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It’s hard to blame investors for trying to save on fees and expenses when they invest their hard earned money. After all, most of us have a natural desire to save money on just about everything we do. We were raised that way—a penny saved is still a penny earned. In fact, we still raise our kids and nag our spouses that way.

Therefore, no-load mutual funds and index ETFs sound like sensible places for our money. The long term growth charts and average annual returns of around eight or nine percent are in line with our objectives and goals. These mutual funds and ETFs have very low expenses and can be excellent tools when used in the proper way, for the proper purpose, in the right amounts, and at the right time of your life.

Some investments are fine for 35 year old’s, but not so much for 55 or 65 year old’s. In the long run, the market index works out fine—as long as you have twenty years to let the average play out. For example, the market averaged over 18% from 1989 to 1999. What a thrill! But from 2000 to 2009, the market showed a ten year loss. What a bummer!

In reality, it was simply a reflection of the way the market works. The long term average for the S & P 500 is around 7% without dividends reinvested and about 9.45% with dividends reinvested, according to Wall Street firm Ned Davis Research and numerous Standard & Poors charts. The reality? What goes up, does come down, and over twenty year and thirty year periods, “water seeks its own level.”

The difference maker is whether or not you choose to use the proven tool of reinvesting dividends. Reinvesting the dividends of quality companies is a tool in your tool box that may serve to lower your overall risk and increase your overall long term total return.

Most important, we need to be careful to use the right tool for the right job when investing. The best chain saw in the world is not recommended for peeling potatoes. A scalpel is a precision tool that can help perform miracles in the right hands. But you and I would have very little use for one. Case in point: some tools are excellent, but only if they are used by skilled professionals. And if we’re not careful, we can really mess things up.

For example, if you are in or near retirement, no-load mutual funds and ETFs could be wise for part of your portfolio as a long term holding where you can let the average actually play out. Otherwise, if you are in or near retirement, too much can go wrong without warning. Index funds can be up twenty five percent in a year, but they can also be down twenty five percent. Consider that fifteen years of stock market growth was lost in just fifteen days of stock market losses during 2008. You may have the right tool, but be using it at the wrong time.

Retirement investing is far more difficult than general investing. Once you are closer to age sixty for than thirty four, mistakes are far more costly. The do-it-yourself approach could truly cost you a fortune. Financial bucketing is an approach to retirement planning that can help you simplify, protect, and get your money working toward your personal goals.

The right bucketing plan can also keep you from getting hurt by the market at exactly the wrong time in your life.

I recommend a four bucket system. It consists of
1) a “cash” bucket filled with bank assets and money markets for instant liquidity
2) a fixed income bucket filled with lifetime guaranteed annuities–preferably cash building, income paying annuities.
3) a growth bucket, invested in dividend growth stocks for the most part
4) an insurance bucket (optional) where you may address life insurance and long term care

With your money divided into buckets, each with its own written task and time deadline, you may find yourself far more confident about your retirement future. Throwing your money into one big pie-chart of mutual funds and hoping for the best is no way to take on the very uncertain future we face as a nation and globally. A secure and math-based financial bucketing strategy may be worth looking into and comparing to your current plan.

Scottsdale Financial Planner Steve Jurich is an Accredited Investment Fiduciary® who hosts a daily radio program in Phoenix, Arizona. He is a Kiplinger Contributor with more than twenty two years of retirement planning experience. Websites: IQWealth.com, BlackDiamondDividend.com, RetirementRadioUSA.com.

The post Build Your Financial Plan With Smart Bucketing appeared first on IQ Wealth Management.

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2016 Was The Year Of The Value Stock, 2017 Is All About Momentum–For Now

The Dow Jones Industrial Average crossed 22000 for the first time Wednesday August 2, which was its 32nd record close this year and its fourth 1,000-point milestone since the U.S. election. The blue-chip index has now more than tripled since a low set in March 2009.

Here are some of investors’ theories for why the stock market keeps rising gathered from the Wall Street Journal:

1) Stocks Are Reflecting the Resurgent Health of American Corporations

The biggest U.S. corporations are on stronger footing than they were last year. With most S&P 500 companies having reported second-quarter results, firms are on track to post another quarter of strong profit growth—building on gains from the end of last year, when companies snapped a five-quarter streak of earnings contraction, according to FactSet. The rebound has been broad, reflected not just among oil firms—which have recovered along with oil prices—but also in tech giants like Apple and economic bellwethers like Caterpillar. Those who believe the stock market’s trajectory is ultimately determined by the rate of earnings growth say continued strength among U.S. firms should help fuel further gains in the stock market.

2) The Global Outlook Is Looking Brighter

Economists are projecting a pickup in global growth, while the U.S. expansion remains slow and steady—a combination that investors say has helped boost multinational companies, which have been among the best-performing stocks this year. Boeing, Apple, and McDonald’s Corp. made up the bulk of the gains that pushed the Dow industrials past 22000 for the first time. Profits at such firms may get an additional boost if weakness in the U.S. dollar persists, because it makes their exports cheaper to foreign buyers. The WSJ Dollar Index, which measures the currency against a basket of 16 others, had fallen 7.5% this year through August second when the 22,000 milestone was breached..

3) The U.S. Economy Is in a ‘Goldilocks’ Situation

Investors are currently contending with a rare but favorable environment: an economy that is expanding but not fast enough that the Federal Reserve is in a rush to raise interest rates. The unemployment rate fell to a 16-year low in May, yet inflation has remained stubbornly below the Fed’s 2% target—suggesting to many investors that the central bank is unlikely to raise rates aggressively. Many analysts caution the so-called Goldilocks scenario is unlikely to last, but for now, Janet Yellen and company are keeping a light foot on the accelerator.

4) Passive Funds Are Propping Up Prices

One hallmark of this year’s stock-market rally is the relentless flow of money into index-tracking mutual and exchange-traded funds like the Vanguard, Schwab, and Fidelity 500 index funds. Some $128.6 billion has moved into U.S. index-tracking funds that own U.S. stocks in 2017 through June. Some analysts see the danger in the trend and warn that the rising popularity of index funds that own hundreds, sometimes thousands of stocks, translates into indiscriminate buying divorced from corporate fundamentals, almost the epitome of the herd instinct. One concern is that persistent index buying elevates valuations across the board and that, should market turmoil erupt, investor index buying would turn to selling, leaving the broader market acutely vulnerable. This could also trigger algorithmic and programmed sell offs, outside of human control. But for now, the blob created by the mob, keeps expanding.

5) There Is No Alternative

In a low-rate environment, one reason investors say the stock market keeps rising is simply that there is no alternative for returns. After an initial selloff following Election Day, U.S. Treasurys are back roughly where they began the year, with the yield on the 10-year note at 2.264%as of August, compared with 2.446% at the end of 2016. Many bond investors believe yields are likely to stay relatively low unless there are signs that inflation is picking up or Congress is able to push through potentially growth-boosting policies like fiscal stimulus. For now, with bonds offering paltry yields, many investors begrudgingly say stocks remain their asset class of choice—even if they are getting increasingly nervous about the long stock rally.

Dividend Investors Always Have An Alternative

Most investors focus on price appreciation of stocks while others focus on dividends, which is a little like watching the hypnotist’s watch.

History has shown that the bulk of the stock market’s returns are delivered by dividends – reinvested and compounded, which is why we pay special attention to dividend history. By requiring a minimum of ten consecutive years or more of increasing dividends along with an investment grade credit rating and other factors, we can focus on profitable companies that have a niche in their industry and are making good things happen.

Only consistently profitable companies can afford to keep paying dividends, so profitability is of critical importance. Dividend investors should be most interested in researching the strongest most profitable companies, that also happen to be trading at an attractive valuation.

The challenge for the smart dividend investor is to find the temporarily “unloved” solid performer paying exceptional dividends, and not paying too much of its profits in dividends. A company that goes overboard with the dividend cannot reinvest in itself. Logically, this is unsustainable.

Investing In Sustainable Trends

By finding consistently profitable, well run companies that keep paying you to own them, we believe you have an advantage over the hit-an-miss effects of market timing.

The reinvesting of dividends, and compounding of dividends from companies with lower debt, high credit ratings, and solid business models is a path to higher probability success.

That’s the objective of the IQ Wealth Black Diamond Dividend portfolio, which by its nature is playing both offense and defense right now. We have a strong cash position to both shield our portfolio from a sudden reversal and to help keep us nimble and able to step in and buy from our Watch List.

Price appreciation is pure speculation. Dividends are money in the bank.

While there are many ways to approach success in the stock market, the most hit-or-miss method is trying to time the buy and sell of stocks, funds, and ETFs. Invariably, you will be out when you should be in, and in when you should be out. This has proven to be a way to miss the ten to twenty best days of the market over any five or ten year period. Research from Ned Davis, Morningstar and others have shown fairly conclusively that missing the ten best days in a ten year period can cut an investors return in half.

Market timers argue that they are also missing the ten worst days. In fact, the only way to do that, is to stay out of the market completely. In reality, its not a black and white situation. The market timer may only miss five of the best days of the market, but may hit three or four of the worst days in trying to miss them all. The result is mediocrity, and no compounding of gains which is the real secret to wealth in the stock market.

The IQ Wealth Black Diamond Dividend portfolio stays the course, while making adjustments to make sure that all of our stocks are yielding 3% or more, and have increased their dividends not less than ten consecutive years, meaning every stock on our portfolio increased its dividend in 2008. Many have been increasing dividends for 20 years or longer, meaning they raised their dividends during the Millenial crash from 2000-2003 AND the crash from 2008 to 2009.

Our approach, which we believe tilts the odds in favor of the investor, capitalizing on consistency and finding a way to take advantage of down markets. By reinvesting during down markets, the dividend investor accumulates continuously more shares, which in turn pay more dividends. When your dividend payers are having babies, and grow up to be adults who have babies, you have a long term growth strategy that is designed to benefit from both bull markets and bear markets. Add the spices of time and patience, let the strategy cook, and you have a higher probability recipe for the accumulation of wealth in your financial plan.

With your best interests in mind.

www.BlackDiamondDividend.com

www.IQWealth.com

The post 5 Reasons Stocks Keep Rising—Are Any of Them Sustainable, And For How Long? appeared first on IQ Wealth Management.

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The unfortunate truth about variable annuities is that they have given the industry a “black eye” allowing annuity critics and “haters” (like Ken Fisher) to state that all annuities have “high fees.” This is false. Of the four main categories of annuities, only variable annuities deduct costs directly from your principal. Immediate, fixed, and fixed index annuities have zero fee deductions for management and administration.



The right kind of annuity isn’t just a GOOD fit for retiring professionals, it can be a GREAT fit.
In fact, many of my clients would use the words “indispensable” and “irreplaceable” to describe their retirement annuities and the function they perform within their financial plans. There simply does not exist any other financial vehicle which can replicate the guarantees and steady amounts of lifetime income and security of principal that a carefully selected and properly matched annuity can deliver–on time and under budget. And, it can do all of the above with zero annual fee deductions.

Variable annuities are a blend of higher risk investment with contractual income guarantees. The income guarantees are typically equivalent to the income that can be received from bonds, but rather than the income being in the 2% range, the income can be in the 5% to 9% range, depending on age and deferral period (in the case of Next Generation fixed index annuities.)

Annuities should not be lumped together, no more than people or cars should be lumped together. True, a Toyota Prius, a Honda Accord, a Hummer, and a BMW X5 are all cars, but they do their thing in dramatically different ways. There are annuities, by the way that function more like a Prius, more like an Accord, more like a Hummer, and more like an X5. It all depends on what you need and what you are looking for.

Cars are not all bad or all good, and neither are annuities. In my practice, I generally reject over 98% of all annuities on the market and generally do not recommend variable annuities ever–why pay a fee to risk your money and watch your principal go up and down on a daily basis. Annuities, in my view, should be all about income, preservation, predictability, low cost, and simplicity. (Yes, I said that annuities can be made simple once you understand the basics.) To keep your original principal safe, your fees low forever, and your income high for a lifetime, variable annuities should not be first on your list of options. They also should not be used for accumulation vehicles because of the high fees. I do offer a few variable annuities with lower costs but no income rider. They can make sense outside of an IRA to save on taxes during accumulation.

Here’s when variable annuities seem okay: Variable annuities do fine during long bull markets when the owner is not withdrawing for income. You don’t notice the fees if your balance is rising. A rising balance is always pleasing to the eye and the emotions. The negative side of variable annuities becomes very apparent when suddenly the market goes flat or downward for several years and the owner begins to withdraw for income. That’s when you will see the major impact of the high fee structure and how the fees will be charged on your higher benefit values (not kidding!).

While fixed, fixed index, and immediate annuities have zero fee deductions for management and servicing– and very few moving parts– the opposite is true with variable annuities. Variable annuities are built with MANY moving parts and remarkably high fees. They were invented during a time when fees were not so highly considered.

The demand for variable annuities has been falling as the newer forms of more secure fixed index annuities without caps have entered the marketplace. Variable annuities are built with mutual funds that have no downside protection. When the market is falling, a variable annuity is subject to principal depletion—both from the market pushing down the value of the mutual funds, and the steady fees coming out of the mutual funds– of up to four percent annually!

A $300,000 variable annuity may have fees of over $12,000 a year, every year you own the annuity! Over a period of ten years, the fees alone could total a hundred and twenty thousand dollars–deducted straight from your principal. Over twenty years, the owner of a variable annuity that started out at $300,000 dollars, could shell out over a quarter of a million dollars in fees.

Those fees include what is known as the mortality and expense fee, an admin fee, and fees for riders added to the annuity to guarantee lifetime income. By contrast, a principal protected uncapped Next Generation fixed index annuity would have zero annual management fees because there are no mutual funds to worry about. The owner of the Next Generation index annuity may also choose a model that has a zero fee rider, meaning that zero deductions from principal of any kind would be taken as long as the owner lives.

Almost every aspect of a variable annuity has a fee associated. In an age of no load mutual funds and consumer awareness about excessive fees, it is surprising that variable annuities were so popular in years past. Today, consumers understand that every dollar you don’t give to the insurance company stays in your account and can derive interest and future income benefits.

Variable annuity complexity is driven by the fact that your money is directly invested and placed at risk in the stock market. No other form of annuity does that. Even fixed index annuities linked to stock market growth do NOT invest your money directly in the stock market. Only variable annuities do. Variable contracts are unique in that they offer a pre-selected group of mutual fund subaccounts into which the investor will allocate the premiums paid. Problem #1: you pay a fee on those sub-accounts for the rest of your life, typically in the range of 1%. The values of the funds rise and fall with the markets with no guarantee of principal. Most variable products also contain living and death benefit insurance riders that guarantee either a minimum account value at death, or a stream of income for life.

These are actually valuable guarantees in an era of uncertain markets and economies, when retirees could be blindsided by devastating markets while needing to withdraw from their investments to maintain lifestyle and pay living expenses.

The good news is that income guarantees can be had with Fixed Index, Fixed, and Immediate annuities–without the risk and heavy fees.

Newer versions of Next Generation Fixed Index annuities offer all of the income with none of the downside, and a share of the upside of a market index. If you are reviewing annuities, make sure your get the facts on all four types of annuities. For a video mini course on annuities, try Annuity University.

As I mentioned earlier, variable annuities give our industry a bad name in my view. Because they charge so many fees, they can be a turn off. If that is the only type of annuity you explore, I couldn’t blame you for being turned off. But don’t hurt yourself by closing your mind on the idea altogether.

It is undeniably true that many variable annuities have total fees of 4% annually (ugh!). This would include charges like the Mortality and Expense Fee (which can be as high as 1.5%), the Income Rider Fee (which may also be as high as 1.5%) and the sub-account management fees as mentioned above, which generally total about 1%. Grand total: 4%. How does that translate? On a $500,000 variable annuity, your fees could be as high as $15,000 a year, every year for the rest of your life! In ten years, you may shell out $150,000 in fees, deducted directly from your principal. In 20 years, your fees could total more than a quarter of a million dollars. (Not kidding–it is simple math and it is right in the prospectus if you know where to look.

Is there a low cost, low risk solution? Yes. The Next Generation low cost, high income principal protected retirement annuity, with uncapped index strategies. Your fee can be zero to 1%, with very strong income and fewer moving parts.

You buy an annuity for income and preservation in my view. Why pay a fee if you don’t have to? The right Next Generation index annuity can share in market upside without a cap, and pay you a lifetime income of five to nine percent, safe and secure, depending on age and deferral period, but with no market losses. If you have a variable annuity and would like to explore exchanging it for a safer uncapped index annuity, I can help you review your options.

Steve Jurich is an Accredited Investment Fiduciary®, Kiplinger® contributor, and the host of Mastering Money–a radio show dedicated to retiring, and staying retired. Podcasts here.

The post How Variable Annuities Work–What You Need To Know appeared first on IQ Wealth Management.

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The return on a stock market investment is twofold. First is the dividend, which pays YOU, the stockholder an ongoing cash return of investment capital. The second is the growth in the price of the shares, which offers the investor the possibility of selling at a profit. Investors who ignore dividends often find it difficult to time not only the “buy” side, but the sell side of a stock.

When you invest only in non-dividend paying stocks, you only have one avenue for making a profit: selling at the right time. You can hold a non-dividend paying stock for five years, watching it reach exciting heights. But if you don’t sell it when you are feeling the most joy about the increase, you could lose fifty percent in the next crash.

Market timing is difficult. Dividend growth investors, on the other hand, keep accumulating more and more shares of the quality stock they own. There is no concern about market timing—your dividends are reinvested back into your stocks each quarter, like clockwork. You will be wisely reinvesting whether you are at the beach, golfing, or sleeping. It is automatic and systematic.

A proper dividend investment strategy selects only the caliber of companies that you want to own more of. At IQ Wealth, our standards are high. We seek companies that aim to increase their dividends by 4% to 12% annually, and show a verifiable track record of doing so. The companies we select are leaders in their sector and in their industry. Without investing a dime of extra capital, the dividends that these companies keep paying you to own them continue to buy more shares. Those new shares, in turn, also pay dividends and also buy new shares.

Dividend growth investors receive a continuous return on capital, paid directly into their accounts. When those dividends are reinvested and given time to compound, the results can be remarkable—especially when the rate of dividend increase averages in the range of 6% to 8% or more. We believe that investing in Dividend Growth Stocks–stocks with a track record for increasing dividends every single year without fail–may result in excess return over time. When markets decline, your increasing dividends buy even more shares at lower prices. You win either way. In our portfolio, if any stock fails to raise its dividend, it is removed.

While past performance is not a sure indicator of future results, simple mathematics and historical real-world evidence confirm that the reinvestment of increasing dividends over time is a strategy with upward bias. This is especially true when the selection criteria is specified and disciplined. For example, we require strict minimum dividend yields, strong earnings growth rates, investment grade credit ratings, strong leadership within the sector, and analyst consensus among other factors.

Not just “Dividend Payers”, Dividend GROWERS.

For reference, explore the information compiled by Ned Davis Research comparing Dividend Paying stocks, Dividend Growers, Non-Dividend paying stocks, and Dividend Cutters. A Dividend Grower is a stock with not only consistently growing dividends, but a record for CONSECUTIVE dividend growth, year after year.

In the period from January 31 1987 through January 31 2016:

Dividend Growers averaged a return of 13.8%
Dividend Non-Changers (no consecutive increase in dividends) averaged a 10.1% return
Dividend Non-Payers averaged a 7.4% return
Dividend Cutters averaged a 6.6% return
S & P 500 Annualized (with no dividends) average: 7.072%
S & P 500 Annualized (with dividends reinvested) average: 9.45%

Source: Ned Davis Research, Proshares

Past performance is no guarantee of future results. These statistics are provided for educational reference only, and readily available to the public at the websites of Ned Davis Research and Proshares, tracking the peformance of Dividend Aristocrats.

Best Selling Author and Kiplinger Contributor, Steve Jurich


Steve Jurich is an Accredited Investment Fiduciary®, Investment Manager, and ‘Chief Retirement Strategist with IQ Wealth Management in Scottsdale, Arizona. (480)902-3333 His daily radio show, Mastering Money, can be heard monday through friday from 8am to 9am on Money Radio in Phoenix. Podcasts can be heard 24/7 found on i Tunes, or by clicking here

The post Get Paid To Own Your Investments With High Quality Dividend Growth Stocks. appeared first on IQ Wealth Management.

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5 Things You Can Do With Money
I’ve said it often on the radio and at live events: there are 5 things you can do with money—spend, save, speculate, invest, and insure. In retirement, your financial plan—if properly built–will likely include all five activities. How much you emphasize one over the other will determine the quality of your life and the quantity of meaningful, memorable, and fun experiences as a retiree.

They say there are two types of people in the world: those who save first and spend what’s left, and those who spend first and save the balance if any. What you’ll find is the second group of people end up working for and paying interest to the first group for most or all of their lives.
Saving is a great habit, but interest rates in the era of massive government debt are too low to live on. Governments must issue debt (bonds) at lower and lower rates to keep the economy from stalling and to keep the mountain of debt at the treasury from growing too fast. This is not just a U.S. problem—the entire world is under a heavy load of debt, and major countries like Japan and Germany are paying negative interest rates.

We all need to keep a bucket of liquid spendable money market accounts (your “cash bucket”), but if you are going to be strictly a saver, you will not be very well rewarded. Keeping all your money in cash and cash equivalents sounds good when fear is in the air, but if you want to be smart you will diversify to keep yourself from losing the game in the long run.

The market has been on a tear since 2009, rewarding both speculators and investors. Speculators do not care about dividends. They trust in supply and demand and their ability to be quick on the draw to get in and get out at just the right times. Good luck with that.
Investors are a different breed. We like to be paid for owning our investments. When you put up your hard earned cash, and begin receiving rent checks or dividend checks right away, you are on a path get all the money back from the dividends, and still own your investment.

The Difference Between Real Estate Rentals and Dividend Stocks
With rental buildings, there is a lot of maintenance, property taxes to pay, insurance, tenants to deal with during recessions, repairs and other items to keep thinking about. If you want to sell the property, it can be a long drawn out process. With dividend paying stocks there are no tenants, no toilets, no hassle, and if you want to sell, you can do it in a very quick manner.

Speculating Is Not The Same As Investing

Most people refer to anything having to do with putting money into stocks or real estate as “investing.” But investing means you are getting an immediate income return–receiving a steady rent check or a dividend check.
Speculating puts you at the mercy of the market—if the demand for what you own declines, so does your account balance. With dividend investing—and reinvesting your dividends, a declining market means you will be buying more quality shares at lower prices. If you own double the shares ten or twelve years from today without putting an extra dime of your money in, would that please you?
Speculating is different.

When You Speculate, You Are Relying Upon Supply, Demand, and Impeccable Timing
Speculating is betting, plain and simple. You are betting that the demand for the non-dividend paying stock will be greater down the road than it is today, that current economic conditions will hold, AND, that you will sell the stock at just the right time when it reaches the pinnacle.

Afterall, with a non-dividend paying stock, the gain never belongs to you unless you cash in your chips and take the profit. You have no other way to benefit. It is quite easy to hit the peak with a stock, fall in love with it, go into denial about it, and then hold it too long, selling it later for little more or less than you paid. That’s painful but happens often.

Smart dividend investors look forward to market declines. They know they own quality companies that are the fabric of the economy—not flash in the pan momentum stocks. Downward market cycles help dividend investors buy more and more shares of quality companies. Downward market cycles cause pure speculators to wonder what happened.

The dividend investor grows the return over time. Your dividend yield on your investment may only be 3.5% when you start. But by steadily reinvesting your steadilyl increasing dividends, your yield can grow to 7% in 6-9 years, and 10% or more in ten to fifteen years. If you have the discipline to think long term, and the wisdom to understand that investing is a marathon not a sprint (especially in retirement), a dividend strategy for at least part of your financial plan should be considered.

In the future, even if the stock isn’t a super fast grower, it keeps on kicking out increasing dividends. Because you are buying only stocks that increase their dividends every single year, and letting your dividends buy more shares of stock, good things can happen. Being patient, you will have received all of the money your money back from the investment in dividend checks. Then, you still own the asset. That’s investing.

The Difference Between Investing and Speculating, Simplified:
In real estate, speculating is buying and flipping, investing is buying rental properties. An investment pays you cash flow. A speculation does not. In the stock market, you can do both, and do well. You can allocate some of your money to speculating, some to investing. It is a good combination in your growth bucket. Our Blue Diamond Dividend Growth strategy combines both dividend growth stocks and pure growth stocks in carefully selected sectors.

BLACK DIAMOND DIVIDEND GROWTH: Not Just Dividend PAYERS, Dividend Growers.

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Prior to retirement, investment mistakes and market losses are measured in percents rather than dollars. After retirement, that formula reverses. Retired investors stop thinking in terms of “percents” and start thinking in terms of dollars. On a million-dollar-portfolio, a year with a ten percent loss is no fun, but younger working investors may shuck it off as a simple “ten PERCENT loss”. No big deal! But retired investors who are spending rather than contributing feel like they lost a year of salary.

If you’re ten or fifteen years away from retirement, and the market declines by ten percent, you simply keep on contributing to your 401k, gathering even more shares at lower prices. It’s referred to as “buying on the dips” and dollar cost averaging, and is a proven wealth building strategy.

When Dollars Start To Matter More Than Percentage Points
Buying on the dips before you retire is fine, however, after you retire you are no longer contributing. You may now be selling on the dips rather than buying. Therefore, a ten percent loss after you retire is a big deal! In fact, a ten percent loss on a million dollar portfolio, is a hundred THOUSAND dollars. That will get anybody’s attention!

Hey, let’s face it–When you’re retired, you don’t even want to lose ten thousand dollars or a thousand–let alone fifty or a hundred thousand. You know only too well that it can take years to make back a hundred thousand dollars! And— once you retire, you are basically unemployed. Your investments are your source of living and lifestyle for the next twenty or thirty years.

A loss like that can make you wonder what you’re doing in the stock market at all—unless you have plenty of other money in safe, income-producing assets. Otherwise, you will watch your investment balances throughout the day. That is the sure sign that your investments are not in line with your risk tolerance and time horizon.

Remember–a 30% Loss Requires a 43% Gain To Break Even, and a 50 percent Loss Requires a 100% Gain to Break Even. That can take years. Markets may defy gravity at times but reversion to the mean is a mathematical principal you must never ignore, in fact you can’t. You won’t have to look for it, it will find YOU.

This is why a financial bucketing strategy in retirement is so effective. You separate your income capital from your growth capital. When markets fall, your income bucket is not affected whatsoever. If you are a dividend investor reinvesting dividends, your growth bucket benefits from the downturn. As with the Black Diamond Dividend Strategy, your steadily increasing dividends buy you even more shares of great companies during market dips.

Insure your income, insure your outcomes, invest the rest with purpose! With markets high, but unstable, your financial plan for retirement probably needs an adjustment. This is an excellent time lock to make your move to more safety, security, income and math-based growth.

Steve Jurich is an Accredited Investment Fiduciary®, Investment Manager, and a Certified Annuity Specialist®. His financial planning practice is located in Scottsdale, Arizona. www.IQWealth.com

The post Do You Measure Stock Market Losses in Dollars, Or Percents? appeared first on IQ Wealth Management.

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After the 2008 crisis, investor confidence hit an all-time low. Low confidence led to more sell-offs and things looked grim until the summer of 2009. Finally, investors got their mojo back. That’s the reality of the market: until confidence returns, the market will stay down. When markets fall and stay down, many investors question their entire investing approach. Rather than feeling like investors, they may feel like they are simply gambling with their money.

The market can take investors to emotional high’s, only to drop them down to emotional lows—much like what occurs at the Las Vegas gaming tables. But is investing really the same as gambling?

Well, that depends on your strategy and whether or not you ACTUALLY HAVE a strategy with some form of mathematical basis. If you don’t, you may feel that you are playing cards, not building wealth.

Good stock investing is not the same as gambling for several reasons. Poker-chips and playing-cards don’t EARN anything. They are inanimate objects with no inherent value. With chips and cards, you have no control of any kind over the outcomes. If you are an ultra-skilled card-counter, you still have no real control over the cards being dealt but your odds of guessing right get higher.

The stock market is different, especially for those with a long term view. In the short run, especially for day traders, the market is very random and unpredictable and is gambling. For reasonable, longer term investors, the market provides true quantifiable opportunity to buy companies that make consistent profits. Unlike playing cards and poker chips, stocks represent ownership in real live companies that hire people and make things. There IS real value in the stock of a company that is CONSISTENTLY profitable. Are some stocks almost purely a gamble? Yes, and if you’re smart you’ll avoid them.

Let’s remember that a share of common stock is ownership in a company. It entitles the holder to a claim on assets as well as a piece of the profits that the company generates. If the company pays dividends, it entitles you to the payment of cash back into your account on a regular basis, usually quarterly. Dividends are not interest, they are a share of real profits the company has made. The company is paying YOU to own its stock.

Too often, however, investors think of shares as simply a commodity, and they forget that a share of stock represents the ownership of a company. They attempt to catch a wave going up, and to neatly jump off the wave as it goes down. Surfers do that at Hermosa Beach all the time. Surfing might look easy from the beach but once you get out on the board, you learn why you’re a spectator.

Now, if you get miffed by the markets and wonder what really drives the stock market, it is profits and earnings. The market REACTS to earnings, which is why short term market timers are so interested in earnings REPORTS. This is why stock prices fluctuate—it is all about the REACTION by large numbers of investors to the published earnings of a company and whether or not they beat the estimate– or fell short. You hear it every day on the news.

The outlook for business conditions is always changing, as are the future earnings of a company. Those companies that consistently grow their earnings and lead the pack within their industry will be in higher demand by knowledgeable investors who seek safer bets with their money. Therefore if you gravitate toward profitable companies and buy them at reasonable prices, you stand the chance of benefiting from the long term profitability of those superior companies. You are doing what basketball great Larry Bird and hockey great Wayne Gretzky always did: running or skating to where the puck is going, not where it’s been.

One way to seek long term value is to invest in companies that pay dividends. But that isn’t always enough. You don’t want any flash-in-the-pans. You want companies that are solid. So solid in fact, that they raise their dividends every single year. If you buy profitable companies that not only PAY dividends but increase their dividends every year, and have demonstrated at least a ten-consecutive-year-track-record of increasing dividends, you are building a system of owning high quality profitable companies.

That said, you could still pay too much for a stock, even though it pays consistent dividends. So you need some way, some system, of determining whether a stock is priced too high before you buy it. You can look at simple valuation methods like the price to earnings ratio, but that won’t tell you the whole story. You need more methods of determining whether or not a stock is priced reasonably.

Beware of Stocks Paying “High Dividends”. There Is A Catch

I always know I’m talking to a less experienced investor when they are attracted to “high dividend” stocks. Great companies in normal markets pay between 2% and 4% dividends, and may grow their dividends by 4% to 12% annually. Poor companies, barely hanging on, may offer dividend yields in the 6% to 10% range. Run the other way–something is wrong there.

It’s easy to fall for the notion that the higher the dividend yield the better the stock– UNLESS you are experienced. A high dividend yield can in fact be the surest sign of a company in trouble!

Allow me to explain. First, the dividend yield is not an interest rate. If company ‘A’ has a three percent dividend yield and company ‘B’ has a 9 percent dividend yield, company B is NOT a three-times-better company. In fact, the opposite is true. The nine percent dividend yield stock may only be worth a THIRD of the three percent dividend-yield-stock.

How can that be? It’s because dividend yield is a mathematical expression of the amount of dollars per year being paid in dividends in relation to the share price. Keep it simple. If a company is trading at a hundred dollars a share and declares a three dollar dividend this year, you’re the proud owner of a three percent dividend yield.

But if the share price moves up to a hundred and FIFTY dollars a share and the dividend is still three dollars, you divide your three dollar dividend by a hundred FIFTY, and you find that your new dividend YIELD is only 2%.

Conclusion: This stock may have gone up too far, and now be priced too high. But now, let’s look at the OPPOSITE case. If the SHARE PRICE got cut in half down to fifty dollars—like in 2008, the three dollar dividend now translates to a SIX percent dividend yield. Same company, same real world earnings, but the stock price has fallen. Is the stock a good buy? Maybe. It depends on many other factors.

Now let’s suppose the same stock gets decimated all the down way to THIRTY-THREE dollars a share. Well, the dividend YIELD MATHEMATICALLY rises to NINE percent. Question: would you really want to own that company—after it has fallen by sixty seven percent and the rest of the market only fell by fifty percent? Probably not.

This is why– with the Black Diamond Dividend strategy— we buy only PROFITABLE companies WITHIN a disciplined dividend yield range—not too high, not too low. It helps us find diamonds in the rough, and tells us when to cut loose of stocks we no longer want. We buy only companies that have increased their dividends every single year for a minimum of ten consecutive years. The companies need to be leaders in their field with a competitive advantage at what they do. We require investment credit ratings (many stocks with 9% dividend yields have credit ratings in the junk category.) My advice: buy quality assets, get paid to own them, and demand that your companies raise their dividends every single year.


Steve Jurich is an Accredited Investment Fiduciary and Wealth Manager with IQ Wealth Management in Scottsdale, a registered investment adviser. He is a Kiplinger contributor and his radio show MASTERING MONEY can be heard daily on KFNN, AM1510 from 8-9am monday through friday. Podcasts are available here

The post Why dividend investing is not the same as gambling appeared first on IQ Wealth Management.

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Social security, as much as we might gripe about it, is still the financial foundation in retirement for well over 98% of all Americans, and probably YOU. For most people, retirement income planning begins with social security benefits as the main pillar….Which is why people worry about Social Security going broke! But should they really be worried? Mainly, should YOU? Let’s find out!

There are several “Myths” about Social Security that may not be totally untrue, but may also may be exaggerated a bit by many political writers. Here are five of those myths, with background and insight:

Myth No. 1:
Social Security is running out of money and will go completely broke soon. Ok, there is both good news and bad news here, but it is not as bad as it could be! True the trust fund will run out at some point, but money from workers will still be coming in. Here’s a fact you need to know: The Social Security trust funds have been running a surplus in every year since 1982. Surpluses are likely to stop around 2019, at which point the Social Security system can rely on incoming interest payments to make up the deficit — for a while.

According to several government estimates, Social Security funds are likely to be depleted by 2034 — if no changes are made. If that happens, payment checks won’t disappear, but they’ll likely shrink by approximately 25%, leaving income recipients with about 75% of what they were expecting. That’s better than zero– but the more affluent you are, the more you should be worried about the benefit being cut via “means testing.” Means testing refers to the idea that the more wealthy Americans will see their benefits cut due to being “too successful.”

Many people fear that capitalism will give way to European socialism over time as the voting majority gets more liberal, and more in need of government support.

Of course, there’s a chance that the system will be shored up, one way or another. There are many possible fixes, though politicians don’t agree on them, and by the looks of things might never agree! For example, fully 77% of the trust funds’ shortfall could be eliminated by increasing the Social Security tax rate for employers and employees from its current 6.2% to 7.2% in 2022 and 8.2% in 2052. Which politician is ready to step up and raise taxes?

If you said Elizabeth Warren you would probably be correct, but even if she becomes president, Congress has to answer to its constituents. Tax hikes on the sensitive social security issue are not truly likely until a crisis emerges.

Congress rarely agrees on anything unless there is a huge crash, like 2008, or a terror strike like 9-11.

The odds are not good that a “Spartacus Moment” will overtake a highly influential senator who pushes to overhaul Social Security. Nobody on the Hill wants to risk their political career over that idea.

BUT the odds are good that taxes COULD be raised on Social Security benefits for more affluent Americans. On a likelihood scale, means testing to soak the so-called “rich” could become very popular once Democrats find their way back into power, which like it or hate it, is inevitable.

Myth No. 2:

“The money you pay into the system is the money you receive from it later.” Some people assume that when money is removed from their paycheck, it goes into an account expressly for them — growing in value over time to provide them with income for retirement. Obviously, that’s not true. Your money is pooled. The taxes from all the paychecks of people currently working are pooled and then paid out to retirees collecting their benefits.

So your contributions are supporting others, and when you retire your benefits will come from the earnings of those working. That has been a great system for a long time, but now there are cracks in the foundation. A) People are living longer and collecting benefits for more years. B) There are fewer workers supporting a growing number of retirees. Back in 1960, the contributing-workers-to-beneficiaries ratio was 5 to 1, with about 73 million workers supporting close to 14 million beneficiaries.

As of 2013, it was just 2.8 workers for every recipient (with 163 million workers supporting 57 million beneficiaries) — and it’s expected to hit 2.1 by 2035, when the system will be out of reserves. These factors are stressing the system, making eventual changes to it probable—but once again it may be the usual fix: management by crisis. Politicians always have more courage during emergencies and chaos when no one can be blamed..

Which brings us to Myth No. 3:

“Everyone contributes equally to Social Security.” We know that’s not true because many people in the United States don’t pay federal taxes because they make under $45,000 a year. They may be paying into FICA at the same tax rate for Social Security — but it’s only up to a certain capped annual earnings amount. As of 2018, the new cap is $132,900. Thus, someone earning $132,900 in 2018 and someone earning $5 million will pay the same Social Security tax — a fact that many see as unfair, especially on the left side of the aisle. Which is why you must consider it a strong possibility if the Democrats control the executive office and both houses of Congress one day.

Myth No. 4:

“The Social Security benefits you receive are based on your last 10 years of income.” Here’s the deal: your benefits are based on the income you earned in your 35 highest-earning working years (adjusted for inflation). The rules do require you to accumulate 40 work credits in order to qualify for benefits, however, which is typically achieved in 10 years. If you’ve only worked 30 years, the formula will include five years’ worth of zeroes, which will give you smaller benefit checks than if you’d worked for 35 years.

If you work for more than 35 years, your lowest-earning years will be dropped, so working a little longer can be a way to boost your benefits—and perhaps the best way. There are very few fancy claiming strategies left. Building a bigger social security base for the higher earner makes sense because one day, the surviving spouse will have only the larger social security income to draw from.

Myth No. 5:
“Social Security is designed to replace MOST of your pre-retirement income…. ”

Nope, this one is not true at all. According to the Social Security Administration, retirement benefits for those with average earnings will likely replace about 40% of your pre-retirement earnings, give or take. Those who had above-average earnings in their working years can expect a lower replacement rate, and vice versa. The average monthly retirement benefit was recently $1,364 dollars per month, which amounts to $16,368 per year.

If your earnings have been above average, though, you’ll collect more than that — up to the maximum monthly Social Security benefit for those retiring at their full retirement age, which was recently $2,687 dollars, or about $32,000 for the whole year.

So, if you are spending $5,000 to $10,000 a month, you are going to need to get more income from somewhere. The problem, bond funds are now risky, as is the stock market. Should you consider an annuity to supplement your Social Security? Many people are doing just that. Because pensions are fewer and farther between than ever, many engineers, teachers, business owners, and professionals are converting part of their 401(k) rollovers into qualified lifetime income annuities within their IRA rollovers.

The Ultimate Social Security Question: “Should you start taking it early, or wait until the income hits the max?”

Here’s the problem: pushing benefits out to age 70 will result in higher income, but you will lose access to the money for those years and if you pass away in your 70s, it’s a loser. No matter what your thoughts are about social security, it is a key to retirement income planning and will figure prominently in your lifetime financial plan. Is it wise to create extra streams of safe guaranteed income for life? With all of the risks we’ve talked about in this blog, the answer is a very logical, unemotional yes.

If you would like professional help with Social Security and retirement income planning, we invite you to contact us at IQ Wealth Management.

Steve Jurich is an Accredited Investment Fiduciary®, a Kiplinger contributor, and the host of the popular retirement radio show “Mastering Money” in Phoenix Arizona. His firm, IQ Wealth Management in Scottsdale, is a registered investment adviser.

The post When You Should Take Social Security: 5 Myths, 5 Realities appeared first on IQ Wealth Management.

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Fixed income diversifies your portfolio. For decades, the synonym for fixed income in retirement was BONDS. Bonds have always been considered safe and secure. The more you had in bonds the more risk you could take with the balance of your investments. If your stocks were falling, you could always run to bonds. Today, running to bonds is no longer a safe refuge. In fact, bond investors have been losing money for more than five years and more losses could be on the way. Why? Let’s take a look.

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Once upon a time–when bond interest rates were much higher than today–bonds protected your principal and paid a nice reliable return—in the range of five to nine percent. That return could be used for income in retirement to supplement social security and pensions. Today, those same bonds are paying in the range of two to three percent.

Because the principal was fixed and without market risk, the term “fixed income” became common. It may surprise you to know that for years, the bond market was twice as large as the stock market. Today, because of the mushrooming size of the stock market, the bond market is still massive, with approximately $40 trillion in U.S. bonds outstanding¹, versus about $30 trillion in total stock market capitalization. The bond market will always be huge, because governments and corporations issue bonds as a way of borrowing money. Currently, the size of the global bond market is approximately $100 trillion¹, and growing.

As an investor, you don’t need to know the exact statistics. What you need to know is that the interest rate on a bond, known as the coupon rate, helps to determine the bond’s selling price in the market. As a retired investor, you also need to know that we are at a historic point in financial history with regard to bonds. From 1980 until the summer of 2012, bond coupon rates relentless fell, giving bond mutual fund investors a shot in the arm. Thirty-two years of any induced “high” can affect almost anyone’s thinking.

I can’t say for sure, but it is likely that most bond fund investors could not really articulate why their bond funds kept going up in value for those 32 years, and why those same bond funds have been losing money steadily for the past six years. The reason is simple, and you’ve heard a hundred times, if not a thousand times: When interest rates rise, bond prices fall. When interest rates fall on new bonds (1980-2012), bond prices from already issued bonds, go up.

What we really are saying here is that we are at the beginning of a potentially long bear market in bonds. You need to ask yourself if that’s where you really want to put your safe money–into an asset that is mathematically in position to fall if the economy gets better and interest rates rise. The price of each bond in every mutual fund is calculated daily, with a forumula that relies on the coupon rate, credit rating, and maturity date. If you own bond funds made up mainly of bonds with two percent coupon rates, and new issues of those same bonds come out at 3 percent or 3.5%, you will see your fund’s value fall by the next day.

Here’s the problem: most investors don’t really buy individual bonds anymore to hold to maturity. They buy bond mutual funds, WITHOUT a maturity date and with NO principal protection. This defeats the entire PURPOSE of owning bonds.

What is truly needed for the modern day retiree’s portfolio is a suitable replacement for the function that bonds have always played in the retirements of previous generations.

This generation of retirees is actually retiring into one of the worst financial environments in history to start living off a nest egg. Not only do most people NOT have pensions any more, interest rates on safe bonds are far too low to live on. And now, bond mutual funds are virtually a guaranteed loser as interest rates start rising. Ironically, the better the economy does, the worse your bond funds will do, because the Fed raises rates when they see signs of inflation.

So, that being said, where else are you going to go for safety and income? Looking at the broad landscape of financial instruments that can provide safety, security, preservation and rock solid income at a rate that you truly CAN retire on, where are you supposed to look. The outlook from traditional fixed sources, like bond funds, is grim.

This is WHY annuities have entered the discussion for so many thinking people who do their own analysis and are not swayed by illogical thinking, hyperbolic consumer advocates with no real knowledge, or their biased broker (who also lacks knowledge) telling them that somehow “annuities are bad.”

I personally reject over 98% of all annuities on the market, which apparently are the only ones these critics are looking at. The principal protected Next Generation retirement annuities I recommend for my clients offer unmatched stability of principal, uncapped growth strategies protected by a a floor (you can’t lose money to the market) and an optional income feature that provides a pension-like income for life that you can never outlive. And no Virginia, the insurance company DOES NOT keep your money when you die. You get that guarantee in writing.

If you think for yourself, and you want to learn how to preserve your nest egg while enjoying a permanent income of from five to nine percent for life depending on age and deferral period–while getting a share of the market’s upside, let’s begin a conversation.

Best Selling Author and Kiplinger Contributor, Steve Jurich

¹ ZACKS Research Updated May 14, 2018 Bond Market Size Vs. Stock Market Size

Steve Jurich is an Accredited Investment Fiduciary and heads IQ Wealth Management in Scottsdale, Arizona, a registered investment advisor with asset custodians Fidelity Institutional and TD Ameritrade, members FINRA, SIPC. He is the host of the popular radio show MASTERING MONEY, heard monday through friday from 8am to 9am on MONEY RADIO in Phoenix. Podcasts are available at www.MasteringMoneyRadio.com

The post When Bond Funds Officially Became A Risky Investment appeared first on IQ Wealth Management.

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The unfortunate truth about variable annuities is that they have given the industry a “black eye” allowing annuity critics and “haters” (like Ken Fisher) to state that all annuities have “high fees.” This is false. Of the four main categories of annuities, only variable annuities deduct costs directly from your principal. Immediate, fixed, and fixed index annuities have zero fee deductions for management and administration.



The right kind of annuity isn’t just a GOOD fit for retiring professionals, it can be a GREAT fit.
In fact, many of my clients would use the words “indispensable” and “irreplaceable” to describe their retirement annuities and the function they perform in their financial plans. There simply does not exist any other financial vehicle which can replicate the guarantees of lifetime income and security of principal that a carefully selected and properly matched annuity can deliver–on time and under budget. And, it can do all of the above with zero annual fee deductions.

Variable annuities are a blend of higher risk investment with contractual income guarantees. The income guarantees are typically equivalent to the income that can be received from bonds, but rather than the income being in the 2% range, the income can be in the 5% to 9% range, depending on age and deferral period (in the case of Next Generation fixed index annuities.)

Annuities should not be lumped together, no more than people or cars should be lumped together. True, a Toyota Prius, a Honda Accord, a Hummer, and a BMW X5 are all cars, but they do their thing in dramatically different ways. There are annuities, by the way that function more like a Prius, more like an Accord, more like a Hummer, and more like an X5. It all depends on what you need and what you are looking for.

Cars are not all bad or all good, and neither are annuities. In my practice, I generally reject over 98% of all annuities on the market and generally do not recommend variable annuities ever–why pay a fee to risk your money and watch your principal go up and down on a daily basis. Annuities, in my view, should be all about income, preservation, predictability, low cost, and simplicity. (Yes, I said that annuities can be made simple once you understand the basics.) To keep your original principal safe, your fees low forever, and your income high for a lifetime, variable annuities should not be first on your list of options. They also should not be used for accumulation vehicles because of the high fees. I do offer a few variable annuities with lower costs but no income rider. They can make sense outside of an IRA to save on taxes during accumulation.

Here’s when variable annuities seem okay: Variable annuities do fine during long bull markets when the owner is not withdrawing for income. You don’t notice the fees if your balance is rising. A rising balance is always pleasing to the eye and the emotions. The negative side of variable annuities becomes very apparent when suddenly the market goes flat or downward for several years and the owner begins to withdraw for income. That’s when you will see the major impact of the high fee structure and how the fees will be charged on your higher benefit values (not kidding!).

While fixed, fixed index, and immediate annuities have zero fee deductions for management and servicing– and very few moving parts– the opposite is true with variable annuities. Variable annuities are built with MANY moving parts and remarkably high fees. They were invented during a time when fees were not so highly considered.

The demand for variable annuities has been falling as the newer forms of more secure fixed index annuities without caps have entered the marketplace. Variable annuities are built with mutual funds that have no downside protection. When the market is falling, a variable annuity is subject to principal depletion—both from the market pushing down the value of the mutual funds, and the steady fees coming out of the mutual funds– of up to four percent annually!

A $300,000 variable annuity may have fees of over $12,000 a year, every year you own the annuity! Over a period of ten years, the fees alone could total a hundred and twenty thousand dollars–deducted straight from your principal. Over twenty years, the owner of a variable annuity that started out at $300,000 dollars, could shell out over a quarter of a million dollars in fees.

Those fees include what is known as the mortality and expense fee, an admin fee, and fees for riders added to the annuity to guarantee lifetime income. By contrast, a principal protected uncapped Next Generation fixed index annuity would have zero annual management fees because there are no mutual funds to worry about. The owner of the Next Generation index annuity may also choose a model that has a zero fee rider, meaning that zero deductions from principal of any kind would be taken as long as the owner lives.

Almost every aspect of a variable annuity has a fee associated. In an age of no load mutual funds and consumer awareness about excessive fees, it is surprising that variable annuities were so popular in years past. Today, consumers understand that every dollar you don’t give to the insurance company stays in your account and can derive interest and future income benefits.

Variable annuity complexity is driven by the fact that your money is directly invested and placed at risk in the stock market. No other form of annuity does that. Even fixed index annuities linked to stock market growth do NOT invest your money directly in the stock market. Only variable annuities do. Variable contracts are unique in that they offer a pre-selected group of mutual fund subaccounts into which the investor will allocate the premiums paid. Problem #1: you pay a fee on those sub-accounts for the rest of your life, typically in the range of 1%. The values of the funds rise and fall with the markets with no guarantee of principal. Most variable products also contain living and death benefit insurance riders that guarantee either a minimum account value at death, or a stream of income for life.

These are actually valuable guarantees in an era of uncertain markets and economies, when retirees could be blindsided by devastating markets while needing to withdraw from their investments to maintain lifestyle and pay living expenses.

The good news is that income guarantees can be had with Fixed Index, Fixed, and Immediate annuities–without the risk and heavy fees.

Newer versions of Next Generation Fixed Index annuities offer all of the income with none of the downside, and a share of the upside of a market index. If you are reviewing annuities, make sure your get the facts on all four types of annuities. For a video mini course on annuities, try Annuity University.

As I mentioned earlier, variable annuities give our industry a bad name in my view. Because they charge so many fees, they can be a turn off. If that is the only type of annuity you explore, I couldn’t blame you for being turned off. But don’t hurt yourself by closing your mind on the idea altogether.

It is undeniably true that many variable annuities have total fees of 4% annually (ugh!). This would include charges like the Mortality and Expense Fee (which can be as high as 1.5%), the Income Rider Fee (which may also be as high as 1.5%) and the sub-account management fees as mentioned above, which generally total about 1%. Grand total: 4%. How does that translate? On a $500,000 variable annuity, your fees could be as high as $15,000 a year, every year for the rest of your life! In ten years, you may shell out $150,000 in fees, deducted directly from your principal. In 20 years, your fees could total more than a quarter of a million dollars. (Not kidding–it is simple math and it is right in the prospectus if you know where to look.

Is there a low cost, low risk solution? Yes. The Next Generation low cost, high income principal protected retirement annuity, with uncapped index strategies. Your fee can be zero to 1%, with very strong income and fewer moving parts.

You buy an annuity for income and preservation in my view. Why pay a fee if you don’t have to? The right Next Generation index annuity can share in market upside without a cap, and pay you a lifetime income of five to nine percent, safe and secure, depending on age and deferral period, but with no market losses. If you have a variable annuity and would like to explore exchanging it for a safer uncapped index annuity, I can help you review your options.

Steve Jurich is an Accredited Investment Fiduciary®, Kiplinger® contributor, and the host of Mastering Money–a radio show dedicated to retiring, and staying retired. Podcasts here.

The post How Variable Annuities Work–What You Need To Know appeared first on IQ Wealth Management.

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