Performance Plan

Most investors today are:

  • CONCERNED about market volatility
  • FRUSTRATED with the low rates of return for their “safe” money and
  • WORRIED about having to pay unnecessary taxes

The four foundational pillars of the Performance Financial plan:

  1.  Safety and liquidity
  2. Tax free growth and tax free distribution (if structured properly)
  3. Participation in market gains but not losses
  4. Automatic participation in “locking in” gains

"What vehicle/strategy will provide liquidity, safety of principal and rates of return?"

A properly structured and funded “Indexed Universal Life Insurance Policy.” You might be saying, “I always thought insurance was a poor investment?”   Actually, we agree. That’s because:

  1. Most policies are structure for death benefit, not for the cash value benefits
  2. Most insurance brokers (or financial advisors) aren’t aware of this structure or have the expertise required to maximize cash values and minimize insurance costs

indexing-chart-thumbWithin an investment grade "Indexed Policy," the policy's cash value can be invested in one of two strategies (which can be changed by the policy owner at anytime). The first is a fixed return strategy in which the insurance carrier will provide a fixed, tax-free return of approximately 5% annually. This fixed return will fluctuate with overall interest rates. In any given year, the policy owner can choose to allocate some or all of his cash values away from the fixed option and into the "indexing" option. "Indexing" is a principal protection hedging strategy that allows the cash values to participate in general market gains while avoiding the downside.

The insurance carrier buys options that are correlated to the S&P 500® and if the market goes up, the policy's cash values participate in the gains. However, if the market goes down, one does not participate. The catch? There is 13% "ceiling" so if the market goes up over 13% in any given year, the policyholder only participates up to 13%. But if the market is negative in any given year, there is a 0% floor. On each anniversary the gains are "locked in" and the policy's cash value is "reset" so that this becomes the new principal amount or "high-water mark" on which the subsequent year's gains will be calculated.

This "indexing" strategy has averaged over 8% annually over the past 30 years all without the risk of principal loss. Keep in mind, because gains aren't taxed, this strategy also has the benefit of tax-free compounding. Between 2000 and 2010, during what advisors call the "lost decade", a buy and hold strategy with the S&P 500® lost over 7% when all was said and done. By using this hedging strategy over the same period, "indexing" was up over 100% which is an average annual return of over 7.2% (see chart above).