Dave Ramsey

[Newby]

You also have to figure commissions and fees that come out of those mutual funds.
Everyone needs some money in safe (non-market) places and some in the market (if you have a tolerance for risk).
The trouble I have with investment reps is they think EVERYONE should be in the market and pretty much all in.
They also downplay the risk especially to seniors who can't afford the losses.

 

[Norwayguy]

The only people that would recommend life insurance as an investment tool are insurance agents themselves. It's called "life insurance" for a reason.....

You might be right...Banks do not advocate Life Insurance as an investment but they invest in Life Insurance themselves.
- - - - - - - - - - - - - - - - - -

S&P 500® with Monthly Dividends
Since inception (12/31/1927 – 2/28/2011)
@$50 Per Month
Average annual total return: 10.58%
Inflation over that time period: 3.73%
- - - - - - - - - - - - - - - - - -


Use a Roth IRA and you pay your taxes up front. The principal and gain grow tax free forever.

Actually, risk lessens the longer you timeframe is extended.

I understand what you are saying about risk lessening over a longer period of time but timing is still an issue if a client takes a large hit right before distribution starts it can hurt a lot.

 

[VolAgent]

S&P 500® with Monthly Dividends
Since inception (12/31/1927 – 2/28/2011)
@$50 Per Month
Average annual total return: 10.58%
Inflation over that time period: 3.73%

Can you source those numbers, because I got something different.

1/1928-2/2011
$50 a month and no initial investment, the average annual return was 4.63% with dividends reinvested.

Political Calculations: Investing Through Time

Just for fun, I decided to show what would have happened to someone who is approaching retirement age. Now, they probably wouldn't have been able to invest $50 back when they started, and hopefully the can save more than $50 a month now. But it gives you an idea.

6/1968-2/2011
$50 a month and no initial investment, the average annual return was 3.94% with dividends reinvested. The person invested $25,600 over this period, and has a final sum of $133,165.73.

As someone once stated, "The mutual fund industry is just doing a better job of advertising."

 

[xrac]

The only people that would recommend life insurance as an investment tool are insurance agents themselves. It's called "life insurance" for a reason.....

There's more evidence to support the fact that life insurance can be an investment, producing both profit and income for the policy owner. To wit:

Permanent life insurance can be used as one of the funding vehicles for a defined benefit pension plan, including a fully insured defined benefit pension under IRC Section 412(e)(3). Life insurance can also be used to partially fund a profit sharing plan under IRC Section 401(a), an investment option in a salary deferral 401(k) plan, and an investment option in a 457 deferred compensation plan.

Corporations purchase permanent life insurance, commonly referred to as Corporate Owned Life Insurance (COLI), to "informally fund" non-qualified deferred compensation plans on their executives and key people who suffer from reverse discrimination due to caps on the amount each employee can defer into a 401(k) plan. From the perspective of a corporation, a permanent life insurance policy can most certainly be an investment.

Banks purchase permanent life insurance as an investment, even though their regulators prohibit such practice, unless the policies fall into a safe harbor: The bank has to have a bona fide business purpose for the death benefits. Banks meet this safe harbor by having written salary continuation plans, deferred compensation plans, and key person death benefit plans. Once they have these written plans in place, they buy permanent life insurance policies with premiums measured in the billions of dollars.

One banker described Bank Owned Life Insurance (BOLI) as a "constantly resetting municipal bond that I never have to mark to market." The reasons bankers love life insurance is that there is no market volatility, and no interest rate risk. The cash values always grows at least at at minimum guaranteed rate, and the default risk is lower than virtually any other alternative, with the exception of US Treasuries (and who knows if that will remain true going forward?). Plus, life insurance has the added bonus of tax-deferral, and banks are like people in the respect that they seek to defer taxes as much as possible.

Banks love life insurance so much that 49 out of the 50 largest banks in America have more cash value life insurance in their Tier I capital reserves than any other asset class. Banks not only think life insurance is an investment, they believe is a a very secure, low risk place to warehouse their cash.

Life Insurance is Not an Investment

 

[STIBROKER]

I have a client I am working with that has had 2 UL's with State Farm for about 10 years on her and her husband....so last year they call their SF agent and request that $9,000 be taken from each policy....the reply from the agent......"no problem....we can do that".....so after I explained to her how these policy's work and the death sentence they had put on theses policy's she asked me....why did her agent not explain what would happen if they did this.....state farm really needs to stay out of the life insurance game.......

 

[VolAgent]

I have a client I am working with that has had 2 UL's with State Farm for about 10 years on her and her husband....so last year they call their SF agent and request that $9,000 be taken from each policy....the reply from the agent......"no problem....we can do that".....so after I explained to her how these policy's work and the death sentence they had put on theses policy's she asked me....why did her agent not explain what would happen if they did this.....state farm really needs to stay out of the life insurance game.......

I believe only the State Farm home office would argue with that statement. I bet the policies were minimally funded too?

 

[STIBROKER]

no.....they were funded correctly...I think a bit over funded......but taking that much cash out of the policy pretty much took all the wind out of it......

I believe only the State Farm home office would argue with that statement. I bet the policies were minimally funded too?

 

[VolAgent]

no.....they were funded correctly...I think a bit over funded......but taking that much cash out of the policy pretty much took all the wind out of it......

Ah. Again, only the State Farm home office wants its agents in the life business. Just judging by what they say on here and other sites, I'd say 90%+ of their agents want nothing to do with life insurance.

 

[DHK]

S&P 500® with Monthly Dividends
Since inception (12/31/1927 – 2/28/2011)
@$50 Per Month
Average annual total return: 10.58%
Inflation over that time period: 3.73%
- - - - - - - - - - - - - - - - - -


Use a Roth IRA and you pay your taxes up front. The principal and gain grow tax free forever.

Actually, risk lessens the longer you timeframe is extended.

Limited contributions. Income restrictions.

Ever wonder why you get a tax form on a Roth IRA? If it's really tax-free... why does the IRS care?

Just something to think about.

And you can just keep thinking that risk lessens the longer you hold it. I used to think the same thing when I sold investment services. Then 2008 happened.

Risk only lessens when you have UP years. I think the market will be a "yo-yo" for quite some time. Bouncing up and down. Who makes money with a market like that? Day traders... and those who hold indexed products.
- - - - - - - - - - - - - - - - - -

You also have to figure commissions and fees that come out of those mutual funds.
Everyone needs some money in safe (non-market) places and some in the market (if you have a tolerance for risk).
The trouble I have with investment reps is they think EVERYONE should be in the market and pretty much all in.
They also downplay the risk especially to seniors who can't afford the losses.

Us investment guys get to feel pretty smart about our knowledge of statistics. Alpha, Beta, R2, Sharpe, Treynor... that upper left quadrant where it's less risk and more reward than the index.

The problem with Modern Portfolio Theory is that it assumes that all the external factors of the market remain consistent.

I think we need to look externally about investing as well. I'm not sure we have the demographics to support the huge market growth that we've had. Birth rates are lower, more techology being employed instead of people (that's why the market has rebounded and unemployment hasn't) and the unemployed workforce is either "forced" to minimum wage jobs or learning new trades suitable for an information age (versus industrial age).

America is on the verge of reinventing itself - both individually to becoming more self-employed - and politically... which is more of a scary thought.
- - - - - - - - - - - - - - - - - -

The only people that would recommend life insurance as an investment tool are insurance agents themselves. It's called "life insurance" for a reason.....

Yes... and dividends are really a premium overcharge... right?

First, yes, Life Insurance is not a SECURITY... but it can be an Investment.

Real estate can be an investment, but it isn't a SECURITY. "But it's a house or apartment! It isn't an investment..." Whatever.

The reason we can't call Life Insurance an "Investment" is because it may be misrepresented by inexperienced life insurance agents. (That test is just too easy.)

And life insurance companies worked very hard for the IRS to treat dividends as a "premium overcharge refund". Because if you truly believe that it was an overcharge, then the premium for these policies is always a rip-off. (Those that believe that should only be selling non-par whole life, not participating.)

We, as licensed financial services professionals, have to be careful about the koolaid we choose to drink. I used to drink the investment koolaid. Now I drink the Life Insurance kool aid. Of that, I used to drink the "Only Whole Life" kool aid. Now, I've been trying the Index UL kool aid... and I like it too! In fact, for my targeted market, I'm beginning to like it better than whole life.

What's more important than product is ongoing monitoring of a client's strategy. Who cares what anyone preaches if it's just a one-stop sale... with no reviews or communication? Or, if you can't make enough money to stay in the business?

If all you sell is whole life, then become GREAT at it and review all your clients progress every year. I think a one-on-one relationship well maintained is more important than the product you sell. It certainly makes the client feel more secure that someone is looking after their interests.

 

[houcoogster]

Can you source those numbers, because I got something different.

1/1928-2/2011
$50 a month and no initial investment, the average annual return was 4.63% with dividends reinvested.

Political Calculations: Investing Through Time

Just for fun, I decided to show what would have happened to someone who is approaching retirement age. Now, they probably wouldn't have been able to invest $50 back when they started, and hopefully the can save more than $50 a month now. But it gives you an idea.

6/1968-2/2011
$50 a month and no initial investment, the average annual return was 3.94% with dividends reinvested. The person invested $25,600 over this period, and has a final sum of $133,165.73.

As someone once stated, "The mutual fund industry is just doing a better job of advertising."

And the crazy thing is... people having trouble sleeping to earn that measly rate of return.