Robert James & Associates, Logo


Request Our Services

Phone Icon (865) 376-4925

Stock Market

Stop losing money in the Stock Market!!

  • Is your current total return rate high enough to keep pace with inflation? NO
  • Is your principle free from market risk? NO
  • Are your income and principal guaranteed? NO
  • Is your reinvested dividends and capital gains free from taxation? NO
  • Do your interest earnings accumulate without affecting taxation of your Social Security benefits until withdrawn? NO
  • Can you make cash withdrawals without a surrender charge? NO
  • Can you automatically avoid probate expenses and delays? NO
  • Does the purchase avoid incurring a sales charge? NO
  • Is there a provision to provide guaranteed lifetime income with additional tax advantages? No

Commentary

The broad stock markets here in the U.S. - as defined by the major indexes like the Dow Jones Industrials, the S&P 500 and the Nasdaq – look like they are going to have a great deal of volatility over the next few years. So far they have already wiped 72% of your money, in giant bear market that may have a long way to go.

Do not underestimate it. Because the dollar has lost so much purchasing power, the value of our stock markets is also getting gutted, in what we call "The Devaluing of America" As the dollar continues to fall in value, the losses in the broad stock market averages may widen. In fact, they may get worse, as the averages decline both in nominal terms and inflation-adjusted terms (based on gold). That mayl put the U.S. stock markets amongst most risky investments you can have your money in, now, and for perhaps the next five years.

European Stock Markets

The euro currency has been very strong. And that should help mitigate the losses investors are experiencing, and possibily continue to experience, in the European stock markets. Europe suffers from many of the same problems the U.S. does: Overheated real estate markets that are now imploding, large derivatives exposure amongst Europe's banks, and more. So Europe's stock markets may continue to lose, both in nominal terms and in terms of gold. They just might not lose as much as U.S. markets.

Variable Annuities: The Venus Flytrap Of Investments

State regulators identify variable annuities one of the top 10 scams in America. Variable annuities are complex tax shelter investments. State securities regulators, which regulate persons who are licensed to sell securities, have placed variable annuities on their annual Top 10 list of “the most common ploys being used to cheat investors out of hundreds of millions of dollarsOn their annual list of the “Dirty Dozen Investment Scams,” California securities regulators rank variable annuities at #2: “As sales of variable annuities have risen, so have complaints from investors—most notably, the omission of disclosure about costly surrender charges and steep sales commissions. These surrender charges and high fees combine with other factors to make variable annuities inappropriate for many investors, particularly for purchases in retirement accounts.”

Regulatory examinations are finding pervasive sales abuses. A SEC /NASD joint investigation and report in June 2004 found widespread improper variable annuity sales practices, including failures to obtain and evaluate proper suitability information for these complex products. The report “paints a pretty grim pictures” of variable annuity sales abuses. Regulators have responded to the variable annuity industry’s aggressive targeting of qualified plan investors by bringing enforcement actions, and by seeking to warn investors that variable annuities are not likely to be suitable for rollover IRAs or other qualified plan accounts. Although regulators usually do not express any opinions on the merits of any particular investment, they have cautioned investors about variable annuities for retirement accounts. The NASD has warned that: “Investing in a variable annuity within a tax-deferred account, such as an individual retirement account (IRA) may not be a good idea. Since IRAs are already tax-advantaged, a variable annuity will provide no additional tax savings. It will, however, increase the expense of the IRA, while generating fees and commissions for the broker or salesperson.” The SEC has stated that: “For most investors, it will be advantageous to make the maximum allowable contributions to IRAs and 401(k) plans before investing in a variable annuity

Variable Annuities

  • Is your current total return rate high enough to keep pace with inflation? NO
  • Is your principle free from market risk? NO
  • Are your income and principal guaranteed? NO
  • Is your reinvested dividends and capital gains free from taxation? YES
  • Do your interest earnings accumulate without affecting taxation of your Social Security benefits until withdrawn? YES
  • Can you make cash withdrawals without a surrender charge? YES
  • Can you automatically avoid probate expenses and delays? YES
  • Does the purchase avoid incurring a sales charge? NO
  • Is there a provision to provide guaranteed lifetime income with additional tax advantages? YES

Commentary

Variable annuities give investors the opportunity to get the higher rates of return from investing in the stock market. But that also means getting lower returns when the market goes down.

Insurance companies that sell variable annuities invest your premiums in mutual fund-like investments. The amount you receive back changes based on how well those investments perform. You usually can choose where you want your money invested from a list of mutual funds the insurance company offers.

Is Investing in a Variable Annuity Right for You?

Variable annuities may sound good, but you need to look behind the promotions to determine whether such an investment is right for you. Before investing in a variable annuity contract, be sure to investigate and understand two issues - risk and costs.

Variable annuities may sound good, but you need to look behind the promotions to determine whether such an investment is right for you. Before investing in a variable annuity contract, be sure to investigate and understand two issues - risk and costs.

  • If you have to count on receiving monthly payments in the future, is the risk of fluctuating payments that go along with a variable annuity appropriate for you?
  • Do the benefits of an annuity as an investment option justify the costs?

High Commissions. The securities licensed insurance agent, broker, or banker who sells you a variable annuity will generally earn a commission of 6% to 10% on the money you invest. Some regulators have seen commissions as high as 17%. For example, if you invest $100,000 in a variable annuity, the salesperson will get a commission of $6,000 to $10,000. This will reduce your $100,000 before any investment is made. Be sure you know how much commission is deducted from your contribution, so you can compare it with other investment options.

Tax Benefits Now and Then. A big selling point of the variable annuity is that you don't have to pay income tax on any earnings until you withdraw funds or start to receive payments. However, when you start making withdrawals your earnings will be taxed as ordinary income. Depending on your tax bracket at that time this could be between 10% and 35%. You lose the opportunity to pay the lower capital gain or qualified dividend rate of 5% or 15% that you pay on other investment income. So the benefit of income tax being deferred now may be offset by the higher tax rate that you would pay later. You need to determine if the difference in taxes you pay on a variable annuity versus a mutual fund that you invest in directly is important to you.

Guaranteed Principal. Many investors are attracted to the guarantee that the original principal amount will be returned even if the annuity investments have lost value. Unfortunately, with most contracts this guarantee for 100% return of the principal is only available if the owner dies before the end of the contract. If you want this guarantee of the principal, you have to pay an additional annual expense, called the "mortality cost." According to Morningstar, the average annual fee to get this guarantee is 1.35 % of assets.

Negative Impact to Beneficiaries. If your children or grandchildren receive stock or mutual funds as part of their inheritance, they receive a "step up" in the basis of the investment. This means that all capital gain is eliminated for your heirs. An annuity does not receive a "step up" in basis. Instead, your heirs will have to pay ordinary income tax rates on all payouts they receive from your annuity.

Lack of Liquidity & Penalties Imposed. If you withdraw any funds from your variable annuity before you reach age 59½ , you will pay IRS a 10% penalty on the taxable portion — plus the ordinary income tax you owe. And the insurance company penalizes you if you withdraw more than a specific amount (usually 10% of the original principal) during the surrender period. Typically the surrender period is seven years and starts with a 7% surrender charge. This fee goes down by 1% per year until the surrender period is over. It is not common, but there are variable policies that have a 20% penalty for the entire period of 20 years. That is outrageous, as well as being very inappropriate for anyone whose financial needs may change over two decades. It certainly would be unsuitable for the 75 year old person to whom this was presented as an appropriate investment strategy!

Administrative Costs. In addition to the commission, annual investment management costs and the potential penalties, the insurance company also charges administrative fees. These fees can add 1.5% or more to the annual annuity cost.

Absolutely Not Appropriate for an IRA. A variable annuity is not an appropriate investment for an Individual Retirement Account. An IRA allows you to defer all income tax until you withdraw money from the investment. If you invest your IRA funds in a variable annuity, you are putting a deferred tax investment into a deferred tax account. Because you are already getting deferred taxes through your IRA, you do not need the "deferred income" feature of the annuity or want all the expensive annuity costs. You can invest much more effectively in a bond or a stock mutual fund by simply purchasing them directly in your IRA account.

Bottom Line. If you are considering a variable annuity as the right investment for you, take the time to read the annuity contract. As you do, keep a list of all the current and future expenses. After you have a thorough understanding of the annual costs that will reduce your investment return, ask the salesperson about the commission that will come off the top. Then decide if the risk of fluctuating returns is the right risk for you


Treasury Bills

  • Is your current interest rate high enough to keep pace with inflation? NO
  • Is your principle free from market risk? YES & NO
  • Are your interest and principal guaranteed? YES
  • Is your deferred interest free from taxation? NO
  • Do your interest earnings accumulate without affecting taxation of your Social Security benefits until withdrawn? NO
  • Can you make cash withdrawals? NO
  • Can you automatically avoid probate expenses and delays? NO
  • Does the purchase avoid incurring a sales charge? YES (spred)
  • Is there a provision to provide lifetime income with additional tax advantages? No
  • Do you know what your new rate may be in the future? NO

In an attempt to manage risk, many people overlook one of the biggest potential threats to their investments: Inflation. Your principle may be safe when invested in savings bonds or Treasury bills but inflation slowly erodes the purchasing power of your investment. While your balance sheet shows growth, the reality is you have little more than you started with. Remember, the government inflation index doesn't account for many areas of day-to-day inflation that impacts your life such as groceries or insurance so your true purchasing power is decimated by a low rate of return. For example, currently treasury bills have rates of return of ¼ % to 1% . Current yearly rates of return of long term Government bonds is 3% vs. the Stock market's potential 8%. To put it in perspective, compare these 1970's prices to what you pay for the same items today:

1970 Prices

  • One Dozen Eggs: .59 cents
  • 10 lb Bag Potatoes: .99 cents
  • Loaf Bread: .37 cents
  • New Car: $3,710
  • House: $23,450
  • Gasoline: .35 cents

To truly manage risk, compare the risk to the potential reward and then establish guidelines for investing that meet your need for growth versus safety.

Bank Money Market

  • Is your current interest rate high enough to keep pace with inflation? NO
  • Is your principle free from market risk? YES & NO
  • Are your interest and principal guaranteed? NO
  • Is your deferred interest free from taxation? NO
  • Do your interest earnings accumulate without affecting taxation of your Social Security benefits until withdrawn? NO
  • Can you make cash withdrawals without a surrender charge? YES
  • Can you automatically avoid probate expenses and delays? NO
  • Does the purchase avoid incurring a sales charge? YES
  • Is there a provision to provide lifetime income with additional tax advantages? No
  • Do you know what your renewal rate may be in the future? NO

Commentary

What is the difference between a money market mutual fund and a money market account? If you are like most investors, many of you may actually have one or both of these types of investments but you really aren't aware of the basic differences.

Be aware of the following points of interest

A money market account is similar to a savings account. In fact, depending on where you bank you may have your money parked in a MMA. Interest is paid on the deposits and they are federally insured. The difference between MMAs and traditional savings accounts is most notable in a higher interest rate, minimum balance requirement and some limitations on transfers or withdrawals.

Money market mutual funds are completely different. These funds are not federally insured, which means your money is at risk should a loss take place (although rare, it is theoretically possible) and mature in 13 months or less. Money market funds take combined funds and then purchase investments ranging from very safe (for example, government only Treasury funds) to corporate securities.

When purchasing money market funds, be sure you understand the yield after annual account fees and other charges.

Get more income from low paying CD'S

  • Is your current interest rate high enough to keep pace with inflation? NO
  • Is your principle free from market risk? Yes
  • Are your interest and principal guaranteed? Yes
  • Is your deferred interest free from taxation? No
  • Do your interest earnings accumulate without affecting taxation of your Social Security benefits until withdrawn? NO
  • Can you make cash withdrawals without a surrender charge? NO
  • Can you automatically avoid probate expenses and delays? NO
  • Does the purchase avoid incurring a sales charge? YES
  • Is there a provision to provide lifetime income with additional tax advantages? No
  • Do you know what your renewal rate may be in the future? NO

Commentary

Why is it that banks always seem to make out? They always have the tallest buildings and new branches pop up over night! Well, it's because they loan money out at high interest rates and pay a lower interest rate to consumers. Have you looked at the interest they charge on credit cards lately? Some banks are paying your as little as 1.5% on CD’s and charging you 24% on credit card interest! Are bank CD's a bad choice? Absolutely not, but there are other more attractive options.

Today, retirees are faced with enormous financial challenges. The rising cost of goods, taxes, the cost of health care and much more! We live in uncertain times. Wouldn't it be worth investigating to see if you could possibly double or even triple your bank cd interest rate? Well, certain annuities have that potential and can guarantee you a lifetime income!

If you are interested in what a tax deferred annuity can do for you, just complete the following information. If a question does not apply to your circumstances, just leave it blank. We'll have a qualified agent call you to schedule an appointment. You are under no obligation. Ask your agent about how to get a 10% bonus on your money, day one!


Billboard Ad

Do you have questions about income strategies?

We want to help. Please contact us by filling out the form below or by calling us at (865) 376-4925 to schedule your no obligation evaluation meeting where we will answer your questions. If you can invest one hour, we can place you on the path towards the future you deserve.