Wednesday, March 19, 2008

The Risk of Owning Annuities

I’m not sure what you know about annuities, but I will tell you that a lot of insurance agents and registered representatives don’t know as much about the products they sell as they should.

You might wonder how that can be, but if you truly knew the number of annuity products currently being offered by hundreds of companies it wouldn’t be hard to fathom.

The other thing that makes annuities rather intimidating is that since each company’s products have different features and crediting methods they can rarely be compared side by side with much consistency.

The popularity of one over another can actually be the strength of the company offering it and how effectively they market it. Some companies set themselves apart by being truly innovative and others simply get a product out there to have something to offer along with other products.

Some agents are very knowledgeable and know their products inside out. They keep up on changes and take advantage of training seminars and company experts.

Others learn just enough to be dangerous and tell clients what they want to hear and leave out the potential downside.

This has lead to improper products being sold to unknowing prospects, especially in the senior marketplace.

Typically, the main issue has been tying up the funds of the elderly for excessive periods of time when they may need to access this money for issues such as health care or long term care in the short run.

Since bad news gets a lot more press than the products purchased by clients for the right reasons, annuities in general have taken a bad rap and that is a real shame.

There are a lot of good products out there that offer low fees, principle protection, tax deferred growth, good long term interest growth, guaranteed payouts and death benefits.

They make good vehicles for trust investments and for installment sale payments, as they are backed by strong insurance companies who must keep enough cash reserves to guarantee required payouts.

Any trustee or charity that is obligated to make payments to a contracted party needs to invest this money prudently as opposed to trying to hit a home run with an unrealistic return expectation and shouldn’t be subjecting the funds to risky or illiquid assets.

Bottom Line: Annuities for the right purpose are very appropriate and effective. Always make sure you understand what you are investing in and don’t be swayed by headlines- whether positive or negative.

Paula Straub
http://www.savegainstax.com/
savegainstax@gmail.com
760-917-0858


Fill out a Qualification Questionnaire and see if you qualify to save capital gains tax. Go to
http://www.savegainstax.com/qq.html

Find the “Definitive Beginner’s Guide to Potentially Saving Hundreds of Thousands of Dollars in Capital Gains Tax” at
http://www.savegainstax.com/sales.php

The Risk of Owning Real Estate

Real Estate is an important part of anyone’s investment portfolio.

Whether it is the house you reside in, a rental property, vacant land, or a commercial building, a good piece of real estate will almost always increase in value over time.

That said, a number of factors can happen which can affect how much your property increases in value.

Any time you buy a property that is less than desirable, you can lose money. Structural issues you may not be aware of, property in a declining neighborhood, land in a flood zone, natural disasters such as fire, flood, hurricane, earthquake, zoning issues, tax issues, insurance issues, all play a part in the value and profitability of the property.

Economic issues can also have a great effect and are much harder to predict and knowingly avoid.

In 2008 times are tough. People are losing homes and jobs, property values are dropping, companies are going out of business or are seeing major declines in revenue, and a property may not sell as quickly as you’d like.

Even a solid commercial property can have a tenant break a lease and leave the owners temporarily in a negative cash flow position.

Just as I’ve seen my home triple in value in about 5 years, I’ve also seen it decrease by about 20% in 2 years.

This could have gone the other way if I purchased at a different time. It could have gone down significantly in the first couple of years and then rebounded in the next 5.

Real Estate is still a good investment. It is still up to every purchaser to do their due diligence and know what they are buying. It is not a liquid asset, and is almost always more profitably over a 7-10 year period of time.

Those who buy properties to resell at a profit in a short period of time will make a lot of money in some cycles and lose a lot of money in others. It’s the nature of the business.

The moral of the story is, just because real estate can go down as well as up don’t count it out as a good long term investment.

I had a client that did great with a few properties in Florida during the boom there. He sold and immediately bought several more thinking he’d make another huge profit and keep repeating the cycle. Now he is pouring money into empty rentals which aren’t selling and quickly losing his original profits.

Unfortunately, all his eggs are in one basket and he is forced to learn a difficult lesson.

Paula Straub
http://www.savegainstax.com/
savegainstax@gmail.com
760-917-0858


Fill out a Qualification Questionnaire and see if you qualify to save capital gains tax. Go to
http://www.savegainstax.com/qq.html

Find the “Definitive Beginner’s Guide to Potentially Saving Hundreds of Thousands of Dollars in Capital Gains Tax” at
http://www.savegainstax.com/sales.php

No Such Thing as No Risk

We all would like guarantees that any investment we make will never lose money or value. The reality is that every investment has a certain amount of risk.

Whether you are purchasing real estate, stocks, bonds, mutual funds, annuities, gold, or even certificates of deposit there is risk.

The best you can do is evaluate what it is you are purchasing, be aware of the specific risks and potential rewards that asset has associated with it, know what if any recourse is available should something unexpected arise, and do not put all your eggs in the same basket.

We all know the stock market goes up more than it goes down over extended periods of time. Buying good quality stocks of a diversified nature and holding them through both down and up cycles will almost always show long term profit.

Real Estate has similar cycles. If you purchase a good quality property in good condition in a good area it will most likely increase in value over time.

The comparative safety of a certificate of deposit has the risk of locking into a low interest rate for an extended period of time and having your savings not keep up with the rate of inflation.

The next couple of articles will address some of the normal things to expect which can put a crimp in any investors plan. In other words “Stuff Happens” and there is a chance it could happen to you.

It doesn’t mean you should never take risk, just that some risks will pay off right away, and others may encounter some challenges along the way. It is often forces beyond our control that make it hard to predict.

Paula Straub
http://www.savegainstax.com/
savegainstax@gmail.com
760-917-0858

Fill out a Qualification Questionnaire and see if you qualify to save capital gains tax. Go to
http://www.savegainstax.com/qq.html

Find the “Definitive Beginner’s Guide to Potentially Saving Hundreds of Thousands of Dollars in Capital Gains Tax” at
http://www.savegainstax.com/sales.php