Brick House Savings - Your Guide to The Seven SmartWealth Saving Strategies
Sunday, May 4, 2014
Post 7 - Edition # 4 My Current Reading List on Financial Wisdom and What I've Been Doing Lately
Friday, March 7, 2014
Post 6 - Chapter 3: What Do You Really Want - The 12 Things Everyone Wants in Their "Perfect" Investment
Brick House Savings
Your Guide to: The $even $martWeatlh $aving $trategies
Strategy Three
Tax-Free Life-Time Income $trategies™
Chapter 2
What Do You Really Want?
The 12 Things Everyone Wants in Their "Perfect" Investment
The 12 Things Everyone Wants in Their "Perfect" Investment
When you begin planning for retirement, it's like starting a game you've never played. First off, you need to now all the rules. Otherwise you'll find yourself getting a penalty and you didn't even know what you did wrong. So let's start off with some very enlightening "behind the curtains" information you have to consider before investing in a qualified plan such as a 401(k).
Author's Note: SmartWealth Accounts come in 12 different varieties. Here the chart is referring to either Max Funded Indexed Universal Life Insurance or Specially Designed Dividend Paying Whole Life Insurance for Privatized Banking.
Foot Note: The above Featured Article was adapted from charts, graphs and information first developed by Len Renier and offered through his Wealth and Wisdom Institute. This information has been used with his permission by several insurance carriers.
“Over 80% of financial advisers are not fiduciaries. They are merely brokers or salesmen. A fiduciary is a professional who by law is supposed to put your interests ahead of their own. Broker dealers are not under that obligation. They have to conform to a suitability standard: which means they can’t put you into something that is totally unsuitable for you. It doesn't have to be the best thing… just something ‘suitable’ for you. They try to sell you the most profitable products for who… for you? For them! In the fall of 2010, the department of labor proposed putting into place a requirement that advisers take on a fiduciary role in putting their customer’s interest before their own whenever dealing with retirement accounts. The financial services industry lobbied hard against the new rule. The Labor Department pulled back their proposal. Over the past couple of decades we've handed over more than 10 trillion dollars of our retirement money to the financial services industry. They've built a pretty good business out of it. But how well is it working for you and me? So far, most of the efforts to reform the industry have fallen flat. Recently the government has forced through some new rules on fee disclosure and the department of labor says it will try and reintroduce new fiduciary rules soon. Saving for retirement remains a bewildering challenge for millions of Americans.
10 Things Your 401(k) Provider Won’t Tell You
Editor’s Note: I can’t find this article
anywhere on the internet now. Hmmm…
wonder why? I don’t know… maybe Wall
Street DOESN’T want you to know these facts?
I’ll make the whole article available to you by simply requesting. Send
a quick email to SmartWealthNewsletter@gmail.com
with “10 Things” in the subject line.
1. "We're making a mint on
your 401(k) -- even if you're not."
2. "You're buying wholesale,
but we're charging you retail."
3. "No one in his right mind
would buy these funds -given a choice."
4. "Our 'target-date funds'
may miss the target."
5. "We offer tons of
investment options. Too many, in fact..."
6. "...but you still aren't
diversified."
7. "If you quit your job,
you'd have to pay to keep your 401(k) here."
8. "You'd be better off in a
Roth 401(k) –too bad your plan doesn't offer it."
10. "Your nest egg could be a
whole lot bigger."
CHARACTERISTICS
OF WEALTH
ACCUMULATION
VEHICLES
The twelve things that
Americans want in a “Perfect Investment.”
In today’s financial industry, there are many
financial products, or vehicles, which can help you accumulate wealth. Some
offer tax deferred options, while some others offer guarantees, etc. With so many vehicles out there, it can get
confusing and that’s why it is so important to have a trusted advisor to help
guide you along the way so that you achieve your financial needs and goals.
Let’s break down the several characteristics that
Americans want in a financial vehicle so that they can experience the most
financial gain possible. Your answers might be different from your spouse.
We now have the appropriate characteristics of
what you want in a wealth accumulation vehicle.
Next, let’s take a look at some of the most popular financial vehicles
out there.
Next, let's look at the most popular answers in our national survey are shown. Are they different than yours? Why do your answers not match your chosen
Accumulation Vehicles?
The diagram below illustrates seven
financial vehicles and compares their characteristics with the characteristics
that most Americans want. The green
boxes reflect the characteristics our national survey found you likely prefer
while the red boxes show how that vehicle cannot offer you that certain
characteristic you probably desire.
As you can see, there are a
variety of ways to save for retirement.
We specialize in working with you to have a tax-diversified portfolio – comprised of assets in various types of accounts including taxable, tax-deferred, and tax-free. That way you are best positioned to manage cash flow during
retirement. Isn't it time to consider a
SmartWealth Account?
When you are driving you pay attention to the stop lights. Red means stop and
Green means go. Pretty simple. Every 1st grader learns this basic rule. Now let's consider what these colors mean in regard to your investment strategies:
Which do you want? You
decide. You can have both or
either. It’s your choice. Be sure to choose wisely. Author's Note: SmartWealth Accounts come in 12 different varieties. Here the chart is referring to either Max Funded Indexed Universal Life Insurance or Specially Designed Dividend Paying Whole Life Insurance for Privatized Banking.
Foot Note: The above Featured Article was adapted from charts, graphs and information first developed by Len Renier and offered through his Wealth and Wisdom Institute. This information has been used with his permission by several insurance carriers.
“The Retirement
Gamble
Will your IRA or 401(k) ensure a safe retirement?”
On April 23, 2013 PBX aired a special Frontline report on "The Retirement Gamble - Will Your IRA or 401(k) Ensure a Safe Retirement?" The show was hosted by Martin Smith, an independent journalist and correspondent. Following are excerpts from that TV show:
In 1970 42% of employees had a pension. Workers didn't have to understand how to
manage their retirement accounts. About
60 million Americans have signed up for their company’s retirement plan. Companies are expecting their employees to
manage their own retirement plans. Only
about one half of companies offer a 401(k) plan.
In
1981 no one knew about Mutual Funds. A
decade later everyone was betting on the market. In the 90’s it seemed you could not lose
money in the market. Everybody was
making money.
“The 401(k) is one of the only financial
products in America buy where they don’t know the price of it. It’s also one of
the products Americans buy that they don’t even know its quality. It’s one of the products that Americans buy
that they don’t know its danger. And it’s because the Mutual Fund industry has
been able to protected themselves against regulation that would expose the
danger and price of their products."
~ Professor Teresa Ghilarducci, Economist
at The New School
“(Your
pension plan in the 1970s) was very simple. The employee didn't need to know
any of the mechanics behind it. They just knew when they came close to retirement
that they were promised a benefit, a secure income over their entire life. So they had this income until they died.” MS
– What was wrong with that system? “Absolutely nothing! To be honest, it was a great system. The problem was over the last decade, the
rules of the game changed.” With the
introduction of the ERISA laws all the risks and burdens of investing for
retirement fell on the employee. “We wanted them to know how much they needed
to save for retirement, how to investment that money, and then (when they had a
lump sum when they retired) how to withdraw their money so they didn't outlive
their assets. So that’s three different
risks.”
~ Robin Diamonte C.I.O., United
Technologies
“I have a 401K(k).
I save in it. It hasn't seemed to go up.
It’s awful. I kept checking the
statement. Why does this thing never go
up. This is weird. I mean, I knew the stock market was up and
down but I still should be seeing some returns.” Hiltonsmith decided to make a
research project of this anomaly. He started by looking at the investment
options in his 401(k) – 22 funds in all.
“You've got all these (fund) names and the names tell you nothing. You
know… it’s a “balance” fund it’s a “growth” fund… yes, it’s lingo for a broad
investment strategy but really… what the heck does it invest in?” As he dug
deeper, he found one fund that invested in mortgage back securities (the kind
of security that caused the collapse of the housing market) but that’s not what
worried him. “I was digging into all the
aspects of it and I kept coming back to fees.
Here’s the first mention of fees – EXP Ratio – why would you think that
EXP Ratio means fees.” Hiltonsmith found
over a dozen different kinds of fees including: Asset Management Fees, trading
fees, marketing fees, record-keeping fees, and administrative fees. “Fees when you withdraw money, fees when you
take loans, fees when you get money out when your actually retired which I
actually didn't even know about… this fee was a sub-type of this fee and oh that
covers that… oh that’s another name for that… It was very opaque.”
~ Robert Hiltonsmith, MA Economics and
Employed by a NY Think Tank
He (Hiltonsmith)
spent well over a month just going through all 22 of his own 401(k) funds just
trying to digest all the information.
The average actively managed account averages 1.3%. Some funds charge a fee of 2% and even as
high as 5%. “That may not seem very
much… but when you add that up over 20, 30, 40, or 50 years in a 401(k) plan,
all of a sudden you’re well be into the six figures… That’s the difference
between running out of money before you die and having a little money to pass
on to your heirs.
~ Ron Lieber
– The New York Times “Your Money” column
John “Jack” Bogle, CEO, The Vanguard Group
1974-96, says that an account getting a gross annual return of 7% would reach
63% less with an annual fee of just 2% over a lifetime of saving. “Costs are a
crucial part of the equation. It doesn't
take a genius to know that the bigger the profit of the management company –
the smaller the profit that investors get…. What happens in the fund business
is (that) the magic of compound returns is overwhelmed by the tyranny of
compounding costs. It’s a mathematical
fact. There’s no getting around it. The fact that we don’t look at it (is) too
bad for us… Do you really want to invest in a system where you put up 100% of
the capital… you take 100% of the risk… and you get 30% of the return?” Jack Bogle has been a long term proponent of
low cost, long term savings in indexed funds.
You own and hold the whole market at an annual cost of 1%. They are much cheaper because there is no
active manager.
~
John “Jack” Bogle, CEO, The Vanguard Group 1974-96
In the spring of 2012, Robert Hiltonsmith came out
with his study on the impact of fees charged to 401(k) plans. He reported that an average American
household will pay $155,000 in 401(k) fees in the course of a lifetime. “All
the costs of retirement are being shifted to the individual investor. IRAs and 401(k)s have been sold to us as safe
products over the years… The point is this system isn't built for individuals
at all… it certainly isn't built for their benefit.
~ Robert Hiltonsmith, MA Economics and Employed by a NY Think Tank
~ Robert Hiltonsmith, MA Economics and Employed by a NY Think Tank
“Over 80% of financial advisers are not fiduciaries. They are merely brokers or salesmen. A fiduciary is a professional who by law is supposed to put your interests ahead of their own. Broker dealers are not under that obligation. They have to conform to a suitability standard: which means they can’t put you into something that is totally unsuitable for you. It doesn't have to be the best thing… just something ‘suitable’ for you. They try to sell you the most profitable products for who… for you? For them! In the fall of 2010, the department of labor proposed putting into place a requirement that advisers take on a fiduciary role in putting their customer’s interest before their own whenever dealing with retirement accounts. The financial services industry lobbied hard against the new rule. The Labor Department pulled back their proposal. Over the past couple of decades we've handed over more than 10 trillion dollars of our retirement money to the financial services industry. They've built a pretty good business out of it. But how well is it working for you and me? So far, most of the efforts to reform the industry have fallen flat. Recently the government has forced through some new rules on fee disclosure and the department of labor says it will try and reintroduce new fiduciary rules soon. Saving for retirement remains a bewildering challenge for millions of Americans.
~ Helaine Olen – Author, Pound Foolish
Post 5 - Chapter 2: The Wiser (and Healther) Older Pig
Brick House Savings
Your Guide to: The $even $martWeatlh $aving $trategies
Strategy Two
The $uper $ecret "$even $eventy" $avings Account
Tax-Free Growth $trategies™
Chapter 2
The Wiser and Healthier Older Brother Pig
In the chapter following this, the full
meaning of The Twisted Tail will be revealed.
But for now, let’s take a closer look at this Wiser, Older Brother Pig
who is health conscious.
“Unlike his portly and glutinous younger
brothers, the Older, Wiser Pig stayed fit and trim. ...He was careful about both
his physical health and the health of his wealth.”
Over
the years I've made it a habit to watch my weight. I eat healthy whole foods, exercise
regularly, and I take natural supplements. I've also made it a habit to weigh myself at the same time each morning
and (as much as it is possible) under similar conditions so I have a more
accurate baseline of change. A friend once
commented on my healthy appearance. Then
he joked that every time he watched his weight… he had trouble seeing his feet! When you’re overweight, you might try extreme
measures to lose weight. For instance,
you could appear to be a few ounces lighter if you removed your glasses. This would also have the added benefit that
you’d be unable to see the number on the scale!
Lots
of people are that way about their market investments. They want to set it and forget it. They for sure don’t want to watch it. They have better things to do with their
time. You've probably heard them say
things like:
“My mutual funds will do just
fine. That’s where I put all my
retirement savings.” “My buddies down at
the office put all their 401k money in mutual funds and I figure if it’s good
enough for them…”
These
comments are a lot of blah, blah, blah –
un-meaningful blather. You’re not
going to do a better job of retirement “saving” when what you are really
doing is risky investing. Can you
see that Wall Street has convinced you to trust that your 401k
plan is well managed and there’s nothing to worry about. They say:
“Just set it and forget it. Leave the money alone. Buy and hold.
You’re young and have plenty of time to rebound from a market loss. You haven’t lost money until you sell your
stocks and mutual funds.”
Really! Here’s the truth. It’s not IF
you will suffer a market loss but WHEN! You already know that loss is very
likely especially if you stay in the market for any length of time. [But, didn't your adviser tell you to stay in the market for a very long time or did
I miss something here?] When you
have a market loss, the really sad thing is that you not only lose your hard
earned money but you also lose the time it took to make those gains in
the first place. Time can never
be replaced. Losses, taxes, and fees can
measurably affect your overall returns for your entire investing life.
So
let’s be honest with each other. We need
to forget this nonsense that we are “saving” for retirement in a traditional
government or so called “qualified” plan.
If your money is in the market –
it’s at risk! You are investing
not “saving.” Mutual funds are not a
safe and secure investment. They can and
will lose value at some point during your working years. Brokers might tell you that you've gotten average returns of 8.46% over the last 18 years even with 4 down
years. But your actual compounded
returns over this period were really
just 3.63%.
True,
it is important to set aside money on a regular basis. Having money removed from your paycheck before
it ever gets home means that you are far more likely to amass a nice chunk of
change over time. But would you also
agree that Wall Street’s (and the government’s) plan to have you regularly
deposit money into their game probably has enriched a lot of stock market
traders? Do you think that the ERISA
laws were solely for the benefit of working Americans?
Reagan
used to say that some of the most fearful words ever spoken were, “I’m from the
government and I’m here to help you.” I
do not trust the government’s so
called “qualified” retirement plans.
They can and have regularly changed the rules while you’re still
playing the game!
Can
you imagine being on the football field and just after half-time the referees
say, “While you were back in the locker room, we moved the field goals back 20
yards and you can now only have 8 men on the field at any time and you have to give
half of your points to the other less fortunate teams.”? The coaches on both sides would go absolutely
ballistic. “I've designed all my game plans with the old rules in mind, this is
not fair. We can’t be expected us to be
successful at winning when you keep making changes like this.”
But
now you’re in the government’s game and they set the rules. Think about it. If I offered to loan you money and said “You
don’t have to pay me back right away but when I do need the money I’ll tell you
what the loan interest rate is and how quickly I want you to pay me back the
money.” No financially savvy person
would ever go for that kind of phony loan deal.
Yet we have listened to Wall Street, the Government, and our CPA:
“See how much money I saved on
your taxes this year.” “You’ll be in a lower tax bracket when you retire.” “Tax
deferred is the best way to save for retirement!” “Everyone wants Qualified Savings, don’t you?”
Well…
unless your CPA is a Biblical prophet, there’s no way he/she could possibly
know what the tax bracket will be when you retire. You could easily be living on less money and
still be paying higher taxes.
If
you believe (as many do) that tax rates are more likely to be higher in the
future, then why are you putting off paying your tax bill to some far distant
year in the future and on a larger sum of money? Think about it. You’re not only putting off the tax bill but you’re also putting off
the tax calculation!
Remember
that phony loan deal? You’d never go for
that offer, right? Or would you? Why are you assuming that the government has
your best interests in mind? If they
really wanted you to keep and save more of your money, why didn't they just
lower your tax rate to begin with? Your
money doesn’t belong to the government – or does it? “Whose
retirement are you planning anyway – yours or Uncle Sam’s?”
$martWealth $aving
$trategy #2 is called the Tax-Free $even $eventy
$avings Account. You've probably figured
out on your own that these Brick House Savings Strategies have everything to do
with creatively using life insurance products.
These uniquely designed Strategies will grow tax-free and
provide tax-free access to your funds to supplement your
life style needs during your retirement years.
The older, wiser pig does not use a tax loop hole. Life insurance was around LONG before Federal
Income Tax was “temporarily” enacted in 1913.
Tax preference for life insurance was written into section 7702 of the
Internal Revenue Code ( http://www.section7702.com/section-7702.html
). For short, we’ll call these carefully,
conscientiously, and correctly designed $martWealth $trategies: “770 Accounts.”
Technically,
insurance should not be called “savings.”
However, you would likely agree that getting tax-free growth on your
insurance policy cash values and having tax-free
access to those same cash values plus the tax-free transfer of this asset to your heirs is exactly what you want
your “safe money” to do for you. The features of this tax-free strategy
certainly sound better than risking your retirement “savings” in the stock
market. If nothing else, at least the
770 Account is a better place to start even if you decide to risk money in the
market. You’ll learn even more about
this $martWealth $trategy™ in Chapter 3: The 12 Things Everyone Wants in Their
Perfect Investment.
“The wise older brother
built a house of bricks. His idea was to
make predictable growth on smaller investments over a long, long time.”
The
insurance industry was around LONG before Wall Street transacted its first
trade. The insurance industry, our so
called “Older Wiser Pig,” was around LONG before the Federal Reserve Banking
System and FDIC insured bank accounts.
The “Older Wiser Pig” was managing corporate and government pension
funds LONG before the passage of the ERISA laws in the early 1970’s.
Admittedly, this Elder Brother Pig was not
always as genuinely concerned about client needs as he is today. Prior to the 1980’s, life insurance and
annuities were generally unsatisfactory repositories of retirement saving
funds. Enticed by high commissions; insurance
agents tended to push product like a used car salesman on Friday night. But things are genuinely different today.
In the chapters
to come, you will learn much more about these uniquely and creatively designed
strategies that enable “death” insurance to finally, truly provide living
benefits. You’ll learn how to set up
your own privatized bank and how to redirect much of the taxes, fees and
interest that you would normally pay to someone else over a lifetime. You’ll also discover why (generally) you
should NOT annuitize and annuity. Yeah,
I know…. Confusing! But you need to know
the facts. That way you will make better
financial decisions. You just have to
start seeing things in a much different way!
I’ll grant you
that there’s a lot of “hidden” meaning in this altered version of The Three
Pigs. But it’s not hidden. Not really.
The problem is that we are all so focused on what we have to do
each and every day (just to make a living and lead a balanced life) that a LOT
of what goes on in the financial world and in government agencies goes on
unnoticed. So what we think is
hidden is actually sitting right there, right in front of us in plain
sight! You just have to put on your
“Financial GLA$$E$™.”
Guaranteed Growth
Liquidity
Accessibility with Accountability
$afety of principle
$ecure financial institution managing
your tax-free 770 Account
Enjoyment
$elf-fulfilling
Now that you have your Financial
GLA$$E$™ on, start really observing what’s really
going on with your financial health, your WealthHealth™. You could and should be saving for
retirement not “risky-investing”
for retirement. Using an automated
Electronic Funds Transfer (EFT) to regularly place some of your monthly earnings
into your own 770 Account will put you on the road to success. Pay your taxes now at a lower rate so that
your money will:
1) Grow tax-free,
2) Provide tax-free access, and will
3) Blossom and
transfer to your heirs tax-free
should you permanently “retire” sooner than you planned.
4) It can also
become self-fulfilling. If you become
disabled and are physically unable to work, your 770 Account can be set up to
fund itself for the rest of your life.
That is, it could be creatively designed and established in such a way
that your deposits would continue to be made on your behalf even if you became
disabled.
Because
of your new Financial GLA$$E$™, you
can now see much more clearly with a much higher level of focused
attention. As you explore deeper in the
chapters ahead, you’ll be able to see a few “gold nuggets” that you would have
otherwise missed. With your new
Financial GLA$$E$™ on, you’ll discover an amazing story of lies, greed, and
deception in the world of Wall Street and Centralized Banking and you’ll
finally understand the Federal Government’s penchant for debt. Through your new Financial GLA$$E$™, you will
clearly see what is actually going
on around us. That will make all the
difference in your ability to make great financial decisions. Remember:
“If you know what is happening, you will know what to do.”
~ by R.
Nelson Nash (my favorite Austrian Economist)
Post 4 - Chapter 1 continued: The CD Alternative
Brick House Savings
Strategy One - The CD Alternative
This revised version of The Twisted Story of Three Little Pigs will be explained in detail later. As Nelson Nash (one of my favorite teachers and best-selling author and a huge proponent of Austrian Economics) once said, “If you know what is happening, you will know what to do.”1
Read this book very carefully. Soon, you too will realize what is happening and you’ll also know what to do.
A lot of my clients have found what they believe is relative safety by investing in bank CDs. These Certificates of Deposit have recently been offering very low rates of return - typically less than 1%. Investors do pay ordinary income tax if the CD matures in 12 months or less.2 They also like that Bank deposits are usually covered by the Federal Deposit Insurance Corporation (FDIC) up to certain limits.3
In later chapters, we’ll dive deeper into the use and abuse of language, word choice, and perceived and real word meaning in the world of Government, Wall Street, and the Federal Reserve Banking System. For now please accept my caution to be wary of our government’s use of the word “insurance.”
Insurance companies are legally required to have reserves that exceed their liabilities (claims for health, property and loss of life, etc.). This means they have to have over 100% in reserves. According to its own website4 the Federal Reserve has a goal of having a 2% “reserve ratio” set aside to cover the possibility of a run on the bank. Some sources estimate that the actual reserve ratio is less than a half of one percent.
Sorry. Am I deflating your FDIC confidence bubble? I wouldn't do that unless I had an alternative. Since this book is all about SmartWealth Saving Strategies, it stands to reason that we’d better have a better plan. And we do.
The insurance industry has what is called a MYGA. This Muti-Year Guaranteed Annuity works a lot like a bank CD but with a couple of nicer nuances.
Depending on the length of the MYGA and the amount of the deposit, rates of return (at this writing) are in the 2.5% to 4% range. MYGA’s typically come in one to ten year lengths and are offered by many B+ and better insurance companies. A lot of people put money into a bank CD because they want the safety of not losing their principle. If you don’t need the money in your bank CD and you’re willing to park that money for a few years, a MYGA might be a great alternative.5
Just like a long term Certificate of Deposit, the Multi-Year Guaranteed Annuity will grow with compounded interest and will be taxed upon withdrawal.5 Some insurance companies offer a fixed-rate deferred annuity that can pay simple interest every year (paid monthly if you wish) or the gain can stay in the policy and compound for future withdrawal. Some of these policies even have a first year bonus and guarantees that you can remove all your principle if the rate drops below the guaranteed rate.5 Taxes are paid at the very end of the term instead of annually.2
Be aware, my worthy student of SmartWealth Strategies, that your CD is not only earning a paltry rate of return but this type of investment is actually COSTING you money. When the inflation rate exceeds your rate of return, you are losing money BIG time.
What would you do if you could get a first day "signing bonus" of 8% and annual guaranteed returns of 7% compounded for ten years with a guaranteed monthly lifetime income that you couldn’t outlive? 5
What would you do if you needed a monthly cash flow and could have access to a federal pension income based on a discount rate of 6% to 8% instead of the paltry interest rate you get at the bank? 5
What would you do if you could get tax-free growth and tax-free access with a guaranteed minimum of 1% and a ceiling of 11%? 5
Author's Note:
The answer to these and more of your questions will come in the later chapters of this book. Remember you’re getting the book a chapter at a time as a monthly newsletter. But if you need help sooner, just give me a call at 509-32SMART that's 509-327-6278 or toll free at 888-895-9995 or email me at SmartWealthNewsletter@gmail.com . We’ll arrange for a quick 15 to 20 minute review on the phone. Then we’ll schedule a free 30 to 60 minute consultation. If I can help you, I will. If I can’t, I’ll plainly tell you.
Footnotes and references:
1 Becoming Your Own Banker, Fifth Edition, page 65, by R. Nelson Nash.
2 This book is not designed to provide legal or accounting advice. Check with a trusted financial advisor before you make any investment choices.
3 http://www.fdic.gov/deposit/deposits/changes.html accessed on 8/12/2013.
4 http://www.fdic.gov/deposit/insurance “Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank Act) revised the FDIC's fund management authority by setting requirements for the Designated Reserve Ratio (DRR) and redefining the assessment base, which is used to calculate banks' quarterly assessments.” also “The Federal Deposit Insurance Act requires the FDIC's Board to set a target or DRR for the DIF annually. Since 2010, the Board has adopted a 2.0 percent DRR each year. An analysis using historical fund loss and simulated income data from 1950 to 2010 showed that the reserve ratio would have had to exceed 2.0 percent before the onset of the two crises that occurred during the past 30 years to have maintained both a positive fund balance and stable assessment rates throughout both crises. The FDIC views the 2.0 percent DRR as a long-term goal and the minimum level needed to withstand future crises of the magnitude of past crises.”
5 Again, this book is not designed to provide legal or accounting advice. Check with a trusted financial advisor before you make any investment choices. Furthermore, rates can and will change. Finally, because policy features can and do change, no specific company will be mentioned by name. However, all features that are described did exist at the time of this writing.
Post 3 - Chapter 1: The Twisted Tail of Three Little Pigs
Brick House Savings
Your Guide to: The $even $martWeatlh $aving $trategies
Strategy One - The CD Alternative
Chapter 1
The Twisted Tail of Three Little Pigs
The middle pig wanted to make his fortune in the real estate market. His stick built house investment strategy also went up quick. It was a bit stronger than his brother’s straw house. But it too became shaky.
The wise older brother built a house of bricks. His idea was to make predictable growth on smaller investments over a long, long time.
The wise older brother’s house was big and strong. The older brother pig continued making wise, long term investments and eventually had a predictable future retirement income for himself and his clients.
When they grew weary of rebuilding their straw and stick houses each time they fell down, the younger pigs decided to build another house that looked a lot like their older brother’s house. But they chose to use very cheap building materials. Even though their brick house did look almost exactly like the wise older brother’s home, they knew it wouldn’t last. But they thought, “Why spend so much money building with such high quality materials? We want to make a lot of money, and quick!”
The middle pig brother went into politics. He sold government and municipal bonds from the main floor of his cheap brick house. He passed all kinds of laws that made home purchases “affordable” for the poor and needy. They bought houses they couldn’t afford, with money they couldn’t pay back to impress people they didn’t even like. He also raised taxes on the rich because those guys didn’t deserve to keep all their excess money when there were so many others in need (including himself, of course).
The youngest pig brother moved in with his next older brother in the cheap brick house. These two younger pigs were very close.
Youngest pig brother got into banking. While middle pig sold bonds, youngest pig sold CD’s and Money Market Accounts. Both of these younger brothers wanted to make as much money as possible. So they didn’t pay their customers very much. But they did charge really high fees.
Youngest pig brother was so eager to make more money, he even set up a printing press in the basement. His goal was to print as much money as he could and buy lots of stuff and resell it at a profit. “What a GREAT plan!” he thought.
So that was their retirement plan. The two younger brothers kept their straw and stick houses and continued to charge high fees for “helping” their clients with loans, investments, and such. But they did most of their business out of the cheap, pretend brick house they had built to look almost exactly like the wise oldest pig’s wonderful and sturdy brick house.
And so the three brother pigs lived happily until the Big Bad Wolf came in 2001 and again in 2008. The wise oldest pig’s solid brick house stood the test of this terrible, awful huffing and puffing and blowing. But sadly the straw and stick houses came tumbling down.
Since the two younger pigs had financial and political power and because they were, after all, living in the same house, they decided to help each other. Banker pig helped by printed even more money.
Billions each month were pumped into the economy. Banker pig used all this extra money to buy his politician brother’s bonds. Now the politically powerful middle pig brother could say that he was paying off all his debts. This scheme work like a magic charm! The two younger pigs grew very fat from the spoils they took from their customers.
Politician Pig wrote lots and lots of new regulations to make sure businesses and the rich were behaving themselves and treating others equally! The rich were just too rich! So like a caring parent, Politician Pig made sure these naughty rich kids chose to share with others. That was the fair thing to do. After all, we should never make others feel bad about being poor. Everyone deserves to be a winner.
The two younger pigs grew very fat from the spoils they took from their customers.
Unlike his portly and glutinous younger brothers, the Older, Wiser Pig stayed fit and trim. He planned ahead long into the future. He wanted to live a long healthy life. The older wiser Pig was self-sufficient and self-motivated. He wanted to achieve long term success both for himself and for his clients. He was careful about both his physical health and the health of his wealth.
“If you know what is happening, you will know what to do.” – R.Nelson Nash
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