by Jerry Robinson | FTMDaily Editor-in-Chief
HOUSTON, Apr 15
As you will recall from our previous three-part article series, entitled ” How to Inflation-Proof Your Savings Through Diversification” (Read Part 1, Part 2, and Part 3), our DSL™ Savings strategy includes diversifying your six-month liquid savings reserve among three areas: U.S. Dollar denominated funds, stable foreign currencies, and precious metals. I have also explained the reasons why you should consider diversifying your savings. (Note: If you are just now picking up on this new series, you may wish to go back to Part One of our last series here )
The DSL™ Savings Strategy 101
Today, I will begin a new series entitled: The DSL™ Savings Strategy 101. In this financial teaching series, I will briefly get into the mechanics of how the DSL™ Savings Strategy works, and I will hopefully answer any questions that you may have about where to hold your savings dollars.
It is important to remember that the primary goal when choosing a holding place for your DSL™ Savings reserve dollars is liquidity, since your DSL™ Savings serves at least two purposes:
- Emergency fund (When you have six months of liquid savings, you won’t need to rely on your credit cards as much when a need for cash arises.)
- Opportunity capital (Those who have a ready pool of liquid cash are able to take advantage of opportunities that those without cash cannot.)
Here’s what your DSL™ Savings reserve is not:
- Retirement savings (That comes in Level Four.)
- Education savings (That is separate from your DSL™ Savings reserve.)
- An Investment (Investing comes in Level Four. Your six-month liquid savings reserve is built in Level Three and is not an investment. It is a powerful liquidity system that is designed to give you a cushion in times of emergency, as well as to take advantage of special opportunities when they come your way.)
Over the years, I have run into many people who think saving money is a waste of time or that it is unnecessary. These are usually the same people who rely on credit cards when they get a flat tire and who have to pull money out of their IRA or 401(k) when an emergency arises. Usually, these are also the same people who feel that they need to hit a homerun with every single investment. In my opinion, this is a poor lifestyle choice. I prefer to have diversified liquid cash on hand that I can quick access in case of an emergency or if a great opportunity arises.
Let me make this clear: A lack of liquidity is not an option for the days ahead. You must have access to liquid cash if you are going to create a successful financial game plan.
The DSL™ Savings Strategy 101 – Using U.S. Dollars
My preferred savings diversification model, one-third in foreign currencies, one-third in precious metals, and one-third in U.S. Dollars, often brings many questions.
In this first teaching article, I will briefly explain some of the various ways in which you can hold one-third in U.S. Dollar denominated funds when using your DSL™ Savings strategy.
Some individuals may ask why I would hold any of my own personal savings in U.S. Dollars if I think that they are going to lose value over the course of the next several years. I do so for the same reason that I accept U.S. Dollars for my labor and that I pay for my groceries in U.S. Dollars.
Who is able to get by in America without U.S. Dollars?
Usually, those who have this concern are, once again, confusing saving with investing. It is true that limiting your investment exposure to the U.S. Dollar may indeed be a very sound strategy over the long run. But this article is not about investing. It is about building a savings reserve.
Anyone who tells you that you need to get completely out of U.S. Dollars obviously does not live, shop, work, or eat in America.
Is the dollar in trouble? Yes.
Is the dollar going to continue losing its purchasing power? An even bigger Yes.
Can you survive, or even function, in America without dollars? No.
(Quick Note: Believe it or not, I receive numerous questions on this very topic several times each week. My advice: Turn off the TV and take four slow deep breaths. I know things are bad, in fact, they are very bad, but you have a plan, so don’t let worry or fear paralyze you. Before emailing me to tell me I don’t know how bad the economy is, please read my book, “Bankruptcy of our Nation.” While much of America has been afraid or angry, our organization has been busy creating financial solutions that average everyday people can implement. We don’t have the desire to play the “blame game” for America’s impending shipwreck, because we are too busy building financial lifeboats and creating our financial game plan to preserve ourselves, our families, and our neighbors.)
Now, let’s move into the four areas that are a good holding place for the U.S. Dollars portion of your DSL™ Savings reserve. Our requirements for this portion of your money include: safety of principal, instant access, and lowest possible fees. What about interest rates? Since interest rates are a function of risk, and you are seeking the least amount of risk possible with this portion of your capital, the interest rate you will receive will rarely be a big consideration. However, the best possible interest rate without sacrificing the safety and liquidity is ideal.
1) Savings Account – A regular savings account at an FDIC-insured bank is a perfect place for holding one-third of your DSL™ Savings reserve. Because it is insured by the FDIC, it meets our safety of principal requirement. Because it is 100% liquid, it meets our instant access requirement.
My two personal favorites are both online savings accounts. The first one is INGDirect.com, which, as of this morning, is offering 1%, charges no monthly fees, and has no minimum balance requirements. The other is HSBC bank, which as of this morning, is offering .90%, and also charges no monthly fees, and has no minimum balance requirements.
2) Money Market Account – A Money Market account at an FDIC-insured bank also meets both of our requirements of safety of principal and instant access. However, unless you can find a Money Market that is yielding more than 1%, you are better off going with a high-yield savings account like those mentioned above.
3) Cash Value Life Insurance – This is an interesting place to store a portion of your DSL™ Savings strategy. The benefits include a U.S. tax code that favors cash-value life insurance, a tax-free death benefit for your family which will dwarf your actual savings amount, and tax-free withdrawals from the policy during your lifetime.
These policies can pay internal dividends or interest, depending on the particular policy. However, one negative factor in using a cash-value life insurance policy for your DSL™ Savings reserve is that you will usually not have immediate access to your cash in case of an emergency. It can take a few years to build up a substantial amount of cash within these policies. My biggest problem with cash-value life insurance for the DSL™ Savings strategy is the initial lack of liquidity. However, they can be a perfect option for the right person.
Additionally, most states offer a tremendous amount of protection for the money that is housed within a cash-value life insurance policy. This “asset creditor protection” will often shield the money inside your policy from a lawsuit, debt collectors, bankruptcy, and other misfortunes. Those who will have a significantly large six-month liquid savings reserve might benefit from investigating this option. You can learn more about these through a trusted financial advisor. If you are in need of a financial advisor, you can use our 100% free referral service to locate one in your area.
4) Certificate of Deposit – I do not like to use CD’s for the U.S. Dollar portion of the DSL™ Savings strategy. While they do offer safety of principal and can pay a decent interest rate, the trade-off is liquidity. And unlike cash-value life insurance, you get no asset creditor protection, death benefit, or tax-free treatment in exchange for that lack of liquidity.
5) Under the Mattress – I personally do not recommend storing large amounts of cash in your home. While there could be circumstances where this would make sense (living in an extreme rural area for one), I would prefer to keep this money within a financial product that is safe, liquid, and that pays some form of interest.
On Monday, I will return with Part Two of this teaching series. Our topic will be how to diversify your savings with precious metals.
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In The News Today…
1. BLAME GAME: U.S. Treasury Secretary upped the ante this week by saying that if the U.S. defaults on its debt through a failure to lift the debt ceiling, it will be the fault of the Republicans. Meanwhile, Pres. Obama claims that Republicans are seeking to make America a “third world nation.”
2. GOLD RUSH: The gold standard is beginning to make a comeback in many states across the country… beginning with Utah.
3. CHINA SYNDROME: China cut its holdings in U.S. Treasury debt for the fourth consecutive month in February. This time by $600 million which brings China’s total holdings of U.S. government down to $1.15 trillion, the Treasury Department reported Friday.
4. PAIN AT THE PUMP: Motorists in Connecticut, Illinois, California, Hawaii and Alaska are now paying more than $4 per gallon. Government says more price increases on the way…
5. PARTY LIKE IT’S 1937: In this insightful article, Barron’s compares our 2011 to 1937. Is this 1937 all over again?
Master publicity hound, Mr. Donald Trump, has called President Obama the “worst president in history.” That’s after he called President George W. Bush the “worst president in history.” He has the media begging him for more.
Why So Serious?…
Its time to laugh a little. Here’s a sampling from some of the late-night jokers.
“President Obama said in an interview over the weekend that he really misses being anonymous. He said, “I miss Saturday mornings rolling out of bed and not shaving, going to the market…” Be careful what you wish for, 2012 is just around the corner!” –Jay Leno
“A huge Air France air bus hit a smaller plane on the runway at JFK. The collision was so loud it woke up one of the air traffic controllers.” –David Letterman
“The Federal Trade Commission says for the 11th year in a row the biggest consumer complaint is identity theft, which led President Obama to say, ‘That’s why you should never show ANYONE your birth certificate.'” –Jay Leno
“Insiders say that Trump is running for president as a publicity stunt. That’s not the Donald Trump I know.” –David Letterman
Cartoon of the Day…
Jerry Robinson – FTMDaily.com
Jerry Robinson is an economist, published author, columnist, international conference speaker, and the editor of the financial website, FTMDaily.com. In addition, Robinson hosts a weekly radio program entitled Follow the Money Weekly, an hour long radio show dedicated to deciphering the week’s economic news.