In the last article we shared with you the problems with typical risk reduction models. Today we are going to talk about a better model, a model that achieves greater balance and stability and better results for YOUR money!
If your investment model were a chair, you’d want it to sit on a stable foundation, have several sturdy legs, and a seat that would support you. Let’s start from the ground up:
The Foundation: Your chair needs to sit on something! What should your foundation be? Virtually all advisors will tell you that you should have an emergency fund (even before investing), and savvy investors won’t neglect the need to protect their assets and their loved ones.
Unfortunately, typical savings solutions are lacking, often producing only a fraction of a percentage point in interest. And when it comes to protection, often financial professionals recommend cheap term life insurance that’s designed to expire before you need it 99% of the time—like a product warranty that never gets used! (But you’ll have more to invest on “their” products with systemic risk.)
We recommend (and use!) whole life insurance as our financial foundation because it provides
- long-term cash growth that outpaces bank rates and inflation
- exceptional security (banks use it as part of their Tier One assets)
- excellent financial flexibility (including the ability to withdraw or leverage against your cash for emergencies and opportunities)
- an incentive to save consistently
- opportunities for long-term care riders and other benefits that can supplement when medical needs arise,
- plus a guaranteed, permanent, death benefit that transfers (usually) tax-free to heirs.
The Investment Legs: A stable chair or stool has four legs. (Three to six will also work, as you’ll start with fewer and build towards more.) Our favorite four legs that many of our clients have included:
- Steady Growth Vehicles. While many people look to stocks for growth, the big problem with stocks is the roller coaster ride of the stock market. We want our clients to invest in a growth vehicle that will grow steadily regardless of the economy, the market, or other changing factors.
Life Settlements are an excellent choice for steady growth vehicles. They represent the secondary market for life insurance policies, which can be bought and sold much like a deed of trust to a property. They rely on actuarial math rather than speculation and have proven to be immune to market swings, housing crashes, low-interest rates and virtually every kind of economic downturns.
- Private Lending. Many investors make the mistake of focusing on accumulation but ignoring cash flow until they try to retire or cut back at work, only to realize that they don’t know how to turn their assets into income!
The oldest and most reliable investment model for generating cash flow is private lending. This can include real estate bridge loans, fractionalized real estate investments, peer lending strategies such as Prosper.com and LendingClub.com, land leases, and more.
- Real Estate. Including investment real estate such as rental homes, apartments, or commercial real estate. Investment real estate can (and should) produce cash flow, while also allowing you to build liquidity or equity, perhaps even enjoy the property yourself seasonally. Real estate can also offer potential tax benefits of such as mortgage interest write-offs, depreciation deductions, and shielding growth from capital gains taxes (in certain circumstances and up to certain limits).
- Business Investments. Putting your own expertise to work creating your own source of income is a fabulous way to diversify! While perhaps not for everyone, many more people have obtained wealth through business ventures than through working a job and making typical investments.
Many of our clients will also have:
- A Stock Portfolio. Many of our clients come to us with mutual funds and a stock portfolio already. Although we would never recommend the majority of your assets to be in the stock market, there can definitely be a place for equities.
Stocks, mutual funds, indexed funds, and ETFs, etc. are also assets that many young investors will get started with due to the ease of investing when you don’t have lump sums required for some other investments. Low-cost options such as Vanguard make it simple to start investing as little as $50/month after you have established your emergency/opportunity fund.
The Seat. A chair is not a chair without a seat! The seat represents cash flow because cash flow is what supports you and your life—literally! While private lending is especially focused on cash flow, there are ways to convert every leg as well as the chair’s foundation into cash flow that will support you and your life long-term.
The key to generating maximum cash flow is to sequence how you use or liquidate your assets. You can often enjoy greater cash flow—and fewer taxes—by changing your disbursement strategy. But don’t wait to create cash flow—generating income builds confidence and expands your life options.
Get the Facts, Explore Your Options
We are experts in helping you build wealth without Wall Street risk – call us today at 574-234-1980 or contact us at NeeserInsurance.com.
