Imagine for a minute that the United States Treasury made a million dollar bill note. You know, like a hundred with Benjamin Franklin on it, but a million instead of a hundred. Then imagine that someone gives you one of those million dollar bills, tax free, yours to keep. The only other detail is that you aren’t allowed to spend any of the million bucks for ten years, but you can invest it in something or somethings for a potential return to live off of between now and then. Then, at the end of ten years you can only live off of the million bucks itself. You can’t keep any of the money you make between then and now after the ten years, and that includes a return on investing the million.
It may sound complicated but it isn’t. This is the story for many people facing retirement in ten years. They have a “nest egg” of principle and they need to keep the principle in tact for retirement, when they plan to live off of it. Until that time they would like to see a return on the principle, but the most important thing is to not lose that nest egg.
Would you take that million bucks and just keep it stored in that million dollar bill? Bank savings accounts have interest rates in the negatives right now and probably for the foreseeable future. You aren’t losing anything by not being able to earn interest on it. It’s not a bad little storage system, a million dollar bill. It is portable, compact, and you can hide it easily. Banks can fail, but do countries fail? Will that million bucks be worth a million bucks in ten years?