Safety, Silver, and Sperrys: Devising Financial Solutions Before Problems Arise
07 May, 2024
Understanding What’s Safe When Doing Your Financial Planning
Safe. Let’s talk about that word for a minute.
What do you think of when you hear it? Do you imagine yourself standing confidently on first base, or does it conjure general feelings of security and stability?
The idea of “safe” has different connotations to different people. However, in the big, bold world of private wealth management and retirement planning, “safe” essentially means, “I’m free to not worry about money anymore.”
And if you really play your cards right, your children and grandchildren may not have to worry about money, either. But let’s not get ahead of ourselves. Let’s focus on you, your financial planning, and getting you to a point where you feel safe.
What Are Safe Investments?
I’m often asked by clients what the safest investments are. No surprise there, right? Investing is a risk/reward game, and everyone wants to know what investments carry the least amount of risk.
However, many clients also add the qualifier of wanting a good return on their safe investment. So basically, they want the highest reward possible with virtually no risk. Unfortunately, there’s not a ton of that around. If there were, everyone would do it.
In actuality, the question you should ask is, “When do I want to use this money?” Because there’s a big difference in investment tactics if you want to use the money in a year compared to ten years.
The other thing you need to keep in mind is that the money is only worth what it’s worth on the day that you need it.
For instance, if you bought Bitcoin in 2007, then you spent $7 per “coin.” If you needed cash for shoes in October 2021, that means you could get a $65,000 pair of pumped-up kicks versus a $30,000 pair of Sperrys in May 2022.
Money and investments are a moving target. Learning when to pull the trigger can be difficult to master. However, it all comes back to the question of what your idea of “safe” is and when you estimate you’ll need to access your money.
1-2 Years Safe
If you need to sock away money to replace tires, fix your water heater, or you simply want to offset inflation at the grocery store – “safe” means you can’t take out this money when the value of it is down. This is the I-need-it-now money. It’s the emergency fund you hear people talking about.
3-7 Years Safe
This is money you’re looking to need in the interim for expenses like replacing a car or the roof of your home. Although there’s a little bit of flexibility, these are mostly planned expenses you know are coming down the pipe.
7+ Years Safe
Think of this as the money you’d use to show your boss you don’t need them anymore. This is the money you somehow figured out how to set aside during the years you raised your family, paid for orthodontics, watched Netflix, and endured a never-ending roller coaster of ups and downs.
Even with inflation, taxes, emergency expenditures, and all the other financial challenges, you somehow still managed to set enough aside to last you the REST of your life.
Understanding the Idea of Safe
I hope that at this point you’re seeing that the definition of “safe” is different depending on what the purpose of the dollars is. Having said that, I will proceed to answer the pressing issue at hand. Keep in mind, this is not meant to be proffered as anything other than guidelines for consideration.
Your position in life will determine what makes more sense for you. For example, if you’re over 60, it may not make sense to have a year’s worth of savings in the bank. If you’re 45, you probably shouldn’t have your 401K or your house as your emergency money. Age and the liquidity of investments tend to dictate financial planning.
If you expect your needs – or better yet, your problems – then you’ll be able to do a better job of lining up financial solutions for when the time comes. Here are some investment opportunities to consider.
CDs/Saving Accounts
As long as the bank or credit union you use is financially sound and the FDIC/NCUA are playing watchdog, CDs and savings accounts are arguably two of the safest places to put cash. The great thing about this method is that your money is easily accessible just in case you or a family member have the sudden need for it. With a couple of taps and swipes, those funds can be forwarded to anyone, for any purpose.
However, there is one principal drawback. Because of the safety and liquidity of the funds, the rate of interest they earn is so low that it’s almost mathematically impossible to calculate, although the IRS certainly has figured out a way to do so. Therefore, with inflation as high as the Rocky Mountains, these are not the best long-term investment option.
Gold/Silver
Long before any of us existed, King Solomon was pulling tons of gold from beneath the sands of the Middle East! With about $2.1 trillion in gold, this made him the richest man alive. Gold (and silver to a large degree) has been the foundation of economies for centuries. However, the rules on gold and silver are a little different in the modern era.
I’ve sat through more arguments than I care to count regarding the current validity of metals in one’s portfolio. The bottom line is this: precious metals have always had value, and they will either keep pace with or overcome inflation over time.
The problem is that if you need that money to settle your tab at Sullivan’s, the wait staff will probably ask for your AmEx instead.
Real Estate
Real estate is tricky because most people see it as the ultimate safe investment; however, that’s not necessarily true. Just think about all that you do to maintain your home. New windows, roof replacement, landscaping, driveway repair – it all adds up. Your home is actually more of a liability than an asset.
Even during times of real estate “corrections,” if you’re receiving income from the property, your worst problem is needing to wait until the market comes back to capitalize on the actual property. Therein lies the biggest issue: liquidity of the asset.
Life Insurance
Life insurance is one of the most misunderstood financial tools, but the big banks certainly have it wrapped around their little finger. Bank of America, Chase, and Wells Fargo own $22B, $11B, and $18B, respectively.
That’s the cash value; not the death benefit of the policies. The strategy behind the banks owning cash-value life insurance is NOT the death benefits, but the cash accumulation within the policies.
Life policies offer tax-free interest accrual, which is usually more than inflation and generally used free of taxation for operating and retirement expenses. While you may not have billions of dollars sitting around looking for a home, the same strategies can and are being used on a household basis. The downside is the up-front cost.
Annuities
Annuities are backed by the financial strength of the issuing company and can offer protection against market loss and capture of interest earned. As a growth/accumulation tool, it often outpaces bonds. In the right situation, they can even be structured to provide lifetime income, similar to a pension, but with the distinction of periodic increases.
They can be invaluable in satisfying baseline income protection to insulate from market swings. The bad news is the money is typically only 90% liquid in the first few years.
Contact Foresight Financial Design Today for Expert Financial Planning
These are only a few of the tried-and-true safe investments a person can have. Bonds, art, collectibles, autos, and collectible coins are among the myriad of others.
What determines the right fit for you is YOU! What are you comfortable with? What are your short- and long-term goals? These are both questions you’ll need to consider when selecting the best investment opportunities.
Every financial situation is unique. So, what works for your best-friend or coworker may not work for you. Fortunately, we can help you design a strategic plan that’s tailored to your financial situation.
Foresight Financial Design offers the following suite of services:
- Retirement planning
- Financial planning
- Financial management
- Private wealth management
- Small business finance management
- Estate preservation and transfer
- Protection planning services
- Infinite banking concept set-up
Call the team at Foresight Financial Design today at (913) 346-3465 or email us at info@foresightfinancialdesign.com
Our team will be happy to sit down with you and discuss your financial goals in addition to areas of opportunity that we see regarding your portfolio. It’s never too early to think about financial planning for your future.