Who Needs Gold Bricks – Life Insurance Performs Better
Gold may be one of those commodities some investors stockpile in hopes that it’s a solid investment and a surefire hedge against times of economic strife, but you’ll likely be stunned to discover that cash value life insurance is a better performer than gold bricks.
While there is a wide range of savings and wealth building options out there, many people are led by their emotions and misinformation to take on catastrophic investment choices.
A good share of the worst planning arises from a desire to push the envelope and “outperform” trusted investment options or the search for the elusive “sure thing.”
One key to doing it right is to take advantage of the fact that life insurance – or annuities – allow for tax-deferred wealth building. The theory goes like this: if you purchase mutual funds in a regular, taxable account, you pay taxes every year on any growth which accrues. On the other hand, an insurance contract or annuity shields your growing pile of capital from our favorite tax collector, Uncle Sam.
While it is true that the use of life insurance as a wealth-building tool means you will still have to pay income tax on gains when you withdraw the money (and a potential 10 percent penalty if you are under age 59 1/2) you are better off with policies as opposed to gold. In what seems like a positive, the tangible nature of gold is exactly what can make the precious metal a poor investment. The cost to acquire and store gold, particularly in small amounts, will wipe out most of the appreciation in value. When you stop to considering the fact that gold has earned just 6-7 percent annually over the last twenty years, you can see the point here. Add to the equation the fact that gold is easy to steal, hard to identify once it is and takes up lots of space, investment in gold can be more work than it is worth.
If you want to take advantage of fluctuations in precious metal prices, why not just purchase a mutual fund heavily invested in profitable gold mining companies, and avoid the downsides of gold investment entirely.
Take the advice of financial planning expert Dan Solin.
Solin says it’s worth an investor’s while to invest – not in the precious metal – but in a life insurance policy that accrues cash value. According to Solin, a life insurance policy can serve as both an investment and a savings vehicle, but he warns that the strategy needs to be designed properly.
According to Solin, cash value policies provide a fixed income and can be viewed as an emergency fund. That makes them ideal and permits investors to be more aggressive in other areas of their portfolio. The returns on these policies can often outperform after-tax returns on other securities.
If you listen to Solin’s advice, he’ll suggest that you design a cash value policy that accrues 90 percent of the first year’s premium if it is processed through a consultant at an insurance company rather than an insurance agent. That’s due to his contention that agents often get paid more from commissions than consultants.