Today we’re going to talk about solutions that will help keep your assets safe. This is an immediate issue; there are a lot of red flags in today’s economy that indicate a significant recession is on its way. Many corporate executives, including the head of Amazon, have expressed concern about where the market is heading. The treasury bond rates are creating a significantly inverted yield curve, which means that short-term rates are going higher than long-term rates, which is very unusual.
A yield curve like this doesn’t mean that there’s necessarily going to be a recession, but a recession doesn’t happen without an inverted yield curve happening first. It’s an indicator that, if the economy follows its historical pattern, we are about to land in a big recession. With that in mind, what are some steps you can take to protect your investments? Let’s look at some opportunities that are available to help you.
When my mother retired, she would play a game with the local banks. If she had $50,000, she would break it into fifty $1,000 chunks. Then she would put each chunk into a different bank with a certificate of deposit (CD) for between one and five years, whichever length of time gave her the best rate. When the CD matured, she would go to the bank and ask what rate they would give her to take out a new five-year CD, and she would see which bank would give her the best rates. She played them against each other to get a competitive rate and even looked in the local newspaper to see which banks were advertising lower rates. She used that information when she went and did her bargaining. It was fun for her, and she ended up earning great interest on her CDs because she invested her time in them. She paid attention to how they were doing and how she could get the most out of them.
Of course, that game ended in 2008 when the market crashed, and the Federal Reserve dropped interest rates to almost nothing. If you go to a bank today, you can’t play the same game my mother used to play. The best interest rate you’ll get for a starting CD is a couple percent. If you’re trying to get a guaranteed return over the next few years, you have to use a different strategy.
Some financial advisors will try to convince you to buy a risky long-term portfolio, or to give up on earning and convert your assets to cash to keep them safe, but those are the kind of shallow, lazy options you should avoid. If you want to make money like my mom did, you have to be intentional and strategic about your investments like she was.
The good news is, there are resources for people who are being proactive about their investments, and one of them is seeing rates rise significantly: multi-year guaranteed annuity (MYGA). An MYGA isn’t as complicated as it might sound. It’s exactly like a certificate of deposit, except instead of investing for several years at a bank, you invest for a few years at an insurance company. Right now, if you were to deposit $100,000 with an insurance company and agree that they’ll hold it for three years, they would pay an interest rate of around 4.65%. That’s a guaranteed increase of 4.65% every year for three years! That’s a great way to let your money ride out a recession.
Some banks have high minimums for this kind of investment. MYGAs don’t, so you can invest just $10,000 or even $1,000 and still get a decent rate. With MYGAs, the biggest factor is time. A three-year investment will get you a good rate. But if you’re willing to commit to four or five years, a lot of firms will give you 5% per year or even more. If you want to have guaranteed returns waiting for you five years from now, we think MYGAs are one of the best investments you can make.
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