There are 6 things a prudent investor will do with their money regardless of their current plan for retirement. The Prudent, or consciences (involving exact science or simple math) investor will probably want to accomplish these 6 things to begin with or at least 2 of these. They will accomplish:
- Safety of Principle.
- Predictable Rates of Return.
- Tax-deferred growth.
- The Opportunity for tax-free income
- Liquidity for Life’s Important Moments
- Tax-free death benefit to their posterity.
These seem like a lot to ask? How come? Many people look at fixed rate of return vehicles to invest their money in such as an annuity. Would an annuity be a solution to being a prudent investor. No. This is because an annuity’s interest is actually taxed. This is no delayed tax either. The portion of your annuity that is withdrawn as fixed income will go ahead and be taxed as you are withdrawing this from your principle. Like being taxed from your paycheck that you make. The other important thing that an annuity does not provide is true liquidity for life’s important moments when you need them. Let’s consider what are life’s important moments?
Those could be very positive events such as a marriage, honeymoon, or gift for your son or daughter. You never know how much notice you get for these types of BIG events of yours or your kids’ life happen. You may need cash much earlier then you think.
There are also moments that happen that also change your life for worse forever. A medical diagnosis may leave you with the inability to make income that you once did, or even may be confined to skilled nursing care for example. We of course, hope these latter events don’t happen at least not for many years down the road. The annuitization of conservatively invested funds simply don’t provide more then the contracted or agreed upon monthly installments unless perhaps you die and then your death benefit will go to your beneficiaries if you have that portion written in your annuity policy.
You want to remember too, that if your thinking of 401k’s or mutual funds as being in this category of investment as a prudent investor you are much farther off then an annuity. A stock or hedge fund manager leaves your funds not only with lack of liquidity and easy access for life’s moments, but also leave you to so much risk that it is intolerable to any professional investor.
As a proven investor for all-time, Warren Buffet always said these 2 rules when it comes to investing your money for every investment vehicle.
- Don’t lose money.
- Remember rule number 1.
These make 401k and mutual fund investments unacceptable with respect to a prudent investor as many have once again recently in addition to 2001 and 2008 lost %40 of their retirement investments. This is not a predictable rate of return, nor a protection of any portion of your principle.
You have to know more about this type of investment, right? Look to our “Learn more page” or opt-in the information request below. We’ll be in touch.