Bring On The Annuities

[VolAgent]

Despite what Dave and Suze says, it looks like the young saver is a prime candidate for fixed and indexed annuities. If they aren't going to invest in the stock market and mutual funds, find them something to beat a bank CD at least.

Young investors are shunning the market - Jan. 3, 2011

 

[sman]

I would never recommend a fixed or index annuity for a young 20-something. I think educating the investor is important. My 20-year old son seems to have no problems investing in his Roth on a monthly basis (mutual funds).

Despite what Dave and Suze says, it looks like the young saver is a prime candidate for fixed and indexed annuities. If they aren't going to invest in the stock market and mutual funds, find them something to beat a bank CD at least.

Young investors are shunning the market - Jan. 3, 2011

 

[VolAgent]

I would never recommend a fixed or index annuity for a young 20-something. I think educating the investor is important. My 20-year old son seems to have no problems investing in his Roth on a monthly basis (mutual funds).

Sadly, FINRA and your B/D would hang you from your toenails for putting a risk adverse investor in mutual funds, despite what experts say such a young investor should be doing.

You would lose any complaint on this.

 

[djs]

Hardly true.
There are mutual funds for the risk adverse. Well, I guess just how risk adverse may change the answer to this, but, if they are talking to you, they are probably considering pulling it out of the mattress.

You can of course get in trouble for tying up someones assets in an annuity if they are not properly funded for that. There is no single 'right answer', do what is right for the client, not your pocket book and things are fine.

Dan

 

[VolAgent]

Hardly true.
There are mutual funds for the risk adverse. Well, I guess just how risk adverse may change the answer to this, but, if they are talking to you, they are probably considering pulling it out of the mattress.

You can of course get in trouble for tying up someones assets in an annuity if they are not properly funded for that. There is no single 'right answer', do what is right for the client, not your pocket book and things are fine.

Dan

I admit I skimmed the article more than read it in depth, but I talk to more and more people that do not want ANY market risk. I'm not aware of any mutual funds that can do that.

I'm not saying annuities are the answer to everything, but it certainly beats a bank CD. Particularly for long-term money, such as retirement money. Of course, there are those that will only put money into FDIC insured products. For them, not much you can do.

 

[djs]

I also only skimmed the article before I fell asleep. Waahh, somebody lost a bit of money in the market, now they don't want to invest. Actually I get that, but it's hardly a big story nowadays.

Heck, even my risk tolerance has reduced significantly over the last few years. I had the common sense to have my wife and myself pull money out of the market prior to the big crash and reinvested later. Worked well, but it was an eye opening roller coaster ride.

Dan

 

[sman]

Again, educate to client. And I never said I would force someone into an unsuitable investment. Additionally, not sure I'm really looking to set up an IRA for a 20-something in an annuity. If a person 40+ years from retirement is looking to invest for retirement and they don't want to invest in a properly designed portfolio, I'll let them come to you for the annuity. I'm willing to bet everything I own that a properly designed portfolio of equities and bonds monitored and adjusted through the years will outperform any fixed or index annuity over a 40 year period.

I get that some are disillusioned by the market, but this isn't the first time we've had these types of sentiments about investing in the market. The people who typically go against what the masses are doing in regards to the market are typically the people who have been rewarded.

Sadly, FINRA and your B/D would hang you from your toenails for putting a risk adverse investor in mutual funds, despite what experts say such a young investor should be doing.

You would lose any complaint on this.

 

[VolAgent]

Again, educate to client. And I never said I would force someone into an unsuitable investment. Additionally, not sure I'm really looking to set up an IRA for a 20-something in an annuity. If a person 40+ years from retirement is looking to invest for retirement and they don't want to invest in a properly designed portfolio, I'll let them come to you for the annuity. I'm willing to bet everything I own that a properly designed portfolio of equities and bonds monitored and adjusted through the years will outperform any fixed or index annuity over a 40 year period.

I get that some are disillusioned by the market, but this isn't the first time we've had these types of sentiments about investing in the market. The people who typically go against what the masses are doing in regards to the market are typically the people who have been rewarded.

The only people who get paid to educate are teachers, and even that doesn't pay terribly well. And you're completely right, a well diversified portfolio should destroy any fixed or indexed annuity over 40 years. No arguement there, no one said to put a person who is willing to invest in the market into an annuity.

But who do you think is more likely to listen to you about having a proper portfolio, the guy who bought an annuity from you when he was scared of the market, or the guy who is scared of the market and you've met for the first time?

Sell him what he wants today, make him a client, and then teach him the right way to invest from a position of authority.

 

[crimsontideagent]

I'm willing to bet everything I own that a properly designed portfolio of equities and bonds monitored and adjusted through the years will outperform any fixed or index annuity over a 40 year period.

I wouldn't do that if I were you. What is a properly designed portfolio going to do? Or should I say, what is it going to hope to do or beat? Maybe the S&P? Ok, take the S&P, I've got a chart of the S&P for a period and an index annuity in the S&P during the same period -

At end of period, both in the S&P - the index annuity is worth $175,000+ and the straight S&P worth around $87,000 - why?

I'll let you figure that...

 

[sman]

I'm not going to sell a 20-something an annuity and then later have him investing in the market. Term insurance and later permanent? Absolutely.

And as for the only people who get paid to educate are teachers, if you say so. When a client asks you to explain something to them and you do, guess what, you are educating them.

The only people who get paid to educate are teachers, and even that doesn't pay terribly well. And you're completely right, a well diversified portfolio should destroy any fixed or indexed annuity over 40 years. No arguement there, no one said to put a person who is willing to invest in the market into an annuity.

But who do you think is more likely to listen to you about having a proper portfolio, the guy who bought an annuity from you when he was scared of the market, or the guy who is scared of the market and you've met for the first time?

Sell him what he wants today, make him a client, and then teach him the right way to invest from a position of authority.

- - - - - - - - - - - - - - - - - -
Nope, the S&P 500 isn't a well designed portfolio. I've seen the same chart you are speaking of and I believe it was for a 10-year period ending 09/30/2008. And it assumed the index annuity didn't change any of its features over the 10 years (i.e. - caps, margins, etc).

Furthermore, I said over a 40 year period. Show me an index annuity which has outperformed the market over a 40 year period. The problem with comparing an index annuity to the market is that most people compare the annuity to a particular index and not a well balanced portfolio.

I'm not against index annuities. I just don't believe they are proper for all people. Unfortunately there are many who try to fit everyone's situation into an annuity. It's like trying to fit a square peg into a round hole.

I wouldn't do that if I were you. What is a properly designed portfolio going to do? Or should I say, what is it going to hope to do or beat? Maybe the S&P? Ok, take the S&P, I've got a chart of the S&P for a period and an index annuity in the S&P during the same period -

At end of period, both in the S&P - the index annuity is worth $175,000+ and the straight S&P worth around $87,000 - why?

I'll let you figure that...