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

[Crabcake Johnny]

Well, this is pretty much what I'm talking about. The stock market "scare" pitch. Oh my God - what if returns tank over the next ten year? Better bury your money in "safe" investments! Errrrrrrr.

I agree with you that the closer you get to retirement you need to move your money out of high risk investments. But people my age should be maxing out high return investments and not putting their money vehicles with 5% to 6% average returns. Again, at 6% after inflation you might as well stuff it into your matress.

And the tax is only realized when you cash on the stock out - unless you have a mutual fund with a very high portfolio turn-over ratio - then you might pay modest capital gains, but nothing to worry about.

And I'm all for asset allocation. You should never have all your eggs in one basket. But if you only have $400 a month to share heaven forbid that person runs into an uneducated life insurance agent posing as a financial advisor who recommends he spend the entire $400 on a life product. And that's what I've been seeing.

 

[James]

I agree that one shouldn't have all their money in the same nest, much like you saying they should all be in small caps "High Risk". My comment about asset allocation was trying to weed you out and see what else you have and see how the total package is doing. In fact I would lay money down that the vast majority of people that invest in the stock market don't realize over 7-9%, and studies have shown mutual funds have yield on average below 4%. Start adding up fees and taxes which is probably what is calculated in to the 4%. In fact the DIY'ers have a better track record then the Fund Managers, of course that is on a average over so many years.

In fact I would suggest a solid W/L is the first savings account, not the only one in ones building of a portfolio. Plus in the long run it isn't the return that pays off but the actual saving of ones money. 5-8% return will suffice nicely if one actively saves. Of course investment is something I consider a investment in ones business or day trading, not a mutual fund or a long time purchase of some stocks, do me that is nothing more then savings not a investment. At some point a good clarity is needed to distinguish the two in these type of discussions.

 

[James]

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

Okay, I ran your numbers and in seven years of time if I invested 10 grand and using your numbers I would end up with $17,767.50 (I did this in my head so please check my numbers!). So you are not making as much as it sounds. Now if I would have invested in a a 15 year annuity that pays 10% up front bonus and made on average 5% which is likely I would of had $14,741.50. Now in your scenario there is some taxation and fees which would take away from your total. Now what will happen in the next eight years? Fact is, your small cap and high risk investment didn't beat my annuity by much at all, if any!

Remember once you take a loss, lets say 50% one year from a 100 (what ever figure) dollars you have to make how much just to catch back up? 50 dollars loss means you have $50, you have to make a 100% return the next year just to break even from the previous year. Compound interest is a great thing, but remember the one thing that kills compounding interest, that is losses!

 

[Crabcake Johnny]

Saying mutual funds return an average of 4% is very misleading. What type of funds - money markets? You're gonna lump in every fund catagory? Index funds have returned 4% on average? Not only are index funds fantastic but the management fees are extremely low.

Yes, asset allocation is what's needed. Again, my complaint is reading articles where insurance agents are recommending for example that seniors liquidate everything - stocks, bonds, CDs, etc...and put all of it into an annuity. Or, as I stated above, that unethical life agent sitting down with a client in their 30's or 40's who actually has disposable income and recommending they spend all of it on a life vehicle.

Actually, my biggest complaint would be life insurance agents even uttering the word "stock" to clients since most likely they're living check to check, have never invested a dime, and have no formal financial training. And if my life agent is gonna bash mutual funds I'd want to know his personal experience has been with investing.

You see, as a heath insurance agent I'm not spewing verbal diarrhea when I talk to my clients. I'm trained to compare what they have against what I'm selling and use the products I recommend. But life agents will be out there touting VULs or EIAs and not even have one for themselves. Then they want to talk about stock market like they're Warren Buffet and have yet to invest a single dime of their money.

 

[Crabcake Johnny]

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

Okay, I ran your numbers and in seven years of time if I invested 10 grand and using your numbers I would end up with $17,767.50 (I did this in my head so please check my numbers!). So you are not making as much as it sounds. Now if I would have invested in a a 15 year annuity that pays 10% up front bonus and made on average 5% which is likely I would of had $14,741.50. Now in your scenario there is some taxation and fees which would take away from your total. Now what will happen in the next eight years? Fact is, your small cap and high risk investment didn't beat my annuity by much at all, if any!

Remember once you take a loss, lets say 50% one year from a 100 (what ever figure) dollars you have to make how much just to catch back up? 50 dollars loss means you have $50, you have to make a 100% return the next year just to break even from the previous year. Compound interest is a great thing, but remember the one thing that kills compounding interest, that is losses!

James, I've been in that fund since '92 and average YTD 16%. Now go re-run your numbers. And I'm guessing if you had power over all time and space you'd shut the stock market down and everyone would have life insurance products as investments? I feel sorry for your clients.

 

[Guest]

James:

You have a unique view in your assertion that the stock market investment was not handsomely rewarded.

Using your nubers - -

Stock market return on $10,000 invested=$17,767
Annuity ($10,000) invested=$14,741.

that is a difference of $3,026 - - a 21% DIFFERENCE - -

Compound that difference over 20, 25, 30 years, and it will amaze you what it amounts to.

 

[James]

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

Okay, I ran your numbers and in seven years of time if I invested 10 grand and using your numbers I would end up with $17,767.50 (I did this in my head so please check my numbers!). So you are not making as much as it sounds. Now if I would have invested in a a 15 year annuity that pays 10% up front bonus and made on average 5% which is likely I would of had $14,741.50. Now in your scenario there is some taxation and fees which would take away from your total. Now what will happen in the next eight years? Fact is, your small cap and high risk investment didn't beat my annuity by much at all, if any!

Remember once you take a loss, lets say 50% one year from a 100 (what ever figure) dollars you have to make how much just to catch back up? 50 dollars loss means you have $50, you have to make a 100% return the next year just to break even from the previous year. Compound interest is a great thing, but remember the one thing that kills compounding interest, that is losses!

James, I've been in that fund since '92 and average YTD 16%. Now go re-run your numbers. And I'm guessing if you had power over all time and space you'd shut the stock market down and everyone would have life insurance products as investments? I feel sorry for your clients.

The average yield doesn't mean crappola!

You want me to break it down?

Okay, lets say we use the same 10 grand so let do it this way:

1st year you made 30.9% or $3090, so you now have $13,090.00.

2nd year you loss 2.7% which is a loss of $353.43, you now have $12,736.57.

3rd year you loss 3% which is a loss of $382.10, you now have $12,354.47.

4th year you loss 26.1% which is a loss of $3224.52, you no have $9,129.95. You now had to start over in this scenario, or your return in this six year period with actuall less money then you started!

5th year you gain 48.9% so you made $4,464.55, you now have $13,594.50.

6th year you gain 17.7% so you made $2,406.23, you now have $13,000.72.

7th year you gain 11.8% so you made $1,888.09, you now have $17,888.81.

So your average return in reality is 7.8% over seven years, some EIA's out there have done close if not better! Reality is at times hard to come by John. Yet I'm using your numbers, obviously you need to correct my numbers, as far as I can tell I'm on the money here, but maybe my calculator is malfunctioning on me? I know my John Hancock LTC software is acting up!

 

[James]

James:

You have a unique view in your assertion that the stock market investment was not handsomely rewarded.

Using your nubers - -

Stock market return on $10,000 invested=$17,767
Annuity ($10,000) invested=$14,741.

that is a difference of $3,026 - - a 21% DIFFERENCE - -

Compound that difference over 20, 25, 30 years, and it will amaze you what it amounts to.

Well you got to understand, that I used a low number most wouldn't argue with against John's 30% and 50% returns. Now I didn't take out taxes and fees, those will bring down the 17 grand total over the years as you so seemingly don't want to take into account.

Now you also drawing conclusions, I suggest the stock market investments that John is espousing is not truly an Investment, just a fancy high risk savings account. I would highly suggest in investing that money into a business and earn a real return against risk. Now I would then suggest taking the profits of that an placing it into savings, of course the savings vehicle has to be properly allocated but a solid Insurance contract is the first step to any sound investment portfolio, most financial planners agree.

Plus my money is not at risk (savings should not be at risk), and you and John don't know what is going to happen in the next 10, 20 or 30 years now do you? Do you think we'll see another generation of returns as we have expierence in the last 20 years?

 

[James]

James:

that is a difference of $3,026 - - a 21% DIFFERENCE - -

Compound that difference over 20, 25, 30 years, and it will amaze you what it amounts to.

No the figure will not be compounded! LOL The 21% may increase in dollar figure but will likely if anything shrink in % not be compounded. Remember, that 5% is a low figure most EIA's that were worth their weight paid better then 5% in the last few years. In fact some have paid closer to 9%, which would of destroyed John's numbers.

 

[Crabcake Johnny]

Where's your fiancial training from James?