In your search for the next big investment idea, you may be missing the simple stuff that’s sitting right under your nose. Sometimes, you don’t need a higher rate of return. In fact, higher returns are often correlated with more risk. What you probably need is a higher savings rate. But, maybe you just need to get back to the basics, which aren’t always obvious.
Life Insurance and Annuities
Life insurance was the original savings vehicle for most Americans prior to the creation of the 401(k) and IRA savings scheme. Back then, endowment contracts were all the rage, but ordinary life insurance also functioned as a savings tool. It provided a death benefit, plus a savings called a "cash value."
Today, there are no endowment contracts. But, cash value life insurance still exists. To mimic the old-school benefits, you’ll need to speak with a life insurance adviser who understands how to use term-blending. It’s called "blended whole life," and it combines elements of term life insurance with elements of whole life. Term life is "blended" or "mixed" with whole life to create a policy that is priced like ordinary term insurance, but offers cash value accumulation that is equal to, or better than, straight whole life thanks to dividends paid to the policy and the addition of a paid-up additions rider. The result is immediate and significant cash value accumulation in the policy starting in year 1.
Another alternative is to use newer universal life policies, including equity-indexed universal life. Have your agent schedule "minimum death benefit/maximum cash value" for the policy. Also, have the insurance agent give you two life insurance policy illustrations. One should illustrate an increasing death benefit option. The other should illustrate a level death benefit option. Both death benefit options will build strong cash values, but you may prefer one over the other, depending on your death benefit needs.
Deferred annuities are sort of like savings accounts with insurance companies. The major difference between an annuity and a regular savings account is that annuities are long-term savings vehicles and are not used to pay monthly bills and expenses. When you use a deferred annuity, you are making a long-term commitment that typically lasts until your age 59 1/2 (normal retirement age).
At that point, you may elect to receive the full value of the annuity as a lump sum or as monthly payments (assuming the contract is fully matured when you reach retirement – all contracts have a maturity date and you must hold it until that date to avoid any penalties on withdrawals).
If you elect the monthly payment option, you can choose periodic withdrawals or you may annuitize the contract. Annuitization converts the savings into monthly payments that are guaranteed for life or for a set number of years that you choose.
Even if you ordinarily would have run out of money, the insurer agrees to continue paying you a monthly income until the payment term is up or you die. This is a very popular payment option because of this provision.
Dividend stocks are a simple way for you to participate in the stock market, and these stocks are often less risky than other investments. If you choose a dividend aristocrat, you can be assured that the company is well-run, and has a long history of paying dividends. These investments are primarily for income generation, and you should think of them as long-term income generation tools. They’re perfect for retirement purposes, or for financial situations where you need income. While the income is not guaranteed, many people do rely on these stocks for at least a portion of their retirement income.
Precious metals are the black sheep of the investment community. That’s because they don’t function as true investments. Rather, they are commodities with inherent value. The most popular is gold. While you can invest direct in the physical metal and take possession of it yourself, most people don’t do this. Instead, today, people are investing in Gold IRA schemes that place the gold into a traditional or Roth IRA.
Other alternatives include gold ETFs, mutual funds, pool accounts, and direct or indirect ownership of mining stocks. Of these options, mining stocks represent the greatest risk, while physical gold tends to be the lowest risk.
Who buys gold? Individuals who want to preserve the value of their savings, that’s who. Gold serves as an objective measure and store of value. It has done so for 5,000 years. That’s why people trust it. If you decide to invest in gold, silver, or any other precious metal, talk to a precious metals dealer first, and compare prices. Finally, make sure you’re getting authentic coins and that you have insured storage options – you want to protect your commodity from theft, fire, and any other catastrophe.