Your Clients Should Not Put All of Their Eggs in One Basket
The goal of diversification is to reduce financial risk. The logic is quite simple. If you invest in things that do not move in the same direction, at the same time or at the same pace, then you will reduce your chances of losing all of your money at the same time or at the same pace.
This phrase was said to be first used in the novel, Don Quixote, where it was written, “It is the part of a wise man to keep himself today for tomorrow, and not venture all his eggs in one basket.”
While you may have basket preferences (real estate, stocks, bonds, business interests, qualified retirement plan), these baskets would fill a large percentage of the above-mentioned available baskets. However, when spreading risk to reduce the impact of market volatility, do you have an annuity basket and/or a permanent life insurance basket?
As it relates to some annuities, accumulating earnings are generally income tax free – plus your principal and already credited interest are not subject to loss due to market downturns. In addition, an annuity is the only product that can guarantee income for your entire life, and if desired, your life as well as the life of a beneficiary.
What about permanent life insurance? These policies offer a steady and predictable growth. The cash value generally accumulates income tax free. The accumulated cash value can be used to supplement retirement income. The death benefit of these policies is generally income tax free. Conceptually, the death benefit of these policies “mature” at exactly the time when the death benefit is most needed to provide financial security for your beneficiaries. After all, if you can pay your estate tax and other death-related costs with the tax free death benefit of life insurance, you don’t need to deplete the other baskets – something that could easily reduce the income of your beneficiaries.
Let’s talk about those baskets again. Based on where you are in life, you may have another philosophy – you can’t make an omelet without breaking a few eggs and taking a few potential risks. However, what happens if you break too much of your retirement nest egg, and a loss could crack your retirement dreams?
Therefore, and to repeat, the goal of diversification is to reduce financial risk. The logic is quite simple. If you invest in things that do not move in the same direction, at the same time or at the same pace, then you will reduce your chances of losing all your money at the same time or at the same pace.
AIP Marketing Alliance created a new client-approved flyer to share this philosophy of diversification with your clients. If you would like a customized version with your logo and contact information, simply email firstname.lastname@example.org and we’ll send you a PDF version for your use.
Disclaimer: Information is provided for informational purposes only and is not and should not be considered a solicitation to buy or sell any products mentioned. The information should not be used as the sole basis for any financial decisions, nor should it be construed as advice applicable to your specific financial situation. Please consult your personal financial, tax and/or legal professional(s) for guidance on your specific financial situation and decision-making.
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