“The individual investor should act consistently as an investor and not as a speculator.”Benjamin Graham
The truth about the stock market has been obscured for too long. Mutual funds and stocks, the mainstay of most retirement plans, represent more risk for less reward than has been assumed. However, investors are waking up to these inconvenient truths. They’re searching for assets and investments outside of the stock market, and they’re taking their money elsewhere.
In May 2021, Investopedia surveyed the average investor, concluding that 42% of those surveyed had less trust in the stock market than they did six months prior. Some of this can be chalked up to the volatility of the year’s earlier risky trading. And unfortunately, this isn’t an anomaly. The stock market is designed to have this type of volatility.
Clearly, it is time to expand our options beyond Wall Street. It’s time to utilize new and old investment vehicles to provide solid returns without unnecessary risk and speculation. It’s time to make investments outside of the stock market the norm, rather than the exception.
If Not the Stock Market, Where Do You Put Your Money?
Consider your answer to this question carefully, because the ramifications can be enormous. Here are a few traditional options:
While bonds are not without risk, fluctuate with interest rates, and yes, can lose money, their track record as a less-volatile investment is admirable. Seen as the lesser-performing, duller counterpart to stocks, bonds have actually out-performed stocks in the last ten years (which says more about the poor performance of stocks than the profitability of bonds). Still, bonds remain a popular choice for investors wanting investment income that won’t roller coaster-like stocks while producing better returns than savings accounts.
Unfortunately, bonds are too popular, in that many people fail to stretch outside the stock-vs-bond box. “Are you young or do you have a higher tolerance for risk? We’ll put you in 90% stocks, 10% bonds. Have you retired or are you a conservative investor? We’ll choose a bond-heavy portfolio. Somewhere in between? We’ll split the difference between stocks and bonds.” It’s no wonder that so many investors remain unaware of other options! We encourage investors to look at investments beyond the box.
Whether rental homes, second homes, apartments or commercial real estate, real estate assets allow investors to enjoy leverage, tax benefits, and the security of a “real” investment. Not sure you want to be a landlord? You can have others manage your properties for you. Just structure your deal to allow for adequate cash flow.
Another real estate related option is to invest in bridge loans, or short-term financing for (particularly) commercial and investment real estate. You won’t have the leverage of a landlord, but you also won’t have the headaches! Bridge loans can produce a nice return on a short-term investment, ideal for those looking for cash flow who would prefer not to lock up their principal for many years to come.
For accredited investors, investing in life settlements or life settlement funds (also known as senior settlements) may provide the desired returns and protection from the market. Life settlements involve the purchase (often in fractional ownership arrangements facilitated by a third party) of life insurance policies that have become unwanted, unneeded, or unaffordable to the policyholder.
Much like selling a deed to a piece of property, elderly policyholders sometimes sell their permanent life insurance policies. This gives them the cash they need now, while the investors (who continue paying the premiums) become the beneficiaries of the policies.
For those who want the chance of a higher return without risk, life settlements can be solid investments. Returns can be in the double digits, and the principal couldn’t be safer in a savings account. However, life settlements are not liquid and the investment time frame and rate of return are unpredictable. As with any investment, it is important to understand how it works and who it is best suited for.
Whole Life Insurance?
Even more so than bonds, cash value life insurance is a great hedge from the market and is recognized as one of the most “certain” places you can put money. Insurance policies are not investments, however, they have savings potential and liquidity…often better than actual banks. In fact, banks are putting more and more of their assets into permanent life insurance, which is used largely to fund bonuses and pensions. According to Independent Banker, “Two-thirds of banks in the U.S. hold BOLI assets, according to the NFP-Michael White BOLI Holdings Report for Q3 2020. The cash surrender value of those policies totals $182.2 billion. Banks with less than $10 billion in assets have, on average, approximately 14% of capital in BOLI.”
Perhaps Americans would be wise to do what the banks and big corporations do and leverage their cash value (and yes, even their death benefit) to create income streams and build financial security. With strategies such as those outlined in Kim D. H. Butler’s powerful little book, Live Your Life Insurance, life insurance becomes an asset to be used by the policyholder now, not just money for surviving beneficiaries. As the book asserts, “The first beneficiary of your life insurance policy should be YOU.”
Start a Business?
Forty-seven percent of millionaires are business owners, over double the twenty-three percent of millionaires who invested their way to wealth while working for someone else (usually as a skilled professional or manager.)
In Killing Sacred Cows, Garret Gunderson shows how your 401k might be actually keeping you from wealth! Financial media sells us on the model of accumulation as the way to financial independence when wealth building is about the utilization of our talents and assets to create value. Money then becomes the by-product of creating value.
Gunderson says business ownership, or self-employment, is one of the keys to wealth, not picking the right mutual funds. Starting a business allows you to find and expand your own prosperity rather than just be an investor in other people’s companies who you will never even meet.
Invest in Yourself
Prosperity isn’t something we save up for to enjoy in our golden years; it’s a way of life that pays dividends all along the way. Whatever you choose to invest in, use your finances to grow yourself as well as your assets. Learn a new language. Travel to a new continent. Become an expert. Write a book. Create something. Not only does this give purpose to your life, but as you grow your skills, knowledge, and confidence, you’ll grow your own ability to build a life of Prosperity.
Want to know more about life insurance?
Contact us for details about how you can escape the mutual fund rut and automate your savings into a whole life insurance policy with certainty and liquidity. This is the ideal foundation with which to build up other investments, including investing in yourself.
Disclosure: Our content is meant for educational purposes only. While it’s our goal to help you learn about building a life of prosperity, we do not intend to provide financial advice. Please consult your financial, tax or legal advisor before making any investment or financial decisions.