“Here is a secret, insurance companies do NOT want your money; they simply want to HOLD your money”
— Lawrence Castillo
Warren Buffett and other smart investors make money by borrowing to invest in low-risk, low-return securities, sort of like a “specialized margin” account. Other folks, who don’t have enough borrowing power to play the leverage game (interest rates on margin accounts can be high for the small investor), can only generate profits by investing in possibly higher-risk assets.
The irony about risk-taking is that most of us are in the second group, small investors. But it can also include professional investors such as many mutual fund managers. If they don’t take some risk, they may lose the opportunity to make money. Sometimes the reason the market will move with stock because the demand for a better return triggers the increase in its valuation. This, of course, drives up the prices of those assets, thus reducing their returns.
That all sounds well and good, but what is the answer? How can you leverage your funds and take advantage just like the big players?
One way is to look at your money from a different point of view, not as money but as “what is the purpose of your money and what do you want it to accomplish?” For example, have you ever considered why investors like Buffett try and make so much money? Does it mean they can eat better, sleep better, take more vacations?
Their goals are different than the goals of most of us. We want to use our money for life’s demands, education, food, housing, and retirement. Instead, their money is for two things keeping score and their legacy.
So how do we “game” the system? Like I said, looking at the reason for using money from a different view. Why not look at your retirement money not from how much you can accumulate but by how much income it can provide?
Think of your money for its intended use, and for most of us that would be retirement income and money to enjoy security later in life. There is a way to compete and use the system, it is easy, simple, and the big boys won’t know about it. Why won’t they? Because they don’t care, they only care about their reasons for their money.
How would you like to “earn” 4-6 percent on your retirement account? You can, it is available, and it is guaranteed. How can that be? Simple, if you use your funds as an income instead of a pile of money, many insurance companies will pay that rate on the funds which will be targeted and used as retirement funds. It is called an Income Rider, and it is available as an add-on with annuities. The amount earned in your account stays on the income accumulation side; the amount you actually can receive as retirement is based on other factors such as age. Many contracts are different so do your research carefully.
How can they do that? Insurance companies know how many people will use these funds for this use. So they plan for it, and they reinsure their liability if things change, and they pay out more than planned. They ensure their obligation to you just like you can secure your retirement income for you and your spouse.
How do they reinsure the retirement obligations promised to you; yes, you guessed it, the Warren Buffett’s of the world ensure the companies promises.
My secret? “It is not how much money you have; it is about how much money you have each month.”
Let an insurance company hold part of your retirement money and receive a higher rate of interest when you need or want it for income.
(Lawrence Castillo is a member of Syndicated Columnists, a national organization committed to a fully transparent approach to money management. L and C Retirement Income Planners, 4801 Lang St. NE Suite 100 Albuquerque NM 87109 505 798-2592 http://lawrencecastillo.retirevillage.com/)