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46 MILITARY OFFICER AUGUST 2016


Determining whether a fi nancial scheme is valid comes down to understanding the fundamental principles of money and wealth building. By Lt. Col. Shane Ostrom, USAF (Ret), CFP®


Someone recently asked about a fi nancial scheme that claims wealth creation with no investment risks and numerous other benefi ts. At the heart of our examination, let’s


start with the fundamental principles of money we all must follow to achieve our fi - nancial objectives. There are no short cuts, good deals, guarantees, or ways around the principles of money and wealth building. The basis behind wealth creation and


savings are two diff erent issues. There are two accepted avenues for managing money: owners and loaners. Owners (investors) are people who


own assets that grow in value over time (or not, if you select bad assets or man- age them improperly). Owners own stocks, properties, or their own business. Only ownership builds wealth, and


wealth is required for retirement. Own- ers build wealth because ownership in- volves risk, and risk pays. To create wealth, you have to earn


returns large enough not just to off set taxes and infl ation but also to earn a sur- plus of returns above taxes and infl ation. There is no such thing as a safe owner- ship investment. Successful ownership requires knowl- edge about managing the risks associated with ownership. Manage the risks, and your returns will be a by-product. Loaners (savers) are paid interest. Loaner accounts include bonds, savings accounts, money market funds, interest-


bearing insurance products — anything safe or guaranteed is classifi ed as a loaner. A loaner’s objective is wealth pres-


ervation, not wealth building. Interest- bearing accounts don’t pay enough to off set taxes and infl ation and provide surplus returns. Being safe doesn’t pay and doesn’t create wealth. Schemes not only sell books, but


make enticing pitches. If a scheme is not backed by the principles mentioned above, I discount it out of hand. The particular scheme relayed to me was about dividend-paying and fi xed-income insurance products. The products didn’t involve ownership, so how was this scheme going to build wealth for retirement? If your objective is wealth preserva- tion, this scheme might work for a por- tion of your money. But do you need the insurance that comes with the scheme? Valid savings or investment vehicles


are all a shade of gray to me — neither to- tally good nor bad. It’s about whether the vehicle is best for your objective. However, schemes typically are bad because they aren’t valid and, unfortu- nately, are meant to steal your money. That makes every scheme on my radar an enemy target until proven otherwise.


MO


— Lt. Col. Shane Ostrom, USAF (Ret), is a CFP® and benefi ts information expert at MOAA. Visit www.moaa.org/fi nancialcenter for other re- sources. Email specifi c benefi t and fi nance inqui- ries to beninfo@moaa.org.


PHOTO: SEAN SHANAHAN


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