Reduce Risk and Fees with Your Portfolio AWR SHOW 112621: Audio automatically transcribed by Sonix

Reduce Risk and Fees with Your Portfolio AWR SHOW 112621: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.

Producer:
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Producer:
Welcome to the Active Wealth show with your host! Ford Stokes Ford is a fiduciary and licensed financial advisor who places your needs first. He'll help you protect and grow your wealth. The Active Wealth Show has grown because activators like you want to activate their retirement planning with sound tax efficient. Investigate and now your host Ford Stokes.

Ford Stokes:
Hey, and welcome the Active Wealth Show Activators. I'm Ford Stokes your chief financial advisor. And we're going to do something a little different. This holiday show, this Holiday Week Show. First of all, I hope everybody had a happy and great Thanksgiving with family and friends. Sam and I wish you guys all the best from this holiday season. And also we've got a special treat for you. We're going to play different excerpts from my audio book, and the audiobook is Annuity 360. It's a new book that came out this year, and you can download the book completely at Annuity360.Net if you want to read the book, or you can send me an email at Ford at Active Wealth and we'll send you a hard copy of the book actually for free at no cost to you, but my annuity three 60 book really outlines and details which annuities to avoid and which one to buy for a successful retirement. We're going to start out with Chapter one talking about why you should consider investing in fixed indexed annuities specifically as a bond replacement in a way to generate your own personal pension. Also, to get market like gains without market like risk.

Ford Stokes:
Chapter one Why you should consider investing some of your hard earned wealth into a fixed indexed annuity. Fixed indexed annuities offered by highly rated annuity carriers did not lose a dime in account value in 2008 or 2009 during the worldwide recession caused by the mortgage loan crisis that resulted in the S&P 500 losing fifty point one percent of its value from March one, 2008 to March 31st, 2009. Number to grow your money with market like gains typical annual growth of five to seven percent. Number three, generate a lifetime income. Your retirement will likely last 30 plus years. It might be a good idea to play some of your assets into a fixed indexed annuity to set a safety net around a portion of the retirement income that you wish to generate. Number four Eliminate market risk associated with bonds by replacing the fixed income bonds in your portfolio with a fixed indexed annuity. Number five Eliminate the advisory fees you're currently paying to generate fixed income with bonds in your portfolio by replacing them with fixed index annuities. The annuity companies pay the advisor you don't. This is called a bond replacement. If the above fixed indexed annuity benefits sound appealing to you, then I invite you to listen to the rest of this book and ultimately invest a portion of your hard earned wealth into a fixed indexed annuity to build a successful retirement.

Ford Stokes:
For more important information on annuities beyond this book, I also invite you to visit our website Annuity360.net. Let's consider a $100,000 investment in the S&P500 versus a one hundred thousand dollar investment in a fixed index annuity with a 50 percent participation rate in the S&P500 from 2000 to 2013. Here's a hint. Folks, the annuity wins from Jan 1, 2000 to December 31st, 2012. The S&P 500 experienced negative two point nine four three percent growth over those 13 total years. People who retired prior to 2000 experienced zero growth over forty three percent of their estimated 30 year retirement. Question Do you want to live your life during your retirement without any growth over forty three percent of your retirement years? I didn't think so. Conversely, if you had invested it into a fixed indexed annuity with a 50 percent participation rate in the S&P 500 in January 2000, you would have seen a growth of sixty five point five three percent. That's a significant total account growth difference of sixty eight point forty seven three percent. Do I have your attention now? The account value growth chart below shows the one hundred thousand dollars invested into an S&P 500 Spyder in January of 2000 versus one hundred thousand invested into a fixed index annuity with a 50 percent participation rate in the S&P 500. Also in January of two thousand, the fixed indexed annuity achieved a total growth of ninety point zero three eight percent versus just twenty five point seventy eight six percent growth in the S&P Spyder by December 31st, 2013.

Ford Stokes:
This chart shows the power of one year protection periods called annual point to point features. The gains from each year were locked in on each anniversary of the annuity policy effective date when the S&P had negative years. The S&P Spider 500 SPI experienced losses in those same years. The fixed index annuity experienced zero losses. This proves that you don't need double or triple digit gains if you don't experience losses in this author's opinion. Every sound portfolio with a smart financial plan includes fixed indexed annuity investments with tactically managed portfolios in hopes to minimize market risk, reduce advisory fees and deliver a reasonable rate of return. The annuity can also deliver consistent income with or without the added feature of an income rider that also charges fees within the policy. I recommend avoiding income riders. I strongly recommend investing a portion of your hard earned wealth into a fee efficient accumulation based fixed indexed annuity with no more than five percent annual penalty free withdrawals to allow your money to grow and to generate important income during retirement. Refer to your audiobook companion PDF that comes free with the purchase of this audio book. See Chart one point one for annuity account growth examples.

Ford Stokes:
Green Line, a one hundred thousand investment into a fixed index annuity showing the net growth of the annuity with a 50 percent participation rate with zero withdrawals from January one, 2000 to December 31st, 2013. The resulting account value is one hundred and ninety thousand and thirty eight dollars by the end of December 31st, 2013. Red Line, one hundred thousand investment into the S&P 500 Spyder, ticker symbol SPI. This investment carried one hundred percent market risk, with one hundred percent opportunity for market gains on the performance of the SPI from January one, 2000 to December 31st, 2013. The resulting balance of the account is one hundred and twenty five thousand seven hundred eighty six dollars. Your human capital versus your wealth, capital, human capital is an intangible asset or quality not listed on a company's balance sheet. You can think of this as an economic value of your work. Your human capital will decrease over the course of your career. Your peak amount of human capital is at the start of your earning years, whether that be right out of college at twenty two years old or at age 30 after completing your advanced degrees. This is the time where your productivity levels are high and you are contributing to your company's wealth. You have all of your earning years ahead of you. During this time, you have to protect your hard earned wealth capital.

Ford Stokes:
This is not something you can recoup. You can't go back and relive your prime earning years or the years where your human capital was the highest. There are many barriers to going back to work at retirement age. Unfortunately, age bias is a real issue, especially in certain industries, those who might have been an engineer during their younger years might be forced to take a retail job to make some extra cash because companies in their field won't invest in older employees. Many employers focus on what you can't do when you're older. Instead of thinking about the experience and the expertize you could bring to a project, you'll most likely have to rely on your wealth capital during retirement. The idea of losing capital as you go farther in your career sounds a little scary, but you can rest easy knowing that this new form of capital will kick in as your human capital dwindles. As you earn and invest throughout your career, your wealth capital will grow exponentially. You'll need this wealth capital for your retirement, so it is important to choose investments that will protect and grow your wealth annuity. Specifically, fixed index annuities can offer you market like gains without the market risk. Your money never goes below zero. By investing in a fixed indexed annuity, you are taking money out of the Wall Street casino, and we think that's a good thing.

Ford Stokes:
Annuity guarantees like guaranteed lifetime income and the guaranteed growth of your principal are based on the claims paying ability of the issuing annuity company. It's a good idea to buy annuities from highly rated annuity carriers that are rated by Standard and Poor's and am best. We consider a highly rated annuity carrier to be rated at least a Triple B rating by S&P or with a B Plus rating by a.m. Best. The impact of loss in your portfolio specifically, it can be devastating to your retirement. When we look at market volatility risks, the risk of loss and the potential impact on your retirement income is an important thing to understand. This chart shows the impact of losses on your retirement accounts. If we take a look at an example, let's say you have an account that is at risk. If you start with one hundred thousand and lose 20 percent, you'll lose twenty thousand. And you were left with $80000 if you gained back the same 20 percent. Are you back to even as you can see in the graphic below? The answer is no. In order to get back to your original one hundred thousand investment, you would have to gain back twenty five percent if we add an additional five percent for RMDs. We would now have to gain back thirty three point three percent to get back to even understanding.

Ford Stokes:
This concept is one of the keys to a successful retirement income distribution plan because you no longer have time on your side. The last thing we want to do is run out of money when we are 90 or 100 years old. How much do you have to gain to make up for a market loss? See Chart. One point two. After reviewing the above chart, I'm reminded of Warren Buffett's two rules of investing. Number one, never lose money. Number two, never forget rule number one. We invest in a fixed index annuity with a highly rated annuity carrier that has a high financial solvency ratio. Then it is likely that you will be able to follow Warren Buffett's two rules of investing. Exactly. You'll likely not lose any money with the amount you invest in a fixed index annuity offered by a highly rated annuity carrier with a high solvency ratio. A good financial solvency ratio is any solvency ratio over one hundred and four percent. The solvency ratio expresses financial soundness and a company's ability to meet policy obligations as they come due. Assets divided by each one hundred dollars in liabilities results in a financial solvency ratio expressed in a dollar figure. Assets are bonds, stocks, cash and short term investments. Liabilities exclude separate accounts. The higher the amount, the stronger the company's position to cover unforeseen emergency cash requirements.

Late December, back in 63. Very special time for me.

Ford Stokes:
Chapter two, why annuity and life insurance companies are competing for baby boomer dollars. There are seventy three point four million baby boomers in the United States that are close to or are already in their retirement years. Baby Boomers put between nine and 10 percent of their pay towards their retirement. Only fifty five percent of boomers have any money save for their retirement. More than four in 10 boomers inaccurately believe that Medicare will cover long term health care costs. Baby Boomers hold $2.6 trillion in buying power. They've had more time to build their wealth in comparison to other generations because some might still be in the workforce and making more money. Baby Boomers control 50 percent of the nation's wealth, outspend younger generations and are more likely to spend their retirement savings on themselves rather than passing them down. Total U.S. retirement assets are about 28 trillion dollars. More than half of those assets were either defined contribution plans or individual retirement accounts. Some other facts about baby boomers and their spending habits. Sixty nine percent of baby boomers either expect to or are already working past age 65 or don't plan to retire. Only twenty six percent of baby boomers have a backup plan for retirement if they are forced into retirement sooner than expected. Baby Boomers make up forty six point eight percent of pet spending. Baby Boomers are expected to spend three point four percent more on health related purchases than their parents did.

Ford Stokes:
Why are annuity companies targeting baby boomers? Boomers face many issues when planning for retirement. The three primary reasons are number one, growing the money they have already saved. Number two, dealing with and preparing for unforeseen expenses. The largest of which are tied to health care and long term care. Number three, optimizing their financial plans when their exact lifespan is unknown. Annuities exist to help boomers with the last issue with an annuity. A retiree gives an insurance company a lump sum of money in exchange for an annual income that will last throughout their lifespan. Annuities have the potential to become useful tools in Baby Boomers portfolios when planning their retirement. They offer protection from market volatility while also eliminating the risk of outliving one's retirement savings, which are not guaranteed by portfolios that lean heavily on stocks and bonds. The demand for retirement income among Baby Boomers already exists, and annuities are the only products that can provide a hedge for a long life like longevity. Insurance reasons Baby Boomers should be interested in annuities they are falling short of their retirement goals. Roughly 10000 baby boomers retire every day, but a very small percentage of them believe they can retire and live comfortably throughout their golden years. Only twenty five percent of Baby Boomers think they have enough money to retire comfortably.

Ford Stokes:
Many couples may be on the right track, but unforeseen circumstances such as health problems or staffing cuts might force them into retirement earlier than planned, leaving a much larger income gap. Baby Boomers are looking for a reliable source of retirement income, and annuity companies are beginning to tap into this market because they recognize the need. Not all annuities are created equal. There are two main types of annuities immediate and deferred. The right kind of annuity depends on your financial goals, your situations and your needs. One thing that makes annuities so attractive is that there are so many options available. While it may seem overwhelming. A financial advisor can help you sort through all of your available options and make a smart choice for your money. Security for their income annuities can help build a secure retirement through different income strategies, while also alleviating any stress or fear they may have left over from the financial crisis of 2008 and the bear market. Annuities can play an important role in a plan along with your Social Security, health care and other factors. Annuities can address issues such as maximizing your Social Security benefits, which help create an income that you can never outlive. How annuity and life insurance companies have responded to baby boomer needs interest in hybrid products. Baby Boomers don't want to pay a fortune for something that offers them only a part of what they need, with less income to be counted in their retirement years.

Ford Stokes:
Already paying for individual products to meet each of their needs can be too expensive. Life insurance companies heard these concerns and responded with new hybrid products. Many life insurance companies now offer some kind of long term care rider on their whole life or universal life products. Generally speaking, these riders provide coverage for long term care should you need it or you receive a death benefit if you don't. These combination products have grown from six million in 2008 to two point six billion with a B in 2013, and they are still growing. The annuity industry has been transformed by these new products, according to PricewaterhouseCoopers Employee Financial Wellness Survey, since the economic downturn of 2008. Seventy six percent of retirees say that creating a guaranteed income is their top retirement planning priority. Annuity companies rose to the occasion to create products to meet the needs of baby boomers and provide them with a sense of security. The need for advisers, annuity companies have created many products to meet the needs of their consumers. This is a good thing, but it can make for a tough decision on the part of the investor. With so many options to sort through, some pre-retirees and retirees can't sort through all the information. Many are afraid to make the wrong decision, which leads them to make no decision at all.

Ford Stokes:
A large part of the planning process involves an advisor educating their clients on all of their options so they can make the right decision. Chapter three famous people who invested a significant amount of their hard earned wealth in annuities big idea annuities are for everyone. Even if you're not worried about outliving your wealth, annuities are safer for your money than investing in stocks or bonds, or simply not investing at all. Babe Ruth, known as the Sultan of SWAT Babe Ruth, came into his glory days during the roaring 20s, and his manager was worried that he was blowing through all of his money without putting any of it away. He introduced Babe to an insurance agent from the equitable insurance company, now AXA Equitable from nineteen twenty three to nineteen twenty nine. The slugger contributed more than half of his salary annually, purchasing between thirty five thousand and fifty thousand worth of annuities each year. The Great Depression hit the country hard in October of 1929. Babe Ruth was forced to retire from baseball in nineteen thirty five due to health reasons. He was unemployed during the worst time in history, but Babe Ruth had his income annuity. It's been reported that he received an income of seventeen thousand 500 dollars a year, which would translate into an annual salary of more than two hundred and ninety thousand in today's dollars.

Ford Stokes:
His famous quote still resonates today. He said I may take risks in life, but I will never risk my money. I use annuities and I never have to worry about my money. Steve Young Steve Young was signed out of Brigham Young University into a $40 million contract with the USFL. That was the headline, at least in reality. Young was given an annuity that would pay out something like $40 million over the 50 years that followed. Given the fact that some players were not paid for playing in the final season or other seasons of the USFL, accepting the annuity appears to have been a genius move on the part of either young or his agent. The annuity payments have lasted longer than the league, and it's safe to say that he's made more money than probably anyone else involved with the league. To be fair, it couldn't have happened to a nicer guy. Even with the large signing bonus and salary, he continued to wear old jeans and drive a 19 year old Oldsmobile dynamic. In addition to outlasting the league, that annuity even outlasted the Oldsmobile car company with a staggering number of pro athletes going broke after they retire. It's refreshing to read stories about players who made smart financial choices. Shaquille O'Neal, one player who's used annuities to his advantage, is retired star Shaquille O'Neal as his 19 year career.

Ford Stokes:
He generated two hundred and ninety two million dollars in total compensation. In retirement, he is projected to make as much as a billion dollars from endorsements even after his career is long over, thanks to a wise agent who made him put $1 million annually into annuities from his rookie year onward. Shaq lives off the income the annuity generates with his endorsement legacy for his children. Shaq scenario demonstrates how pro athletes and other prodigious earners can protect themselves against their own personal spending errors. Allen Iverson, NBA player Allen Iverson earned $200 million during his career. One hundred and fifty five million in salary and 40 to $50 million in endorsement deals. Iverson ended up going bankrupt because of his overly lavish lifestyle. In a December 2012 court filing, Iverson told the court that his monthly income was sixty two thousand 500 dollars, but his expenses were three hundred and sixty thousand. Luckily for Iverson, Reebok saved him from becoming destitute by paying him an annuity worth two point three million dollars in two thousand one. Iverson made a very smart decision that would ultimately save him. He signed a unique endorsement deal with Reebok. Not only will Reebok pay Iverson eight hundred thousand dollars a year for life, they set aside a $32 million trust fund that he can begin accessing when he turns fifty five years old in 2030.

Ford Stokes:
Since he divorced his wife in 2013, he will receive half of the trust. Another way that Iverson will be able to protect himself against future bankruptcy is his access to the NBA pension. He is eligible for another eight thousand a month. The lump sum of this pension is between one point five and one point eight million dollars. Most pensions are set up with single premium immediate annuities. Benjamin Franklin When Benjamin Franklin died, he requested that the two thousand sterling he earned as the governor of Pennsylvania from seventeen eighty five to seventeen eighty eight be divided equally between Boston and Pennsylvania. He wanted the money to be disbursed as a legacy. Two hundred years later, in the spring of 1990, the balance in the Philadelphia account was valued at approximately $2 million, and the balance in the Boston Trust was about four point five million dollars. This was sometimes called Franklin's IRA. The money in the Boston Trust was invested using a new take on an old idea the annuity using a tax deferred indexed variety. The money was able to benefit from exposure to stock market growth without stock market loss. This allowed the trustees of the Franklin Institute in Boston to turn an estimated four thousand four hundred dollars into four point five million, even while it was paying out an income for two hundred years.

Ford Stokes:
I see the crystal raindrops fall, and the beauty of it all is when the Sun

Producer:
Comes shining through to make. We have Ford Stokes, author of two important personal finance books Annuity 360 and Taxes are on sale here on AM nine 20. The answer as the host of the Active Wealth Show Saturdays at 12:00 noon and Sundays at 11 am.

Ford Stokes:
And welcome back activators, the Active Wealth Show, I hope you enjoyed Chapter two and three of my new book, Annuity 360. And again, you can get that book if you want to read the book at Annuity360.net and learn a lot about annuities like literally which ones to avoid and which one to buy for successful retirement. We're just trying to give you all what you need to know about annuities, and I hope you really enjoyed that. Chapter two and three, because we've talked we talked about in Chapter two, is why, you know, annuity companies are competing for Baby Boomers dollars and why it's no longer your father or your grandfather's annuity out there that really are giving you some really great opportunities that are giving you market like gains without market like risk. And then also, we've got, you know, Chapter three is a fun chapter because it talks about all the famous people who've invested in in annuities all the way from Beethoven, all the way to Shaquille O'Neal and Allen Iverson and Steve Young and others. And so it's a really good way to protect the safe leg of your portfolio. And right now, you know, the bonds are trading in a go forward price to earnings ratio of one hundred and fifty. And stocks are trading right around a go forward price to earnings ratio right around twenty two to twenty three. And I would encourage you to consider investing in a fixed indexed annuity as an alternative.

Ford Stokes:
Also will give you a free retirement income report absolutely no cost to you. All you've got to do is visit Active Wealth. That's Active Wealth and we will. We're happy to give you a free retirement income gap analysis and then also give you a portfolio analysis with a financial plan to your ninety fifth birthday and a Social Security maximization report. It's fifteen hundred dollars value and we'll give it to you absolutely for free. All you have to do is visit Active Wealth dot com. And so we're we're so glad you're with us. And so we're going to play three chapters during this segment Chapter six, seven and eight. And these chapters are all about rules. We're talking about the rule of 100. We're talking about the four percent rule and the rule of seventy two. And all three are important rules to understand when you're planning for retirement and you really need to try to follow these rules. You really do. And so I want to go ahead and play these chapters for you so you can get an understanding of how these rules could help you plan for successful retirement. Also help you build for your retirement income also help you understand how fast your money is going to double and also the risk profile that you really should be taking based on your age.

Ford Stokes:
Chapter six The rule of one hundred big idea you want to risk less as you get older because you have less time to make up any big losses as you get closer to your golden years. Many financial professionals advise gradually reducing your risk. Retirees and pre-retirees don't have the luxury of waiting for the market to bounce back after a dip. The dilemma is figuring out how safe you should be in certain stages of your life. For years, a commonly cited rule of thumb has helped simplify asset allocation. This rule states that individuals should hold a percentage of their stocks that is equal to one hundred minus your age. For example, a six year old would have 40 percent of their holdings in stocks and 60 percent in fixed income products like bonds or fixed indexed annuities. Why you should follow the rule of one hundred, take our current example of a 60 year old at age 40. Your risk capacity is higher. You have more time to rebuild your wealth should you experience a dip in the market. However, at age 60, you can't afford to risk as much of your portfolio in the market because the time horizon to rebuild your wealth is much shorter. Rule of one 20. Many financial advisers now advocate the rule of one 20 so they can get a significant rate of return for their clients and maintain management of the portfolio.

Ford Stokes:
I disagree with today's market volatility. A retiree does not want to go back to work in a job making less than what they made before. They must consider following the rule of 100 or at least a 50 50 smart financial plan that is built equally with smart risk and smart safe investments. Chapter seven The four percent rule big idea withdrawing four percent or less annually from your portfolio will ensure that you will not draw down your account too quickly and that your income lasts for your entire retirement. What is it? The four percent rule is a rule of thumb used by investors to determine how much retirees should withdraw from their retirement account each year. This rule should ideally help provide a steady income stream for the retiree, while also maintaining an account balance that keeps their income flowing throughout retirement by withdrawing only four percent from your account. Many financial professionals believe this will help your wealth last through your retirement and that you will be able to live comfortably with this withdrawal rate. This rule helps financial planners and retirees set the withdrawal rate for their portfolios. Life expectancy also plays an important role in this process by determining if the selected rate will be sustainable. Retirees that live longer will need portfolios to last longer, and medical costs and other expenses could increase as retirees age.

Ford Stokes:
Where did this rule come from? The four percent rule was created using historical data on stock and bond returns over a 50 year period from nineteen twenty six to nineteen seventy six before the early nineteen nineties. Experts generally considered five percent to be the safe amount for retirees to withdraw from their portfolio each year. In nineteen ninety four, William Bingen, a financial advisor, conducted a study of historical returns. He focused heavily on the severe market downturns in the 1930s and the nineteen. Bingen concluded that even during those markets, there was no historical basis that a withdrawal rate based on the four percent rule would exhaust a retirement portfolio in less than thirty three years. What about inflation? Some retirees will choose to stick to the four percent rule all the time and never adjust for inflation. However, the rule allows retirees to increase the withdrawal rate to keep up with inflation. There are two options to do this. The first option provides steady and predictable increase, while the second option will more effectively match your income to cost of living changes. Option one Setting a flat annual increase of two percent, which is the Federal Reserve's target inflation rate. Option two Adjusting withdrawals based on actual inflation rates. The first option provides steady and predictable increase, while the second option will more effectively match your income to cost of living changes.

Ford Stokes:
Two scenarios where you should avoid using the four percent rule. Scenario one A severe or protracted market downturn can erode the value of a high risk investment vehicle much faster than it can in a typical retirement portfolio. Be cognizant of the health of the market and talk with a professional if you have any questions or want to make changes to your portfolio. Scenario two The four percent rule does not work unless you commit to it year in and year out. Violating the rule for one year to splurge on major purchases can have severe consequences down the road. It will reduce the principal, which directly impacts the compound interest that the retiree depends on for sustainability. Chapter eight Rule of seventy two. Big idea Knowing how long it will take your investments to double is a good planning tool. This will help you track your investments and calculate future earnings. What is it? The rule is a simple way for you to calculate how long your investments will take to double with a fixed annual rate of interest. If you divide seventy two by the annual rate of return, you can get an estimate of how many years it will take for the initial investment to duplicate. The rule of seventy two is relatively accurate when it comes to low rates of return, but becomes less accurate as rates of return increase.

Ford Stokes:
Example an investment of one dollar annual fixed interest rate equals 10 percent. Seventy two, divided by 10 equals seven point to an investment of ten dollars, with an annual fixed interest rate of 10 percent. Would approximately take seven point two years to grow to 20 dollars rule of seventy two adjustment The most realistic simulation for the rule of seventy two is an eight percent interest rate. However, you can make a small adjustment to the rule in order to make the calculation even more accurate for every three points than an interest rate strays from eight percent. You either add or subtract one from seventy two. The adjustment is not necessary, but some people prefer to make this adjustment because the time frame of this version of the rule is more accurate. Example one. If your rate is five percent, you would just adjust the rule to be the rule of seventy one. This is because five percent is three points lower than eight percent, which means you subtract one from seventy two. Example two If your rate is 11 percent, you would adjust the rule to be the rule of seventy three. This is because 11 percent is three points higher than eight percent, which means you would add one to seventy two other ways to use the rule of seventy two things with compounded rates.

Ford Stokes:
You don't have to use the rule of 70 to just for invested or loan money. It can be used for anything that grows at a compounded rate, such as population, macroeconomic numbers, charges or loans. Example the gross domestic product GDP grows at four percent annually. You could expect the economy to double in 18 years because seventy two divided by four equals 18. Estimating the effects of investment fees, the rule of seventy two can also be used to estimate the long term effects of fees that eat into your investment. Example one A mutual fund charges six percent in annual expense fees. It will reduce your investment principal by half in about 12 years because seventy two divided by six equals 12. Example to a borrower pays eight percent interest on a credit card. They will double the amount they owe in nine years because seventy two divided by eight equals nine. Estimating the effects of inflation, the rule can also be used to find out how long it will take for your money's value to have due to inflation. Example inflation is at four percent. The purchasing power of your money will have in 18 years because seventy two divided by four equals 18.

Producer:
Are you concerned about U.S. tax rates being raised by the Biden administration and how that will affect your retirement? Tune in to the Active Wealth Show with Ford Stokes, your chief financial adviser, to learn how you can reduce the taxes you pay before and during retirement. The Active Wealth show Saturdays at noon and Sundays at 11:00 a.m..

Ford Stokes:
And welcome back activators to the Active Wealth Show on Ford Stokes, your chief financial adviser and you're wondering who had activator is during this holiday weekend and you just stumbled on the show or you listen, you've been listening to to us for a long time and activator somebody who wants to inspect where they expect about their retirement, they understand. Knowledge is power. They want to build a fee efficient market, efficient and tax efficient portfolio. And we try to help you do that here on the Active Wealth Show and also with our private wealth management firm, Active Wealth Management. If you want to get a free consultation from us or with us, you can just visit Active Wealth dot com that's Active Wealth com and we're happy to work with you and you can click the set an appointment button, the upper right corner you get put directly into my calendar. You won't get pushed off to another advisor that works with us. You'll just speak with me because I'm very focused and try to do a great job taking care of our activators out there. So again, we hope you reach out to us at Active Wealth and click that set an appointment button and book an appointment a financial consultation directly into my calendar. Now we're going to play Chapter 13, which is the annuity that is just right for you and for your retirement, the fixed indexed annuity. And then the last chapter. We're going to play bond replacement with fixed indexed annuities because that's one of the best uses of fixed indexed annuities these days is to replace the bonds in your portfolio. With a new 60 40 portfolio, take 20 or 40 percent of your portfolio. Invest in fixed indexed annuities, lock up your income and be ready to go. We hope everyone is having a great holiday week and a holiday weekend here on the Active Wealth Show. Hope everybody, lots of turkey. Remember when you're planning for retirement, if you're going to be a bear, be a grizzly. Be aggressive about seeking information about your retirement so you can plan for successful retirement.

Ford Stokes:
Chapter 13 The annuity that is just right the fixed indexed annuity and effia gives the owners or annuities the chance to earn higher yields than fixed annuities. When the index they are tied to performs well, they typically will also provide some protection against market declines. The rate on an fire is calculated based on the year over year gain in the index or the average monthly gain over a 12 month period. Fire's often have limits on the potential gain at a certain percentage. This is known as the participation rate. The participation rate can be 100 percent, which means the account would be credited with all the gains, or it could be as low as twenty five percent. Most FIA's have a participation rate between 80 and 90 percent. Benefits guaranteed income stream With Americans living longer and spending more time in retirement, many retirees are concerned about outliving their savings. In turn, they're searching for a product that can help ensure a steady income stream. Fees are designed with guaranteed lifetime income, so you can never outlive your earnings. Diversification of portfolio A balanced portfolio is essential for managing risk and reward in the financial markets. Designed for the long term, PFAS are a great retirement vehicle to ensure you are not putting all your eggs in one basket. Pfas offer the ability to make some money without the risk of losing it. Secure principle Even with market volatility, investors will not lose value on their fixed indexed annuities.

Ford Stokes:
Your savings aren't exposed to market fluctuations, so even in a negative market return, you will not fall below zero. You can never lose your interest once it is credited to your principal tax deferred growth. Fia's offer long term tax deferred savings As long as your money stays in the annuity, you will not be taxed on the interest earnings. Once you receive a payout, the annuity will be taxed just like ordinary income. Predictable earnings Because fire offer predictable income, Americans feel more comfortable when withdrawing funds from these retirement vehicles as opposed to an IRA or 401K. Choosing an FIA is an efficient way to plan for your future as your interest earnings rate always remains somewhere between the interest rate floor and the cap. No matter what happens to the market, you can still count on payments throughout your golden years. Potential drawbacks of fixed indexed annuities Surrender charges A surrender charge is a type of sales charge you must pay if you sell or withdraw money from a fixed indexed and even a variable annuity during the surrender period, a set period of time that typically lasts six to eight years after you purchase the annuity. Surrender charges will reduce the value in the return of your investment. Withdrawal limits Almost all fixed indexed annuities play surrender free withdrawal limits within the annuity contract that generally range from five to 10 percent of the principal. While all annuities must be armed friendly and provide for a penalty free withdrawal from a qualified annuity account equal to the RMD requirement for the client's age, carriers limit the amount of withdrawal to enable them to grow the money invested for themselves.

Ford Stokes:
And the client not suitable for short term investing. If you want to grow your money, but you also need access to one hundred percent of your money than a fixed indexed annuity may not be right for you. Chapter 15. Bond replacement With fixed indexed annuities, you might have heard a financial adviser talk about replacing your bonds with annuities to protect your wealth and grow your retirement funds. Am I firm Active Wealth management? We believe this is a smart way to protect your future. Many people have learned that bonds are a safe way to invest your money, but there are some downsides to bonds that should make you think twice. We'll talk about some reasons why you should consider replacing your bonds with annuities. First, here's some information on the history of bonds in the United States historical bond volatility. The nineteen hundred saw two secular bear and bull markets in U.S. fixed income. Inflation peaked at the end of World War one and World War Two due to increased government spending. The first bull market started after World War One and lasted through World War Two. The U.S. government kept bond yields artificially low until nineteen fifty one. The long term bond yields were at one point nine percent in nineteen fifty one.

Ford Stokes:
They climbed to nearly 15 percent in nineteen eighty one in the 1970s. Globalization had a huge impact on bond markets. New asset classes such as inflation protected securities, asset backed securities, mortgage backed securities, high yield securities and catastrophe bonds were created. Early investors in these new asset classes were compensated for taking on the challenge. The bond market was coming off its greatest bull market, coming into the twenty first century long term bond yields decline from a high of 15 percent to seven percent by the end of the century. The bull market in bonds showed continued strength in the early twenty first century, but there is no guarantee with our current market volatility that this will hold. See Chart fifteen point one to see the incredible difference of investing in a fixed index annuity versus investing in bonds. Why you should consider replacing your bonds with annuities. The first question you should ask yourself is this Why would you take market risk with your bonds when your bonds can lose their value? If you just look at the history of loan, you can see how uncertain the future of bonds is. Inflation and fluctuating interest rates play a big role in bond yields. Interest rate risk of bonds, bonds and interest rates have an inverse relationship. When interest rates fall. Bond prices rise due to the COVID 19 pandemic, investors have moved their money to bonds because they believe it is a safer investment option. However, this has caused bond yields to fall to all time lows as of May twenty four twenty twenty.

Ford Stokes:
The 10 year Treasury note was yielding zero point six four percent and the 30 year Treasury bond was at one point twenty seven percent. Reinvestment risk of bonds This is the likelihood that an investment's cash flows will earn less in a new security. For example, an investor buys a ten year, one hundred thousand Treasury note with an interest rate of six percent. They expect it to earn $6000 a year at the end of the term. Interest rates are four percent. If the investor buys another 10 year note, they will earn four thousand instead of six thousand annually. Consider the possibility that interest rates change over time when deciding to invest in bonds. Systematic market risk This refers to the risk that is inherent to the market as a whole. It will affect the overall market, not just a particular stock or industry. This can be unpredictable and it is impossible to avoid. Diversification cannot fix this issue, but the correct asset allocation strategy can make a big difference. Unsystematic market risk This type of risk is unique to a specific company or industry, similar to systematic market risk. It is impossible to know when unsystematic risk will occur. For example, if someone is investing in health care stocks, they may be aware of some major changes coming to the industry. However, there is no way they can know how those changes will affect the market.

Ford Stokes:
There are two factors that contribute to company specific risk business risk. There are two types of risk internal and external internal refers to operational efficiency and external would be similar to the FDA banning a specific drug that the company sells. Financial risk. This relates to the capital structure of a company. A weak capital structure can lead to inconsistent earnings and cash flow that can prevent a company from trading reduced advisory fees. Investors who trade individual stocks may know how much commission they are paying their broker, but individuals who buy bonds often have no idea what type of commission they are paying. Bond dealers collect commission on bonds they sell called markups, but they bundle them into the price that is quoted to the investors. This means you are unaware of. How much commission you were actually paying? Standard and Poor's estimates of bond markups is zero point eight five percent of the value for corporate bonds and one point twenty one percent for municipal bonds. However, markups can be as high as five percent, up to 50 dollars per bond. Bonds have finite durations. Bonds only provide income for a finite amount of time. Unlike an annuity, which provides income for life, you must reinvest your money if you want to continue generating interest with bonds. However, reinvesting with a bond can sometimes come at a loss. As we discussed above, annuities will provide you with an income you can never outlive.

Producer:
Thanks for listening to the Active Wealth Show. You deserve to work with a private wealth management firm that will strategically work to protect your hard earned assets. To schedule your free consultation, call your Chief Financial Advisor Ford Stokes at (770) 685-1777 or visit Active Wealth.com Investment Advisory Services offered through Brookstone Capital Management LLC, BC, a registered investment advisor, BCM and Active Wealth Management are independent of each other. Insurance products and services are not offered through BCM, but are offered and sold through individually licensed and appointed agents. Investments involve risk and, unless otherwise stated, are not guaranteed. Past performance cannot be used as an indicator to determine future results.

Producer:
Fixed annuities, including multiyear guaranteed rate annuities, are not designed for short term investments and may be subject to restrictions, fees and surrender charges, as described in the annuity contract guarantees are backed by the financial strength and claims paying ability of the issuer. Any examples used are for illustrative purposes only and do not take into account your particular investment objectives, financial situation or needs, and may not be suitable for all investors. It is not intended to project the performance of any specific investment and is not a solicitation or recommendation of any investment strategy.

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