The Security Bucket By JT fredericks

Security Bucket This is where you keep the part of your wealth that you cannot afford to lose Safe investments that you lock up tight Put the money in  don’t take it out “Slow but steady” money-making machine Contains: Cash/cash equivalents Bonds CDs your home your pension Annuities your life insurance policy structured notes

Cash/Cash Equivalents Very liquid assets Easily able to produce cash Bank Accounts Receive interest on deposits Despite low interest rates, at least you know your money is safe and readily available Bank accounts are insured by FDIC (government) for balances up to $250,000 Money Market Fund Essentially mutual fund made up of low-risk, short-term bonds Higher rate of return than bank accounts Still have quick and easy access to money Money Market Deposit Accounts Savings accounts where bank invests your money in short-term debt, and they pay you a slightly higher interest rate Insured by FDIC, meaning you are guaranteed not to lose money if they (the bank) make bad investments

Bonds Fixed-income investments Essentially an IOU that gives you money The income (return) you get from bonds is fixed at the time you buy them Essentially an IOU that gives you money Different types of bonds have different ratings (AAA, BBB, D, etc.) Security bucket-worthy bonds will have higher ratings Can directly buy bonds or can buy low-cost bond index fund Own the whole bond market, not limited to a select few TIPS Protects against inflation If you think there will be inflation, buy these

CDs (Certificates of Deposit) You loan money to the bank and they return it plus interest after a set period of time Insured by FDIC Market-Linked CD CD linked to the growth of the stock market Currently, traditional CDs only pay .28% interest but a market-linked CD can allow you to keep up to 5% of the stock market gains Even if market falls, you get your entire investment back, plus the promised interest Easy returns but with NO RISK!

Your Home Owning a home with a fixed-rate mortgage is a hedge against inflation Gives you tax advantages If you have paid off you home entirely, you can earn income by renting out some or all of it

Your Pension A fund into which money is added during an employee’s employment years, and from which payments are drawn to support the person’s retirement from work in the form of periodic payments Pensions are increasingly rare these days, but if you do receive one, it is safer to keep it than it is to liquidate it Also includes Social Security payments

Annuities Insurance products that give you a guaranteed income for life If done properly, they can be like private pensions Fixed Indexed Annuity “Fixed” = account is guaranteed to never go down will not lose original deposit “Indexed” = tied to stock market index (S&P 500) gains May be limited to a certain percentage (If market goes up 10%, you may be limited to only keeping 5% of the gains) Some annuities allow you to keep 100% of the market’s gains while still allowing you to avoid the years the market is down The catch is that the company that issues the annuity may share some of your gains

Life Insurance Policy Private Placement Life Insurance (PPLI) Benefits: Unlimited deposit amounts No tax on the growth of your investments No tax when accessed Any money left over for your heirs cannot be taxed *Unfortunately, these are only available to accredited investors (net worth of at least $1 million) TIAA-CREF offers the public with similar financial services Offers life insurance products with no sales or surrender charge Investment options include low-cost index funds Tax benefits equivalent to PPLI

Structured Notes Loan money to a bank  they pay you back plus a percentage of gains from an index (S&P 500, commodities, gold, REIT, or a combination) J.P. Morgan offers a 7-year structured note with 100% downside protection (guaranteed to not lose original investment), plus up to 90% of the market’s gains *Structured notes are only as good as the banks that issue them Choose wisely

Security Bucket Summary Cash/Cash Equivalents (Money Market Account) Bonds Certificates of Deposit (CDs) (Market-Linked CD) Your Home Your Pension Annuities (Fixed Indexed Annuities) Life Insurance Policy (PPLI) Structured Notes

To Learn More… All information was taken directly from Tony Robbin’s book, Money: Master the Game