Should money be split between investment worlds?
Elon Musk of Tesla would have you believe that the future of earth rests in the stars or a new settlement on Mars. These are not the worlds I am suggesting you place your money in. There are 3 main worlds of money. There is Wall Street, the banking world and the insurance world.
Like the planets in our solar system and beyond, each of these worlds has pros and cons when it comes to growing and protecting your money. Understanding each of these worlds is vital.
“The major difference between the three worlds of Wall Street, Banking and Insurance are the products they carry and the risk of each product”, says Chad Slagle, Investment Advisor Representative and President of Slagle Financial. “We recommend that our clients place some money is all three worlds. The banking world is safe, provides some growth and is FDIC insured. The insurance world has greater growth potential, some guaranteed income products and principal protection. The world of Wall Street has the most risk, but also the most growth potential.”
Not one of these worlds should hold too large a percentage of your total portfolio. Although, I see the majority of people are too heavy most of the time in one. This is why working with a professional can still have such a positive influence on your future success.
The world of banking
Banks are perhaps the most familiar and comfortable institution we all use. Banks are familiar. They have brick and mortar locations and we’ve interacted with them our whole lives. Most people sleep well at night knowing that their money is FDIC insured. Most feel comfortable with a bank because of the high liquidity a bank offers on their money.
With high liquidity comes lower returns. CD’s have not been a strong source for growth for about 16 years now. With banks adding to or getting caught in the fall of the great recession, interest rates have been dismal. I supposed all my years of learning fractions from grade school up through college were preparing me for the days of earning .1-.5% on my money. Banks have lost favor in recent years as a solid place for growing money.
I think your best shot at real wealth creation through a bank comes from borrowing at low rates. Lower rates have made the barrier to real estate much lower and the savings on car purchases a plus. These low rates won’t last forever. As rates increase on debt, it will also increase on savings programs.
Using debt to leverage your wealth is not for everyone and should be studied thoroughly. However, there is a difference between good debt and bad debt and good debt can be used to increase your activity.
The world of insurance
Insurance and annuities are the last investment vehicle most people want to talk about. They aren’t sexy, they have fees and they are typically over hyped. Yet, they serve a major role in our economy. For over 100 years insurance companies have served as the solid money foundation for the world and America. Through the great depression and great recession and everything else the US economy has thrown at the insurance world, it has survived and kept its promises.
There are many tax advantages with cash value life insurance and annuities not found in any other product. There are borrowing advantages that allow participants to earn interest in two places at once. There are guaranteed increase on money and guaranteed income streams. It is a hands off world that rarely loses people sleep at night. The key to the insurance world is the agent you use and the companies they have access to for helping you. Although insurance strategies are fairly simple and safer than other products, you must understand what you are buying and how it was constructed before signing any contracts. Done right, this world can be incredible. Done wrong, it can shave decades off your growth projections.
The world of Wall Street
Welcome to the jungle! This world is full of wild animals, outrageous promises, smashed dreams and the potential to earn higher than insurance and banks. This is a world you must be ready for, accept the good and the bad and stay light on your toes.
Overall this world is best navigated with a professional and a solid strategy. To save on fees you might follow John Bogles advices of low cost index funds. If you have time, you may follow Warren Buffets path of buy and hold forever. There is an infinite combination of ways to make and lose money on Wall Street. The best approach is through diversification and education.
Slagle continues, “When laying out a customized plan for a client, we factor age, phase of life, risk tolerance, income needs and lifestyle goals into the equation. Once we have these factors, we create a game plan that meets their individual and family needs through proper balancing between the three worlds.”
There is another world but it is talked about as a world similar to the planet Pluto. Sometimes its considered a world and other times it is not. This is the world of alternative investments and lending strategies. This world is often ignored because Wall Street, banks and insurance companies see it as a competitor. They don’t want you as a competitor, they want you as a customer so don’t expect to be educated by them on the myriad of options available to you.
Whichever route you go, go with purpose. Only ever place money on purpose. Don’t luck into success and don’t stumble away from loss. Prepare as much as you can by truly understanding how each program presented to you works. Become educated in as many areas as you can and a fanatic in the one you finally settle on. This is your money and future at stake. Be involved and be responsible.