Who
would’ve thought the DOW Jones could creep above the 14,000 mark? Does this
mean that we’re out of the woods and that our economic woes are behind us? Not
likely. The numbers never lie, and across the board, several economic
indicators are pointing to the contrary. Numbers on unemployment, gross
domestic product, and housing, seem to reflect what constitutes a struggling
economy, which is not typical of a 14,000 mark. Yet here we are.
Market
optimism is stemming from austerity measures or financial bailouts, which can
be argued as presenting an illusion of a healthy economy. Currently,
Quantitative Easement III (QEIII) allows the Federal Government to pump $35
billion per month into bonds and mortgage backed securities indefinitely, until
the unemployment falls below 6.5%, which is something that is easily several
years away from happening. Year to date, since 2008, we have spent well over $4
trillion dollars in federal stimulus. This massive amount of federal spending
has been necessary in order to battle the greatest volatility has encountered
since the Great Depression. Unfortunately, the only weapon available to battle
the challenging market conditions is the Federal Reserve’s printing press.
Personally, I feel investors have become complacent in regards to the Federal
Stimulus being a status quo to the market; a temporary solution at best.
However, the last five years have shown us that this is an unlikely trend.
Throughout
our global economy, it is no secret that austerity policies totaling several
trillion dollars, has been the saving grace to a global meltdown. The numerous
bailout measures, courtesy of the central bank, are the only things keeping the
Euro from collapsing. Not surprisingly, there are even more drastic measures
(other than government printing presses) being put into place, that contradict
every known law of economic prosperity. For example, within the last couple of
years, Spain instantaneously “erased” billions of dollars of debt obligations
off their balance sheet. This was possible through collateralized debt swaps
aimed at bettering their market conditions. Domestically, Freddie [Mac] and
Fannie [Mae] still continue to struggle with the housing sector even with
continuous support from Quantitative Easement III, and our GDP doesn’t even
come close to supporting this recent surge in the market. Does this sound like
a financial environment worthy of a 14,000 mark? The writing is on the wall. We
are in a financial environment where the rules are literally set in opposition.
Whether you are for or against austerity measures is insignificant. This is the
reality and it is here to stay. The question is how do you protect against an
unrealistic complacency in a struggling economy?
One
way to protect your money from anticipated volatility is through a concept
known as annual reset. Annual reset is a closely regulated concept that has
protected hundreds of billions of dollars from volatility since 2001. This is
the only financial concept around that can avoid volatility while locking in a
portion of the market upside, year in and year out. Annual reset was first
launched in the latter part of the 1990s, and has since evolved into a
preferred way of business for some of the top financial institutions
nationwide. Investors are warming to this concept after seeing some financial
products averaging, and exceeding, a 6% [average] rate of return since 2001.
One vehicle that has achieved this rate of return while providing total market
protection is an indexed universal life (IUL) insurance policy. These
over-funded life insurance contracts come equipped with favorable conditions
with respect to cash accumulation. This, paired with annual reset, provides a
perfect remedy to an unpredictable economy. Furthermore, if properly
structured, IUL can include both tax-deferred growth, as well as tax advantaged
withdrawals exempt from federal income taxes.
We
know that the Federal Reserve has promised to intervene with aggressive
austerity measures in order to avoid another financial collapse. What the final
toll will be remains to be seen. I am in the opinion that the more we spend,
the more we are obligated to repay. Once again, over the last five years, we
have printed over $4 trillion dollars just to offset a financial collapse. This
amount is over one-third of what the total US deficit was prior to 2008. I see
the federal stimulus continuing for several years to come, which will increase
this number substantially. Of course, this will not be without consequence.
Today, our highest federal tax bracket is at 35%, which is well below the
average marginal tax rate of 63% since 1913. An IUL policy can help protect
against the threat of rising income taxes by allowing an investor to withdraw
funds in the form of a loan against the cash value, exempting a taxable event
on the policy’s gains for life. The loan (principle and interest) only becomes
payable upon the death of the insured, with taxes then being paid through the
cash value and accelerated death benefit of the policy. This strategy gives the
investor piece of mind by ensuring that their quality of life will not be
hampered by rising federal income taxes.
It
is no secret that austerity measures used today are for short-term solutions
only aimed at offsetting another financial collapse. Although the market
topping the 14,000 mark on the Dow Jones is quite impressive, the past five
years have shown us that this rally is not likely to last. The only way to
protect your money with a moderate return exempt from all volatility is through
vehicles such as IUL that uses annual reset to bypass all future market
downturns. Without putting measures in place to protect your long-term
retirement or financial goals, your end result could easily prove to be more
unpredictable than our bailout ridden global economy.
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