Some investors may stockpile gold in the hopes that it will be a good investment. However, you may be surprised to learn that cash value life insurance outperforms gold in the long run.
While there are numerous savings and wealth-building options available, many people are led by their emotions and misinformation to make disastrous investment decisions.
A good portion of the worst planning stems from a desire to “outperform” trusted investment options or the pursuit of the elusive “sure thing.”
One key to success is to take advantage of the fact that life insurance – or annuities – allow for tax-deferred wealth accumulation. The theory goes as follows: if you buy mutual funds in a regular, taxable account, you must pay taxes on any growth that occurs each year. An insurance contract or annuity, on the other hand, protects your growing nest egg from our favorite tax collector, Uncle Sam.
While it is true that using life insurance as a wealth-building tool requires you to pay income tax on gains when you withdraw the money (as well as a potential 10% penalty if you are under the age of 59 1/2), you are better off with policies rather than gold.
In what appears to be a positive, gold’s tangible nature is precisely what can make the precious metal a poor investment. The cost of acquiring and storing gold, particularly in small amounts, will wipe out the majority of the value appreciation. When you consider that gold has earned only 6-7 percent per year over the last twenty years, you can see the point here. Add to that the fact that gold is easy to steal, difficult to identify once stolen, and takes up a lot of space, and investing in gold can be more work than it’s worth.
If you want to profit from fluctuations in precious metal prices, why not buy a mutual fund that is heavily invested in profitable gold mining companies and avoid the drawbacks of gold investment entirely?
Take financial planning expert Dan Solin’s advice.
According to Solin, it is worthwhile for an investor to invest in a cash-value life insurance policy rather than a precious metal. According to Solin, a life insurance policy can be used as both an investment and a savings vehicle, but the strategy must be properly designed.
Cash value policies, according to Solin, provide a fixed income and can be used as an emergency fund. This makes them ideal for investors who want to be more aggressive in other areas of their portfolio. These policies’ returns frequently outperform after-tax returns on other securities.
If you follow Solin’s advice, you should create a cash value policy that earns 90 percent of the first year’s premium if processed through an insurance company consultant rather than an insurance agent. This is due to his contention that agents frequently earn more money from commissions than consultants.