Be Smart in Planning for Your Future

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By Doug Walker, CCPS, Principal, Mountain State College Planning Associates
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History is filled with hundreds of examples of mass mania, delusion and people looking to make a fast buck . . .

 In 1841, a Scottish journalist named Charles Mackay published a book called Extraordinary Popular Delusions and the Madness of Crowds,documenting a number of classic scams and investment schemes gone awry.                               

Since 1979, I, like Mackay, have watched with great interest as many of these flim flammers have tried to corner the market, short change their customers and make a quick dollar – all at un-informed investor’s expense. 

Remember when Bunker Hunt and his cronies attempted to corner the soybean and silver markets?  His attempts to get rich quick led to some rather rapid rise in prices, and even more rapid declines when market fundamentals took over.

Clients kept asking me, "When is silver going to go back up again? I don't want to miss the next run-up." The next run up took about 25 years and still has not reached the highs set in the early 1980’s.

About that time, gold prices increased from somewhere under $200 to about $850 per ounce. When the price decline came (as it always does) prices went back down to about $200 an ounce and stayed there for quite some time. Today, gold prices have doubled from these previous highs. The question begs itself, “For how long?” And what will the fallout be for the ill-advised investor who has put all of his golden “eggs” in one basket?

One “guaranteed money maker” has been the pitch for tax-qualified plans, which allow investors to defer taxes on current income now, have tax-deferred growth and pay the taxes when you have a lower tax rate.  Unfortunately, the downside is that you are betting that you will pay fewer taxes in the future, and anyone who pays taxes already knows -- you will always pay more taxes in the future.  This, combined with a shaky market and low return, makes this type of investment questionable at best.

One type of tax-deferred investment millions Americans have “bought” into without question is the IRA. Introduced in 1974, taxpayers were excited they could contribute to an IRA and reduce their taxable income by the amount of their contributions. Subsequent rule changes allowed all taxpayers under the age of 70½ to contribute to an IRA and raised the maximum annual contributions. Congress also created several categories of IRAs for pre and post tax moneys.

 Another of these tax-deferred investments was created by Congress in 1978. The 401K plan was initially designed to benefit company executives.  Amazingly, while so many have 401K plans, few Americans really know how they work. 

For more and more 401K plan participants, their contributions are deposited into “Target Date Funds.” A target date fund is little more than hedge fund holding mutual funds and other investment strategies that aim, but often fall short, of a making a positive return on investment.  Returns are dependent on whether markets are rising or falling. Unfortunately, the management fees and investment charges, combined with market swings often prevent a fund from outpacing inflation and for many; it can mean postponing retirement in an unstable market.

What’s worse? We haven’t even touched on a myriad of other investment vehicles, such as credit default swaps, collateralized mortgage packages, what has happened to the housing market, the ‘tech’ bubble, and the other schemes that Wall Street has devised.

As Charles Mackay warned us:  Be smart and be warned.  When selecting investment vehicles, you must ask the hard questions, and ask them from a qualified, reliable source of information such as an asset protection planner.  Someone skilled in asset protection can help you protect, grow your assets and to pay for the necessities of life like college for your children, retirement and the other milestones of life.  They will treat you with respect, dignity and help you to become a strong and educated investor.  Safely.  Proactively.  And with your long-term solvency in mind.

Remember what Theodore Roosevelt said:  The things that will destroy America are prosperity-at-any-price, peace-at-any-price, safety-first instead of duty-first, the love of soft living, and the get-rich-quick theory of life.  Beat the odds.  Have a plan for you and your children’s secure future.

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