09/26/08
Bulletin
from Paul Renfroe, www.Retire-Successfully.com
In 1999, the media
warned us of a pre-Millenium Computer Crash. I researched—where
is the safest place to hold wealth?
My research
convinced me that fears of a pre-Millenium Computer Crash were
baseless. However, it was strikingly evident that life insurance
companies are far more resistant to financial calamity than every
other financial institution. I also concluded that residential
rental property was good because people always
need a roof over their heads.
Not one life
insurance company failed during the Great Depression. Very few
failed during the Savings and Loan crisis of 1986-1994. No one lost
their deposits up to $100,000. The little-known fact is, life
insurance companies have an
FDIC-type backing that is administered by the states for, you guessed
it, $100,000 per account owner.
Why didn't I
conclude banks were safe? Our banks engage in “fractional
reserve” techniques, which enables them to have only $5 on hand for
every $100 in deposits, and a similarly small fraction on hand
of their total
obligations. What if the FDIC cannot cover all the bank losses
in this economic cycle? We are witnessing the difficulties when the
federal government tries to back it up.
Financial calamity
will wipe out many depositors if the FDIC cannot perform its backup
duties. This dreadful possibility has been in the non-public forum
for many years; my 1999 research yielded several papers from
policymakers' forums on imminent bank failure. Now that the
weaknesses of our financial system are publicly apparent, even the
President has spoken of many possible bank failures.
Residential
rental property is not easy,
requires a certain temperament and is not for everyone. However, I
can help determine if it fits you.
Today, foreclosures are forcing people to find a new
place to live. As a result, the rental market is strong. And the rent
paid by others purchases 70-80% of your appreciating property for
you. (The other 20% is your down payment.)
I urge you to do
you your own study and select for yourself the safest place for your
money as we embark on very uncertain times. Certainly one of those
safe places should be annuities and life insurance, and you may also
benefit from owning residential rental property.
