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Stock Market Protection.

By Roccy M. DeFrancesco, JD, CWPP™, CAPP™ - Email Editor

Date: May 09, 2006

If you’ve read any of my past newsletters, you should be starting to get the opinion that my view of Asset Protection is different than any other Asset Protection specialist in the country. My view is much more global.

For today’s newsletter, I am going to talk about the second most feared creditor that virtually no one considers a creditor. Who? The stock market. Who is the number one guaranteed creditor ever year? The IRS. Remember, a creditor is anyone or anything that can take your money.

You might be scratching your head when thinking about why the stock market is a creditor. It’s simple. Looking back over the last 10 years, who was the creditor that took the most money from you? In other words, over the last 10 years, when did you lose the most money? If you had any investible dollars in 2000-2002, you lost nearly 50% of your invested assets!

If we just look at 2001, let’s see what probably happened to your actively traded money.

If you were in “growth” mutual funds, you probably had returns similar to Merrill Lynch:

Merrill Lynch Mid-Cap Growth Fund – <36.6%>
Merrill Lynch Premier Growth Fund – <52.6%>
Merrill Lynch Focused Twenty Fund – <70.1%>
Merrill Lynch Fundamental Growth Fund – <19.4%>
Merrill Lynch Global Growth Fund – <26.3%>

If you were investing in the S&P 500 index, your money would have been down 13% in 2001.

Think about who is one of your biggest creditors? Isn’t it the stock market? Did anyone else take nearly 50% of your liquid net worth from 2000-2002?

How do you protect yourself from risk of loss in the stock market?

Certificates of Deposit (CDs)
CDs have principal protection (meaning your money will not go backwards and have a guaranteed rate of return). The problem with CDs is that the income is taxable every year, the growth rate is usually low, and there is NO potential for upside growth.

Guaranteed Annuities?
1) Fixed annuities. Fixed annuities are annuities purchased from an insurance company where they will guarantee some rate of return inside the annuity. The good thing is that the growth is income tax deferred. The bad thing is that most have low rates of return (slightly higher than CDs) and there is no potential for upside growth when the market does well.

2) Equity indexed annuities (EIA). EIAs are all the rage these days with the senior market. EIAs provide principal protection from down turns in the market and upside potential if the market does well. The upside potential is usually capped, and right now, the caps are running around 8%. So, if the market tanks in any given year, your money does not go backwards. If the markets do well (growth is usually pegged to the S&P 500 index), you will participate in that growth up to the cap. Most people like the idea of being able to achieve returns of 8% with 100% principal protection of their money.

Caution with EIAs. There are so many different products in the EIA annuity market that you really need to be careful. It is very easy to be sold one that is best for your advisor vs. one that is best for you. If you would like help looking at EIAs, please contact TrustMakers at info@trustmakers.com

3) The Maximizer. This is an investment philosophy that is simple and complicated all at the same time. I do not have time or space to explain it in this newsletter, but the concept involves using EIAs and call spread options on the S&P 500. For today’s newsletter, what you need to think about is: would you like to have the opportunity to nearly double the return of the S&P 500 index while principally protecting 90% of your invested dollars each year? Your answer should be "yes," and in an upcoming newsletter, I will be discussing the Maximizer and how you can get more information on it. If you can’t wait, you can purchase the 25-page Maximizer module on TrustMakers. Click Here to Purchase.

There are other ways to protect your money from downturns in the market. For this brief newsletter, I just wanted to talk about the most common two and my favorite way to protect money while reaching for growth.

Housekeeping
I wanted to let everyone know that TrustMakers just created a "message" board where the general public can post questions on Asset Protection issues (meaning core Asset Protection and “Global” Asset Protection).

This board should prove to be a viable information tool for many readers on a number of different subjects. While these posting boards are tough to monitor, TrustMakers intends on this site to be for the general public (not for other advisors) and the technical answers will come solely from TrustMakers approved advisors.

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