Protection Against Loss
When building a traditional house, you need to start with a solid foundation. The same holds true when building your house of wealth. Start with a firm foundation that’s unmovable—a foundation that includes protection for your income and protection against loss.
It’s likely that your grandparents and great-grandparents were all about storing for the future. In their case, it often was as simple as storing wealth in the form of food for the future. Granted, they didn’t have the modern conveniences of refrigeration. They smoked meat. They canned vegetables and fruit. They put aside stores of staples such as flour, sugar, and salt. Back then, they couldn’t go down the street and buy food and other supplies at a nearby grocery store.
Many were farmers, either full- or part-time. They raised their own beef, chickens, and eggs. They grew their own gardens. They harvested fruit and vegetables as they ripened during the growing season. As my grandpa used to say, “We eat what we can, and what we can’t, we can.” So they had weeks’ and perhaps months’ worth of food supplies in storage. That’s not a bad idea, even for a modern-day family. Crises can happen. Power can go out. Weather conditions such as snow and tornadoes can isolate you from the usual sources of food, clothing, and shelter. Having a food supply of two weeks—maybe even six months to a year or more—is certainly an idea that’s worth considering in your TrueWealth planning process. My own family regularly has an extra three to six months’ supply of food on the shelf for emergencies.
Strategies For Storage
Bank CDs are safe, but they have a very low rate of return. What if you could get a compounded rate of anywhere from 2.25 to 3.25 percent for a sixty-month, alternative, CD-like savings strategy? Plus, you could withdraw simple interest during that five years or leave the interest in this financial vehicle to compound. At the end of sixty months, you would get back both the principal and the interest gain, and you would not have to pay taxes on the gain until the end of that sixty-month period.1
This is a description of what the insurance industry calls a MYGA or Multi-Year Guaranteed Annuity. We call it a CD alternative because it works just like a bank CD. Take note that it’s offered by an insurance company, so it’s not covered by the FDIC or the NCUSIF. However, it is guaranteed by the claims paying ability of a legal reserve life insurance company. Unlike members of the centralized banking system, a legal reserve life insurance company must keep more than 100 cents in reserve for every dollar they have at risk. By contrast, banks typically have between 0% and 10% in reserves.
Many people who have a considerable amount of wealth stored in a traditional bank certificate of deposit have quickly moved a good portion of those funds into MYGAs. Some investors are even using the approximately 3 percent interest from their $1 million worth of MYGA contributions to fund daily living expenses. CDs, on the other hand, do not distribute interest until the end of the contract period, even though the gain is taxed on a yearly basis.