Who would’ve thought the DOW Jones could crawl above the 14,000 mark? Does this average that we’re out of the woods and that our economic woes are behind us? Not likely. The numbers never lie, and across the board, several economic indicators are pointing to the contrary. Numbers on unemployment, gross domestic product, and housing, seem to mirror what consists of a struggling economy, which is not typical of a 14,000 mark. in addition here we are.
Market optimism is stemming from austerity measures or financial bailouts, which can be argued as presenting an illusion of a healthy economy. Currently, Quantitative Easement III (QEIII) allows the Federal Government to pump $35 billion per month into bonds and mortgage backed securities indefinitely, until the unemployment falls below 6.5%, which is something that is easily several years away from happening. Year to date, since 2008, we have spent well over $4 trillion dollars in federal stimulus. This enormous amount of federal spending has been necessary in order to battle the greatest volatility has encountered since the Great Depression. Unfortunately, the only weapon obtainable to battle the challenging market conditions is the Federal save’s printing press. Personally, I feel investors have become complacent in regards to the Federal Stimulus being a position quo to the market; a permanent solution at best. However, the last five years have shown us that this is an doubtful trend.
Throughout our global economy, it is no secret that austerity policies totaling several trillion dollars, has been the saving grace to a global meltdown. The numerous bailout measures, courtesy of the central bank, are the only things keeping the Euro from collapsing. Not surprisingly, there are already more drastic measures (other than government printing presses) being put into place, that contradict every known law of economic wealth. For example, within the last associate of years, Spain instantaneously “erased” billions of dollars of debt obligations off their balance sheet. This was possible by collateralized debt swaps aimed at bettering their market conditions. Domestically, Freddie [Mac] and Fannie [Mae] nevertheless continue to struggle with the housing sector already with continuous sustain from Quantitative Easement III, and our GDP doesn’t already come close to supporting this recent surge in the market. Does this sound like a financial ecosystem worthy of a 14,000 mark? The writing is on the wall. We are in a financial ecosystem where the rules are literally set in opposition. Whether you are for or against austerity measures is insignificant. This is the reality and it is here to stay. The question is how do you protect against an unrealistic complacency in a struggling economy?
One way to protect your money from expected volatility is by a concept known as annual reset. Annual reset is a closely regulated concept that has protected hundreds of billions of dollars from volatility since 2001. This is the only financial concept around that can avoid volatility while locking in a portion of the market upside, year in and year out. Annual reset was first launched in the latter part of the 1990s, and has since evolved into a preferred way of business for some of the top financial institutions nationwide. Investors are warming to this concept after seeing some financial products averaging, and exceeding, a 6% [average] rate of return since 2001. One means that has achieved this rate of return while providing total market protection is an indexed universal life (IUL) insurance policy. These over-funded life insurance contracts come equipped with popular conditions with respect to cash accumulation. This, paired with annual reset, provides a perfect cure to an unpredictable economy. Furthermore, if properly structured, IUL can include both tax-deferred growth, in addition as tax advantaged withdrawals exempt from federal income taxes.
We know that the Federal save has promised to intervene with aggressive austerity measures in order to avoid another financial collapse. What the final toll will be remains to be seen. I am in the opinion that the more we use, the more we are obligated to repay. Once again, over the last five years, we have printed over $4 trillion dollars just to offset a financial collapse. This amount is over one-third of what the total US deficit was prior to 2008. I see the federal stimulus continuing for several years to come, which will increase this number significantly. Of course, this will not be without consequence. Today, our highest federal tax bracket is at 35%, which is well below the average marginal tax rate of 63% since 1913. An IUL policy can help protect against the threat of rising income taxes by allowing an investor to withdraw funds in the form of a loan against the cash value, exempting a taxable event on the policy’s gains for life. The loan (rule and interest) only becomes payable upon the death of the insured, with taxes then being paid by the cash value and accelerated death assistance of the policy. This strategy gives the investor piece of mind by ensuring that their quality of life will not be hampered by rising federal income taxes.
It is no secret that austerity measures used today are for short-term solutions only aimed at offsetting another financial collapse. Although the market topping the 14,000 mark on the Dow Jones is quite impressive, the past five years have shown us that this rally is not likely to last. The only way to protect your money with a moderate return exempt from all volatility is by vehicles such as IUL that uses annual reset to bypass all future market downturns. Without putting measures in place to protect your long-term retirement or financial goals, your end consequence could easily prove to be more unpredictable than our bailout ridden global economy.