Why Are so Many “Safe” Investments Losing Money?

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Why Are so Many “Safe” Investments Losing Money?
 
Some are considered to be legit but have fine print that can lose you a great deal the minute you buy them. Some are outright fraud. Billions are purloined each year, often to people who just want to earn some income without losing money. The words “safe” and “income-producing” are used to entrap so many (as are get-rich-quick schemes). So, what are some of the common conservative money pits?
 
 
Here are the things we’ll cover in this blog and an upcoming videoconference, scheduled for Thursday, Dec. 26, 2024. Email [email protected] if you’d like to join us live.
 
1. Annuities
We lose up to 9% of our investment the minute we buy them.
 
2. Income-Producing REITs
A couple was told they own the property and were earning over 10% in interest. Instead, they lost $18,000.
 
3. Bonds and Bond Funds
Long-term bonds lost more than stocks did in 2022. Bond funds are losers over the 5-year period.
 
4. Dividend-Paying Stocks
The higher the dividend, the higher the risk. When dividends get cut, share prices plunge.
 
5. Safe Havens 
Safe havens are the most volatile investments we can own.
 
6. Crypto Scams.
Crypto scams cost Americans $5.6 billion last year.
 
 
And here is more information on each point.
 
Annuities
While we all heard about the five banks that failed in 2023, we haven’t heard a peep about the four insurance companies that went bankrupt in 2023 and 2024 (or the two additional banks that failed in 2024). 40 insurance companies have become insolvent since 2000. If we hadn’t bailed out AIG and the industry in 2008 that list would be substantially longer. Would anyone have any faith in insurance at all?
 
However, the potential for insolvency and the fact that annuities are not FDIC-insured are not the only reasons why annuities and other insurance products are riskier than we are being told. They are sold to us as safe – as guaranteed from losses. However, how many of us know that we lose up to 9% of our investment the minute we purchase an annuity? They call it a surrender fee. (That’s not the only fee that we might be subject to.) We tie up our money for 5-15 years, for typically a below-market return, and lose money if we need access to the investment before the lockup ends. If we were thinking about purchasing a 5–15-year Certificate of Deposit, we’d probably think twice about whether we might want or need access to that money. How many annuity purchasers are truly aware of what they’re signing up for, and how much commission the broker-salesman is making (up to 8%)?
 
The November 2024 Financial Stability Report echoes those warnings, writing, “Exposure to illiquid and risky assets makes life insurers vulnerable to an array of adverse shocks, including that of an economic downturn or of a significant further deterioration of the CRE market” (source: Federal Reserve Board). All of those half-empty office buildings and vacant malls are a serious challenge, particularly for insurance companies.
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Insurance company bankruptcies are not rampant. However, with debt at an all-time high, the commercial real estate market in a crisis and life insurance companies at the center of those storms, the years ahead might look a lot different than the past. As you can see in the chart below, debt in all forms is substantially higher than it was in the financial crisis of 2008, when AIG (the largest insurer in the world) had to be bailed out.

 
2. Income-Producing REITs 
 
A good salesman will lure us in with the bait that we are most likely to swallow. If we’re nervous about stocks, then they might start talking about how important it is to earn income and that you can do it safely by owning real estate. Real estate investment trusts are not like owning real estate. You own stock in the company that owns the real estate. If the company goes bankrupt, you don’t get the real estate. What you get is a big fat loss on the money you gave them.
 
A couple called me about the REITs that they had been told were a very secure, stable investment, which were paying high-yield interest rates. (You have to wonder why the company is willing to pay you 10+% when creditworthy companies can borrow from the capital markets at a much lower rate.) We were able to discover that these companies had been cash negative for over five years. The couple ultimately ended up losing $18,000 that they really couldn’t afford to lose. Meanwhile, the salesman who sold them this lie likely earned a commission of $15,000 or more. 
 
You can read about this couple’s journey in their own words in the blog, “They Trusted Him, Now He Doesn’t Return Phone Calls.”

Bonds and Bond Funds
Long-term bonds lost even more than stocks did in 2022. They did not make up those losses in 2023.
 

Even though interest rates are expected to go down over the next two years, that doesn’t mean that the problems or “paper” losses will disappear. There is still elevated credit, liquidity and duration risk. In addition to the losses, we could get stuck with an asset that no one wants to take off our hands. That paper loss can become permanent for a multitude of reasons. Our net worth plunges, as does our credit score.
 
Getting safe in today’s debt world is tricky, which is why we spend one full day on this topic in our Financial Freedom Retreat. There can be a lot of pressure on broker-salesmen to sell us things that are not necessarily good for our fiscal health.
 
Bond funds are not any better. As you can see in the chart below, they have lost money over the 5-year period. Again, bonds are supposed to be the safe side of our portfolio where our principal investment remains intact.  In addition to the liquidity, credit and duration risks, there is an added challenge that investment grade bond funds can have up to 20% junk bonds and very sketchy mortgage-backed securities in them.

Source: MSN.com. (c) Microsoft. Used with permission.

Dividend-Paying Stocks
The higher the dividend, the higher the risk. When dividends get cut, share prices plunge. We’ve seen this with General Electric, Boeing, banks during the pandemic, and with quite a number of commercial real estate companies. In the worst-case scenario, you have what I discussed in the REITs part of this blog, where the couple lost $18,000.
 
Over half of the S&P500 is at or near junk bond status. That includes a lot of U.S. banks and financial services companies.

At our retreats (and in my books), we have been underweighting U.S. value funds (where a lot of the dividend-paying stocks are) and instead diversifying into other countries. There are some countries that offer higher credit ratings than the U.S. and a higher yield as well. Join us at our January 10-12, 2025 Financial Freedom Retreat. Email [email protected] to learn more and register now.
 
Safe Havens 
Safe Havens are the most volatile investments we can own. When they are hot, nothing beats them. When they sink, nobody wants them. This includes crypto and gold. After the extreme highs in 1980, gold plunged and stayed there for a quarter of a century. After the top in 2011 ($1895), gold prices sank by 40%. They didn’t come back until the pandemic.
 
Additionally, each time that Bitcoin soars to new highs, it then drops like a knife. The whales take their profits before Main Street investors can protect themselves. Crypto is not an HODL investment. The average holding time of Bitcoin is just 100 days, while Ethereum is held for under two months (45 days).  
 
The other issue with safe havens is that they tend to be sold to us as “the only thing that will be of value when the dollar becomes worthless.” So many of us treat them like a buy-and-hold product, when we would be better served to have a strategy for capturing gains at the high and purchasing more at the low. Our pie chart investing system makes this easy. When prices soar, the pie chart prompts us to capture gains at the high. When prices sink, we have the liquidity and emotional fortitude to buy more at a lower price.
 
The challenges of safe havens don’t mean that we should not invest in these industries. They can add performance if we know how to be on the right side of the trade. In fact, I named Bitcoin as the Investment of the Year back in March 2024. Since then, coin values have surged by 57%. Of course, whenever an asset gets hot, the fraudsters come out of the woodwork.
 
Crypto Scams Cost Americans $5.6 billion Last Year
There are so many ways we can be taken in by scams. We might be promised shoot-the-moon gains. A relative might tell us about all the money they’ve made on something, which might be an MLM scam that they haven’t done the proper due diligence on. We might even see a celebrity endorsing the investment. FTX had A-list brand ambassadors and Kim Kardashian hocked an EthereumMax crypto scam. Another hallmark of a ruse is to show you extraordinary gains on a fictitious statement. Making something look legitimate is not difficult.
 
So, how can you avoid getting taken in? Check out my FTX blog, where I outline 6 red flags to avoid.

Join me for my What’s Safe videoconference, which is scheduled for December 26th at 4 pm PT. Email [email protected] if you’d like to join us live. You can watch all of my interviews and videoconferences back at https://www.youtube.com/nataliepace. 
 
Bottom Line
It’s embarrassing and painful to lose money. For some, it’s too much to bear. (I talk about this in the introduction of The ABCs of Money 6th edition.) We don’t want to be immobilized by our slipups. Mistakes allow us to learn and make better choices going forward, so that we will not be fooled again. Learning the life math that we all should have received in high school is a great start. Informed investors aren’t taken in by sophisticated sales tactics. An additional benefit to our time-proven strategies is that you’ll learn how to adopt a Thrive Budget, which allows us to live a richer life, even in an inflationary world that doesn’t add up. We can save thousands annually with smarter big-ticket choices. When we feel empowered, we’re less likely to fall for the too-good-to-be-true, get-rich-quick scams.
 
Read about these time-proven strategies in my books or learn and implement them at our Financial Freedom Retreats.
 

Join us at our online New Year, New Me Financial Freedom Retreat Jan. 10-12, 2025 (online) and our Rebalancing Masterclass (Capture Gains & Protect Principal) on Jan. 18, 2025.

Learn how to:

* Invest in hot industries, such as Nvidia and artificial intelligence,
* Hedge against a weaker dollar,
* Invest and compound your gains,
* Green your retirement plan,
* Easy and efficacious nest egg strategies,
* Get hot and diversified (including in artificial intelligence and EVs),
* Evaluate stocks,
* Keep an age-appropriate amount safe, and,
* Know what's safe in a Debt World.

You'll even discover how to save thousands annually with smarter big-ticket choices. Yes, it's a complete money makeover. 
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Email [email protected] or call 310-430-2397 to learn more and register. Learn the 15+ things you'll master and read testimonials in the flyer on the home page at NataliePace.com. Register with friends and family to receive the best price. ​

"Ten minutes into the first day I was already much smarter about investing than I ever thought I would be in my life and I knew I was in exactly the right place at this retreat. I am amazed at how EASY and FUN it is to make my money work for me and those I love. I think this kind of information should be compulsory in schools. I wish I'd learned this sooner." CM

If you’d like an unbiased 2nd opinion on your current wealth plan, email [email protected] for pricing and information.

Join us for our Online New Year, New You Financial Freedom Retreat Jan. 10-12, 2025. Email [email protected] or call 310-430-2397 to learn more. Register with friends and family to receive the best price. Click for testimonials, pricing, hours & details.

Join us for our Restormel Royal Immersive Adventure Retreat. March 7-14, 2025. Email [email protected] to learn more. Click for testimonials, pricing, hours & details. Register now. There is only 1 room available. This retreat includes an all-access pass to all of our online training for a full year for two, and three 50-minute private, prosperity coaching sessions. Much more affordable than you might think. Email [email protected] to learn more.

Natalie Wynne Pace is an Advocate for Sustainability, Financial Literacy & Women's Empowerment. Natalie is the bestselling author of The ABCs of Money and The Power of 8 Billion: It's Up to Us, and is the co-creator of the Earth Gratitude Project. She has been ranked as a No. 1 stock picker, above over 835 A-list pundits, by an independent tracking agency (TipsTraders). Her book The ABCs of Money remained at or near the #1 Investing Basics e-book on Amazon for over 3 years (in its vertical), with over 120,000 downloads and a mean 5-star ranking. The 6th edition of The ABCs of Money and the 2nd edition of Put Your Money Where Your Heart Is are the most recent releases of these books. Follow her on Instagram. 
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Natalie Pace's easy as a pie chart nest egg strategies earned gains in the last two recessions and have outperformed the bull markets in between. That is why her Investor Educational Retreats, books and private coaching are enthusiastically recommended by Nobel Prize winning economist Gary S. Becker, TD AMERITRADE chairman Joe Moglia, Kay Koplovitz and many Main Street investors who have transformed their lives using her Thrive Budget and investing strategies. Click to view a video testimonial from Nilo Bolden.​​

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Important Disclaimers
Please note: Natalie Pace does not act or operate like a broker. She reports on financial news, and is one of the most trusted sources of financial literacy, education and forensic analysis in the world. Natalie Pace educates and informs individual investors to give investors a competitive edge in their personal decision-making. Any publicly traded companies or funds mentioned by Natalie Pace 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 diversified 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.