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The Prudent Man Rule is based on common law stemming from the 1830 Massachusetts court decision – Harvard College v. Armory.  (26 Mass.)  446, 461 (1830).  The Prudent Man Rule directs trustees “to observe how men of prudence, discretion, and intelligence manage their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income, as well as the probable safety of the capital to be invested.”

Benjamin Graham, the “Dean of Wall Street” and Warren Buffet’s mentor, held that an investment has two essential characteristics: “An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return.  Operations not meeting these requirements are speculative.”

If we put these two principles together it becomes clear that – regardless of how “diversified” one’s “portfolio” – almost every “investment” that was presented to American consumers during the past thirty years is no investment at all; it is mostly “speculation.”  Calling them “investments” is a ploy to justify having uninformed registered reps sell them to uninformed consumers.

Mutual insurance companies and your local credit union are among the most respected financial businesses in America – and with just cause.  While the rest of America’s and the world’s financial infrastructure is imploding, mutual insurance companies and credit unions are doing quite well.  The reason that is so?  They follow the Prudent Man Rule in its purest form.

Insurance policies issued by mutual companies continue to increase in value tax-free, every year at a guarnateed rate and continue to pay tax-free dividends as well.  Credit Unions are less at risk than other depositor funded institutions because they continue to serve a small community as non-profits.  In both cases, the companies are owned by policy owners or depositors, not by outside investors greedy for profits at any cost.

Mutual fund companies and other investment vehicles do not guarantee or even hint at promising “safety of principal and a satisfactory return.”  They claim that “diversification” makes up for that failure.  It doesn’t.  That is apparent during these days of bank failures, investment company executives being indicted for foisting false financial products and promises on “we the people,” and tumultuous market fluctuations.

The stock markets, mutual funds, and virtually every financial product promoted to Americans represent unwarranted gambles – speculation – dressed up as “investments.”  Even the money you pour into your Las Vegas style 401(k) plan is unprotected from the speculative nature of the underlying investments.

Secure savings in credit unions and financial growth in cash value life insurance are today – as they have always been – the surest and safest places for your money; the most solid foundation for your personal economy; the most likely source for secure retirement income, ready cash for life’s surprises and a meaningful legacy for those you care most about…not to mention freedom from debt.

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