Changing Companies? 4 Essential Tips for Enrolling in New Benefits

4 Essential Tips for Enrolling in New Benefits

Transitioning to a new job is a significant life event that comes with its own set of challenges and opportunities. One of the most critical tasks during this period is choosing the right benefits package. Given that most companies have a 30-day enrollment window, it’s essential to make informed decisions quickly. In this article, we’ll guide you through the key tips for enrolling in benefits.

Supplemental Life Insurance: An Affordable Safety Net

Many people overlook supplemental life insurance, but doing so could be a costly mistake. Group life insurance plans are often offered at incredibly affordable rates, thanks to the cost-saving benefit of group purchasing. This makes it an economical choice that barely impacts your monthly budget. While it’s true that these policies are typically not portable—meaning you lose coverage if you leave the job—they provide a layer of financial security for your loved ones at a minimal cost. Don’t consider this type of insurance as a stand-alone solution for your long-term insurance needs, but do recognize its value as an excellent supplementary option.

Long-Term Disability Insurance: Protect Your Income Stream

Long-term disability insurance should be another non-negotiable when enrolling in your company’s benefits plan. It operates on the same cost-effective principle as group life insurance and provides you with a safety net in unfortunate circumstances. Statistically, one in four American workers will utilize long-term disability insurance at some point in their careers. While these plans do have income limits—sometimes capped at $10,000 or $20,000 per month—having some level of protection is better than none. If your annual income significantly surpasses these figures, it’s wise to invest in personal disability coverage to supplement your employer’s plan.

Health Insurance Choices: Why High Deductible Plans Make Sense

Selecting a health insurance plan can be a complex decision. We recommend considering a High Deductible Health Plan (HDHP) if it aligns with your health needs and financial status. These plans come with a Health Savings Account (HSA), which offers unparalleled tax advantages. HDHP plans generally have lower monthly premiums and higher deductibles, allowing you to save money each month. The tax-free growth within the HSA often outweighs the occasional years when you might have to meet a higher deductible.

401(k) Contributions: Your Ticket to a Secure Retirement

While 401(k) plans aren’t usually part of the standard open enrollment package, a job change serves as an opportune moment to reassess your retirement savings strategy. Whether you have a Traditional, Roth, or After-Tax 401(k), this is the time to verify your contribution levels and adjust them to meet your long-term goals. For those with fluctuating incomes, such as 1099 earners and small business owners, the last quarter of the year is perfect for a thorough review of your financial landscape.

Final Thoughts

With open enrollment season just around the corner for many, or the first 30 days ticking away if you’ve recently changed jobs, now is the perfect opportunity to scrutinize your existing insurance coverages and retirement options. Don’t waste this chance; make sure you’re adequately protected and investing wisely for your future. Your financial well-being depends on the choices you make today.

The content on this site, provided by Able Wealth Management, is purely informational. While we aim for accuracy and completeness, we cannot guarantee the exactness of the information presented. The views and analyses expressed in this blog represent those of the authors at Able Wealth Management. They should not be considered as investment advice or endorsement of any particular financial instrument or strategy. Any references to specific securities and their performance are purely informational and should not be taken as advice to buy or sell.Before implementing any information or ideas presented, we strongly advise consulting with a financial advisor, accountant, or legal counsel. Investing carries inherent risks, including potential capital loss. Asset values can fluctuate over time and may be worth more or less than the original investment. Past performance does not guarantee future results, and Able Wealth Management cannot ensure that your financial goals will be achieved. Information from third-party sources has not been independently verified by Able Wealth Management. Although we trust these sources, we cannot assure their accuracy or completeness.

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Volatility Drag

Volatility drag, often unnoticed by many investors, plays a significant role in the performance of investment portfolios, especially in markets characterized by high volatility. Understanding volatility drag is crucial for making informed investment decisions and managing long-term investment performance.

Understanding Volatility Drag

Volatility drag refers to the negative effect of investment volatility on compound returns over time. It occurs because losses have a more significant impact on portfolio value than gains of the same magnitude. For example, if an investment loses 10% one year and gains 10% the next, the investment will not return to its starting value due to the mathematical asymmetry between gains and losses. This phenomenon underscores the importance of minimizing large fluctuations in investment value to protect long-term returns.

The Mathematics Behind Volatility Drag

The mathematical principle underlying volatility drag is relatively straightforward but profound in its implications for investors. The key concept is that percentage gains and losses are not symmetrical. A 50% loss requires a 100% gain to break even, not a 50% gain. This asymmetry means that volatility (up and down movements in price) can erode the compound growth rate of an investment, even if the arithmetic mean of the returns seems healthy.

Example of Volatility Drag

Consider an investment with the following annual returns: +20%, -15%, +10%, and -5%. While the arithmetic mean of these returns might suggest a modest positive performance, the compound annual growth rate (CAGR) would tell a different story, factoring in the volatility drag and showing a lower effective return than the arithmetic mean would suggest.

Implications for Investors

  • Risk Management: Understanding volatility drag emphasizes the importance of risk management strategies, such as diversification and the use of derivatives for hedging, to minimize significant downturns in portfolio value.
  • Investment Strategy: Investors might consider investment strategies that aim for steady, consistent returns over those with potentially higher but more volatile returns. Such strategies might include investing in low-volatility stocks, index funds, or using dollar-cost averaging to mitigate the impact of market fluctuations.
  • Psychological Aspects: Volatility drag also highlights the psychological challenge for investors who may overreact to short-term market movements. A long-term perspective is crucial for successful investing, as frequent trading in response to volatility can exacerbate the drag on returns.
  • Performance Evaluation: When assessing investment performance, considering both the arithmetic mean return and the compound annual growth rate (CAGR) can provide a more comprehensive view of an investment’s performance, factoring in the effect of volatility.

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