The Endowment Model Part 2: Guaranteed Assets

13 Mar The Endowment Model Part 2: Guaranteed Assets

Part 2: Explaining asset classes

The Endowment method is the bread and butter of not only our investment strategies but also those of Ivy League schools such as Yale and Harvard. What makes this method so effective Is not only the Alternative Investments but the other asset classes which are worked into the portfolio to make sure that every area of the client’s goals is met. The basic needs/wants that everyone wants out of their investments are simple, Growth, Liquidity, and Security. But you can’t get all three from a single investment vehicle, so diversification becomes necessary. Out of those three goals the only one that really keeps people up at night about losing, is Security.

Security is a difficult thing to achieve in an investment vehicle, simply because to invest is to take a risk in almost every situation. However, there is a multitude of investments that focus on providing safety and security as a priority over growth. The investment vehicles with this priority are classified as Guaranteed. The Endowment Model utilizes all three investment marketplaces: Guaranteed, Non-Guaranteed, and Alternative. This article will help provide a better understanding of the Guaranteed sector, what it entails, and how it can assist you in reaching your financial goals.

To be considered a Guaranteed investment vehicle, you must basically be able to offer asset protection like that of a bank. Much of this marketplace is made up of Banks, and Insurance companies. They offer products like CDs and Annuities or Life Insurance. If you are familiar with any of these terms you know that when you put your money in one of these, it stays there. This can be a good and a bad thing. Like I said you can’t have growth, liquidity, and security all in one, so what happens when you get the highest level of security? Simple, you forfeit growth and liquidity. A great example is Annuities. Annuities are a great method for putting your money away if you are looking for long term security. Annuities provide investors with a guaranteed check every month, in exchange for the lump sum principle first. But if you need that money for an unexpected expense, good luck getting it. There is quite a bit of penalty and red tape involved in withdrawing any of your principles if that option is even available. Not only that, but the average growth of annuities isn’t anything that will make you rich just enough to beat inflation and give you a little more than the last month, depending on how much you put in.
This doesn’t mean that Guaranteed investments aren’t useful in the Endowment model, quite the opposite in fact. Many clients find that security is their number 1 priority, especially when they have limited funds, as well as limited time, to work with. For those who are not looking for growth, and who do not see any large out-of-budget expenses in their near future, find quite a bit of use in having Guaranteed investments in their portfolio. Annuities can help people budget not only for the month but also for the year. This can help people cover their immediate expenses while working for growth in the future to cover expenses such as long-term-care and other hard to plan expenses.
Although Guaranteed investments are able to give you some security in your portfolio if that is what is necessary, that’s not to say that you can’t position yourself well enough to cover your expenses safely while growing your portfolio and having access to all of your funds. In the next edition of our educational blogs, we will discuss Non-Guaranteed investments and how they play into the endowment model. Remember, Plan Smarter Live Better.

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