10% hell

I keep hearing the 10% average return on stock funds.

Is that all I have to look forward to?

Then there's taxes.

Guy at my gym is trying to sell me an EIA from allainz.com

Equity-index annuity. It's a deferred annuity sold by a life insurance company where you get some of the upside when the market goes up, and none of the downside when it goes down. The guy at the gym wants to sell that policy because he gets a 7-9% commission on it.

Stephen, drop me an email at dickerson_10@yahoo.com if you're thinking of buying one of those (I'm not an agent).

I keep telling him that it's my emergency reserve money that I'm keeping in a 6 month CD.

If he asks me about it, I'll just tell him thanks for the free info and decline to buy anything. I'll tell him that if I lose money, I won't be too happy seeing him in the gym.

He stated that there is no way that any of my principle will be lost.

With his EIA he claimed no loss of principle and 13% return. Where do I sign?

stephen

"He stated that there is no way that any of my principle will be lost."

Any statements made in the absolute tense should never be trusted (even the I just did!)

Besides, I thought the market average is 8% return.

probably didn't mention that your $ will be locked up for quite awhile (probably 5-7 years at least) and that annuities have the highest fees of any type of investment out there.

I act naive and ask him questions. Told him that I have about 20k to spend. I can tell he's frothing at the mouth.

stephen

probably just a matter of time before he tries selling you a long term care health insurance plan

Yeah or whole life

told him I already have a 20 year term policy. he asked why I don't have a 30 year. told him that i didn't need one because I have a 20 year term. salesmen.

stephen

I'm still young in the investment scheme. Hard to smile at a 30 year return when I'd rather see it sooner.

stephen

Look at the returns for some of the emerging markets or internationl stock funds. Of course risk is higher but there you go.

Real estate returns can be higher as well and have tax benefits. Not very liquid and a whole nother set of challenges. Do a little reading and see if its for you.

I am a licensed insurance agent and a financial planner and I've been securities licensed for years. I generally don't sell tax deferred annuities to younger people unless they have disposal income and substantial investments. I'm not very fond of Allianz due to past products. There are other companies I've used instead. The tax deferred annuity that he presented to you has no sales charges, 0, so at 0 they can't be the highest in the business. But the interest earned is tied up to age 59 1/2 unless you pay a 10% penalty. He is right that your money is 100% guaranteed by the insurance company and Allianz is a very large German company that is financially stable.

I think an EIA is a great investment but some of them have too many moving parts and it takes an independent, knowledgable, and honest person to evaluate the different companies. It's a great investment for the right person in the right circumstances. Either for all of their portfolio or part of their portfolio.

I also like LTC Long Term Care Insurance. Buy it when you are young, between 40-55 and the price is relatively cheap. Again it's to preserve assets. It's cheaper to pay $300-$500 per year at those ages to insure $40,000 worth of home health care to keep you in your house due to an injury or sickness or in a nursing open or some other type of facility. You don't think about this when you are young, you think about it when you are 65. Again only for disposable assets and you must have assets to protect, house, wife, retirement assets.

I also love whole life insurance for the right person in the right situation. But I sell more term insurance to my poorer customers and clients and I sell more whole life to my richer clients and doctors. The wealthy clients tend to buy the whole life because they see the value in it and they understand it. They have assets they need to protect for the rest of their life, they need a vehicle that is tax free, they need to pay estate or income taxes when they die. Insurance companies love term insurance because only 2% of all claaims paid are for term insurance. People die without term insurance in force so the insurance companies collect the premium and seldom have to pay out. I make a lot of money with term because it's so cheap everyone buys it without understanding life insurance. I sell a ton of it and it pays me a great commission, it's easy to replace, it's easy to buy more if you are healthy. If you develop some health problems they have to pay a higher price and I even make more money.

I

If it has no sales charge, then I'm guessing the internal fees are pretty high then. If this guy at the gym is telling him to put his emergency reserve money into an annuity, then this agent is a complete moron and nothing more than a salesman. I haven't looked into this particular annuity but have seen investments like this before and I'm sure the money is only guaranteed if he keeps it in there for a certain number of years and if he does need to get this emergency money out there's probably a pretty hefty surrender charge involved.

"I also love whole life insurance for the right person in the right situation."

Tell me what the qualifiers are for that statement.

"Insurance companies love term insurance because only 2% of all claims paid are for term insurance. People die without term insurance in force so the insurance companies collect the premium and seldom have to pay out. I make a lot of money with term because it's so cheap everyone buys it without understanding life insurance."

How can I tell if my term policy is not in force?

I have auto debit to pay the premiums every month.

As I said before, I told the guy that my Emergency Fund is in a 6 month CD. I could put it into a MMA, but I feel better that it's somewhat more locked in.

^ sounds like a pretty good idea. most likely getting a better rate than most money markets these days. the only other things I could think of would be like a bond fund or maybe a couple of highly rated preferred stocks but with those you'd get into commissions and a little risk of principal since the prices of those would fluctuate a little.

The vast majority of EIAs are incapable of returning 13% in a year due to the "cap".

Basically the way they work is, you give the insurance company $100,000, it buys a call option on the S&P 500 at 1450, or whatever it's at today. That'll cost it about 9% or $9,000. Then it sells a call option around 1550 or around 8% above what the market's at today. That earns it about 6% or $6,000.

So for 3% or $3,000, if the stock market goes down, the insurance company doesn't lose any money (and neither do you), and if it goes up, it makes money up to 8% (the cap, where the company sold the call), which it then pays you.

Meanwhile the company invests the other $97,000 in bonds earning 5.5% and collects a $2,335 profit every year (the first $9,000 goes to pay off the agent's commission first though -- that's why your money gets locked up for 5+ years).

It's more complicated than that, but that's the gist.

In general I would say if you buy an EIA, assuming you didn't get conned into locking up money for longer than you could handle (15+ years), it's a good investment. Due to the 9% commission and the 2% spread the company earns, you're not exactly on the investing "efficient frontier", but then if you bought an annuity, odds are you weren't going to be anyway. And there are worse things that you could be conned into buying than a product which makes money when the market goes up, but doesn't lose money when the market goes down.

As I told him that it's my emergency fund that'll be tied up in CDs for no longer than 6 months, this is not a good replacement.

I appreciate your help. My ears were smoking.

As a salesman, he wasn't acting in my best interest.

stephen