Why Investment Diversification and Tax Advantage Are Not What They Seem To Be

by | Jun 30, 2014 | 0 comments

By putting money into an investment such as a Traditional IRA, Roth IRA, or 401K you are NOT truly diversifying and preparing for retirement.

If you are like most farmers, you are putting money into these investments for the reason of either diversification or tax advantages but neither one of these things are truly helping in either case.


You are told not to put your eggs all in one basket and be sure to have some money set aside for retirement. Have you ever thought about the risk factor of this investment? Money inside any investment is at the risk of the market.

As a farmer, you have your entire livelihood at risk. Risk of the weather that you will either lose your crops or your cattle; risk commodity prices will be good so you make some money; and risk you will not be able to pay the loans back and end up in bankruptcy.  You live risk each and every day.

Putting money into an investment is not diversification, it is just more risk.

For you, diversification should mean stability and guarantees that money will be there for you when you need it. Putting money into a whole life insurance policy gives you those guarantees.

Tax Advantages

Putting money into these investments can save you money on taxes and I don’t know one farmer who is not trying to save money on taxes.  It seems like it should be a common sense approach to tax savings.

Let me ask you if you go to the elevator to buy grain and they ask if you want to pay tax on the seed or the harvest, what would you choose? Gosh, I hope you chose the seed.  Why on earth would you want to pay tax on the harvest?  In a good year that would be a lot of extra tax.

Now think about what you are doing with that Traditional IRA or 401K, you are getting the tax break today and paying tax later on the growth of that account.

This way of thinking is favorable IF and only IF you are in a lower tax bracket when you retire. If you own your land, you are most likely going to rent it out versus selling it. Your land rental income along with the income from your investments should hopefully keep your income the same as today. Hence, keeping you in the same tax bracket…paying tax on the harvest.  Plus during retirement you do not have the tax deductions you had while you were farming, making it even worse on taxes.

Putting money into a whole life insurance policy gives you the tax advantages during retirement. You will not be paying tax on that money when you borrow against it to use for retirement.

Don’t buy into all the hogwash or diversification and tax advantages. There are other ways to diversify and a lot more advantages to having a whole life insurance policy that is set up correctly!

If you are ready for a change call me today for your FREE consultation to learn more about how this can help you.

Mary Jo


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