Coming up this week on Make It Last…Interview with Thomas Merrick, a Swiss-based investment advisor. Should you consider diversifying your investments with an international portfolio?
Learn more this week on Make It Last with Victor Medina.
Make It Last with Victor Medina is hosted by Victor J. Medina, an estate planning and elder law attorney and Certified Financial Planner™. Victor provides 360º Wealth Protection Strategies for individuals in or nearing retirement.
For more information, visit Medina Law Group or Private Client Capital Group.
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Announcer: Welcome to “Make It Last,” helping you keep your legal ducks in a row and your nest eggs secure with your host, Victor Medina, an estate planning and elder law attorney, and certified financial planner.
Victor J. Medina: Everybody, it’s Victor Medina. Welcome back to Make It Last. This is the show that helps you keep your legal ducks in a row and your financial nest eggs secure. I’m happy to be welcoming you back on the show where we’re going to talk about two major subjects.
Today, we’re going to talk about how to invest your money in a way that protects the principal. A lot of people want to make sure that they don’t lose money. We’ll talk about seven different kinds of investments that can do that.
A little bit later, we’re going to welcome a special guest to the show. That guest is going to talk about investing in international markets. That’s been a friend of mine and somebody who is an investment advisor. I will ask him to be a part of the show.
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I want to get right into the topic for today. We’re going to cover the seven investments that will help you protect your principal, principal basically meaning that the asset value doesn’t go down.
These are my opinions on it. We’re not talking about guarantees here unless we’re talking about Federal Bank guarantees, but these tend to be fairly low‑risk investments.
Clearly if you’re thinking about this, you should discuss these matters with a qualified financial investment advisor, somebody who works with you.
What we say around here, we always want you to be working with somebody that is a fiduciary and not somebody that is a broker for somebody else, but works independently for you. That’s probably the best kind of investment advisor to work with.
It’d be also great if they have the qualifications of being a certified financial planner because it means not only are they a fiduciary, but they want to look at everything that you’re doing and give you a nice holistic plan to try to get you from where you are to where you want to be.
Let’s jump right in. The idea here is that as you look at lowering the volatility of your portfolio, you might want to think about one or more of these different kinds of investment vehicles as ways to help you protect your principal. With the caveat that you ought to talk to a professional about it, let’s jump right in.
The first one that I want to talk to you about is putting together some savings in an online high‑yield savings account. Essentially, what we have here is an account that is part of the FDIC Insurance, which is the Federal Deposit Insurance Corporation. The idea with this kind of account is that it insures bank deposits up to $250,000. That’s per account.
If you have something joint with two people, that’ll be $250,000. You’re not going to get a lot on that. You won’t be getting a lot of return on investment. I’d be shocked to see if you made more than one percent or so a year on such a high‑yield savings account.
Because inflation is low now, that won’t leave you too far behind. It’s much more than you can get at your local bank. It’s insured up to $250,000, so you might want to look at an online high‑yield savings account.
A similar vehicle is a money market account. A money market account is a hybrid bank account. It offers some of the benefits of the savings account, but has the potential for higher returns and little bit better access to you money. You can open this at a local bank or online.
When we do investing with people, their money, their investments are held over at Charles Schwab. They have a money market account. They can get you a little bit better interest rates sometimes. The idea here is that it has this ability to be working like a checking account.
You can write checks against the money market account. They usually ask for that check to be in a minimum amount, usually a designation like about $250, but you can get some return.
Again, this money will have very low risk because you won’t to be getting a lot of interest on your investment, but you don’t have to worry about losing the principal either because this is not invested in the traditional sense where you can lose interests. It’s a little bit like a savings account, like I mentioned.
The next one after that is a certificate of deposit or a CD. People are familiar with these mostly. These are deposits that are held with a bank. Similar to a high‑yields savings account, it is backed by the FDIC Insurance. It’s unusual for people to hold $250,000 or more in CDs. The banks are not offering great rates of return.
You’ll have to go longer in the amount of time that you’re holding these, your terms, in order to get a better return. You can ladder them. You can buy them in successive years so that they’re coming to you. They’re not quite as liquid as having money in the money market account.
For you to gain all of the interest, you need to hold it for the term that’s on there. You may want to think about laddering those that these mature are regular intervals. It’ll give you the opportunity to have that freed up, also give you the opportunity to invest in more money if the interest rates are higher later in the future. CDs are an option, that’s number three.
Number four, municipal bonds. Municipal bonds, they want the potential for growth, but they want principal protection as well. What you’re doing is you’re buying the debt of a local government.
The nice thing about that is that most state and local government agencies exempt the income tax on these bonds. You get a little bit of savings on money there as well in terms of the taxes that you save.
You have to essentially trust the government to repay the moneys. Some municipalities and governments have declared bankruptcy and defaulted over the years, but it’s extremely, extremely rare.
You’ll see municipal bond rates vary, but it’s usually going to be about three percent on that money. All things considered, the benefits and the reduced risk that municipal bonds offer make them, they’re pretty smart option for anybody who needs principal protection.
Number five are going to be US savings bonds. There are two main types of bonds to consider. You have Series I and Series EE. While each bond works in a different way, both offer principal protection with little risk of default.
With Series I bonds, you get a fixed interest rate return and an adjustable inflation‑linked return. While the fixed rate return never changes, the other component of the return is adjusted every six months, sometimes up, sometimes down, and Series EE bonds where you have a fixed rate of return that’s added to the bond automatically each month.
You don’t get the opportunity to have that changed rate, that inflation adjusted rate. The US treasury promises to the double the value of the bond if you hold it for about 20 years. Again, either bond option could be smart for somebody looking for principal protection and a potential for growth. You can buy those directly through treasurydirect.gov.
A related investment would be a Treasury Inflation Protected Security. Those are called TIPS. Those are a fixed interest rate that doesn’t change throughout the life of the bond, but it also has some built in inflation protection that’s guaranteed by the US government.
That second component, the built in inflation protection that kicks in every time inflation grows to bring your investment value up to the matching inflation rate. You can buy those individually or you can buy those as part of a mutual fund that invests in a basket of different kind of TIPS. If your goal is to have principal protection, this is not a bad option.
The last one, the seventh one, is probably the most controversial. We use them routinely in our planning, but they would be annuities. Annuities have gotten a bad wrap because some financial advisors basically sell them as the solution for everything and they load them up with fees.
You can actually get a series of annuities that are great for principal protection. They’ll never lose their value. They’ve got reasonable growth if they are a fixed indexed annuity. Even if they never grow, you can make sure that their contractual value is guaranteed that they don’t go down.
If someone’s looking for income but’s not willing to take any risk on that, you could look at a fixed annuity that will pay a guaranteed rate of return and may have some contractual guarantees for income purposes.
The real trick there is that annuities are longer held investments. They’re not for the short term because of the way of that the surrender charges play into the guarantees and the contractual agreements from the insurance company.
Victor: We sped through those, sorry about that. Rewind and go [laughs] to the podcast, download and listen to them again. Those are the seven investments that we recommend for principal protection.
When we come back, I’m going to have our special guest, Tom Merrick, who is an investment advisor with a Swiss‑based investment company. We’re going to talk about international investing. Thanks so much for listening. We’ll catch you when we get back. Thanks.
Victor: Welcome back to Make It Last. I am joined today by our very special guest. His name is Thomas Merrick. I call him Tom because he’s a friend of mine. Tom is an investment advisor with a firm in Switzerland. The name of the firm is called Syz Advisors. That’s not what you sit on. It’s actually spelled S‑Y‑Z. We’ll include a link in the show notes for that so you can go and find them.
The reason why I want to have Tom on today, not only is he a friend of mine and a colleague where we have collaborated on some planning cases, but he brings a very interesting perspective for our listeners because he is based out of Switzerland. He has the opportunity to not only discuss, but also open up people’s investments to more international exposure on it.
I thought, “Geez, this would be great.” I asked him to join us here today. He’s doing so clearly not in studio. [chuckles] He’s traveling, but he’s so kind to call in. I want to welcome Tom Merrick to the show.
Tom, thank you for joining us today.
Thomas Merrick: Thank you, Victor. It’s a pleasure to join you. I really appreciate the opportunity to chat with you.
Victor: Listen, everyone is expecting that if you’re from Switzerland, you’re going to have this accent, you’re going to have this very exotic in a way of speaking. You sound like you’re local. Tell everybody a little bit about who you are, and what your background is, and how you arrive working for a Swiss‑based investment firm.
Thomas: I got to say, I’m somewhat of a confused traveler perhaps. I was actually born in New Jersey, not far from where you are there, but was a child of an army family.
As the old story goes, we hit every place between the east coast and to far as Hawaii, and grew up in the central states between Nebraska and Texas for many years when my father was in the energy industry.
About 20 years ago, made my first foray overseas. I’ve been going over there for years because of a family in Europe and got an opportunity to go work in Switzerland. This year marks 20 years since my first trip over there, and been over there full time the last 10 years, and met a lovely Swiss lady along the way. We have two great kids over there now.
That’s been home, but I’m very pleased that I still get back to the States on a regular basis for business and to see friends and family.
Victor: I want to describe for the listeners a little bit of the structure of what you do. Correct me if I get anything wrong. When I do my investment management for people, our financial services, we are under the umbrella of a Registered Investment Advisory firm, an RIA.
That’s an independent agency that has got regulatory oversight by the SEC or by the State, depending on how much they have in investments. They are subject to the laws of the United States for their investment. We talk all in the show here about independence and the fiduciary standard and why that’s important.
As I understand it, there is, I don’t want to call it a branch, but to the extent that the Syz Advisors has, how it works with the US, it’s very similar in the way that it’s set up. Is that right? You guys have a connection to the United States even though you’re a Swiss‑based agency. Can you describe that a little bit?
Thomas: Sure. You’re absolutely correct. It is very similar. I often tell people that we work with that. Don’t be surprised how familiar it is even though they often come in thinking it’s going to be very foreign for obvious reasons.
My team, Syz Swiss Advisors, is the team within our group that is signed to work with US persons. By definition, that means that we need to be registered in the US. We are indeed registered directly with the SEC.
Just like your local advisor, you can find all of our information through the commission. We have to abide by the same rules and regulations that my colleagues such as yourself here in the states have to abide to.
I think the great thing about that is that for anyone who’s American who is exploring the international segment where we have a specialty, they find a familiar set of regulations and information.
They can feel comfortable that the setup that they’re working with, even though it is not domestic, it has the same flavor and feel. They can get all the same protections that they have here at home with a domestic advisor.
Victor: Most people will associate investing in Switzerland as those activities that are about short cutting the United taxing…it has that reputation. Events changed in the sense that there are almost from the side of Switzerland about who they want to work with in the United States.
Tell me, who are the kinds of clients? What’s their outlook? These people aren’t trying to hide anything when they’re working with a Swiss‑based advisor. What does that really look like these days?
Thomas: You’re absolutely right. The tax issue is one that always grabs the headlines especially over the last decade. Unfortunately, most of us, myself included for many years, our vision of the Swiss banker came from James Bond movies or other Hollywood productions.
I have never seen an elegantly‑dressed Swiss man walk in with an aluminum briefcase and ask someone to scan their eye print to access their account.
In the old days, it was a bit opaque and people took advantage of that. These days, it’s quite clean and clear for Americans to do business overseas in general. The regulations since the financial crisis and the eruption of the tax issues between Washington and Byrne, things had been clarified.
Today, you can go out. There are certain forms you have to file. You have to, of course, show your personal information, etc. There’s no tax gain there. There’s no tax advantage. It’s an issue of diversification and globalizing people’s investment portfolios.
Victor: Now, I want to talk about that when we get back from the break. I want to go into a little bit detail about what that diversification looks like. I think that that’s an important point that you made about that.
This is not an opportunity to hide money from anybody. In fact, on the cases that we’ve collaborated on, there are goals that are completely unrelated to anything that would short the tax system. We’re actually on the opposite end of that. We not only discuss with clients, but with each other, the need to be forthcoming.
Turn into that star man and be overly…All of these disclosures give that all over to say, “We’re playing right into the United States Taxing Authority.” We will make every legitimate tax‑efficient discussion and decision in what we’re doing. Legitimately, we’re not trying to hide anything by going overseas.
Victor: Tom, just stick with me on to the next segment, if you don’t mind. When we come back, I do want to talk about the special advantages that people can have by being exposed to international investments. I want to hear your thoughts on that, if you could.
I will come back. When we’ll come back from the break, we’re going to stay with Tom Merrick from Syz Advisors, who’s going to talk to us about international investing. Stick with us at Make It Last, where we help you keep your legal ducks in a row and your financial nest eggs secure.
Victor: Hey, everybody. Welcome back to Make It Last. I’m joined today by our special guest. His name is Tom Merrick. He is an investment advisor, working for a Swiss based SEC registered RIA.
If that’s too many letters for you, just know that he’s somebody that helps people work with their investments, and he is governed by the United States. He’s dealing with international stuff, but he is a down home boy.
It’s like the picture of Americano. Tom, you got the middle of the United States. Nobody knows what you look like. We’ll put a link at your picture, but you look like you could be OP too. Everything place into this idea that you’re just American through and through.
Listen, when we took a break, you were starting to help us understand what the advantages were to getting exposure to the international markets. We talked that Swiss based investing is not about stepping outside of the system, you’re within the system, but you have these other advantages.
You help set the stage first. What is that look like in terms of what the diversification advantages are? Maybe we can even start with the bias that some people might have about the domestic investing and walk us through that.
Thomas: Historically, we as Americans, we are very myopic in terms of our investment views. It’s not a negative comment, it’s simply the reality. That reality is formed by decades of leadership in the global community. The whole world came to us looking for investments.
Our markets, as many people will point out, you regularly hear Warren Buffett mentioned, “Don’t get too far at fee yield, and there’s great opportunities right here at home.” We were a peaceful, calm, well‑run country. Post World War II, we were the place to be.
Because of that, we didn’t need to look beyond the Pacific and Atlantic coast in most cases. Today, as we’re all aware, the world is changing a lot. We have other powers rising up. That doesn’t necessarily just mean political power, or military power, but I’m thinking of economic power. Economies, of course, are driven by the companies that underlie them, that create the value that grow those economies.
Because of that, it creates opportunities. The big example today is China. We all hear in the news these days much more than we used to about countries like China, the growing population, they’re consuming. They’re even here on our shores.
Companies such as Alibaba and virtually everyone around the country knows about this Internet retail behemoth. Because of these changes in the world, the Internet, for example, brings us all information about the rest of the world.
To come back to our work, what we’re doing is assisting Americans with expanding their investment opportunity set, if you will. Now, it’s not for everyone. I think the majority of local advisor discuss their goals and strategies, very often we work with folks like you as you know.
We get contact with legal advisors, with accounting parties who are working with folks for establishment of their long‑term plans.
When it’s appropriate, they may have an international component built in there. That’s where we’ll come in. The great thing for me and my team is, myself being American and the rest of my team having worked with US clients for many, many years now, we have a pretty strong sensitivity. We know how things are here at home. I know how things were on the ground first hand.
What we try to help people do is walk together to explore this great new world that’s opening up. I often tell people today, “Don’t think of the world as round, think of it as flat.” That’s your playing field and your opportunity set.
If things get tough here at home, we can certainly find someplace else where there’s opportunity or lower risk, and help to expand, and improve their management that they have, and to help them protect, and grow their wealth.
Victor: I think that’s fantastic. That’s a great job, Tom, because I tell you when we put a portfolio together for somebody, there’s always an international component, unless we’re working with somebody like you, that international component is still largely domestic based. It’s a domestic based fund.
It’s something that’s here, that it isn’t investing internationally, but it doesn’t have that same power. With an appropriate client, having you handle that component of it and give them a broader diversification to what that international exposure could look like is more powerful for that and for the right client.
I’m shocked, Tom. We have taken up all 15 minutes [laughs] that we’ve allotted for this segment. In the briefest time, I hope that you could come back later and keep discussing this with us, because I want to get your perspective on things like, the current United States political scene, and how that’s impacting international investing.
I wish you would be a friend and come back to us a little bit later, if you don’t mind.
Thomas: Victor, I’d love to and I look forward to doing that.
Victor: Thank you. If people want to find out more information about you, Tom, specifically your group, what’s the web address that they could go to, to see more about Syz Advisors or see more about Tom?
Thomas: You can find our Internet site at www.syzswissadvisors.com.
Victor: That’s great. We’ll leave that in the show notes as well so that people can have that if you’re listening on iTunes. If you’re listening on to the radio, go ahead to the iTunes site. Just go to iTunes or go to Android search for Make It Last with Victor Medina and you’ll find this episode nine.
You’ll see links in here to Tom as an investment advisor group and some of the other stuff that we’ve talked about here today in the show.
Tom, thank you so much for joining us here today. Thank you for being our guest. I think that you’ve given our listeners incredible amount of information, talking about international investing. I want to thank you for giving up your time today to do that.
Thomas: Thanks, Victor. It’s my pleasure, always enjoyed chatting with you.
Victor: All right. That’s been another episode of Make It Last with Victor Medina. I want to thank the team that puts the production together.
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That’s been Make It Last. Join us next Saturday or on the podcast download. We’re going to help you talk about how to keep your legal ducks in a row and your nest eggs secure. See you next time.
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