Preservation of Capital: The Name of the Game

"An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirments are speculative." Benjamin Graham, the Intelligent Investor

Although big market gains get the headlines, preserving your capital is the name of the game!

Protecting the Downside

If there's one common denominator of successful insiders, it's that they don't speculate with their hard-earned savings, they strategize. Remember Warren Buffett's top two rules for investing? Rule 1: don't lose money! Rule 2: see rule 1. 

Taking a swing for the fences with no downside protection is a recipe for disaster. But can it be possible for normal investors to have upside without downside - to have protection of principal with major upside potential?  Following the 2008 crash, when people didn't have much of an appetite for stocks, some very innovative minds at the world's largest banks figured out a way to do the seemingly impossible: allow you and me to participate in the gains of the stock market without risking any of our principal!

We have come to a point in the United States where most of us feel that the only option for us to grow our wealth involves taking huge risks. We somehow take solace in the fact that everyone is in the same boat. Well, guess what? It's not true! Not everyone is in the same boat!

There are much more comfortable boats out on the water that are anchored in the proverbial safe harbor, while others are getting pounded in the waves of volatility and taking on water quick.

So, who owns the boats in the harbor? The insiders. The wealthy. The 1%. Those not willing to speculate with their hard-earned money. But make no mistake: you don't have to be in the .001% to strategize like the .001%.

Who Doesn't Want to Eat The Cake Too?

In the investment world, having your cake and eating it too would be making money when the market goes up but not losing a dime if the market drops. Below are three proven strategies with a brief explanation for achieving strong returns while anchored firmly in calmer waters.

1. Structured Notes. These are probably one of the more exciting tools available today, but, unfortunately, they are rarely offered to the general public because the high-net-worth investors jump on them before anyone else has a chance. A structured note is simply a loan to a bank (and typically the largest banks in the world). the bank issues you a note in exchange for lending it your money. At the end of the term, the bank guarantees to pay you the greater of: 100% of your deposit back or a certain percentage of the upside of the market gains (minus the dividends). 
2. Market-Linked CDs. These aren't your grandparent's CDs. In today's day and age, with interest rates so low, traditional CDs can't keep pace with inflation. Traditional CDs are very profitable for the banks because they can turn around and lend your money at 10 to 20 times the interest rate they are paying you. Another version of the insider's game. Market-linked CDs are similar to structured notes, but they include insurance from the Federal Deposit Insurance Corporation (FDIC). Market-linked CDs give you some small guaranteed return (a coupon) if the market goes up, but you also get to participate in the upside. But if the market falls, you get back your investment (plus your small return), and you had FDIC insurance the entire time. 
3. Fixed Indexed Annuities. There are a lot of annuity products out there, and some should be avoided. But this particular type is used by insiders as yet another tool to create upside without the downside. A properly structured fixed indexed annuity offers the following characteristics:

• 100% principal protection, guaranteed by the insurance company. 
• Upside without downside - like structured notes and market-linked CDs, a fixed indexed annuity allows youth participate when the market goes up but not lose if the market goes down. All gains are tax deferred.
• Lastly, and probably most importantly, some fixed indexed annuities offer the ability to create an income stream that you can't outlive. A paycheck for life! Think of this investment as your own personal pension. 

As always, be careful when choosing these products. Some have high fees, high commissions, hidden charges, and on and on. $

www.RayBuckner.retirevillage.com

Don’t Gamble. Leverage like Buffett

Warren Buffett and other smart investors make money by borrowing to invest in low-risk, low-return securities, sort of like a “specialized margin” account.  Other folks, who don’t have enough borrowing power to play the leverage game (interest rates on margin accounts can be high for the little guy), can only generate profits by investing in riskier assets.

The irony about risk taking is that most of us are in the second group, small investors. But it can also include professional investors such as many mutual fund managers.  If they don’t take some risk, they lose the opportunity to make money. Often time the reason the market will move with a stock  is because the demand for a better return triggers the increase in it’s valuation. This of course drives up the prices of those assets, thus reducing their returns.

That all sounds well and good, but what is the answer?  How can you leverage your funds and take advantage just like the big players?

One way is to look at your money from a different point of view, not as money but as “what is the money for?”  Have you ever considered why investors like Buffett try and make so much money? Does it mean they can eat better, sleep better, take more vacations?

Their goals are different than the goals of most of us. We want and use our money for life’s demands; education, food, housing and retirement.  Their money is for two things: keeping score and their legacy. They mostly do it for status.

So how do we “game” the system?  Like I said, by looking at the reason for using money from a different view.  Why not look at your retirement money not from how much you can accumulate but by how much income it can provide?

Think of your money for its intended use and for most of us that would be retirement income and money to enjoy the security later in life.  There is a way to beat the system, it is easy, simple and the big boys won’t know about it.  Why won’t they?  Because they don’t care, they only care about their reasons for their money.

How would you like to “earn” 5-7% on your retirement account? You can, it is available and it is guaranteed.  How can that be?  Simple, if you use your funds as an income instead of a pile of money, many insurance companies will pay that rate on the funds which will be used as retirement funds. It is called an Income Rider and it is available as an add on with annuities. The amount earned in your account stays in the income accumulation side, the amount you actually can receive as retirement is based on other factors such as age.  Many contracts are different so do your research carefully.

How can they do that?  Insurance companies know how many people will use these funds for this use. They plan for it and they reinsure their liability in the event things change and they pay out more than planned. They insure their obligation to you just like you can insure your retirement income for you and your spouse.

How do they reinsure the retirement obligations promised to you; yes you guessed it, the Warren Buffett’s of the world insure the companies promises.

Want to know more about how these products work, here is an easy to understand video:
https://www.youtube.com/watch?v=ChHaRxguEkM