401k alternatives

Alternative Investments

Now more than ever people are looking for a safer alternative investment to what they currently have. They want an alternative investment to whatever is not currently working for them. Let’s take a look at some of these investments that you may or may not be using and see if we can find an alternative investment that is beneficial for us in our current market.

Stocks

Crestmont research did some fantastic research about the stock market from 1900-present. The interesting part of this research is that the biggest growth in the stock market was between 1978-1999 where there were only 6 years (of those 21 years) where we didn’t have double digit growth. On top of that, only 2 of those 6 years were losing years.

It’s also interesting when we compare this to history. Did something happen in 1978 to cause such massive growth in the stock market? Well in fact yes there was such an event, the 401k.

With government 401k plans becoming available retirement savings begins to all funnel where? Into the stock market. And when everyone is buying stock that causes the demand to go up, and with that the prices go up.

Now to add to this mess (and talk about bad timing) those who were working in 1978 we like to refer to as “the baby boomers.”

So, what situation does that leave us in today? Well we have the largest generation of retirees pulling money out from the market, leaving us with the dead weight of the largest ponzy scheme in history. And understand they are only starting to retire, so more and more of this money will be pulled out of the markets over the next ten years, with little money being put back into the market to replace it.

It’s no wonder people are looking for alternative investments to the stock market, the volatility has been all over the board for the last ten years, and the future isn’t looking any more predictable.

Mutual Funds

One of our authors Jake Thompson did a fabulous expose called, 5 Reasons NOT to Invest in Mutual Funds where I’ll be taking a majority of this information for this section from.

The mutual fund industry is a fantastic place to be, if you are a mutual fund manager. However, for those investing money in mutual funds this is not the case. There have been so many scams and so much illegal activity behind mutual funds it’s sick.

Mutual funds have averaged less than 2 percent for the last few decades (you can read Dalbar’s study here), so they have been even less reliable than stocks. Sure you minimize your risk, but you minimize your losses, and how long do you want to try to walk up on the down escalator before you just give up?

I’ve never met a mutual fund millionaire, it doesn’t exist.

401k’s

Now the 401k has some additional benefits that make it a better investment, right? Well let’s take a look at some of these benefits and analyze them.

I know it’s hard to walk away from the company match, and that’s a decision you have to make with some careful consideration, but what most people don’t like about the 401k is the loss of liquidity, or that they don’t have access to their money.

The problem that arises are these: What if I have a business opportunity, investment opportunity, or I fall into hard times? In each of these cases, a 401k can be your worst enemy because it will trap your money. Unless you want to pay high fees, you can’t take the money out of your 401k, making it a double edged sword.

The other reason most people get involved in 401k’s is that it defers their taxes until later, but let’s look at a scenario and see if we can get a better idea of the consequence of postponing taxes.

Let’s say I’m a bank, and you need to borrow $10,000. You come to me and ask for a loan and I agree. The first thing you are going to ask me is, “What are the terms.” Now, if I say back to you, “Well, I don’t know. I really don’t know how much money I’m going to need. So here, take the loan, and when you are ready to pay the loan back I’ll let you know the interest rate.”

There is no way you would take that loan in a million years. But isn’t this exactly what you are doing in your 401k? You don’t have any clue what the tax rate is going to be in 1, 5, 10, or 20 years when you take the money out. You take that risk when you put money into a 401k, and I don’t know about you but the way our country is going I don’t expect taxes to go down.

We’ll get to 401k alternatives in a minute. But first let’s look at…

Bonds

When people want safety, and they get sick of all the negative aspects and losses of their stocks and mutual funds, often they turn to bonds. Bonds can be a great place for your dollars to be safe and grow slowly. However, bonds lack liquidity–meaning you can’t access the dollars until the bond matures. But what if there was something just as safe and proven as a bond, that also gave you tax free growth? Well, let’s take a look at our best alternative investment.

Cash Value Alternative

The most secure, predictable, and tax-advantaged alternative investment to the market is cash value, permanent whole life insurance. You may think life insurance is a bad place to store money, or maybe you didn’t realize you could build up cash in a whole life insurance policy, but the truth is most of the people that are against life insurance either don’t understand it, or worse if you save money in life insurance they won’t make money.

However, aside from what the so called “experts” tell you, whole life insurance is the most tax advantaged place to put your money, and it’s the easiest place to access cash while your money grows.

What are the tax advantages of this alternative investment? The money in a cash value life insurance policy will grow tax free, if treated properly it will never be taxed, and when you die the death benefit from the policy (which is always greater than your cash value until you are over 100 years old) will transfer to your beneficiaries with no taxes. So, I will repeat simply, if you don’t close the account you won’t pay another dime in taxes on principle or growth ever.

What about safety? Life insurance is tied to safe investments by the life insurance company (who are some of the safest and smartest investors historically). They guarantee you that you will never lose principle or growth on your money. Like a bond it is safe, but the difference is that life insurance dollars are accessible for you to borrow out and use anytime. And also, what bond has a death benefit attached? None. But using life insurance as an investment puts your risk of death on the shoulders of the life insurance company, adding another layer of safety.

Don’t just take my word for all this, we have some great books that we are willing to offer you free–for a limited time. Sign up below and learn for yourself all the details about cash value whole life insurance that you never knew.

One thought on “Alternative Investments

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>