However, if you want the insurance coverage and you are still insurable, we suggest that you buy term life insurance and invest the difference. At 21, it is often best to get the cash. If it does not exceed the amount of the premium paid, it should come to you tax free. We suggest investing for growth.

As he does not have enough to properly diversify in stocks, we suggest taking 40% to 50% in an index fund. We recommend the Vanguard Total Stock Market Index (VTSMX). Next, we suggest a 20-20-10 mix of Mid-Cap, Small-Cap and International funds. We like ASTON/Fairpointe Mid Cap (CHTTX), Nicholas Limited Edition N (NNLEX) and Manning & Napier World Opportunities (EXWAX), respectively.

Question:

My 80-year-old mother’s portfolio consists of about 1,500 acres of timber land and $750,000 cash (CD’s).  She is frustrated with the low CD rates, and has agreed to put some of the cash to work in several dividend paying stocks. She is in great health with a history of longevity in her family so I expect her to live to at least age 100.  Which stocks would you suggest?

Answer:

There are a lot of great income stocks we recommend:

  • Altria Group, Inc. (NYSE: MO) is a spinoff from Phillip Morris, and pays a 5.51% dividend yield;
  • TOTAL S.A. ADR (NYSE: TOT), a French oil concern that we find safe, pays 6.93% dividend yield;
  • GlaxoSmithKline plc ADR (NYSE: GSK) pays 4.88% dividend yield;
  • CenturyLink, Inc. (NYSE: CTL) pays a 7.51% dividend yield, but it is not as solid as our other recommendations;
  • Verizon Communications Inc. (NYSE: VZ) pays 4.89% dividend yield, and
  • General Electric Company (NYSE: GE) pays 4% dividend yield. It is a growing dividend, as it will get an extra dividend from GE Capital division, so it could grow to 4.5% to 5%. You may also experience some capital appreciation with GE.

Note we did not recommend taking your fixed income securities to invest in dividend paying stocks. These recommendations are for her long-term money. While she had probably owned this timber land for some time, we see many Master Limited Partnerships (MLP) coming out with timber funds. While MLPs pay a healthy income, investors need to remember some of that income is coming back to you in the form of your capital. It really isn’t a 9% performing asset, as half of the “dividend” is your own money.

Question:

What is your opinion on Deere & Company (NYSE: DE)? How does it stack up against Caterpillar, Inc. (NYSE: CAT)? I’m leaning toward Deere.

Answer:

We feel Deere is a solid company. Caterpillar does not have as much exposure to farm equipment as Deere, but the two companies do go head-to-head in the construction equipment arena. We feel Deere should be a good play to take advantage of a boom in agriculture and infrastructure building abroad. Deere also has less debt to total capital. We are not opposed to owning both; however, if you are buying, Deere is our recommendation.

Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing.

Share