What are the best ways to earn a safe, solid return on money (say, 4%) since interest rates seem destined to stay very low for a while.

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Answered by Charlie Donaldson, MBA in Newark, DE
Dear Anonymous,

The amount of money you are looking to save would be a big factor here. If the amount is greater than $25,000, then there are 2 really good options.

1. Cash value life insurance with a return of premium rider. Use the right company and you'll get 4% minimum on your cash PLUS dividends. Purchased as a modified endowment contract, you can put in as much as you want but only buy a very small amount of life insurance (i.e. $10,000) to minimize cost. Thus, you earn 4% minus the cost, which is typically $500 or $600 per year. The cost doesn't really matter though because they guarantee that you'll never get less back than what you put in.

NOTE: I'm describing a VERY specific product. There's only 6 agents in the country that can currently offer it. If your advisor says I'm nuts, it's because they can't offer this contract.

2. Fixed Indexed Annuities: Long term, you'll see 3 to 7 % return on FIA's. These work just like a CD, with a few differences. The difference is that you're not stated an interest rate up front. The interest rate would be dependent on an underlying index, hence the name. They're issued by insurance companies instead of banks and the terms are typically 6 years or more. Oh, and if you're not 59.5 years old, you're penalized for removing your funds for annuities. They're primarily used in retirement accounts but can also be used for non-qualified savings in some scenarios.

I hope this helps. | 08.13.15 @ 19:00
Comment 1  
Phillip Christenson, CFA in Plymouth, MN — The cost doesn't matter? So your "guaranteed" 4% might cost 3.75% to get but that doesn't matter because at least you'll get your money back (assuming the insurance company is still solvent). Costs always matter. Only 6 insurance agents in the country that can sell this product? What makes you so special? To whomever asked this questions, there is no free lunch. Whole Life is a very expensive way to invest. The same with fixed income annuities. Make sure you fully understand whatever product you are being pitched especially the total costs. I see insurance products all the time with 3-4% or more in total expenses. Also, if you are ever being sold an insurance product make sure the % return is an actual rate of return and not just a return of principal. If you give me $10,000, and I give you $1,000 back for the next ten years I am technically giving you 10% back each year but your rate of return is 0%. Stay away from insurance as an investment. There is no free lunch.You cannot get a 4% rate of return without assuming risk. | 12.15.15 @ 22:11
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$commenter.renderDisplayableName() — {comment} | 12.07.16 @ 10:46
What amount are you investing? What time frame can you keep it there? What does SAFE mean to you? Every investment has its pros and cons. For example for a guaranteed rate you will give up some liquidity. I would suggest that you visit our website, click START HERE and follow the prompts to help answer some of these questions and I could better serve you. It's all complimentary. | 06.14.16 @ 21:12
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$commenter.renderDisplayableName() — {comment} | 12.07.16 @ 10:46
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