Two Interesting Investment Strategies – But No Free Lunch.

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No investment strategy is without some kind of risk; but, I think this comes close. Take a look:

According to Annuity.org, a typical rate for a 10-year annuity right now is about 3.7%. That means, if you were to put $100,000 into this hypothetical annuity, you’d end up with $143,809 in ten years.

According to ycharts.com the 10-year U.S. Treasury note currently yields 3.25%. That’s not as much as the annuity, so your $100,000 investment wouldn’t do quite as well. But, what if you’d be happy with taking a risk that you wouldn’t gain as much as long as you wouldn’t lose anything? At 3.25%, you could deposit $72,627 into our hypothetical treasury note and it would be guaranteed to grow to $100,000, thus guaranteeing your principal. Since you deposited only $72,627, you have $27,373 left to invest in stocks for a 10-year period.

If your stocks averaged 8% (below the historic long-term average annual growth rate of 10%), your stocks would grow to $59,096, giving you a total return of 4.75% on your combined $100,000 investment. If your stocks grew by 9%, they would end up at $64,801, giving you a combined return of 5.10%.

So, you can have a guarantee of $143,809 in ten years with an annuity; or you can take door #2 that guarantees you against loss, but could provide you with an unknown gain.

Both are taxable at the end, though stocks are more likely to enjoy some capital gains treatment when sold. And, both strategies must battle inflation.

No free lunch.

Jim

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Jim Lorenzen, CFP®, AIF®

Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® in his 21st year of private practice as Founding Principal of The Independent Financial Group, a fee-based registered investment advisor with clients located in New York, Florida, and California. He is also licensed for insurance as an independent agent under California license 0C00742.  IFG helps specializes in crafting wealth design strategies around life goals by using a proven planning process coupled with a cost-conscious objective and non-conflicted risk management philosophy.

Opinions expressed are those of the author.  The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

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Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® in his 21st year of private practice as Founding Principal of The Independent Financial Group, a fee-based registered investment advisor with clients located in New York, Florida, and California. He is also licensed for insurance as an independent agent under California license 0C00742.

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