How Safe Is Safe?

Our definition of a safe money place is a place where it is highly unlikely to lose principal if you follow the rules. We do not say impossible to lose, because we are not sure if anything is truly impossible. The risk of loss would be on a par with calling “heads” on a two-headed coin, and the only way you could lose is if the coin landed on its edge.

Nothing is safer than a Treasury issued or insured obligation. If you hold a U.S. government security until maturity you will get back the entire face value. If your certificate of deposit, savings account, or money market account is in an FDIC insured bank, your combined account values are fully protected up to insurance limits. So, the real question is how safe are the alternatives?

Fixed annuities are only issued by insurance companies. Insurance companies are examined by independent rating agencies and assigned ratings based on their financial strength. In addition, each state in which the insurance company does business examines the books on a regular basis, and every state has a guarantee fund designed to protect annuity contract owners if a company becomes insolvent. Based on history, it is very unlikely you would ever lose principal or interest in a fixed annuity because the insurance company failed.