NataliePace.com Home Page Article
Things to Know About Your Bank, Annuity and Brokerage.
a post-bailout world, full of stress tests and fancy accounting, many investors
are wondering where their money is truly safe. Below are 10 tips to help you
navigate exactly where your money is currently housed, when and where FDIC insurance
is provided, which banks, insurance companies and brokerages are the healthiest,
1. The Fed's Stress
2. AIG is
Still Owned by Taxpayers.
3. Does AIG
Own Your Annuity?
4. Are Banks
Discount Brokerages are Healthier Than Legacy Brokerages.
6. Not All
Bank Products are FDIC-Insured.
are Not As Safe As You Think.
Banks Were Hit Hard in the Great Recession.
9. Pay Yourself
First -- Before Taxes.
10. 401k Roll-Overs.
And here is additional
information on these 10 Tips...
- The Fed's Stress
Test. On March 13, 2012, the Federal
Reserve Board of governors announced the results of their most
recent stress test. The media quickly jumped to say that the four lowest-scoring
banks, Ally Financial, Citibank, MetLife and SunTrust, "failed." The banks
themselves are assuring customers and investors that they didn't "fail" the
tests, but are simply in need of revising their capital plan, and limiting
or eliminating their dividends and buybacks for now. The California
state insurance commissioner Dave Jones issued a press release
stating that MetLife "exceeds the insurance financial solvency requirements."
stressed, in a press statement, that it exceeds the requirements when it eliminates
"proposed return of capital to shareholders." And when you look at the Bank
Stock Report Card, you can see that there are two banks that have
similar debt to equity ratings to Citi, which are far higher than the debt
to equity ratings of MetLife and SunTrust. (Citi doesn't have the highest
reported debt to equity ratio of the bunch.)
is Still Owned by Taxpayers. The American taxpayer still owns 77% of AIG
(American International Group), as of 12.28.11. AIG was not included in the
Federal Reserve stress tests. Click to see a detailed report on AIG's Recapitalization
Plan and relationship with the U.S. government. Review AIG's current
revenue, income, debt and more in the Insurance
Company Stock Report Card. Remember that the reason the debt appears
lower at AIG than other insurance companies is because the company was bailed
out, and is now majority owned by taxpayers. They don't owe us a lot of money
because they owed so much that we now own the company.
- Does AIG Own Your
companies are (still) leading providers of life insurance and
retirement services in the United States. AIG sells annuities and life insurance
products under other names, including American General, SunAmerica, Chartis,
Western National, and brokerage products under the names SagePoint, Royal
Alliance and FSC. If you own an annuity product from one of these companies,
AIG owns your annuity.
- Are Banks Healthy
Now? Though 15 major U.S. banks passed the "stress tests," all owe more
than they are worth, and most had less revenue in 2011 than the year prior.
Believe it or not, the beleaguered Bank of America experienced 5% revenue
growth in the last quarter -- the only bank of the bunch with increased revenues
year over year. Click to review the sales, income, earnings growth (or decline),
debt and more of the banks in the Bank
Stock Report Card.
- Online Discount Brokerages
are Healthier Than Legacy Brokerages. While the banks in the Bank
Stock Report Card owe more than they are worth (sometimes a lot
more), TD AMERITRADE and Schwab owe debt that is less than a third of their
value. These two online discount brokerages were not a part of the financial
meltdown. They both offer FDIC insurance on their investor money market and
savings accounts and have the lowest trading fees in the business. Both have
banks. Click on the Bank
Stock Report Cards for a comparison of revenue, profit, debt and earnings
growth in the major banks and online discount brokerages.
- Not All Bank Products
are FDIC-Insured. Insurance company products that a bank sells, including
life insurance and annuities, are not covered by the FDIC. When purchasing
any product from a bank, you must read the fine print to determine what safety
nets are provided. Learn more in FINRA.org's
page on Bank Products.
- Annuities are Not
As Safe As You Think. If AIG had declared bankruptcy, tens of millions
of AIG annuity holders would have been forced to turn to their state guaranty
funds in hopes of recovering some of their retirement money. It is very important
to purchase your insurance and annuity products from companies that are well-managed
and financially stable because these products are not FDIC-insured. Learn
more about how the AIG bailout affected consumers at the NAIC
- Community Banks Were
Hit Hard in the Great Recession. 427 banks have failed since 2008. Most
were community banks. The trend has slowed substantially this year, however.
Only 13 banks failed in 2012 (as of St. Patrick's Day). Consumers with FDIC-protected
deposits were unaffected by the failures. Others with uninsured deposits above
the federal limits, like IndyMac customers, had to wait to receive their share
of funds generated from the sale of the former bank's assets. For more info
on how the IndyMac
Bank failure was handled, read the FDIC Q&A sheet.
- Pay Yourself First
-- Before Taxes. FINRA.org recommends that "most investors should consider
an Equity-Indexed Annuity and other annuity products only after
they make the maximum contribution to their 401(k) and other before-tax retirement
plans." Why? Because 401Ks are pre-tax investments that reduce your taxable
income and allow you to defer taxes on your contribution and investment gains.
Learn more in FINRA.org's Investor Alert on Equity-Indexed
- 401k Roll-overs.
There are qualifying events where you can rollover your 401K into an online
discount brokerage IRA, without penalty. (Check with your CPA for tax
guidance on this and with your employer for qualifying event information.)
Options include: 1) When you leave your job, 2) When you turn 59 1/2, 3) Certain
employer contributions, 4) Post tax contributions, and 5) When the employer
changes 401K providers. This is an important option, especially if your investment
options are limited in the 401k, if your employer is paying you in company
stock and/or if you just want greater control over where your money is invested.
You have the universe of stocks and funds available to you at the online discount
brokers, whereas the 401K provider may only offer you a handful of fund choices.
Also, in cases where your employer pays you in company stock, you may be over-reliant
on the company's performance, instead of properly diversified. A general guideline
is to have no more than 10% of your nest egg in your own company's stock.
Employees at Enron lost far more than they should have, simply by holding
too much Enron stock in their 401Ks.
Now that you know more
about how FDIC Insurance works, what products are and are not covered and how
to check on the fiscal health and debt of your bank, brokerage and insurance
company, you are in a position to make more informed choices. May your bottom
line be beautiful and your assets always covered.
About Natalie Pace:
Natalie Pace is the author of You
Vs. Wall Street and Put
Your Money Where Your Heart Is. She is the founder and CEO of the
Women’s Investment Network, LLC (a global financial news, information and education
site), where she has been adding a splash of green to Wall Street and transforming
lives on Main Street for more than a decade. She is a blogger on HuffingtonPost.com
and a repeat guest on national television and radio shows such as Good Morning
America, Fox News, CNBC, ABC-TV, Forbes.com, NPR and more. As a strong believer
in giving back, she has been instrumental in raising tens of millions for public
schools, financial literacy, the arts and underserved women and girls worldwide.
Follow her on Facebook.com/NWPace.
For more information please visit NataliePace.com.
Please note: NataliePace.com
does not act or operate like a broker. We report on financial news, and are
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in North America. This article is intended to educate and inform individual
investors, and, thus, to give investors a competitive edge in their personal
decision-making. The publicly traded companies mentioned in this article are
not intended to be buy or sell recommendations.
ALWAYS do your research
and consult an experienced, reputable financial professional before buying or
selling any security, and consider your long-term goals and strategies.
Investors should NOT be all in on any asset class or individual stocks. Your
retirement plan should reflect a long, safe strategy, which has been designed
with the assistance of a financial professional who is familiar with your goals,
risk tolerance, tax needs and more. The "trading" portion of your portfolio
should be a very small part of your investment strategy, and the amount of money
you invest into individual companies should never be greater than your experience,
wisdom, knowledge and patience.
Information has been
obtained from sources believed to be reliable however NataliePace.com does not
warrant its completeness or accuracy. Opinions constitute our judgment as of
the date of this publication and are subject to change without notice. This
material is not intended as an offer or solicitation for the purchase or sale
of any financial instrument. Securities, financial instruments or strategies
mentioned herein may not be suitable for all investors.
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