Page 29 - Bulletin Vol 26 No 1 - Jan-April 2021 - FINAL

Article | Finance continued

insurance company, and sometimes, up to certain limits, further backed by the state insurance commission-
er’s office.

The advantage of the SPDA is they can offer rates that are a little better than a CD, and the interest is tax
deferred. Once mature, the contracts usually have a floor interest rate you can continue to collect without
changing to a new annuity. Sometimes, these interest floors are more attractive than the current market
rates. A disadvantage with these annuities is a penalty to break the contract. You can often withdraw a per-
centage of the contract, sometimes 10% per year, without penalty. There is also a penalty on withdrawals
made before age 59 ½, so it is not a suitable option for younger investors.

One area to be very cautious in is the floating rate space. Floating rate notes are extremely short-term cor-
porate debt that is only available to institutional buyers. However, several mutual fund companies offer
floating rate funds that buy such paper and offer more attractive yields. A quick look at a chart of most
floating rate funds will show price changes that are typically between 2%-3% principal fluctuation during
positive or negative market changes. During the 2008 financial crisis, when credit markets came to a near
total freeze, floating rate funds saw average declines of 27%. This is an area that is often mistakenly looked
at as a short-term cash position. We would caution against such an approach. Floating rate securities can be
an attractive investment at times, but any vehicle that offers substantive credit risk is not an ideal savings
alternative.

When it comes to an emergency fund, it is important to remember the goal is stability at the best interest
rate available with a reasonable amount of liquidity. Emergencies often happen during periods of great
market volatility. What you do not want is to find yourself in a position of having to sell a quality asset at a
depressed price. Maintaining a proper emergency fund can provide comfort and allows for other greater
risk investments knowing short-term risk is planned for.

A Certified Financial Planner™, Chris Congema began his career in the
Financial Services Industry in 1991. He has been in the Investment industry
since 1995 when he joined Merrill Lynch. Chris spent over 10 years at Charles
Schwab & Company. In 2005, Chris joined Fidelity Investments. Chris has
tremendous experience in providing financial planning and counseling to high
net worth investors. He has worked exclusively in the high net worth space
(1MM +) since 2000. Chris left Fidelity to start his own firm, Core-X Wealth
Management, which subsequently merged into Landmark Wealth Management
in 2015.
Landmark Wealth Management, LLC is an SEC Registered Fee-Only Advisory
firm. For more information please visit www.landmarkwealthmgmt.com

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