Q&A with Douglas Andrew – Money Matters

Douglas Andrew Douglas Andrew answers questions about financial matters.

Q: How do you define investments?

Douglas Andrew: Financial instruments are meant to help an individual or family better prepare for the future. There are many different types of financial products – everything from stocks and bonds to real estate and education. Some financial strategies bring an immediate return, while others provide returns over a longer period. And some provide big-interest returns (while they also often pose higher risks), while others provide smaller, but safer, more consistent returns.

Q: What are some of the primary risks involved with financial instruments?

Douglas Andrew: Most traditional investments such as stocks and 401(k)s and IRAs are subject to the volatility of the market, inflation, excessive taxation, and penalties for early withdrawal. However the best financial vehicles, in my opinion, typically pose very little risk. They have liquidity, consistent rates of return, and are inherently protected from shifts in an unstable stock market.

Q: Are there retirement vehicles that offer a safer path to an abundant future?

Douglas Andrew: The challenge with many traditional plans like 401(k)s and IRAs is they are heavily taxed. Think about it. The IRS is a government organization that was developed for one purpose only – to collect taxes. With taxes most likely escalating in the future, you’ll be paying more of your hard-earned money to Uncle Sam.  There are retirement vehicles that are in compliance with IRS codes and offer significant tax advantages such as max-funded, tax-advantaged insurance contracts.

Q: What is the best way to protect personal assets from inflation, recession, and taxation?

Douglas Andrew: It is been said that an ounce of prevention is worth a pound of cure. This is true in all areas of life, and asset protection is no different. Individuals relying exclusively on tax-deferred financial products must learn to understand that not all strategies are equal.  Just because the crowd thinks and acts a certain way doesn’t make it the best way.


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    Douglas Andrew Talks about Rate of Return

    In Missed Fortune seminars, Douglas Andrew often speaks of his Laser strategy to creating wealth. Douglas Andrew points out that the Laser strategy outlines the most important factors of wealth and retirement planning, in order of importance: liquidity, safety of principal, and rate of return. Recently, Douglas Andrew tackled a few of the questions he gets most often about the third item in the Laser principal: rate of return.

    Q: What do you consider a good rate of return?

    Douglas Andrew: A good rate of return is one that stays ahead of inflation and out of the market volatility.

    Q: How do I know I’m getting a good interest rate?

    Douglas Andrew: There are three different strategies individuals can use to determine interest rate—fixed, variable, and indexed.

    Q: Are all three equally as good?

    Douglas Andrew: I generally steer individuals toward fixed and indexed. I’ve found variable interest rates do not pass the safety test.

    Q: Is this because of the recent market volatility?

    Douglas Andrew: Yes, and in the past ten years, it hasn’t passed the rate of return test either.

    Q: You’ve found that maximum funded tax-advantaged life insurance policies are the best. So is a variable life insurance policy a bad idea?

    Douglas Andrew: With a variable life insurance policy, as you pay the premiums into your life insurance policy, any overpayment of premium is pushed out into different mutual funds. If those mutual funds gain, you gain. If they lose, you lose.

    Q: So you can lose with a variable life insurance policy?

    Douglas Andrew: I knew people that lost as much as sixty percent in the 2008 crash. In 2009, quite a few of them rebounded as much as thirty-five percent. But overall the thirty-year average is around 7.7%. The problem is with the year-by-year detail. We need a more consistent year-by-year average to have a good rate of return.

    Q: Explain a little more about fixed and indexed life insurance policies.

    Douglas Andrew: When we talk about indexed, it’s actually indexed within the fixed policy. It’s not out in the market, it’s not a security. None of your money leaves the life insurance company. When you overpay your policy, which is what you do when you “maximum fund” it, the insurance company will credit interest to you on that amount. This entices you, the insured, to overpay the policy.

    Q: How much interest will they credit me if I’m in a fixed?

    Douglas Andrew: This interest can be as low as 2% and we have seen as high as 17%. This amount often will correlate with interest rates in the bond market. Bond rates usually go up with interest rates.

    Q: Is this money guaranteed?

    Douglas Andrew: The guarantee on that interest crediting strategy is usually three percent.

    Q: What happens if bonds fall below three percent?

    Douglas Andrew: At that point, the life insurance company will be forced to dip into its reserves to ensure that you continue to get three percent. The insurance companies have plenty in their long-term reserves in preparation for this.

    Q: Doesn’t the stock market often show a higher rate of return than the bond market?

    Douglas Andrew: When inflation is low, it can definitely happen, but once inflation hits double digits, you want to have all of your money in the fixed strategy alone. Until we see double-digit inflation, the market usually offers a higher return.

    Q: So how can I earn a higher rate of return than the bond market is offering?

    Douglas Andrew: That is when we look to the indexing strategy. This allows us to eliminate all losses experienced in the stock market without putting money in the market itself. When you choose an indexed life insurance contract, the insurance company uses the market to determine your rate of return. They use an indice, like the S&P 500, and determine what the growth is from point A to point B. Depending on your participation rate, you might get as much as 100% of whatever that growth is. You choose participation caps to ensure that you don’t lose or gain any more than you want.

    For more information, visit Missed Fortune online at www.missedfortune.com

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