Missed Fortune Super Blog

A Savings Vehicle That Makes All the Difference

Missed Fortune – Is Your Net Worth Rising or Falling?

Posted on | July 1, 2012

missed fortune super blog itunes 150x150 Missed Fortune   Is Your Net Worth Rising or Falling?

What Happened to Your Net Worth?

The Wall Street Journal recently reported that the average American family’s net worth has dropped by nearly 40% during the four-year period between 2007 and 2010.

The article states: “American families’ median net worth plunged by almost 40% from 2007 to 2010—to a level last seen in 1992—as the recession and housing bust took their toll, [according to] the Federal Reserve.

Families’ median net worth, the difference between their assets and their liabilities, fell to $77,300 in 2010 from $126,400 in 2007, down 38.8%, according to the Fed’s Survey of Consumer Finances, a snapshot of household finances conducted every three years. It was the largest decline since the survey began in 1989.”

Net worth, in this example, represents the difference between a family’s gross assets and its liabilities.

The article goes on to say: “Much of the drop was driven by the housing market’s collapse. Families whose assets were more closely tied to housing saw bigger declines in their net worth. Among families that owned homes, median home equity declined to $75,000 in 2010 from $110,000 three years earlier.”

The real message this drives home is the importance of protecting your serious retirement money from market volatility. It’s no coincidence that during this same time period, people saw the value of their 401(k)s and IRAs drop nearly 40% as well. Others saw a similar loss of value in their real estate or their home.

But not everybody suffered a 40% loss during those years. For instance, the people who have been using the Missed Fortune strategies during these past 4 years did not suffer any loss in their real estate equity. Likewise they did not suffer losses in their IRAs and 401(k)s. Their net worth did not go down.

Here’s what you need to understand, even if your home went down in value, if your equity was safely separated from your home and in a state of liquidity, it could have been earning twice the rate of return as your mortgage. This means if your mortgage rate was 4%, you could have been earning a safe, predictable, 8% rate of return simply by not having your equity tied up in your home’s value.

Likewise, instead of taking a bath with a 40% loss in the value of your IRA or 401(k), you could have used an indexing strategy and safely protected your principal during the loss years while enjoying the upside as soon as the economy started growing again. Protecting your serious money will be even more important in the next few years.

What’s Waiting Just Around the Bend

The past 5 years have had their challenges, but the continuing market volatility that has so many scrambling to make up lost ground today will have two additional threats at its side.

One is the threat of higher taxes. The Bush era tax cuts implemented to offset the economic slump that followed the 9/11 attacks are set to expire at the end of this year. If Congress does not extend these tax cuts, we will be set to experience the single biggest tax increase in American history. And Congress may yet raise other unrelated taxes to make up for the never-ending increase in federal spending.

It’s a safe bet that taxes are going up.

The other additional threat is that of inflation. Inflation is an unseen tax that robs every dollar you have of its spending power. The rate has remained relatively stable for years, but at a 5% rate of inflation, the cost of living will double every 15 years.

This means you’ll need twice the amount of money in 15 years to purchase the same amount of goods, services, medicines, etc., that you’re purchasing today.

Together, these threats of market volatility, higher taxes, and rising inflation combine to create a triple whammy that will cause many people to outlive the money they’ve saved for retirement.

But if you have learned how to position your money so that it passes the LASER test by having Liquid Assets Safely Earning predictable Returns, you won’t be worrying about outliving your nest egg. Your money will grow tax-free, remain tax-free when you access it, and eventually transfer tax-free to your survivors.

Related Articles:

*Life insurance policies are not investments and, accordingly, should not be purchased as an investment

Be Sociable, Share!
  • more Missed Fortune   Is Your Net Worth Rising or Falling?

Comments

Leave a Reply






Warning: Unknown: open(/home/content/36/3927036/tmp/sess_jqohkngb3vi0okh1korm5qfkm1, O_RDWR) failed: No such file or directory (2) in Unknown on line 0

Warning: Unknown: Failed to write session data (files). Please verify that the current setting of session.save_path is correct () in Unknown on line 0