Why Keep A VUL Whose CV is More Than The Original Coverage.

[Sam]

That is really the entire premise of the book "Missed Fortune", about which there has already been a lot of conversation on this board. The controversial features of that book relate to how they want people to access the funds to fund such a retirement income vehicle, but the underlying premise is, overfund a policy that will grow a nice cash value, and take tax free withdrawls as retirement income.

My understanding is that most practitioners of his method, and the other few related methods, use an IUL, instead of a VUL. In their case, where they are literally "betting the farm" on the success of the product, they need the downside protection, which the IUL provides.

I personally have an overfunded IUL, and I have one on my wife as well. The hope is that even if the IRS closes the hole, we will be grandfathered in. I would never let a client use non-expendable funds for this purpose, but if you have a few extra dollars, it is not a bad deal.

 

[Crabcake Johnny]

Heck, when all the dust settles you might as well have put your money in a CD or bond. When there's little risk there's also little reward. And if you don't need to liquify funds within 10 years there's no reason not to try to grab the brass ring.

"The worst risk is no risk."

 

[Crabcake Johnny]

I punched into a fund I've had since the early 90's in an attemp to show people "high risk" small cap returns. Imagine getting in at year 2000 and getting out after 2003. You would have returned -2.7 + -3.0 + -26.1 for a whopping loss of 31.8. What a beating huh.

Not for me. That investor missed gains of 30.9 in 1999, 48.9, 17.7 and 11.8. So what's the net gain taking losses into account? 11.07% average return over 7 years. Actually, since I've been in it I'm over 16% average return. Go grab 16% with your perm life vehicles. And this is also why no one will ever scare me into an annuity.



Performance History


1999 2000 2001 2002 2003 2004 2005
Investor Return % 30.9 -2.7 -3.0 -26.1 48.9 17.7 11.8
Total Return % 32.5 -1.9 -2.8 -26.6 49.3 17.9 11.9
+/- Category * -37.1 5.3 4.8 2.6 3.7 5.2 5.7
% Rank in Category * 70 35 34 41 29 23 15

 

[J.R.]

In addition to John's recommendation and the rest of the guys, self-study is also valuable, as well as teaching your children "how" to invest. One of the downsides to the current education children receive is that they do not have an "investing foundation" to build upon once they become adults.

If I was concerned that my children might take advantage of the investments I set up for them or not know what options are available, I would ensure that they received the needed education. Then they could consult an advisor if they needed additional support and guidance.

Most importantly, parents should explaine finances to their children. Little Johnny wants to open a lemonade stand. Great!!!! We have a future entreprenuer!!!!! Now let's teach Johnny how to take the money he earned and save 25%-505 of his earnings, and use the remaining for the things he wants NOW. Teaching children, heck, even adults, the correlation between risk vs. return is vital to investing.

Two excellent books that I always recommend are as follows:

The Millionaire Mind written by Thomas J. Stanley

Making the Most of your Money written by Jane Bryant Quinn.

Understanding investing theories and concepts like, the time value of money, IRR, NPV, etc. is useless if you rely exclusively on an advisor to tell you what you should do. He or she should express what options are available and make a personal recommendation, and then you (your children) can make an educated decision. If your children are taught to pursue education their entire lives and not follow "the pack" your concerns about them will be minimized.

-J.R.

 

[Crabcake Johnny]

It stuns and amazes me that almost all life insurance agents seem to be the great bashers of the stock market when the stock market historically has rocked. But there's no shortgage of life agent scaring the crap out of potential investors by telling them of huge potential losses and that stock brokers are all whores. Mutual funds, are of course, the devil.

Go grab your perm life vehicles and I'll do my stock investing. We'll meet in 25 years.

Now if you can't stomach the losses then you'll forever suffer with 5% returns on average. Take out 3% for inflation and you might as well have buried the money under your shed.

 

[Guest]

Deleted, duplicate post.

 

[Guest]

Melmunch3

Thanks a ton for the info "Missed Fortune." I did a Google search on that and got many hits.

salpro22

You are correct in your assertions that children should be taught about the world of finance. I have thought the same thing and expect to teach my children when they are older. The reason I see it as vital, right up there with learning to read, write, and do arithmetic, is that now we are going to a world of do it yourself retirement planning since most traditional pensions are history.

john_petrowski

I agree with you, hence my purchase of VUL's. These are 10 year old insured's. They have a long time to weather the stock market volatility and still be able to take advantage of its long-term upward trend.

Furthermore, as you state, it is a good way to stay ahead of inflation.

Again, thanks all.

 

[Crabcake Johnny]

But anything is better than nothing. If you don't have the stomach for real investing and you currently aren't doing anything then a life vehicle is what you're looking for.

Just get the proper advice. And the proper advice is that historically the place to put your money is real estate and the stock market. If you can't ride the rollercoaster or have a short window of time where you need accesss to your money then obviously stock investing would be a poor choice.

 

[J.R.]

Maricircus,

Your children are fortunate to have you as a father. I would say that we are living "in the world" were pensions are a thing of the past. Sure we still have pensions, unions, etc., but that is not the norm.

When I was in the USAF back a few years ago my father lost his "corporate" job with a well known electronics corporation after giving them 19 years of his life. They gave him a small compensation package and hired recent grads to take his place. From a ROI perspective, I would do the same thing if it fit within the goals of my company. Then, I had an ephifany.

That experience hit home and caused me to rethink the corporate life and learn more about investing. The average lifespan of a traditional job is 3-5 years now, compared to "your working life" 20 or so years ago. Whether somebody pursues stocks, mutual funds, real estate, etc., the goal is to make money, so get out there and do it intelligently and ethically. A prudent person cannot rely upon upon a company to look after his or her interests.

 

[James]

I punched into a fund I've had since the early 90's in an attemp to show people "high risk" small cap returns. Imagine getting in at year 2000 and getting out after 2003. You would have returned -2.7 + -3.0 + -26.1 for a whopping loss of 31.8. What a beating huh.

Not for me. That investor missed gains of 30.9 in 1999, 48.9, 17.7 and 11.8. So what's the net gain taking losses into account? 11.07% average return over 7 years. Actually, since I've been in it I'm over 16% average return. Go grab 16% with your perm life vehicles. And this is also why no one will ever scare me into an annuity.



Performance History


1999 2000 2001 2002 2003 2004 2005
Investor Return % 30.9 -2.7 -3.0 -26.1 48.9 17.7 11.8
Total Return % 32.5 -1.9 -2.8 -26.6 49.3 17.9 11.9
+/- Category * -37.1 5.3 4.8 2.6 3.7 5.2 5.7
% Rank in Category * 70 35 34 41 29 23 15

Well this is all over the board John, without more information I have no clue on what you are trying to say. Allocation and Tax issues can whittle those returns away faster then a hot knife through butter. If this is not in a qualified tax account your 30% returns is cut by taxes and your losses will need 50% or higher returns to catch you back up before the losses not to mention minimun tax penalities one can face as in the Enron victims found out. Not only did they lose big the government step in and levied hefty minimum tax requirements on top of their losses!

Outside of that small cap "high risk" allocation should be no more than 20-40% of allocation and if someone is nearing retirement the advisor that suggest "high risk" investment is quilty of malpractice.

Plus, if someone today invested in "High Risk" investment are you suggesting that the returns of the 80-90's should be expected in the next 10-20 years?