Market volatility has returned in a big way. With the worst start to a year in history as of last Friday, the equity markets continued their third straight week of significant declines. It would appear that the country has been thriving on extraordinarily low interest rates since the end of the 2008 financial crisis and that, as expected, the benefits of this support can only last so long. Unfortunately, in those 6 – 7 years of monetary policy support, the nation’s leaders have done little to address the massive and growing long term budget deficits.
My role is not to advise people on how to invest in various market conditions, except to say, maintain some level of diversification and don’t sell after stocks have already come down. In terms of diversification, I continue to believe that building tax diversification in to one’s portfolio is one the most critical steps that people can take to protect their wealth in retirement.
You don’t have to be an economist to know that we are in a new era, a more mature economy with more complexity than ever and one that is linked closely to the global economy. That is not to say that the US will not find a way to continue to perform well thanks to our culture of resilience and relentless innovation. It just means that we have to recognize the differences between the way things used to be and the way they are now.
What to Do?
There are three types of assets that provide tax free growth and then tax free distribution. 1) Municipal Bonds 2) A Roth IRA / Roth 401K and 3) Life Insurance. Many readers will not qualify to contribute to a Roth IRA because their income is beyond the allowable thresholds. If your company offers a Roth 401K, consider taking advantage of it to achieve tax diversification. For those who have maxed out on their qualified savings programs and wish to put more away on a tax advantaged basis, consider an overfunded life insurance policy which emphasizes the cash value growth while minimizing the death benefit to the greatest extent allowable. An investment component in a life insurance wrapper can also provide for smoother returns thanks to the product’s built in hedging features. Having a tax free source of income which can be used for any purpose, including long term care funding, can make all of the difference in the amount of income you can take in your retirement years.
Learn More at www.superrothbc.com
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