After several months of stocks happily chugging higher, the market plummeted on a disturbing mix of news.
With China’s potential economic slowdown, Ebola in America and rising tension in both Russia and the Middle East, many traders thought it was time to run for the exits to protect their gains.
And while the markets have rebounded, we’re not out of the woods yet.
Next week, the Federal Reserve will conduct its two-day meeting and is widely expected to announce an end of Quantitative Easing on Wednesday. Traders are rushing to position themselves ahead of the Fed’s next move, asking themselves: “Will there be an interest-rate hike after the December meeting? Will the Fed wait until the New Year?”
Until the Fed finally makes its first rate hike, expect markets to swing.
But in the thick of all this market volatility, we have to ask ourselves: Is there an upside? The answer is — most definitely.
Escape Traditional Accounts for Tax-Deferred Growth
Volatility begets opportunity, and with so much of it plaguing the markets, opportunity abounds. But not all investment vehicles are created equal, and some are better than others when it comes to benefitting from all these shifts in the market.
If you have a traditional investment account — and you’re thinking about getting out of that account in exchange for something better — ask yourself these questions: Is it giving you tax-deferred growth? Does it give you easy access to diversified investments, particularly in global markets and multiple currencies?
No — these traditional accounts are not giving you exposure to the real opportunities to build your wealth. But, you can use all this market volatility as an excuse to get into a tax-deferred account that gives you this kind of access.
But rather than acquiring one in the States, consider the benefits of getting one offshore.
A foreign deferred variable annuity, or DVA, is an insurance policy that allows you to invest your money, tax-deferred, while you sit by and watch it grow until you elect to receive payments. But unlike its American relative, a foreign DVA allows you to invest and protect your money abroad with no negative tax consequences during the term of your policy.
With all the tax reporting requirements these days for foreign accounts, the foreign DVA is convenient because it gives you a way to participate in the international equities market and benefit from U.S. tax-deferral on the growth of these investments.
You want a portfolio of emerging market blue chips that are unavailable to most Americans? No problem. Want to create a portfolio that tracks a favorite fund manager? You can do that, too. A foreign DVA allows your money to invest in literally anything from currencies, bonds, mutual funds, and commodities … to alternative investments like hedge funds and managed futures.
You can’t get all that in an American DVA.
Plus, you can get a nice bump in income when you reinvest the tax-deferred growth and the savings to compound over the course of, say, 20 years. Just look at the chart to see how this compares to a taxable account:
The tax-deferred account allows your money to grow by almost an additional $250,000! Of course, you’ll have to pay taxes once you take a distribution, but it will be less than if you have paid them over the long term.
And while it is hard to guess what the future U.S. income tax rates will be, the strategy here is that when we are older, we may be in a lower tax bracket because our active income is at a much lower level.
An Extra Layer of Wealth Protection
Plus, there is another benefit. Unlike your traditional investment account, which would be an easy target if you become the victim of a lawsuit, the DVA offers a great shield.
In the United States, where 16 million lawsuits are filed every year — or one new lawsuit every two seconds — anyone with wealth is a target in the ever-increasing “who can I sue?” mentality. With some customization, it is possible for your policy to become “judgment proof.” Creditors will not be able to attack the contract and you cannot be forced to assign the future benefits of your policy to a creditor.
Of course, you must protect your wealth long before any trouble knocks on your door. If you wait until you are being sued or even until you’ve done something that might trigger a lawsuit, it will be too late for any legal protection. Early planning can save you a fortune down the road.
To explore how a foreign DVA can work best for you, contact Marc Sola with NMG in Zurich at firstname.lastname@example.org.
Start Preparing Now
If the events of the last few years have taught us anything, it is that we must be proactive and we must seek alternatives. As Einstein said, “Chance favors the prepared mind.” The recent market volatility reminds us that our financial and economic future is uncertain. So don’t discount the unexpected. Be prepared, and chances are you‘ll find the chips fall in your favor more often than they would have otherwise.
In Wealth & Prosperity,
Executive Consultant, The Sovereign Society
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