Life Insurance Vs Investment Account

[Golfnut2112]

It's funny how some people continue to attack a product or strategy without fully realizing how it works in the first place.

So, you fall into the camp of "I'm not going to pay to borrow my own money?"

You don't know how wrong and inaccurate your question is.

You don't understand the power of collateralization.

And you also don't understand that the money in a life insurance policy is NOT "your money". You simply have power and control on how you use it - whether to secure your death benefit, or borrow/withdraw it for other purposes.

You also don't understand taxation of social security benefits in retirement.

You don't understand that we finance everything we buy - either by paying interest or giving up interest.

There's a lot you don't understand... and it's not my job to educate you.

You just made the point, its not your money!!!!!! Period!!!!!

Why in the he$$ would you do buy it as a savings, most middle america would be better off with a term and a roth.

Every point you made a Roth can do better and you really need to educate yourself of various retirement techniques,.

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Welcome!

I think your thoughts are spot on. You are exactly right about needing the money and if the markets take a down-turn (50% in October 2008)... then not only have you lost the value.. but you'd have to gain 100% in order to return back to where you were. It would certainly take a while to do exactly that.

It's funny, but people talk about "investment averages" or "market averages" all the time. Well, I can guarantee you a 25% average return over 4 years. Watch this:

Start with $100,000 and it grows by 100% to $200,000 in 1 year.
The next year, that $200,000 loses 50% and is now $100,000.
The next year, that $100,000 is back up 100% to $200,000.
The next year, that $200,000 loses 50% and is now $100,000.

How much do you have after 4 years? The same, original $100,000.

What was the average rate of return? 100% - 50% + 100% - 50% = 100% / 4 years = 25% average rate of return per year... even though you didn't gain anything.

Is this kind of volatility really far-fetched? Well, not the downside. The upside? Definitely not to be expected over a year period of time.

Most investors, let alone financial entertainers, don't often think about the sequence of returns and the impact they have when you need to take income at the same time. They often tout the virtues of dollar-cost-averaging... but don't think about REVERSE dollar-cost-averaging when taking income during down years.

It looks like this investment management firm understands it: Sequence of Returns & Reverse Dollar Cost Averaging

That is an idiotic example. I have be doing this 28 yrs and never experienced anything close to that. You call people in a down market and try to preserve money, if you can't do it get a tactical manager for the money.

 

[DHK]

Oh gee whiz. Do I have to do this today? It's Friday night. Ugh.

Okay fine. Here we go...

You just made the point, its not your money!!!!!! Period!!!!!

Why in the he$$ would you do buy it as a savings, most middle america would be better off with a term and a roth.

Every point you made a Roth can do better and you really need to educate yourself of various retirement techniques,.

The cash values in a life insurance policy is the reserve for the death benefit. As long as you want the death benefit secured at its current level, the cash reserve and continuing contributions secure that.

Now, if you want to access the cash values within the policy, you can take a loan out against it, and your NET death benefit will be reduced by the amount of the loan.

But since the asset is made available, it is YOUR ASSET. And yes, even companies can include that asset on their balance sheets (which is why they prefer high cash value policies).

That is an idiotic example. I have be doing this 28 yrs and never experienced anything close to that. You call people in a down market and try to preserve money, if you can't do it get a tactical manager for the money.

Let's talk about reality here.

If you have a large book of mutual fund business, let's say you have 300 clients... and the market is in a 'free-fall' (2008 anyone? Here's a link: http://www.infoplease.com/business/economy/declines-dow-jones-industrial-average.html)...
and you have NO discretionary authority to make mutual fund trades without client authorization...

WHO do you call first?

How long would it take for you to call all 300 people?

A month?

Here's another key question: Who is going to be the LAST person you call... and how do you explain why it took you so long to even attempt to reach them?

You talk about tactical asset management... and yes, I understand it. How many tactical asset managers will take your Roth IRA contributions and manage it for middle income America? Sure, once it's built up to a sizeable amount, they'll be happy to, but c'mon.

How many RIAs will take on a client that size and just for the AUM fees? They won't... because the AUM fees alone won't compensate the firm for the RISK of taking on the client in the first place. They will charge a RETAINER FEE, if they take the client on at all. How much do you think that fee would be? $2,000/year? $5,000/year?

The top-tier asset managers have a relationship minimum of $100,000 PER MONEY MANAGER. The securities business works better with FEWER clients with lots of assets. It's easier to manage a practice that way and reduce your potential liabilities of having a complaint.

You talk about middle income America... but you still have to match what you're talking about to the products your suggesting... and they aren't available to them.

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Here's another point to make here regarding averages vs actual returns.

Let's say you're looking at a Periodic Table of investment returns of various mutual funds &/or asset classes.

Pick an asset class and let's say that in 2008, you see -30%.

In 2009, you then see +30%.

Did you get your investment back? What do most people think?

They think "it came back".

Wrong.

$100,000 x -30% = $70,000 (loss of $30,000)

$70,000 x 30% = $91,000 (gain of $21,000)

It would take a gain of 43% to return back to the original $100,000.

This is a basic chart about the Impact of Losses:
http://www.crestmontresearch.com/docs/Stock-Impact-Losses.pdf

Remember, you not only lose the capital and earning potential, but you lose the TIME and continuous compounding as well.

 

[Golfnut2112]

Oh gee whiz. Do I have to do this today? It's Friday night. Ugh.

Okay fine. Here we go...



The cash values in a life insurance policy is the reserve for the death benefit. As long as you want the death benefit secured at its current level, the cash reserve and continuing contributions secure that.

Now, if you want to access the cash values within the policy, you can take a loan out against it, and your NET death benefit will be reduced by the amount of the loan.

But since the asset is made available, it is YOUR ASSET. And yes, even companies can include that asset on their balance sheets (which is why they prefer high cash value policies).




Let's talk about reality here.

If you have a large book of mutual fund business, let's say you have 300 clients... and the market is in a 'free-fall' (2008 anyone? Here's a link: The Biggest One-Day Declines in the Dow Jones Industrial Average)...
and you have NO discretionary authority to make mutual fund trades without client authorization...

WHO do you call first?

How long would it take for you to call all 300 people?

A month?

Here's another key question: Who is going to be the LAST person you call... and how do you explain why it took you so long to even attempt to reach them?

You talk about tactical asset management... and yes, I understand it. How many tactical asset managers will take your Roth IRA contributions and manage it for middle income America? Sure, once it's built up to a sizeable amount, they'll be happy to, but c'mon.

How many RIAs will take on a client that size and just for the AUM fees? They won't... because the AUM fees alone won't compensate the firm for the RISK of taking on the client in the first place. They will charge a RETAINER FEE, if they take the client on at all. How much do you think that fee would be? $2,000/year? $5,000/year?

The top-tier asset managers have a relationship minimum of $100,000 PER MONEY MANAGER. The securities business works better with FEWER clients with lots of assets. It's easier to manage a practice that way and reduce your potential liabilities of having a complaint.

You talk about middle income America... but you still have to match what you're talking about to the products your suggesting... and they aren't available to them.

----------

Here's another point to make here regarding averages vs actual returns.

Let's say you're looking at a Periodic Table of investment returns of various mutual funds &/or asset classes.

Pick an asset class and let's say that in 2008, you see -30%.

In 2009, you then see +30%.

Did you get your investment back? What do most people think?

They think "it came back".

Wrong.

$100,000 x -30% = $70,000 (loss of $30,000)

$70,000 x 30% = $91,000 (gain of $21,000)

It would take a gain of 43% to return back to the original $100,000.

This is a basic chart about the Impact of Losses:
http://www.crestmontresearch.com/docs/Stock-Impact-Losses.pdf

Remember, you not only lose the capital and earning potential, but you lose the TIME and continuous compounding as well.

You made a good point about getting a manager for small Roth accounts you probably can't at least until maybe $25,000. I do not deal in that market almost all my clients are already retired.