Protecting your Assets
These products are the financial building blocks of any good financial map! If you are going to accelerate the pay-off of debt in your portfolio, this is definitely the place you want to start. Savings is the catalyst to any good financial plan!
Saving takes discipline and the ability to visualize the impact of future actions. When paying off debt, there is an important principle to consider; we should invest in things that have similar risks to the things we are paying off. Investing money in the market, only to find out when we are ready to pay-off the debt that the market is down extending our pay-off for a number of years, is frustrating and deflating.
There is nothing "flashy" about the products and services found in this section. They are not likely to produce double-digit returns,. However, predictable returns can motivate us to consistently save.
These habits can help us to balance our budget, establish emergency savings, pay-off our debt, and build a stable financial base. Learning to save and paying off our debt are critical skill sets we must have to become financially self-reliant!
"The only real security a man can have in this world is a reserve of knowledge, experience, and ability."
Basic Banking Services!
Your bank should work for you! Most have checking, savings, photo deposit, debit/ credit cards, and bill‑pay to make your life easier.
Low Interest for the Foreseeable Future:
Many people believe we are temporarily in a low‑interest rate environment... low rates are here to stay! Compounding our interest by budgeting and paying off ou debt can help us to maximize our interest without maximizing our risk!
Short‑term Operating Cash!
We all need money for paying bills, entertainment, short trips, etc... The bank/credit unions are a great place to put operating cash!
Show Me the Money!
Most banks reserve less then 3% of you capital and they rely on the FDIC to protect the rest!
How much is Insured?
The FDIC raised the insurance amount from $100,000 per account to $250,000, but what does this really mean? Raising the amount of protection reduced the FDIC’s ability to protect our funds by two thirds.
How safe is the Bank?
Banks are required to provide FDIC insurance for their accounts, but you should understand the real protection this offers you! The FDIC can only protect a fraction of the funds on deposit. You should keep your long-term savings elsewhere to protect and secure it properly.
Understanding your Bank:
The FDIC: Know the Facts!
If the FDIC knew they were insolvent in 2008 and 2009, why did they raise the FDIC limits? To restore our faith in the system? To make us feel good? Whatever the reason, it kept us from panicking.
The FDIC has a longstanding approval from the US Government to extend them a 500 billion dollar line of credit! So, they are backed by the full faith and credit of the US government.
While it may be true that the FDIC is just ONE medium bank away from collapse, don't panic! Find someone you trust to help you plan for the future!
We must learn from the past and adapt. Don't wait until you are forced to make a different decision, get some options today... and take control of your future!
Compound Interest (Getting interest on your interest)
Albert Einstein said compound interest was the 8th wonder of the world! Compound interest is a very powerful but often underutilized tool! In the model below, you can see the dramatic difference between simple and compound interest, based on a 12% rate of return or savings rate.
How does Compound Interest work?
Today, the " new normal" even when inflation is low, it is generally higher than deposit and savings rates. In order to keep up with inflation, we need to put our money to work. In order to outpace inflation, we need to start saving early and we need to systematically eliminate our debt, so add these payments to our retirement "nest egg."
How do Annuities Work?
There are several different types of annuities! These savings instruments are offered by insurance companies and are sold by some banks! Annuities are a great way to increase your rate of return and improve liquidity, especially with lower interest rates. Annuities today are paying up to 15 times more than general savings accounts and several times what CDs are currently paying.
(SPIA) Single Premium Immediate Annuity:
These annuities provide a steady income stream for someone who is looking to invest a lump sum of money. SPIAs can pay income to one or more parties or a surviving spouse, and the income stream can even be paid out for a specific term 10 yrs, 20 yrs, or for life.
This annuity pays a fixed rate of interest for a specified period of time (5, 10, 20, or 30 yrs), and the interest is generally deferred until you start taking interest payments. Most of the time, interest can be deferred until 70 1/2 when the IRS requires we take required minimum distributions during retirement.
Fixed Indexed Annuity
This type of annuity is classified as a fixed annuity because there is no risk of loss. While these annuities are attached to market indexes for growth, most insurance companies allow you to choose from multiple indices (S&P 500, Dow Jones, NASDAQ, Russell 2000, Hang Seng, Etc…) without investing directly in the market. The insurance company tracks the growth of the index for particular points chosen by the client (annually, monthly, etc…). If the chosen index loses value during the interest period chosen, no interest is credited for that period. This is how they eliminate the risk of loss. If the index increases in value during the time period chosen, you get either a percentage of the gain or a fixed cap based on your index grows. Once your gain is posted, it is locked in and the future value of the annuity increases. Most indexed annuities have fixed rate guarantees to protect against multiple years of index losses, even though this has never happened. These annuities also have liquidity features and surrender penalties based on the choices you’ve made. Most allow a 10% penalty free withdrawal annually and some have cumulative withdrawals up to 50% of the account value (increasing by 10% a year if no withdrawals are made for up to 5 years). Most indexed annuities accumulate 4 to 7 times what a CD would pay in interest and between 10 to 20 times the current savings account rates, and the interest made is deferred until withdrawals are taken from the annuity. Annuities can be incredible tools for providing guaranteed income in retirement, if the proper annuity is selected. However, income guarantees should never be confused with interest rate guarantees. Talk to an annuity professional for specific planning opportunities and strategies.
This type of annuity is linked directly to the market and IS subject to market losses like stocks and mutual funds. These annuities are used sometimes in place of market-correlated investments. However, at times, financial representatives may highlight the guaranteed income aspects of these annuities and this is often confused for a fixed interest rate guarantee. This is NOT the case; annuities are subject to market losses and gains, and they DO NOT have guaranteed interest provisions! This type of annuity is not safe and can be illiquid based on the current market value of the account. If you or someone you know is considering this type of annuity, please talk to a professional you trust before signing.
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