By Ron Dorner
Can you invest without losing? Yes. But whatever we invest in God’s kingdom will never be a losing situation. Matthew 6:19-21 tells the importance of investing in God’s kingdom. In fact, these verses tell us not to emphasize earthly investing.
As you read and study God’s Word you will also find verses that tell us it is wise to plan for the future. In these times we would be wise to shift much more of our investing into God’s work.
Realizing that secular investing to some extent is wise; it is necessary to address the question, “Can you invest without losing?” Most would say, “No, I know because I lost a bundle in the past year.” I want to share with you some information that may be helpful in future investing.
The investment community knows the public is afraid of investing at this time. You will see advertisements that say you can invest with them and be able to enjoy equity (stock) returns and never lose your principal investment. This is called an equity-indexed annuity (EIA). Is it too good to be true? It often has many fees and penalties as well as giving you only a partial participation in equity market performance. Fees can be two percent or more per year, and if you elect to exit the annuity within the first 10 years, a surrender penalty will be due. In the early years this fee can be about 10 percent or more. Remember, the company is in business to make money. The selling agent will receive a commission of about nine percent (that is the reason for the surrender fee) which motivates him to sell the product. So the answer is, “Yes, you can be sure you will not lose your principal; but beware of costs!”
Now for the good news. It is possible to create a similar situation with less cost and overhead. Suppose you desire to get back into the market and want to invest $10,000 for 10 years and be sure the $10,000 will be there in ten years hopefully with gains from market investing.
You do this by splitting the $10,000 into two parts: a 10 year CD (certificate of deposit) and a no-commission, low-cost stock index fund. When placed in an FDIC insured CD, $7,100 will yield approximately $10,000 in 10 years. The remaining $2,900, placed in the index fund, should yield an average of five percent over the next 10 years, according to some financial planners, which would be worth $4,723. If done within an IRA, all the funds will grow tax-deferred just as the annuity.
Notice that if the CD is closed before 10 years, it will yield less than $10,000, and if the EIA is closed early, extra fees of approximately two percent per year will be incurred, plus a significant surrender fee. Also the index fund will provide a greater return than the EIA for the same market performance.
Knowing the initial investment is protected should provide the psychological strength to venture into the markets again. No more 25 to 40 percent drops in retirement funds. If you wish to take more risk, the mutual fund selected could be different than an index fund.
This concept is understandable and has no hidden costs. You are in total control, which is always a good idea.
Ron Dorner is director of Biblical Money Management. BMM has been helping believers handle their finances and estate planning since 1984. Online counseling is available at www.BiblicalMoneyManagement.com.
