Where to Put IRA/401k Money in Today’s Economy

As an insurance professional, I come across many retired folks and people who are hoping to retire one day. They have accumulated some money during their lifetime, and they just don’t know where to put it that will allow them to get a good return without the risks of an up and down stock market.

In spite of extremely low interest rates, many have turned to fixed interest vehicles like CDs, money markets, and fixed interest annuities because they are afraid to lose their money. The problem is that their money is losing purchasing power. Every year that they earn less than the inflation rate they are falling further behind. When that loss is compounded year after year it takes a heavy toll. Some people turn to bonds or bond mutual funds. High-grade bonds and bond funds tend to pay a slightly higher rate of return than the previously mentioned savings vehicles, but there is more risk – especially if one is purchasing low-grade bonds where the risk of default is higher.

Like the previously mentioned savings vehicles, high-grade bonds can also have trouble keeping up with inflation. In addition, they introduce another risk—new bonds are issued with a fixed interest rate at a price of $1,000. If interest rates rise and newly issued bonds are paying a higher interest rates, the value of the lower interest paying bonds goes down. Think about this. If you had bought a bond for $1,000, and it was paying 3% interest, would anyone pay you $1,000 for that bond if they could buy a bond for $1,000 that is paying 4% interest? Will interest rates rise in the future? There is an obvious risk of loss of principle with bonds.

Some people still turn to stocks and stock mutual funds with the hope of getting a good return. The problem is that the market tends to go down as well as up, and it can be difficult to recoup money once it is lost.If the market had a 50% loss one year and then a 50% gain the next, your average return would be 0% but would you be back where you started? The answer is no; if you had $100,000 and lost 50% you would be down to $50,000, if you then gained 50% you would only be up to $75,000. The stock market has not been kind of late; from the beginning of 2001 to the end of 2011 the S&P 500 returned an effective interest rate of 0.92% and the S&P 500 historically outperforms 85% of all mutual funds.

So how can people get a reasonable rate of return without taking market risk on their IRA/401K funds? I believe the answer is “indexing.” With an indexed annuity the insurance company leverages your money to get you the best return it can without taking on market risk. Think about this – if an insurance company knew they could guarantee about a 3% return on their fixed investment portfolio, they could put about 97% of your funds in that portfolio and guarantee it would grow back to 100% by the end of the year. That would allow them to use the other 3% of the funds to try to get as high a return as possible. Historically, stock market index options such as the S&P 500, the Dow Jones, the Euro 50, etc. have been used to accomplish this goal. The insurance industry is now really getting creative by using indexes like the Trader Vick index (TVI) to maximize growth. The TVI is based on commodities like gold, silver, livestock, grains, and energy.

Using the Trader Vick index has many advantages:

• Inflation – In the last 4 years the US money supply has gone from $800 billion to $3 trillion. That’s an increase of 300% in 4 years. The laws of supply and demand dictate that the US dollar must become less valuable. A less valuable dollar is the same thing as inflation. It takes more money to buy the same amount of goods and services. While this can be bad news for the consumer on one hand, it is good news for those who are holding commodities as part of their investment portfolio. If the price of goods and services goes up, so does the price of the commodities they are holding, which equals profit for their portfolio.

• National Debt – Our monster national debt can only be solved two ways. One – by spending less as a government. (Yeah, how’s that going?) And two – by taxing more. Higher taxes take money out of the pockets of businesses (making them less profitable), which is bad for companies, and therefore bad for stock market returns. However, as far as commodities go, this generally doesn’t affect the price of goods and services. This decouples and diversifies a client’s portfolio from just looking to the stock market for gains.

• Population – This reason is simple, significant, and often overlooked. The population on the planet is growing exponentially – topping 7 billion people in 2012 (up from 2 billion in 1940, 3 billion in 1960, and 4 billion in 1980). This exponential growth in population places a huge and growing demand on physical commodities like corn, wheat, gold, oil, etc. Not only does this place a greater demand on these goods but it also decreases the available land to grow and produce these commodities. This creates a double whammy—exponential growth in demand and less land to produce the goods. Again, the law of supply and demand dictates that both of these factors must translate into higher prices for physical commodities—which is good for the TVI.

• Flexibility – Even though it’s likely that there will be a long-term bull market in physical commodities, commodity prices are still cyclical. Prices go up and down just like you see at the gas pump. What’s great about the TVI is that it’s a long/short index, meaning that those participating in the index can make money when the index is going both up and down, unlike stock indexes that only make money when the stock market is going up.

• A safe way to invest in commodities – Whoever heard of a safe way to invest in commodities? No one. It’s never been possible—until now! Let me show you a way to grow your portfolio when the commodity market goes up with a GUARANTEE to never lose money if the commodity market moves against you. This is unheard of! This is a game-changer!

• Diversity – Now consumers have the opportunity for true diversity. No longer do they have to hitch their retirement dollars solely to the stock market wagon. Now they can blend their returns between both the stock market and the commodity market. Most indexed annuities do not offer any kind of diversity. They simply offer different stock indexes. Global stock indexes are still stock indexes, providing zero diversity if we have a global crisis like we saw in 2008 and 2009. However, the TVI often performs the best when the stock market is plummeting. So for the first time ever consumers have the real opportunity to diversify their portfolio.

• Uncapped Index – Because of the nature of the TVI, insurers can offer consumers an uncapped index, which is different than the usual stock indexes that are generally capped. A consumer can now have a protected downside (zero market risk) and yet have an unlimited upside (with no limit to profit potential), THAT IS the best of both worlds and ONLY available with the TVI.

• The TVI has had positive gains in 18 of the last 20 years.

• Annuities with a TVI option generally offer a premium bonus and an income rider, which can effectively enhance a person’s income during their retirement years.

People work very hard during their lifetime. If they don’t have their money working just as hard for them, they are shortchanging themselves and their retirement plans. The truth is that people don’t have to take on investment risk to get a decent return on their IRA/401K funds. I urge you to look into what a TVI Index Annuity can do for you!

Frank Guida is a financial advisor located in Whitehall, Pennsylvania. To contact Frank, visit his website at www.ABetterWayFinancial.com or call his office at (610) 440-1700.