How does a VestCred 7702 Retirement Plan protect against losses?
The 7702 takes full advantage of an investment technique used by the investor community for decades to manage risks when managing stocks called 'Options'. Options are a powerful and versatile product and are often utilized within the farming industry as common practice when marketing grains.
Just like in a 401(k) - where you have a variety of different 'funds' you can choose to invest in - a 7702 Retirement Plan has a variety of different mechanisms inside the contract. You can choose to protect from losses, wherein you will also have a cap on the gains, or you can choose to uncap your potential gains in trade for potential losses. There are lots of options and you can change your position just as you would within a 401(k) or IRA.
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When you as a consumer put money into a VestCred 7702 Retirement Plan, that money doesn't actually go into the market. Really it's going into something similar to a cash account. In this way, you're shielded from market downturns. The insurance provider, which is managing the account, uses this money to buy Options on a stock market index - typically Standard & Poor's 500 Index or similar.
If the market goes up, they're able to exercise that Option and capitalize on the growth of the Index purchased. Part of the gains captured during that transaction is credited to your account.
So you have upside potential to grow with Market - if the Market goes up, you're individual account value goes up. But if the market plummets, you're not subject to those losses.You are protected on the downside. You're not going to lose any of your principal and you're not going to lose any of your account value.
Rule No. 1 is never lose money.
Rule No. 2 is never forget Rule No. 1.
Warren Buffett's 'Golden Rule'