Transcription
I want to see how the economy is doing today because, you know, if you're going to invest in the stock market, you want to know how the economy is going to do. Because if the economy is good, then the stock market's good. If the economy is good, then the stock market's good because the economy makes the stock market. Yeah, the economy makes the stock market. Yeah, the economy makes stock, economy makes economy, economy makes stock market, makes the economy, stock market makes the economy, the stock market makes the economy, the stock market makes the economy. What we're going to figure this out very quick on today's episode of Straight Talk Wealth Radio TV video.
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Hey folks, welcome to another edition of Straight Talk Wealth Radio Video TV, etc. I'm your host, Bruce Whitey. I have been doing Straight Talk, well, the radio since 2007. Used to be back in the day on KRLA in Los Angeles, and I would go in on Sunday, sit in Dennis Prager's chair, and do the radio broadcast. And those days are over because everything is online these days, and that's what we're doing here.
Um, I, uh, want to talk to you about just, you know, uh, first of all, I do these shows when I have time, and we're a little inconsistent because I got clients to care for. I, I get inundated with client work, so really, a lot of times I can only put out a video when I've got a little bit of downtime. So I was intrigued. I'm intrigued right now with the big question, which is, with the Trump economy, with the change? I mean, Donald Trump right now is talking about getting rid of income tax. Wow. What would that do to the economy? What would that do to the markets? Um, replace it with tariffs? I don't know. That's an interesting thing to evaluate. We have a lot of things to consider right now about how the economy is going to be doing.
Now, at the same time, we have these weird things going on in the market. In early 2025, we have the old, old, the, the whole rout on Nvidia because of the, uh, Chinese AI maker, which says they did it for a few million what Nvidia did for billions. But Chinese also always rip off Western tech technology, and we don't know how true that is, but it sure weakened the tech sector. And we're seeing some weakness right now, uh, today on January 31st, when this is out. But the bigger picture here is, and, and let me just disclose, I keep a very cool portfolio. Like I have most of my funds in things that are fixed indexed. That means I can make up to double digits and often do when the market, markets are really, really good. But I don't like losing money. I'm a little bit risk-averse. So I, uh, have it locked in. If the markets go down, I zero to me is like fine. When the markets are down, I don't mind making zero. Uh, clients still do get mad even when the market's down, they didn't make something. But other clients that are full-on in the market, not my clients usually, because we're a little more careful, but people that are full-on in the market can lose and fall behind. And, you know, if you fall behind by 20%, the next year, you've got to be up close to 40% to make up for that. So we're talking about how different risk profiles work. But as an older American, I'm a little bit risk-averse. So I make my most of my connections through, uh, fixed index, uh, products. Most of my connections to market performance. Otherwise, we're at a wonderful time to just have fixed interest rates. You know, we're four and a half to 5% in many places. We've got some models that are doing 5 and a half percent, just fully guaranteed. So it's a wonderful time to be in safe money. But I also keep some in the market, and it goes up and it goes down. And believe me, even though a minority of my money is totally at risk in the market, you know where my attention goes first thing every morning? When the markets go up, it's that stuff that's moving around.
So, um, I wanted to look at this right now. I want to look at, like, where we're going with Trump. I, I have confidence that the markets will like Trump, as they did before. Um, I think the changes are going to be good. I think we've been in a rut. But there's some underlying aberration, underlying insanities, things that don't make sense about what drives the market. And for example, I'm thinking we're going to have, and am I making any sense here? We have high interest rates. It's for Wall Street, easy money. You can't come by it anymore. Money's kind of tight. And I'm thinking that the markets are going to thrive and go up. I don't think they are immediately. I think there's going to be a lot of odd push and pull. But I started reading on this a little bit today, uh, because I had time to produce the show, and I found this article on, uh, this is from Barron's. Uh, it is written on January 31st by Ron Randall foresight, and it's called "The Stock Market Is Driving the Economy. How Long Will That Last?" Now, we tend to think that stocks are a bet on how the economy is going to do. We tend to think that the causal relationship is what the stock market, what the economy does, the stock market is forward-looking and will respond to this. This article is telling us the opposite, that what the economy is going to do is all based on the stock market. That's a little bit of a sick angle to be at. I wanted to explore that today on just a short show. We're just going to look at this factor, and I'm going to talk a little bit at the end about how you can safeguard yourself so that you can take advantage if the market's going to go the right direction, the economy is going the right direction, how do you put a portfolio together that takes advantage of that? And then, um, if, uh, we have some corrections and some downsides, and you're getting older, you can't afford to have these losses because you have to come up harder than the loss. So, uh, we'll talk about a balance and a solution for this. But first, I just want to explore what's driving things. So let's read through this article really quick by Randall foresight, and it starts out saying, "Two events regarding American exceptionalism took stood out this past week. Federal Reserve declined on Wednesday to go along with a number of its global counterparts, such as the European Central Bank, in cutting policy interest rates. The rest of the world is trying to cut those rates, but the, uh, our Fed's not going for it. That reflects the strength of the U.S. economy and stalled progress in getting inflation down to the Fed's 2% target, in contrast to sluggish growth abroad." So their growth abroad ain't doing too well. They may have less inflation problems than we're having right now, but moving on. And so their banks can afford to drop interest rates a little bit more, try to stimulate the economy. So it goes on. "The Fed's decision to leave rates unchanged followed the shocker around the world this week from Deep Seek, China's stunning artificial intelligence application developed at a fraction of the cost of American AI model." Bullshit, whatever. I'll tell you why I feel that way. Utilizing ultra, we use ultra-expensive hardware from the likes of Nvidia. Tech stocks took it on the chin with this exchange. Traded fund, learn, falling 2.9% on Monday after Deep Seek news swept across global social media. Uh, Nvidia itself lost 17% that day. Um, anyway, I was just kind of bullshitting on the Chinese because they steal everything. So who knows what they really spent on it and where they got it from, and if it's even, uh, following international law, and if it's going to function well, and if it does, if they say there's already here. Days later, a week later, they're saying, "Oh, some of that Chinese AI won't answer questions. Ask it about T and Square, and it won't, it won't have anything." So, anyway, point is, uh, it's market went really, really. Now, there's a connection between the two, that is the Fed and these stocks. Fresh data out on Thursday showed that U.S. gross domestic product grew at an inflation-adjusted 2.3 annual rate, 2.3% annual rate in the fourth quarter, in line with its recent trend. The headline number relied much greater strength in consumer spending, which accounts for about two-thirds of the U.S. economy. So consumers are spending. They're a big part. Consumer consumption is a huge part of the American economy. It's growing at a rate that's faster than, uh, the gross domestic product. The stock market has given a big boost to consumers. So could a correction put a damper on consumption? So understand the cycle here. Uh, the economy is driven by consumption. Now, they're saying the economy is growing faster than consumption. Well, I get to, might not have said that succinctly, but it does here. Says, "Spending has been growing faster than incomes, owing to consumers' surging wealth." In other words, the economy is reflecting the stock market and not the other way around, as conventional wisdom holds. So if PE, well, let's go to the next paragraph. Relative, did we get this right? Yeah, okay. Just talk about incomes. So why would people be spending more than their incomes? How could they be powering this economy if their incomes aren't growing as fast as, I mean, aren't we all just tightening our belts, let alone spending more than our incomes are increasing? So the article goes on. "Relative to the U.S. economy, the value of the U.S. stock market is again nearing a record. The ratio is closely watched by Berkshire Hathaway CEO Warren Buffett as a key measure of equity valuations." He looks at the stock market versus the economy, and if the stock market gets ahead of the economy, Warren's going to take a second guess. Fact, it mentions here, "Perhaps not coincidentally, Berkshire's holding of cash equivalents, such as treasury bills, have risen even more sharply to $325 billion as of September 30th." "If it were a stock, a chart of Berkshire's cash case would look like a bubble," observes D. Cass, head of CBR's Partners, from which he infers that one of the greatest investors of all time sees a lack of value in stocks. Greatest investor of all time, and he ain't not feeling so warm about stocks. "A correction direction of the bull market could lead to a meaningful downside of consumer spending." So think about that. You have a bull market, within that bull market, which consumption is part of it. People's, people are, their spending is growing faster than the economy because the market may be powering their spending. So a correction of the bull market could lead to a meaningful downside to consumer spending. The Deutsche Bank economist said they were quick to note that the bank's investment strategist look for nearly 20% equity return this year. With a new administration that could be focused on the stock market as a barometer of economic success, we could expect policies that limit stock market downside. So what does that mean? There, they think it's going to go 20%, but they're watching their CYA on where it might actually go. Now, uh, the pedestrian question is, how do you do that? I will show you how to do that in a little bit here. We'll talk about portfolios that give you upside, protect the downside, and not just an annuity sale. Annuities would be part of this, but we're going further on that. So, uh, but I do want to look at the whole picture there. Anyway, this article goes on, etc.
Now I want to look at another article here that was from Fidelity. Fidelity says, "A Rocky Start to the Year for Stocks." Blow this up a little bit here. "The bumpiness so far could be a sign of things to come." Has been a bit volatile so far, that's for sure. Key takeaways: "The market has lost momentum and breadth as prospects for more rate cuts in 2025 have dimmed." The markets want that easy money. Although I still believe we're in a bull market with earnings poised to potentially lift stocks high, that's what we just heard. I believe we may be in the later stages where things become more volatile. Yes, that is what happens when expansion goes and then peaks. The market will become more volatile, and you'll still get this sort of high-flying sit, uh, economy, but volatility picks up. That usually tells you you're peaking.
Uh, I'm going to just read the text here. It says, "Last week, investors watched good news become bad news as a stronger-than-expected jobs report sparked a market dip." Oh, isn't that? Oh, jobs are better than we thought, and the market fell off. Another example of what is driving what. "The market's fears, of course, are that such strong jobs picture gives the Fed even less leeway to cut interest rates further." Oh, we need that punch. Long-term interest rates ticked up that same day, with the yield on the 10-year treasuries climbing increasingly close to that 5% mark that has spooked stocks in recent years. That means people want safety, safety, safety when the treasuries start climbing. While I continue to believe that we are in a bull market with rising earnings poised to pull the weight of the market still higher, this recent volatility could be a sign of things to come. Later stages of a bull market tend to be more volatile, and it doesn't take as much to disrupt the market's mojo when valuations like price earnings ratios, that's the value of stocks versus what the company's really making for earnings versus how their stock is priced, are high as they've been. But moreover, I believe the interest rate angst that's been weighing on the market lately, uh, uh, isn't likely to go away anytime soon and could be a recurring feature of the year ahead. So the market has experienced a notable loss of momentum and breadth as of last." Now, this breadth thing is really important. When you look at the S&P 500, often you get a situation where there's just a small amount of companies that are powering the increase in the overall index, or the rest of them are lagging. And the fewer those companies are, even though they may be doing great in lifting the whole index up, the scarier it becomes. Again, it is a sign of a, of, of a peak in economic expansion. "As of last week, only 24% of stocks were trading above their 50-day moving average, and only 29% of S&P stocks were outperforming the index." This is not what investors wanted to be seeing. And this is some sort of a percentage of S&P stocks trading above their moving average. And here you see at the end that most of them are not performing above the actual index. When it's high, here you have more stocks outperforming the index. The whole thing is the average of the index. What you start getting here, you get situations where not so many companies are doing that. "One question this poses for investors is whether those narrow leadership trends could continue yet for another year."
So the moral of the story is, we do live in interesting times. And, um, I was intrigued by this because, you know, I wanted to be optimistic. I wanted to just say, just throw money at the market. Uh, and I'm not trying to be political, by the way, like not going to go there. But Trump's moves are very, the market liked it last time, and I expect that we will have a surge. Uh, whether it's equal for everybody, whether it's lifts people out of poverty, that's kind of the bigger social issue around all of this. But the bottom line is, it's good for markets, and Wall Street liked them last time. And, uh, it's good for overall the basic stats of the economy in terms of what he's done, done in the past, and what he's doing. But, but, but, but, but, you still have the basic economic trends of things. And we, we've been long on this drug of easy money. And Trump was a hypocrite when he first came into into office. And I, I played on my show over and over again the fact that Trump said we were in a bubble and interest rates were artificially low. "Reduce our $18 trillion in debt because, believe me, we're in a bubble. We have artificially low interest rates. We have a stock market that frankly has been good to me, but I still hate to see what's happening. We have a stock market that is so bloated. Be careful of a bubble because what you've seen in the past might be small potatoes compared to what happens. So be very, very careful." And then what did he do when he got in? In 2018, he hammered Jerome Powell for raising interest rates. So we've had some turbulence in the markets. We've had the layoffs by General Motors that were announced yesterday that so angered the White House. And the president, now in an interview with the Washington Post, has said, "I'm doing deals and I'm not being accommodated by the Fed. They're making a mistake because I have a gut, and my gut tells me more sometimes than anybody else's brain can ever tell me. I'm not even a little bit happy with my selection of Jay Powell." Not even a little bit. Of course, uh, Jay Powell is the Federal Reserve chairman who President Trump put in that job. He's somebody who has signaled that they intend to raise, uh, interest rates again. And, uh, more in 2019, the president, uh, says that, uh, that is creating economic consequences that hurt him. He's lashing out. Jerome Powell said, "Hey, things are heating up. I need to raise the rates." They go, "Don't you dare. Don't you came in saying they're too low, and now you don't want them raised." So this is, this is going to be tricky because he does want it both ways. He wants less inflation, but he doesn't want high interest rates. High interest rates are how you handle inflation because there's too much money in circulation. Now, he has a plan, and it's going to play out very interestingly. His plan is to go in and do certain things that, uh, can work on inflation on another level. There's push-pull, and then there's demand-pull. There's a couple of different ways that inflation takes place. Go back and crack over my economics books. But for example, if you just had a surge in one thing because it became scarce, and that thing was universal, regardless of whether you've printed a lot of money or not, it could cause a, a push on inflation. I think it's demand-pull, and I'll come, I'll get back to you on that one. The two types of inflation. But let's say in the '70s, we certainly experienced that when oil and the Arab Oil Embargo came in, and oil was just outrageously expensive and shot up everything that depended on oil inflated. We didn't have a lot of money printing going on. They did stifle what money printing there was to try to get inflation under control. But that inflation was caused by a particular influence, not particularly by money printing. And I think that, you know, that Trump's thinking that if he can go in and just cut the legs out of a couple of major stilts that got too high, you know, Biden's constricted energy pump wants to loosen up energy so that it just comes low, and then hopefully other things fall in line, and that starts to bring prices down. Anyway, point is, is it money flow or is it something else? That's the question. And so these things are at a contrast. He doesn't want inflation, so we're going to keep interest rates high. The Fed's trying to interest, keep them high, even though Trump's trying to push them back down. If they stay high, that stifles the economy. And what we're seeing, I believe right now, is kind of a peaking based on what we've had, which is we are getting that peak now where growth is getting a little bit shaky and volatile, and consumption is slowing down. But people still have their stocks, and makes them feel like spending, even though their incomes aren't. In this high interest rate environment, I think we're starting to see that strangulation happen. And the question is, is Trump going to act fast enough to change it before we get a correction in the markets? All right, that's the point I want to make about that.
Uh, hey, I'm sorry, there was one other article I did put aside. I don't want to bore you with economics, okay? But there's one other thing I do want to pull aside that again is very representative push-pull going on. This is an article, uh, in, um, I think this is Forbes. I'll look down below here, but said, uh, this fund manager forecast a 20. He forecasted a 20% S&P gain last year, which S&P, I think, did 23. Now he says, "Cash is King." Portfolio manager Dan Niles. I just want to look at this article real quick. Another exemplary thing of exactly what I just discussed. "Stocks are aiming for a third straight session in the green as 2025 gets underway." So this was actually before we had the inauguration. It was January 7th, okay? Um, but after two straight 20% plus up years for the S&P 500, there's plenty of caution to go around. "Our call of the day from Dan Niles, founder of Niles Investment Management, is among the wary, forecasting a big potential drop for stocks ahead and making cash his top pick for 2025." "My range of possible outcomes for 2025 of plus 10% inflation contained and earning to down 20%." So he's saying we could go as high as 10%, as low as -20%. "Inflation picking up and market multiples compressing is one of the wildest I can remember," the portfolio manager wrote in an expost on his S&P 500 predictions. Niles wrote, "Cash was his top pick in 2022 when the S&P declined 19%. Money market funds currently offer a guaranteed yield of 4%. Given my concerns about 2025, I believe this is a solid guaranteed return, which also leaves dry powder if the markets sell off. My largest concern is about inflation reigniting in late 2025 and the Fed needing to raise rates due to strong U.S. consumer and progrowth U.S. fiscal policies, which are also inflationary. Therefore, my goal is to remain adaptable to the market's reaction to the incoming data in 2025." Again, here's this push-pull. People are going to be optimistic. Oh, that's too bad. That could inflate things. Well, but they're happy. They're going to, market should be good. People want to spend. Jobs are abundant. Oh, yeah, that'll cause inflation. We'll have to raise interest rates again. Niles sees a 50% chance that the Fed will either hold or raise interest rates by late '25. Yep. He could, they could be going up again.
As a result, much like 20. Now, I'm going to tell you why this is a really, really, really, really, really good thing that interest rates go up. It really, it's just he just said it there if you caught it. If you're going to go safe, if you're going to hedge a little bit, there has not been a better time in a couple of decades to hedge safely. Now, I don't even recommend money market. I recommend going a little further where you can get five, five and a half percent on your sort of cash equivalent, so to speak. I'll do talk about some other cash equivalents, and yet you could make double digits if the markets do well too. But talk about that in a minute. Anyway, "As a result, in 2022, investors may be looking at losses in both stocks and bonds if fears of a 1970s resurgence in inflation arise," he wrote. A year ago, Niles predicted a 20% gain for the S&P 500, provided the Fed could manage a soft landing, which he says got done, leading to a 23% finish for the index. He sees stocks as expensive, noting the trailing price earnings ratio of the S&P 500 at 25 times versus 19 times historical. So P/E's are historically high.
Okay, that's the last article on the economy. Let's talk application and practical. Okay, okay, okay. So here's this traditional thing. The traditional diversification that people have when you're in stocks or a of stock stocks, which is if you're not going to be in stocks because you're worried about the risk, if it looks like we're peaking on on growth and there's going to be volatility and you might go backwards. Now, again, you've got to understand who you're talking to generationally. If you're young, who cares? You've got plenty of time. Markets will come back. But if you're older and you're just about to launch retirement, have a 20% setback in your portfolio, you just add another year or two of working. Your plan. So as you get close to retirement, you've got to like, not, you've got to pair down that volatility. So the usual solution is to move into the bond market. Uh, bonds, you could go cash, money market, that's short-term instruments. But bonds pay even higher income, and bonds basically, uh, are very safe for principal, and they just pay you something every month. And when people actually do retire, portfolios go very heavily weighted in bonds because that's where they get their income from. Um, there are some problems with that. Bonds are long-term, and they lock you in. So let's say you lock in at a certain interest rate on your bonds, inflation picks up, and now the Fed's placing it even higher. Fed's facing, Fed's placing it even higher. So now what do you do? You, you got to hang on to the bonds making old interest at a lower rate. If you want the new ones, you could sell your bonds, but you're not going to get what you paid for them. You're going to have to sell them at a discount. Remember, as interest rates go up, the price of an existing bond goes down, and vice versa. If interest rates fall, the price of an existing bond will go up. But by the looks of where we're at on this, with inflation still the drug, the punch bowl, they didn't take away. They've been giving us easy money too long. We've got lingering, lasting effects on this. It's very likely, as you see from these headlines, that rates are going to go up some more. So what can we do besides bonds? Because bonds are very illiquid, and you don't want to get on the wrong side of how, uh, rates are moving.
This article was recently done in Forbes by Aaron Suanna. Uh, he's a pretty successful financial advisor. I've seen his ads a lot on the, and he just, he's just talking about a bond alternative here, but he lays out some good logic on which I agree with. Three reasons that a fixed indexed annuity, I'll try to define that if he doesn't in the article, are better than bonds in your retirement portfolio. So he's saying that's a better way to go than retreating into bonds. "When financial advisors seek ways to manage risk in retirement investing, they typically look to bonds, which are traditionally seen as the optimal asset for offsetting the volatility in stock markets. By orchestrating a healthy mix of stocks and bonds, bonds in retirement accounts, advisors create a higher level of stability. However, bonds aren't always the best option for risk management when it comes to investing for retirement. Recent reports suggest investors should be wary about relying on bonds for stability, with one recent Bloomberg article revealing that the bond market has been getting whipped by volatility over the last few years." Again, what we've just been talking about. "For those for those looking to avoid losses triggered by the increase in bond volatility, fixed index annuities can provide a viable alternative. Overall, the features offered by FIAs position them as a lower investment risk than bonds, and FIAs typically, uh, not only have a lower risk but also a higher potential return on investment." You know, I'll make this available to you down below. I'm going to try to skip some of this. He gives the basics of FIA. It's very worth reading. I just don't want to take up, uh, podcast time on it, but it's important. But what they basically carry is a higher earning potential, okay, than bonds. They can earn more than bonds. They have lower costs than bonds. That's important. If you've got someone managing your bond portfolio, well, this was a good little thing I had to mention. If you have someone managing that bond portfolio for a fee, appreciate the difference 1% fee can make. Consider that $250,000 earning 7% over 20 years will grow to $967,000, etc. Factor in the 1% fee and growth is limited to $801,000. So you paid $167,000 for the fee. But raise the fee to 2% and earnings fall to $721,000 from the $967,000 you actually earned. Okay, many, many, many of these, uh, FIAs, fixed index annuities, which are alternatives, have no fees or really minute fees, depending on what you're trying to do with it. But you're just trying to grow money, and then they typically have no fees. Full principal protection is another factor. I'll post this article on the, uh, wherever we're posting the, uh, podcast here. I'll make this available to you.
Okay, we've been running long, so I just want to tell you this. There's a couple of other articles. I will hang, I'll hang all of these articles, the, uh, economic ones and these ones we're talking about annuity alternatives. I want to speak directly to you about this. So I'm skipping the articles because I'm just going to tell you, I'm deep in this. I've studied annuities for a long time, what works about them, and all that. So I'm going to skip the articles. They're just kind of third-party. At least they make me look like I know what I'm talking about because they agree with me. But I'm going to, uh, post this one. This is called "Fixed Index Annuities and Retirement Tools: The Pros and Cons." Good, balanced article. This was out of Kiplinger. So I'll post this one up so you can look further at that. And I had another article. This was from, uh, Wharton School of Finance. So this is a, looks like a collegiate, a business journal from the Wharton School of the University of Pennsylvania, and it said, "Why Retirement Gets Better with Annuities." Little, little age about a year old, but it's still very, very, um, informative. I will post those.
But look, I'm going to talk to you directly here. There's two things that make this as an alternative in your portfolio. So let's go back to the basic scenario. We have markets that could do great. I want you to stay in the market. I just don't want you to be all in the market. I want you to be in the market proportionate to your age and the risk that you can take. The market could have a correction. If you need that money soon, you're going to have to stall off on when you can take it. You need income in retirement. You do need something coming to you that's routine income. It shouldn't be correlated to what the markets are doing. Do you really want to be in a situation where you think you can live at $100,000 a year, but if your portfolio shrinks due to market hit, you're going to have to learn how to live on $75,000 a year, or expand that out to larger proportions, or smaller? It's still really, really tricky. So your income needs to come from, from, uh, non-correlated sources. So that's one situation. The other situation is that if you're going to have something safe, now is the time like never before. Like one of the big problems we had is the Fed was keeping interest rates so long that it was a message, don't you even dare think about getting out of the market. Don't you even think about having any money out the market because there's nowhere, nowhere money is to be made. That's different today. There is money to be made. We're seeing, for example, in some products, and again, things change over time, so meaning I'm going to tell you something today that in a week could be different. We're seeing, for example, some strategies where if, if the S&P 500 is up at all, you can use interest rates to leverage it to an immediate significant return. Example, it's called a, it's called a trigger method. What a trigger method says is, if it's up at all, if the S&P is sometimes either at least at zero, it's just not negative, but if it's at zero or more, if that's 1%, we're going to give you seven and a half, no matter what. If it's up 2%, seven and a half, no matter what. So if you want to put some safe money aside, and you're willing to at least think, think the market might go up, but maybe more slowly, that's a great way to go because you know you're coming at least seven to 8% on a trigger method. You also have other ones that are just like, what's the best just guaranteed rate? Well, we can go into certain just short-year annuity ones. Like I think I did, I had some money this year I just wanted to put away for a year. Well, at the time, the banks were doing 4.8 to 5%, but I could get a one-year guarantee on an annuity for 5%. So some of my bank accounts started going down to four and a half and below because the Fed was dropping rates, but the annuity couldn't drop it. So annuities will give you very competitive or more than banks, but they'll do it for extended periods if you want to just have some safe money sitting there for five years. You can get better than five and a half percent still in a market where the best online digital bank with no cost might be four and a half percent. You can still go get five and a half percent. Two, the insurance companies that cover these are so much safer than banks. If you eliminate the FDIC, meaning that the FDIC is a limp noodle. I've covered this in prior reports. Maybe I'll hang one of them here on a link to it. I've shown on prior reports where the FDIC was so upside down, the FDIC did not salvage the banks in, in 2008 when the banking crisis hit. They couldn't, they didn't have the money to salvage banks. It would have been a debacle. It took an $800 billion act of Congress to go to the taxpayer and say, "We ain't got the money to bail out banks. You guys bail them out." And they were bailed out with the Troubled Asset Relief Program, known as TARP. So FDIC is questionable. Uh, basically, I think it's kind of would have been smarter rather than perpetuating the crash to actually use the FDIC back at the time. That's a different theory. But the point is, didn't have the money. They're not funded enough to recover banks. And so it's questionable what they can do in a large circumstance. Insurance companies have none of that risk. They do not have that risk. Uh, I, I'll publish, I'll hang that article. I don't want to get into it all here. But boils down to this: if you want safe money, and it's in a bank, you put money in a bank, they loan it out at least 10 times over. Give them $10,000, they're going to loan $100,000 off of it. That's called the fractional reserve system. They only have a little bit of your money on hand to loan a lot out. Insurance companies are the exact opposite. They, by law, like if an insurance company had less than 106% assets to liabilities, they paid all their liabilities off, all claims, and they still had, uh, less than 6% of their money left. Other words, they're able to pay off everything. The house C reserve left over, they'd probably be taken over by a receiver at that point. The regulators would say, "You're way too thin." So insurance companies have to have more money on hand than all claims paid, assets to liabilities. Totally different thing. Now, how do they make their money? They put them in huge, high-grade bond portfolios of government bonds or high-grade corporate bonds before they do actuarials. Actuaries figuring out how much money they can pay on benefits and what kind of bargain they do. They take three-quarters of a percent off the top of the whole portfolio, and they stick it in the profits, the insurance company, and then they offer you the deal. You think that's kind of cheating? No, it's making sure your deal will stay sound and will be made because they're sitting on reserves that were already taken off the top. You've got to be able to win. The insurance company's got to be able to win if something happens. And that's how they work. So I'm going to post some articles for you to learn more about this. But the point I just wanted to make is, times have changed. We're in different times. This high interest rate environment is incredibly opportune, rich for people that are getting older. Now is your time. You can have cash earning more than your cash ever was. You got potential for market gains, but we can do market gains without the potential of loss with that part of the portfolio. You can have income for life. This whole thing on the lifetime guaranteed income with annuities. They pay higher than bonds because they're not trying to preserve your capital. Their deal is, if bonds pay you four, they're going to pay you six because they expect you to deplete your principal. But they know how long people live. And if you're still standing today, and one day your account goes to zero because they've been paying you six or seven, I've seen six, seven, eights, maybe nine percent getting paid at times, guaranteed by some insurance companies on annuities. But they're thinking they're just gonna, they know how long it lasts. They just have to keep it going until your last day. But if you're living, and that account goes to zero, and there's no money left, the insurance company's on the hook. They keep paying you the money and paying you the money and paying you the money. That's why actuaries have big thick coke bottle glasses to know how long people live. So again, a huge alternate, and the perfect age to be in the perfect time to take advantage of that alternative investment as an offset to all the stock market, uh, volatility.
With that, I'm going to post some links. You want to know more about this, get in touch with me. Bruce at StraightTalkWealth.com. Write me, tell me what you're interested in, what you're thinking about, what you're worried about. Put some comments on our video. It helps raise the circulation of it. And, uh, subscribe, get notifications, stay tuned, and keep watching Straight Talk Wealth Radio. Keep watching that radio. See you again soon.
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