Navigating Through a Perfect Storm

Here we are starting the 4th quarter of 2015. Many of the gains have been erased for the year, with more volatility to follow. Yet, the market still stands near its highest point ever. All the result of over $5 trillion dollars (not including interest) being pumped into the market over the last 7 years, to offset the largest recession since the Great Depression. The question is, is the market's worst behind us, or is the reality of a struggling world economy going to correct an over inflated market? In other words, what does the big picture look like moving forward? In order to answer that question let's take a look at how we got to where we are today. The answer was simple, spend and spend. Through quantitative easing, the Federal Reserve has pumped trillions of dollars into the bond market in order to create a strong foundation, or safe haven, for investors from volatility. It was a part of an attempt to drive down interest rates while stabilizing a volatile market. Whether or not you are for or against government intervention to protect the market, it worked. The results of the Federal Stimulus was unimaginably successful. It was a game changer. It allowed the market to outrun the pace of the economy, which over the years was welcomed by investors with open arms.

[How many of you remember all the times from 2009 -2012 where the market significantly rose on the suggestion/speculation of the Feds involvement (anticipation of the Fed printing more money)? I remember discussing these huge market jumps on my radio show, almost in a state of disbelief. In fact, some of my earlier articles referenced this phenomenon.]

Federal spending pulled the market up at an alarming rate, well above the threshold of what the economy could realistically (naturally) support. An unnatural cash injection to prop the market up.
It was either that, or see how far the rabbit hole (market plummeting) went. When they announced the stimulus everyone knew there would be long term consequences to this action, just no one knew when. Additionally, everyone was well aware that you cannot buy off a recession in the long term. So fast forward the clock and here we are today. We have record levels in the market, a struggling economy unfit for a rate hike, all while knocking on the door of a volatile election year.

I see today's market as the best opportunity investors have had in the last 100 years. I sincerely do. An opportunity to lock in their gains at just under the highest point the market has ever been, optimizing long term performance. Let's face it, today the words "long term goals" are rarely ever heard. The market is still trying to figure out what is happening week to week, let alone month to month. It seems anything past a month out is too far for speculation. The truth is we are in uncharted waters trying to navigate forward. This is why the proper advice can create a huge opportunity for most investors, if the right picture is painted.

Think of it as the perfect storm. A rally of epic proportions that has capped out, causing what is arguably the highest market surge in US history.

Most investors saw a 300% increase in their portfolio from 2009 to 2015.

How could there be a more perfect time to help your clients re-position what they have accumulated from 2009? Since the Federal stimulus ceased a couple of years back, there is a grave concern with many financial analysts that the market is overly inflated, certainly not reflective of a struggling economy at near record market highs. Besides, what other alternatives are there? The only other option to locking in your gains is to try and wait out, or beat, the market. In order for the economy to support these market highs, oil would need to completely rebound, middle class incomes significantly rise, European markets take a turn for the best (eliminating any threat to the Euro), and that China overcomes all their woes, just to name a few. Unfortunately, those who decide to wait it out may disrupt their time horizon depending on how long it takes the market to overcome another market drop. Remember, it is very unlikely we will see another form of stimulus to pull any future bear markets out of the red. It's too damaging to long term interests. Just think about how far investors were set back from the recession in 2008 to the market highs of 2015. A significant market drop could easily take several years to get back to even. If this happens, the end result could be the client missing out on over $80,000 of income throughout retirement on just a $250,000 deposit or ending up with a much lower end account value; depending on how the market performs. Whereas, the investor could have locked their gains in at one of the highest points in history, essentially skipping over future market downturns. The truth is most investors would have made moves to protect against the volatility if given the chance in 2008. We know through multiple studies since the Great Recession that most investors prefer a moderate return with no downside over exposure to volatility.

Even among the perfect storm, most investors will not realize the significance to locking in their gains at this opportune point. This is especially true given the current financial climate. Their interests lie in their own careers and families causing many to be distracted from the rhetorical talking heads, focusing on insignificant minor details instead of the whole picture. Besides, traditionally speaking, gains are usually locked in at the end of a bull market when the economy is at its strongest, not the other way around like the market we are seeing. Others get trapped in the day to day, week to week progress of the market abandoning long term focus. Once again, you can't plan for, or see, the long term if your navigating through uncertain times. When the market is at an all time high amidst a struggling economy, all signs point to a bear market ahead. Not to mention an election year around the corner filled with significant change and fear of the unknown. The writing is on the wall.

When you take a look at the driving factors of today's market, sometimes it feels as if the rules are set in opposition. For example, just this week the market significantly rallied on the notion that the Fed was not going to raise rates for the rest of the year because the economy was too weak to sustain a rate hike. Does this sound like a legitimate reason for the market to rally? Is this statement conducive of a strong economy? This is a perfect example of why the market is not likely to hold as high as it is. This is the market looking to the Fed for growth. As mentioned earlier in the article, how many times did the market rally since 2009 on speculation that the Fed was going to print more quantitative easing? What do you think the result of the rally would have been without the stimulus? True market surges are lifted on the backs of a strong economy both domestically and internationally, not on scattered speculation within a struggling economy.

In summary, the market rally from 2009 to just recently, has been arguably the highest market surge in US history. Investors now have an unprecedented opportunity to lock in their gains at one of the highest points the market has ever climbed. Moving forward, investors can bypass all market downturns, ensuring their long term goals are not disrupted. Through proper planning dedicated to preservation and longevity, investors have the best opportunity of success to whatever the unforeseen throws our way.

Article Source: http://EzineArticles.com/9202481

Protecting Income Benefits From One Generation to Another

One of the biggest misconceptions in retirement today is to think that the benefits for income planning cannot be passed on to the next generation. With multi-generational family planning, the owner of the policy can benefit from all the growth and tax advantaged withdrawals of a Non MEC Indexed Universal Life policy, while at death passing on the withdrawal benefits to the named insured without closing out the policy. This allows the money saved for college and retirement planning to pass on to the family survivors without disturbing any of the benefits.

Not only can the benefits of multi-generational policies be passed on, the owner of the policy does not have to be underwritten. Instead, the named insured is underwritten in anticipation of one day taking over the insurance policy (when the owner passes), and the third generation can be the beneficiary. For example, a father that is 75 could open up a multi-generational policy with his son who is 45 (and in average health). The son would be underwritten and the policy would not pay out a death benefit until both the owner and the named insured (son) pass. During the accumulation phase, the owner would fund the policy within the thresholds of a Non MEC (in order to set up tax free withdrawals in the form of a loan). At the point of the father's death, the son would default to the owner of the policy and would have all the benefits his father had. Once the benefits transfer, the son could use that money for whatever he saw fit. He could use that money for his heir's college expenses (the father's grandkids), or simply use the money as another income stream in retirement. Down the road when the named insured passes, the tax free death benefit would be paid out to the named beneficiaries. This allows the accelerated death benefit to be paid out to the third generation, with the first two generations enjoying the benefits of the policy; thus being multi-generational.

With the absence of pensions in today's labor market, many investors are using this strategy to secure an income stream for the generations they will leave behind. With an Indexed Universal Life policy, investors know that when the market goes down the policy will guarantee them a floor rate while providing an attractive cap when the market goes up. Additionally, the policy owner can take advantage of flexible withdrawals exempt from Federal income taxes, having total liquidity, and protecting the interests of 3 generations. Lets take a closer look at how these unmatched benefits are possible.

Insurance companies can provide these financial guarantees through the unique concepts of annual reset and indexing. Annual reset allows the cash value of the policy to avoid market loss while providing a cap on what the policy can earn. Interest is credited though a method known as indexing. When participating in indexing, the insurance company is prohibited from investing the money in risky accounts such as mutual funds. Instead, they place the funds in safe money accounts, like insured bonds, to protect the money from market risk. The strategy being, its better to have a moderate return with no market loss as opposed to playing the market in a win some and lose some game. If you look at the last 15 years of the stock market, although not typical, financial products utilizing annual reset and indexing drastically outperformed the market with no downside exposure. There are several ways to allocate your funds with a named index, including dollar cost averaging, so it is important to discuss these options with a licensed representative to find the option for you and your family.

With the absence of pension plans being offered in the workplace, a Multi-genrational Indexed Universal Life policy could be the perfect fit for a family that intends on protecting money for up to three generations with just one policy. This takes a lot of the stress of college and retirement planning off the table for future generations. Tax advantaged withdrawals no longer have to vanish upon the death of the policy owner, while the next generation enjoys a moderate return with the same benefits. Not to mention that the owner of the policy does not have to be underwritten, just the named insured; allowing families to pass on living financial benefits regardless of health issues.

Why a $7.2 Billion Loss from the USPS This Year is Not a Concern

Just recently, the Federal Reserve System announced that first-quarter losses from the United States Postal Service stood at 1.8 billion dollars. At this rate, the USPS is on track to cost American taxpayers over $7.2 billion by the end of the fourth quarter. To put this into perspective, this amount is equivalent to a $20 million dollar loss per day, with no hope of any profit for quite some time, if at all. At first glance this may pose a concern, but once the numbers are dissected, you will see that it fails in comparison to the bigger picture. In fact, when looking at the numbers (with respect to federal spending), one might consider it irrelevant or even a waste of time to correct. In order to fully grasp this idea, it’s important to evaluate the bigger picture.

If these sustained losses of the USPS occurred any time prior to the turn of the millennium, it could have caused a financial scare bigger than that of the Lehman Brothers’ bankruptcy in 2008.  Looking back, and trying to comprehend the fall of the USPS, would have been practically impossible. We don’t have to worry about this however, because these aren’t the times we live in today. Today, we are in the third round of Quantitative Easement, known as QEIII. The monthly toll of QEIII comes to $35 billion per month indefinitely, or at least until the unemployment rate hits 6.5%. How long this will continue until unemployment reaches that percentage is a whole other conversation.

Our federal stimulus this year alone will be at $420 billion; an acceptable number, considering the total cost of the federal stimulus since 2008 exceeds $4 trillion. This is probably why the market shrugged off QEIII when it was announced, rather than questioning the necessity of additional stimulus.

No matter how you look at it, QEIII has quite a toll to be accountable for. This $420 billion stimulus is enough to bail out the postal service at a quarterly loss of $1.8 billion for the next 20 years. This year, the total amount of printed QEIII could cover the losses of the USPS until the year 2033. If we assume that QEIII will continue for the next four years, your great grandkids will not have to worry about issues when mailing a letter, all courtesy of the Federal Reserve (any takers on what the federal deficit might look like?).

With this bigger picture now in perspective, it’s easier to understand why the $1.8 billion loss isn’t an immediate concern to Congress, and why it probably won’t be moving forward.  Could it be because the federal government only looks at the bankrupt state of the USPS as only 1.7% of the QEIII toll annually? Possibly. Think of it this way: if the fall of the USPS fails to pose a threat to the financial arena, what will?   More importantly, what will the final toll be when all the dust settles?

Total Protection Within a Stimulus Enviornment

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.

Protecting Against the Federal Stimulus

My predictions in May of this year were correct when I said that the federal stimulus would continue and volatility would be the norm.  In September of this year the Federal Reserve announced Quantitative Easement III (QEIII), which was designed to keep pace with Mario Draghi and the ongoing Euro crisis; promising continuous monthly injections of $85 trillion in order to protect our nation from an economic collapse.  There is no way to know how long this will go on for, however; Fed Ben Bernanke stated unlimited printing.  Why?  Why not, the total known federal stimulus was at $3.6 trillion prior to QEIII.  So when additional stimulus is announced, it is then shrugged off as old news.  Investors are numb to this phenomenon, and have now become conditioned to expect Uncle Sam to cut a check.  The rules are now set in total opposition to a bull market, meaning that investors are now counting on Uncle Sam to help offset their losses.  With respect to financial preservation, the next few years are crucial and how we approach the Federal stimulus will determine what our financial fate will be. 

In September of 2013 the total Federal stimulus will exceed $5 trillion.  QEIII will add another trillion dollars to the printing press each and every year.  When you take into account that’s the cost per year for the Federal Government to run the country, the thought becomes overwhelming.  Even worse, we are at the tip of the ice burg.  Why?  Because QEIII was announced at $85 trillion per month, indefinitely, moving forward.

So the question is how do you think the market will react to this news?  My guess is it will likely react to QEIII the same way it did over the last 5 years.  We will likely see a roller coaster in a downward trend. This is where the opportunity lies.

When the market is having its ups and downs it seems pointless to try and beat the market.  This is why investors are looking to protect financial interests they can control.  Interests that will protect your money from all future market downturns with a guarantee of lifetime income.  For example, think of it as taking your 401k and knowing that even if you never added one more penny to the account you would have a secure income steam for life at any time in the future; while knowing your eligible income will increase each and every year.

We know that volatility will be the norm moving forward, especially with the continuation of QEIII.  Just like we all know of the losses due to the stimulus in the last 5 years.  The question is; if you could go back and protect all of your financial interests prior to the fall of Lehman Brothers, or the Financial Collapse of 2008, would you?  I know most, if not all of my clients would have, or did, taken action to protect their money.  Honestly, why wouldn’t you protect your money? Especially knowing $85 billion each and every month will be continuing for quite some time.  At what point will it be too late?