Saturday, September 18, 2010

Investment Traps

I spoke with a friend last evening and his financial advisor was pushing him to take his money out of the stock market and roll it all into an Annuity. The broker promised a 5% annual return on the annuity and my friend thought that was a great deal! When we spoke last night he asked me about my opinion and I have some reservations. A 5% return on an investment choice right now is a great choice since most standard "Bank" investments are paying miserably low rates. That's today - but I see inflation on the horizon. To lock your money into a 5% return in a time of low interest rates may be appealing, but what happens when market interest rates return to the higher levels we have seen in the past. If you will remember the interest rates of the late 70's when Jimmy Carter had taken our economy to the brink of collapse, I recall having a simple savings account paying 6% interest. I think we are going to see similar circumstances in this country over the next several years. I think inflation is the unwelcome visitor sitting right by the door, just lurking outside in the bushes waiting to pay a visit. When that happens those 5% great paying annuities will be a bad choice. When inflation hits and the costs of everything goes soaring, those who are locked into fixed rate investments, like these annuities are going to find their costs of living increasing, but no increases in their income. So, before you jump to what seems to be a great deal today, take a look at your tomorrow and decide if it's worth it.
At Saggio Management group we can assist client's will building sound financial decisions. Although, we don't offer financial advice, we do assist clients in developing the tax strategies that will produce investments. We work with a trusted partner from Edward Jones investments in working with clients to make wise investment choices. Give us a call and we can assist you with navigating the potential pitfalls of the market..

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