PROTECT YOUR IRA FROM MARKET DISASTER

The stock market has been an on-going disaster for average savers and investors for decades. It ranges from difficult to impossible to earn decent returns from the stock market in spite of all the hype you read and hear from financial planners and Wall Street. There are a variety of reasons for this, discussed in much more depth in the footnote below*. But on the other hand, CDs, money market funds, savings accounts etc. will cause a drastic loss in your purchasing power because the rates of return won't nearly offset the effects of inflation and taxes (even when the taxes are deferred until retirement through your IRA).

So what is the typical investor to do, especially with IRA money? Below are two ideas you may want to consider, both to avoid the stock market and to beat its often dismal returns:

IDEA 1. Guaranteed Payment Contract - Equity Index Annuity

This is an investment with a world class, major institution. The investment gives you an up-front 5% cash bonus, that is, it increases your investment balance by 5% upon initiating the contract. It guarantees the return of all your principal, while generating typically much higher yields than the average money market fund. An optional feature is that it can give you a fixed retirement income stream which is guaranteed to last the rest of your life, no matter how long that is.

For More Info on the guaranteed payment contract - Equity Index Annuity see the Portfolio Option 3 topic below.

To Invest In The "Guaranteed Payment Contract", roll your existing IRA or old 401(k) over to an AE-Trust IRA account. Do this by picking the appropriate enrollment form below, and in that form you will be able to select the guaranteed payment contract or any other investment of your choice for your IRA funds:

Click Here for the AE-Trust Traditional IRA enrollment application form.

Click Here for the AE-Trust Roth IRA enrollment application

IDEA 2. AE-Trust Hi-Yield Stable Value Fund.

This Fund's goal is to generate yields for investors which are superior to bank CDs and money market funds. The Fund's investment objectives are designed to maintain a stable principal value in order to guarantee⁽¹⁾ the return of each investor's principal, along with a guaranteed⁽¹⁾ interest yield for the investment term chosen by the investor.

All yields are automatically re-invested. Yields are classified as interest or ordinary income (which is tax deferred for Traditional IRAs and non-taxable to Roth IRAs). The minimum required investment is $5,000, and the minimum investment term which is penalty free is six months. Your IRA account is free if you maintain a minimum balance of $50,000 in the Fund.

Current Yields Paid By The AE-Trust Hi-Yield Stable Value Fund

Investment in the Hi-Yield Stable Value Fund can involve risks. This Fund is referred to as the AE-Trust Portfolio Option 4, and is available when you enroll in an AE-Trust IRA. See the Disclosure Statement and Terms and Conditions for full details on how the Fund operates and is governed.

To Invest In The "Hi-Yield Stable Value Fund", roll your existing IRA or old 401(k) over to an AE-Trust IRA account. Do this by picking the appropriate enrollment form below, and in that form you will be able to select the Hi-Yield Fund or any other investment of your choice for your IRA funds:

Click Here for the AE-Trust Traditional IRA enrollment application form.

Click Here for the AE-Trust Roth IRA enrollment application

(1) Footnote:

An investment in the Portfolio 4 Stable Value Fund involves risks. AE-Trust is regulated by the Financial Institutions Division of the State of Nevada. But the Fund is not FDIC insured or guaranteed and is not regulated under Rule 2a-7 of the SEC Investment Company Act of 1940. The safety of principal and the return of interest are guaranteed and backed only by the reserves of the Fund and the quality of the underlying investments of the Fund. To minimize risk, funds are spread across, invested in, a large number of investments so that the poor results of any one investment, if any, should have a limited effect on the Fund. American Estate & Trust, LC assumes no liability for losses in the underlying investments of the Fund, if any, though the company's only means of compensation for on-going management and administration of the Fund is to maximize the safety of principal and the Fund's yield.

PORTFOLIO OPTION 3: MORE INFO

Equity index annuities (EIA) are a type of guaranteed payment contract. EIAs are issued by large, wealthy and heavily regulated life insurance companies, where your money has outstanding safety (see annuity brochure for specifics). The EIA gives you an up-front cash credit bonus of 5% (see sub-topic below), guarantees to return to the IRA account 100% of your principal, plus interest which is earned. The EIA rate of return is indexed to positive stock market results. So when the stock market has a good year (7 years out of 10 are "up" ), your rate of return will be higher. When the stock market has a losing year, which it inevitably will, your EIA is guaranteed to maintain at least 100% of your account balance through that year. That is, you are guaranteed to have no losses - ever. You get to benefit from good years in the stock market without being penalized for the bad. Using the guaranteed annuity contract, EIA, as your investment, a rate of return averaged over the life of the EIA of 6% to 7.5% would not be unusual.

The EIA described here is the "Income Select Plus" equity index annuity from American Investors Life (1), offered through their licensee and agent: Accuplan Insurance and Financial Services (or whatever other annuity which Accuplan currently is providing for AE-Trust IRAs). Accuplan is the licensed agent which AE-Trust places annuity orders through, American Investors Life (1) is the carrier which issues and backs the annuity.

Five Percent Bonus. According to the "Income Select Plus" brochure, this EIA will credit your account with a 5% bonus. That is, American Investors Life will increase the value of your investment by 5% on inception. So a $100,000 investment would start its life on day one with a value of $105,000, and all future growth in the annuity would be based on that $105,000. The company's brochure contains a projection of the worst case and best case scenarios for a hypothetical investor who owned the Income Select Plus for the twenty year period ending in 2005.

Note: This EIA limits the amount which may be withdrawn in the first ten years of its life to ten percent (10%) per year of the total account balance. Larger amounts may be withdrawn, but amounts in excess of ten percent per year are charged a penalty. Normally this is not a problem with an IRA because the annuity investment typically sits untouched until you retire, and then your annual withdrawals are usually far less than 10% of the value of the investment. However, if during the first ten years of the annuity's life you think you will need IRA withdrawals greater than 10% of your investment, then do not put all or any of your money in this investment.

AE-Trust will handle all the paperwork and transactions which are necessary to fully implement the EIA in your behalf, in any type account opened with AE-Trust.

(1) American Investors Life, the issuer of the Income Select Plus annuity, is owned by Aviva plc. Based in London, England, Aviva is the world's fifth-largest insurance group and the biggest in the UK. Worldwide, the Aviva group has 58,000 employees serving 35 million customers, and has more than $600 billion in assets under management. As a combined company in the U.S., Aviva has over 1,115,000 customers and 32,850 agents and distributors.

To Invest In The "Guaranteed Payment Contract", roll your existing IRA or old 401(k) over to an AE-Trust IRA account. Do this by picking the appropriate enrollment form below, and in that form you will be able to select the guaranteed payment contract or any other investment of your choice for your IRA funds:

Click Here for the AE-Trust Traditional IRA enrollment application form.

Click Here for the AE-Trust Roth IRA enrollment application

* Footnote: Why Stock Market Investing Is A Disaster and What To Do About It ©

Click Here for a printable, pdf version of this article

The benchmark index known as the S&P 500 hit a value of 1362.80 in April, 1999. But in mid 2008, this important measure of overall stock market performance was actually lower than it was in early 1999. Yes, there were a few good years in that nine year period, but the market always got wiped out right afterwards. For example, the S&P 500 hit a new high point in March, 2000 but then went on to lose 50% of its value by October, 2002. The Nasdaq lost 80% of its value during that period, and overall the stock market lost around $9 trillion dollars in this downturn. The market improved after this, but then from October, 2007 to July of 2008 the S&P 500 (and the Dow and Nasdaq) lost another 20%+, making investors worse off (for a second time!) than they were more than nine years earlier in 1999. To have earned a moderate annual stock market return of 10% by 2008, you would have needed to hold the right stocks or funds for 19 continuous years. Any shorter time or any less than perfect stock/fund picking would have left you with lower returns, likely much lower.

The big returns you hear about in the market are only theoretically achievable. For average investors in the real world, big returns almost never happen. Even with the best of advice, research and planning, timing is a huge issue which overrides all that expertise and planning. Over and over investors get in or out of the market at the wrong time, such as getting in shortly before a big market drop or getting out shortly before a big run up. Just one of these mistakes can ruin up to twenty years worth of gains. Or just as bad, poor timing gets investors caught in a decade or two of a market which just goes sideways.

You might consider nine or ten years to be "long term investing", and according to the experts if you stay invested in the stock market for a term of ten years or so you are virtually assured of at least moderate gains or returns (matching what is called a "benchmark"), of perhaps 10% to 12% annually. But a study reported in The Hulbert Financial Digest in April, 2008 illustrated that decade long stock market debacles happen fairly often. The study demonstrated that in order to reasonably assure yourself of stock market returns which will beat the low interest rate on T-Bills (about 3% per year over the last decade), you have to invest in a portfolio of some combination of stocks, mutual funds and bonds and keep that same portfolio for 20 to 30 years. Then maybe you will have beaten T-Bills. But even then you will only beat T-Bills if you were lucky enough to pick investments that turned in a good performance. Unfortunately, if you weren't lucky enough with your portfolio, after 20 or 30 years you don't have time left in your life to turn things around.

To retire with the lifestyle you would like, you probably need to withdraw about 6% or more of your remaining savings each year, after taxes. To keep that up throughout retirement you need to earn a rate of return of around 8% on your savings (to be able to pay the taxes and have 6% left). The problem with that plan: "The 8% average growth rate doesn't exist...You could have the bad luck to retire into 20 years of sideways stock market performance (or even ten years -- AE-Trust), as happened from 1964 to 1982 (or from 1999 to 2008 -- AE-Trust)...a person who retires at age 65 and begins withdrawing 6% a year from a nest egg of 40% stocks and 60% bonds has only about a 22% chance of having any money left at age 95." (Article: How To Bulletproof Your Nest Egg; Wall Street Journal weekend edition, June 14-15, 2008)

One of the bigger problems with stock and bond market investing is that the large institutional investors make it extremely difficult for the average investor or his/her advisor to make any money. There are thousands of these institutional investors, which include managers of: hedge, mutual and exchange traded funds, managed money funds, pension funds, large corporation funds, trust funds, etc. The edge and power which they hold over the markets and small investors is immense. They manipulate the markets in all sorts of ways. They have the most sophisticated computer systems and capable staff for both searching out the best deals and then managing the resulting investments minute by minute. They find the best investments long before you or your investment adviser does, and a lot of other institutional investors find these investments at about the same time. Their huge volume buying immediately drives the price of the stock or fund up so that you don't have a chance of getting in on the ground floor of this good deal. Then, as soon as the small investors begin coming in (you), they start selling the stock or they engage in short selling, both of which drive the price down faster than it went up. The average investor has very little chance to catch a big run up in a stock or fund, and has an extreme risk of being stuck with a stock or fund that quickly plummets due to the selling and shorting pressure of the institutional investors, or due to bad market conditions.

Another big problem is the poor quality of investment advisors and financial planners available to you. You might think that if you use a licensed, professional investment advisor or financial planner that he/she could put you in market investments which would beat the odds and problems stated above. But the unfortunate truth is, as with other professions, only about 10% of investment advisor/planners are good enough to beat just the average returns of the S&P 500 benchmark, or to even beat the 3% return on T-Bills. There are a variety of reasons for this, including: A great many investment advisor/planners have very poor or limited training, many simply don't have the talent or intellect, they are often more interested in pushing in-house investments and in the commissions paid to them on certain investments than they are in doing effective research for you (assuming they even had the training, intellect or talent to do the research). And they get beaten by the institutional investors mentioned above the same as you would.

So are T-Bills, money market funds and bank CDs the answer? No! Year after year the effect of inflation and taxes will more than eat up your return from these investments. If you stay in these investments long term, your total dollars will rise (slowly), but your purchasing power will be severely eroded. That is, you are effectively guaranteeing a loss in your nest egg by being in these types of investments. What you may have perceived as safe and steady returns and gains will quite likely turn out to be a worse bet than the stock market, maybe far worse.

The solution to these unfortunate facts is to seek out investments which fit in the middle between the ultra conservative, low yielding money market funds, bank CDs, etc. and riskier investments in the stock market. Two such investment ideas are listed above (the AE-Trust Hi-Yield Stable Value Fund and Guaranteed Payment Contract), but don't hesitate to do your own research. Or for more information and advice seek out a highly regarded financial planner/adviser. This would be one who has a lot of his/her own money in the investments they recommend to you and who has a verifiable track record. However, finding such an advisor, and one that you can afford, is a tall order.

In summary:The high volatility, market losses, poorly timed moves, long periods where the stock markets make no headway and competition from the institutional investors all combine to make it very difficult to increase the purchasing power of your IRA or other nest egg any, or sufficiently to help with a comfortable retirement. But money market fund, bank CD and T-Bill yields will not offset the effects of taxes and inflation, so that these investments are guaranteed to lose purchasing power. There are middle ground alternative investments available which are likely better suited for you if you seek them out.