Going Broke Safely!!!

Every day we hear, see, read something generated by the Wall Street bullies attempting, many times successfully, to stir our emotions and move our money. The predictions keep coming, ie, ‘the market will crash’ ‘interest rates will soar and bonds will be devastated’ ‘equities are dead’ ……..Each of these predictors has a solution or product to protect you. These predictors might say:

  • Seek the safety of cash or CDs or market time.
    Federal Reserve Bank of NY, 33 Liberty Street
    Federal Reserve Bank of NY, 33 Liberty Street (Photo credit: Wikipedia)
  • Buy fixed annuities.
  • Buy gold or the next ‘hot commodity’.

These are great examples of people making an emotional decision during short term volatility.

The historic “Risk Free Rate” is about 4%.  The risk free rate is the historic return on government guaranteed T-bills.  Think of them as the CDs issued by Uncle Sam.  They have a very low return but virtually no volatility.  They seem like a sure thing, but after inflation and taxes, the only thing that’s for certain is long term losses of your purchasing power.

Short term gain for long term pain.

There has been abundance of brokers/agent and ads for annuities touting the ‘guaranteed’ income for life. Or enjoy a secure retirement without worrying about the market. What they don’t tell you is that in order to receive the ‘guaranteed’ rate net of fees you will earn nothing more than the guaranteed rate. This income, net of inflation and taxes, will guarantee that your purchasing power will decrease.

It’s the safest way to go broke.

In addition, you give complete control of YOUR money to the insurance company in exchange for a monthly income for life. Do you recall the TV ads on structured settlements or annuities? The ad promises to buy your structured settlement or annuity because you ‘want your money NOW’. Do you think this company will do this for free? In fact, you will pay a substantial penalty for this service.

Finally, these products pay the broker a 5 to 8 to 10% commission.  When you consider all the fees you pay, you will not keep up with the inflation.

The insurance company and the broker/agent wins and you lose.

Last year at this time the bullies were predicting a market crash and to save your investments you need to buy gold. Well since then gold dropped nearly 30% and the S&P 500 gained 30%. How many 60% oops can your portfolio withstand? Of course, this may reverse at any time.

We must ignore the short term volatility, because there will be bad markets in the future, that is undeniable. The problem is no one can tell you when they will occur. If they could predict crashes, why would they tell you? There are tools on the market to make huge returns when the market crashes.

We should realize there is no free lunch. Risk is risk, live with it. We might look at this as an opportunity to rebalance our portfolio.

Buy low and sell high.

Remember, free markets work, capitalism while not perfect works.  There will be bad markets in the future but they always recover. Of course, past performance is no indication of future results. I believe if we build prudent portfolios at YOUR level of risk and remain disciplined we will succeed long term.

Because hopefully, you will be retired for a very long time.

To succeed, fire your broker/agent and hire an investor coach.

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