The science of decision-making has made significant progress over the last decade in examining how decisions are made. I know I have mentioned it before, but it bears repeating — our emotions play the part of the captain of our decision-making ship. Working in the sales arena I have seen this play out in fascinating ways. That is why the vast majority of people are really bad at the money game. Money carries such heavy emotional baggage that from the start our decisions are rarely rational even though most people would disagree with this statement.
Several of my clients have contacted me lately to ask my opinion on the “new” options for their 403b’s. These new options are annuity based investment plans, some straight variable annuities, while others have some limited down side protection [10% in the one I saw]. This is an ongoing pattern from companies trying to capitalize on the loss of confidence of Wall Street and it’s mutual funds, which have been heavily pushed for the last 30 years. We are still seeing outputs from mutual funds in general while equity mutual funds are the heaviest hit. Trying to capture those dollars is the name of the game for all financial companies now.
I was talking to a potential client today and our discussion really stoked my thinking. I get most of my best thoughts talking to the very smart people who I do business with! He thinks that the market is going to tank and wants to wait until that point to purchase an EIUL. That would make perfect sense if we were talking about stocks or mutual funds. But an EIUL is a very different animal.
From a strategic standpoint this product is really hard to market time in general because it takes a month to process through the system and then up to two weeks to get the index leg started. With stocks and mutual funds you can purchase any time you want with little lead time and buy and sell multiple times a day if you like.
But let’s look at what advantage there is to waiting:
Example 1: You were so unlucky as to have your index leg created at a market top then what do you lose?
Had lunch today with a very experienced, savvy real estate professional today. He’s from Northern California, so knows much about cartoonishly high real estate prices. As we talked, he mentioned a client who’d bought a property, ‘a real mess’ for ‘just’ $750,000. I guess a starter home up his way is well north of seven figures. But the real eyeopener was his description of the fourplex he’d recently sold. About $1.3 Mil, or, to put it into cartoon prospective, 16 X the scheduled gross annual rents. And no, that’s not a misprint.
I’m workin’ on a post about that ‘investment’. Seriously, calling that an investment almost made me lose my lunch. If I was a standup comic, real estate investors going to NoCal with serious intent would provide me with endless material. They put almost 45% down so they could bathe in the monthly glory of a whole $500 in cash flow. They must feel proud. Sorry for the snarkiness, as I usually stop myself, but at some point sensible folk must draw the line in the sand.
A reader suggested a post dealing with two of his concerns with purchasing a Life Insurance Policy. These concerns were the same as many of my clients had. So let’s discuss them.
His first concern was that the insurance company could “jack” up the fees once the policy was in place. There are limits put in place on the amount of fees insurance companies are allowed to charge and there are contractual limits. Now, first off I need to point out that with Minnesota Life they have never increased the fees associated with a life policy on policy owners since at least WWII. So, even though they could increase some of them, they never have [the exception is insurance charges]. The reason they haven’t is pretty simple, they manage their risk well and have never found themselves in the position of having to make up for poor reserve management by extracting more money from their policy owners.
My mom always told me I liked to do things the hard way and by now I understand she was right! I could be selling mutual funds to folks and call it financial planning but nooooo, I need to be a little different and really help people get their retirement on the right track. But that means dealing with a lot of roadblocks both psychological and other.
Many of my clients are curious about the historic returns inside the EIULs I sell.
So I thought the readers would appreciate this historical analysis and history.
The first analysis looked at 30 years of historic data. That ran 20 year and 1 year rolling month analysis. This means they looked at all the possible 20 year and 1 year returns starting every month for the last 30 years.
Meanwhile, here are a couple suggestions for some reading.
Many ask what I think is of paramount importance, and my stock answer is the combination of the client’s comfort zone and cash reserves. I began calling those reserves a ‘Sominex Account’ which is an OldSchool version of Ambien, a sleeping pill. Get it? The cash reserves let you sleep at night? Yeah, I know, kinda lame. But it does get the point across. You may wanna type Sominex in the search box to read a post or two on the topic.
I’d suggest you do the same for the words, Strategy, EIUL, and Asset Protection.
There, I don’t feel like such a TechTard now.
I’ll still need a fix tomorrow, so call me, will ya? My number is 619 889-7100. Let’s talk about you and your retirement. Have a good one.
In response to a post over at BiggerPockets that BawldGuy wrote, a reader made some assertions about EIULs. These assertions were very general in nature. BawldGuy asked me to post a response using specifics.
As mentioned in yesterday’s post, while in Starbucks I met a local high school teacher, Rick, who was hunched over a buncha papers he was grading. We got to talkin’ and as one thing will led to another, real estate investing came up. (Yeah, I’m shocked too.) Turns out he owns a small local La Mesa, CA apartment building. I know exactly where it is — solid location. It’s well kept. He was raised in the biz by his dad, doing cleanup, repair and maintenance — against his will. Amen brother, we lived the same lives.
Breaking News: My old San Diego TC — Transaction Coordinator — just walked into Starbucks. Hadn’t seen Debbie in years. I’ve had TC’s since her, but none better, not even close. She was the real deal. So fun to run into her today.
OK, back to schlepping for Dad against our wills.
His units are now cash flowing about $5,000 monthly with $800,000 in debt. He says it’ll cash flow roughly twice that when the loan is paid off. He’s retiring in about 10 years. Oh, and for the record, the location of his units is such that I’d gladly have Mom live there alone. Just so ya know.
Ever heard the saying, “. . . like shootin’ fish in a barrel?”