Lock in profits when profits are realized

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Farm Forum

For the most part, all of the crops are in, up, and in decent shape with pastures and hayland benefiting from ample moisture in most areas as well. Barring some prolonged period of intense heat, or if it forgets to rain altogether, most farmers in the region can reasonably expect to see a good crop come this fall. The favorable growing conditions will, of course, be much appreciated as it looks as though we will need big bushels in order to get big bucks for harvested crops as the grain markets are not looking nearly as good as the stands in the fields or the currently outstanding livestock markets.

The last several years have by all accounts been exceptional. Just look at what it has done to the price of land and rent. High grain prices and excellent yields have dictated this. The equities (stock market) have been doing quite well, too. This leads one to come to the prudent conclusion that we need to lock in profits when profits are realized. Whether this is when cash is received for sold product or having the good sense to know when to take your gains and pull out of the naturally risk inherent equities markets where many of you have placed your money.

As I specialize in helping farm families with their estate and financial planning needs, I am asked to offer solid advice on how to build and conserve the money these folks have worked so hard and endured considerable risk in which to acquire. I always err on the side of safety as nearly every single one of my clients far prefer to see their money grow at a steady pace with absolutely no chance of loss versus rolling the dice and chancing losing what took so much effort to obtain in the first place.

The real challenge in this is that there are few options in which to place your money where you can be assured of guarantees against erosion of principal and still earn a decent rate of return. There is one very viable alternative that not enough folks are aware of and I have been preaching about for years. That is the equity indexed annuity.

The vehicle itself is in within the shell of a traditional fixed annuity. Meaning there are guarantees that are completely funded with reserves that will allow you to sleep well at night. The difference is that instead of a fixed interest account with rates adjusted to current conditions on an annual basis, you can choose to place some or all of your investment into an indexed account.

What this means is that your rate of return can be linked to a stock market index such as the S&P 500, without actually having your money in the market and at considerable risk. The beauty of this is that when things are good in the market, you receive favorable returns. Should there be a downturn (which can be reasonably expected at some point) all of your principal and past earnings are protected from the decline and will never decrease. Worst case scenario is that in a down year, you would simply make nothing in that year. But, you stand to make very handsome returns in future years as the market corrects itself and your earnings are tied to the now rising index.

This is a very basic explanation of how these work. They are a great savings vehicle and I would recommend you seek out an advisor who has the experience and knowledge to fully explain all of the workings and benefits to you.

Dennis Foster has been helping Families with Financial and Estate Planning needs for more than 20 years. He welcomes comments and questions and can be reached at 605-887-7069 or dennis@nvc.net. The information provided is intended to be of a generic educational nature. Please seek professional advice for your specific situation.