Financial Behemoths have bamboozled Americans into thinking that they can get rich and retire comfortably by putting their money in the hands of others, people who call themselves professional money managers.
However, the true aim of these salespeople -- yes, that's what we are -- is to move client money from the clients pockets into some Financial Behemoth's accounts: 401(k)s and their equivalents, IRAs, mutual funds, variable annuities, variable insurance policies, ETFs, equity indexed annuities, and on and on.
When an American puts money into an account that s/he does not control, s/he relinquishes control of that money and to that extent of liberty as well. That is a bad idea no matter how you look at it.
Here are two simple Eurekonomics rules that you can apply to your personal economy:
- If you invest, invest only from savings and never from income.
- Speculate only with money you expect to lose. If you get lucky and win, you can add the winnings to your savings.
Having a savings program and a few years -- not months -- of ready cash is essential to financial success and a comfortable retirement. If you never develop a savings program, you can't recover by investing unless you are just plain lucky. Why? Because most investments are actually speculative. Let me support that statement.
Benjamin Graham, The Dean of Wall Street, and Warren Buffett's teacher, taught that an investment has two characteristics: safety of principle and a reasonable return. Hmmm...
Evaluate what Wall Street calls an investment today:
- Is a mutual fund with nothing more than a reputation really an investment? Doesn't the fact that it promises only that it promises nothing make it speculation?
- Is your money safe and secure? In July of 2007, the market topped 14,000, and in February of 2009, it reached 6,500. How safe is that?
- What is a reasonable rate of return? Any honest investment economist will tell you that 5 percent before tax throughout the long-term is reasonable, and that any assumption over that is speculation. Are investment products actually delivering a reasonable rate of return?
- Is it enough to be reassured that all will be well "in the long-term"? What if your long-term was in February 2009?
Guess what? The answer to all of these questions is "no." You don't live in the long-term. Losing money today but hoping that tomorrow will produce better results is foolish, at best. Properly saved money guarantees a reasonable rate of return in the short-term and is safe for the long-haul. Once you have money in hand, and enough money in hand to care for your personal needs, then you can consider investing. Unless you are among the top two or three percent of wealth holders, you should never speculate.
Consider this: Many Americans take money directly from their pockets [payroll deducted in many cases] and place it in accounts that produce unpredictable returns for them, but assured profits for the Behemoths. Not only that, at the same time they borrow from credit cards and mortgage companies at rates that are guaranteed to be higher than their `investment' account returns. In effect, what they are doing is borrowing from credit cards to fund their retirement accounts. Go figure.
Imagine how much better off these Americans would be if they put their money into financial products that fit the definition of Benjamin Graham referenced above.
It's time to shift paradigms, to change models; save first, invest later, speculate never! It's time for a fresh look at the power, versatility, and flexibility of participating whole life insurance as the fundamental financial product in every American portfolio.
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