Diversification: Is it Truly the Protection You Need Against Market Volatility?

“Diversification,” according to Warren Buffet, “is protection against ignorance. It makes little sense for those who know what they’re doing.”  This is because diversification for most financial planners and investors merely means spreading your equity across multiple asset classes in hopes of avoiding correlated losses from occurring all at the same time.  But does it really provide you, the investor, with any protection?

The answer to that question is dubious at best and truthfully never something that is guaranteed.

To provide yourself with guaranteed protection you must go further than merely broadening your portfolio over asset classes otherwise your will retain 100% of the risk along with market volatility which is difficult to overcome.

This is where participating whole life insurance provides a critical foundation for any portfolio.  This is namely because of the guarantees these contracts provide to the policyholder.

On top of the obvious guarantees which are found in all whole life insurance contracts such as; a lifetime of income for loved ones, or even for your own retirement, participating whole life insurance are an effective buffer for your investment portfolio because participating whole life secures the path in attaining the financial objectives which every investor is pursuing… a balanced asset accumulation with protection against loss.

Participating whole life insurance contracts are unique because the guaranteed growth which they produce can be easily converted into usable cash without restraint or pre-qualification but merely on the signature of the policyholder.  Access to this capital allows the balance of any investment portfolio, great or small, to recover from a market correction without having to experience further loss via forced distributions, margin calls or even living expenses.

Here’s a historical example of three retirement portfolios. Each portfolio begins with one-million dollars.  Furthermore, each portfolio owner took a $50,000 di­­stribution from their respective portfolio each year from 1999 through 2019.

  1. The owner of portfolio A took their $50,000 distribution every year and stayed invested in the market notwithstanding market performance.
  2. The owner of portfolio B took their $50,000 distribution every year but moved to cash following each flat or negative year of market performance and returned to the market following every year the market went positive.
  3. The owner of portfolio C stayed fully invested like the owner of portfolio A, but unlike portfolio owner A, they took their annual $50,000 as a loan against their participating whole life policy when the market went flat or negative.

The results speak for themselves and are why participating whole life has, and always will be, a financial tool the wealthy use to keep more of the money they make.  Of course, this is why you should own participating whole life insurance as well because it adds protection to your savings, allowing you to use and keep more of the money you make while your savings continues to grow.

Nobody wants to run out of money, especially after they have retired.  But this is what is happening to millions of Americans because they have only saved enough to take care of about 10 years of retirement, but are living 20 to 30 years in retirement. Even those who think they have enough money, tend to run out based on market conditions as you can see in this historical example.  Who would ever think you could run out of money with $1,000,000 in your retirement portfolio?

This is exactly why Buffet warns, “Diversification makes little sense to those who know what they are doing.” You see, diversification can’t help you if you don’t know what is happening. But once you know what is happening you can easily build the financial sustainability that you need for your future by diversifying your portfolio with participating whole life insurance. This will reduce your risk and provide continued growth even when market volatility goes flat or negative, not just in your retirement but even as you are building your retirement savings.

Too often I hear the words, “I don’t need life insurance once I am retired.”  Obviously, this is a misplaced notion that simply makes NO financial sense to those who really understand how money works.  Anyone who tells you, “You won’t need life insurance once you’re retired,” doesn’t understand risk or how to manage it. But the same people who are telling you this lie won’t be around to pay your bills for you when you run out of money, so it is no sweat off their nose to keep lying about the multiple benefits of owning participating whole life insurance.

Financial planners, and investment advisors are most interested in building large investment portfolios as this increases fees they collect every year off the amount of your money they have under management.  This is one reason most of them ignore or ridicule owing participating whole life insurance.  Their fees will, over time, far exceed the commissions paid to a life insurance agent for selling you a participating whole life policy, but they will never reveal this little know secret to you.  This is why you need to understand how money really works because you can then fire your financial planner, keep those fees for yourself, and really begin to build sustainable wealth.

By focusing on the long-term results, instead of quarterly returns, you can build the sustainability you need and are looking for with on a solid foundation of participating whole life insurance.  The facts are in.  Don’t wait to find out too late the foundation your portfolio was laid upon is nothing but shifting sand which market volatility can destroy in a flash.

Dr. Tomas McFieDr. Tomas P. McFie

Most Americans depend on Social Security for retirement income. Even when people think they’re saving money, taxes, fees, investment losses and market volatility take most of their money away. Tom McFie is the founder of Life Benefits which helps people keep more of the money they make, so they can have financial peace of mind. His latest book, How to Build Sustainable Wealth, can be purchased here. 

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