Granted, i've not given this the thought i should have before. But i see it as diversification. I invest way more than the cost of life insurance (whole or term). If those investments pan out (and more importantly if i'm continuously employed to enable continual investment), then the extra return from that piddling amount difference of whole and term life won't matter at all, though yes technically it will be a better return. BUT, if those investments don't pan out, OR if my career hits speed bumps and i cannot continue to invest like i wish......then that whole life policy just became a lot more valueable.
OT: Book(s) on investing
- Thread starter EmoryBellard
- Start date
If the market tanks, your whole life CSV is going to tank just like the rest of the market does and it will still be worth less than what your savings outside the whole life policy would be. Those projections the agent shows you to sell you the policy are just that. Projections. And you can bet your life they make every assumption possible to make those projections look as good as they can. Actual returns are never as good as the projections they show you. And if your career tanks and you can't afford to invest the difference, then how do you think you're going to be able to continue to afford the whole life premiums?
For one, supply side policies have massively increased capital.....and thus lowered it's return. and 2, innovations like HF trading have sapped returns for the typical investor. combine that with that you are losing 1-3% annually to fees, and future stock returns for us average Joes will be pitiful. invest accordingly, or just follow the crowd and expect to be rewarded just because.
Also, those returns assume no shenanigans on your purchase or sale price. In reality, a typical retirement fund purchase/sale will be prior hedged by either it's own company, or by HF trading, driving up the purchase price and driving down the sale price.....with the difference going into the bank's pocket. Less so for a private investor, but it still happens enough to sap a healthy chunk of returns.
401Ks are way more of a scam than people realize. for example, a typical 3% annual management fee will sap HALF of all retirement funds. HALF of most people's 401Ks going to the bank.
Also, those returns assume no shenanigans on your purchase or sale price. In reality, a typical retirement fund purchase/sale will be prior hedged by either it's own company, or by HF trading, driving up the purchase price and driving down the sale price.....with the difference going into the bank's pocket. Less so for a private investor, but it still happens enough to sap a healthy chunk of returns.
401Ks are way more of a scam than people realize. for example, a typical 3% annual management fee will sap HALF of all retirement funds. HALF of most people's 401Ks going to the bank.
I have term because I want the amount to be large enough to allow my family to draw interest/investment income from the total as a way to replace my income. I have increased the amount so that it will also be a way to cover kids' college funds if I die prior to fully funding them. When the term is over, I don't plan to need it any longer. Whole life doesn't work for me because I am going to be investing along the way and won't need it out to 80 years old. The fees on the front end and the size of the premiums are ridiculous.
My wife and I have always just used debit cards but it seems Credit Cards may be better for various reasons if you plan to pay it off every month. Also, I know there are a lot of gimmicks for miles, rewards, etc, but I understand some (Discover for example) actually give you cash back. This is something I've been planning on researching but haven't gotten around to it. Frankly, I'm really ignorant about it. Suggestions?
They used to automatically credit my rebate to my account each month, but now I have to request them to send me a check (pain in the ***, but I just let it accumulate and get the check about once a year). Haven't really researched credit card deals in years but I can't imagine any are much better than that. And that first month when you change from using debit cards to using credit cards, it's like you just got a $2,000 bonus (or however much you usually spend).
I use the GM card b/c I will buy a truck eventually. It basically depends on what you want to use your rewards for and you find the card that fits you.
My dad's terms on the GM Card was you could get $500/year cash back for up to 7 years. He would walk into the dealership with $3500 in his pocket and he would work the deal first and then drop the $3500 on them. They have changed the terms now where you can get more than $500/year cash back but they limit now on the car. For example, even though you have $3000 in GM "money", they let you put $2000 towards a Silverado.
My dad's terms on the GM Card was you could get $500/year cash back for up to 7 years. He would walk into the dealership with $3500 in his pocket and he would work the deal first and then drop the $3500 on them. They have changed the terms now where you can get more than $500/year cash back but they limit now on the car. For example, even though you have $3000 in GM "money", they let you put $2000 towards a Silverado.
I can not speak for everyone, but the projections I show have a guaranteedportion and a notguaranteedportion for dividend/cash value/death benefit. That goes for every company I represent. The cash value in a whole life policy would not go down with the market as long as you are paying premiums, the dividend paid to the policy may but not below the guaranteedpercentage. Whole life is a great product as part as of an overall portfolio. Also, $5M estate tax coupon could easily go to $1M very soon, it doesn't take someone ultra wealthy to have a $1M estate. The reason whole life is "pushed" is because it is a great product. Besides, most insurancecommissionpay outs are greater than 100%, I don't think whole life is even the largest.Term is the better option for YOU.<div>
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As a Financial Advisor, I thought I would add the following:
1) As a former person who managed my own investments (before becoming an advisor), I completely understand someone wanting to manage their own if they enjoy it. However, if you don't have adequate time or don't have a passion for it, and advisor can make a big difference.
2) There is no right or wrong answer about any of these topics. You cannot pick an investment strategy to fit a group of people. Each individual has their own risk profile, amount of assets, retirement income needs, etc. As such, every product out there has some benefits to certain individuals. I am not a big proponent of whole life insurance, but it does have its place. If income replacement is your goal, term insurance is the way to go. If you want to leverage an increased death benefit for your heirs, a cash value (whole, universal, variable) life insurance policy can do that. Variable annuities can be great for some people, but they are expensive. They are a "peace of mind" investment, which become more popular everyday as we see continued volatility in the markets. It is never appropriate to have all of your investments in an annuity, but having a portion of your investments (10-30%) is often appropriate because it can provide guaranteed income. They are expensive, but you are paying for peace of mind, not for the best returns during the good times.
3) Target funds are generally not a good idea because they lump every individual at a certain age into the same bucket, despite the fact each person has different goals, risks tolerance, assets, etc. However, they can be a good option for retirement plans that have limited options. They are usually a good alternative to someone throwing darts at the funds in their retirement plan.
4) The role of an advisor is not solely to beat a benchmark. If you hire an advisor to do that, you will likely be disappointed at some point. The right advisor can help you assess your risk profile, make sure you are not taking more risk than necessary to reach your goals, help remove the human emotion from investing and keeping you committed during difficult times, keep you abreast of changing investement strategies due to impending tax consequences, etc. The assumption that the general investor can get the same returns as an advisor is based on the false premise that the investor can stay the course even during the difficult times. But in fact, several studies have shown that the average investor signficantly underperforms the market because they buy high and sell low (due to emotion getting in the way). As someone said, no advisor is going to care as much about your money as you. I do feel a very large responsibility to my clients and would say that a different way: an advisor will not be as emotionally tied to your money as you will.
5) Morningstar ratings are by themselves not a good indicator of future performance of a mutual fund. Their star ratings are based solely on historical performance. Indeed, we have done studies that generally show most 4 and 5 star funds will eventually become 2 or 3 star funds at some point. Managers have good years and bad years. An advisor with a good firm can help you find funds that should perform well in the future (regardless of whether they have the historical performance of a 4 or 5 star fund).
6) Lastly, in this industry, the best investors are only right 70% of the time, so be prepared (whether doing it alone or with an advisor) to be wrong. You have to define a goal and stick to your plan.
7) One way to help smooth out volatility is to allocate a portion of your investments into alternative strategies (commodities, futures, precious metals, real estate, hedge funds, etc). These investments do not have a direct correlation with the stock market and can be a good defensive measure to smooth out volatility.
1) As a former person who managed my own investments (before becoming an advisor), I completely understand someone wanting to manage their own if they enjoy it. However, if you don't have adequate time or don't have a passion for it, and advisor can make a big difference.
2) There is no right or wrong answer about any of these topics. You cannot pick an investment strategy to fit a group of people. Each individual has their own risk profile, amount of assets, retirement income needs, etc. As such, every product out there has some benefits to certain individuals. I am not a big proponent of whole life insurance, but it does have its place. If income replacement is your goal, term insurance is the way to go. If you want to leverage an increased death benefit for your heirs, a cash value (whole, universal, variable) life insurance policy can do that. Variable annuities can be great for some people, but they are expensive. They are a "peace of mind" investment, which become more popular everyday as we see continued volatility in the markets. It is never appropriate to have all of your investments in an annuity, but having a portion of your investments (10-30%) is often appropriate because it can provide guaranteed income. They are expensive, but you are paying for peace of mind, not for the best returns during the good times.
3) Target funds are generally not a good idea because they lump every individual at a certain age into the same bucket, despite the fact each person has different goals, risks tolerance, assets, etc. However, they can be a good option for retirement plans that have limited options. They are usually a good alternative to someone throwing darts at the funds in their retirement plan.
4) The role of an advisor is not solely to beat a benchmark. If you hire an advisor to do that, you will likely be disappointed at some point. The right advisor can help you assess your risk profile, make sure you are not taking more risk than necessary to reach your goals, help remove the human emotion from investing and keeping you committed during difficult times, keep you abreast of changing investement strategies due to impending tax consequences, etc. The assumption that the general investor can get the same returns as an advisor is based on the false premise that the investor can stay the course even during the difficult times. But in fact, several studies have shown that the average investor signficantly underperforms the market because they buy high and sell low (due to emotion getting in the way). As someone said, no advisor is going to care as much about your money as you. I do feel a very large responsibility to my clients and would say that a different way: an advisor will not be as emotionally tied to your money as you will.
5) Morningstar ratings are by themselves not a good indicator of future performance of a mutual fund. Their star ratings are based solely on historical performance. Indeed, we have done studies that generally show most 4 and 5 star funds will eventually become 2 or 3 star funds at some point. Managers have good years and bad years. An advisor with a good firm can help you find funds that should perform well in the future (regardless of whether they have the historical performance of a 4 or 5 star fund).
6) Lastly, in this industry, the best investors are only right 70% of the time, so be prepared (whether doing it alone or with an advisor) to be wrong. You have to define a goal and stick to your plan.
7) One way to help smooth out volatility is to allocate a portion of your investments into alternative strategies (commodities, futures, precious metals, real estate, hedge funds, etc). These investments do not have a direct correlation with the stock market and can be a good defensive measure to smooth out volatility.
www.creditcards.com is a great place to find the card you want. Plus there is 1-click access to talk directly 1 on 1 with a person about what type of credit card you want + any questions you may have.
I've bought a pistol, muzzleloader, double bull blind, tons of other small stuff, cartop carrier, a tent, and my wife gets all the north face gear she wants. We put everything on it and pay it off every month. They have a rewards retail network with a lot of opportunity for up to 5% back.
Permanent life insurance is a complex financial product and it's true that, like all complicated financial products, it's often missold. Sometimes the people selling it don't really understand what they're selling. Many people (like patdog) erroneously refer to all permanent life insurance as "whole life". Up until the 1980s, when universal life was introduced, this was pretty much true. Since then the different types of policies sold has increased significantly and many of the policies have become more complicated.<div>
</div><div>Whole life contains a fixed account, which will not "tank just like the rest of the market does". The illustration will show a guaranteed cash value and, if the life insurance company is a mutual company, a non-guaranteed cash value which contains dividends. Most mutual life insurance companies have paid dividends for decades upon decades, though the dividend rate paid out will differ from year to year. It's based on the performance of the company's general account and favorable mortality experience (meaning, the company planned for x people to die and less did). Whole life policies are a pretty safe bet to perform close to projections, though policies sold when dividend rates were in double digits (sold in the 80s, early 90s) are not going to meet original projections because fixed interest rates have fallen significantly. Generally it's best to expect performance somewhere between guaranteed and "current" projections, though with current interest rates at historic lows it's possible (maybe likely) that the policy will outperform projections based on current dividend rates. At current rates you can expect an IRR over the long term of 4-6% with a good company. Whole life is very expensive, but provides many guarantees.</div><div>
</div><div>What patdog is talking about is variable universal life insurance (VUL). In this type of life insurance policy you pay premiums into an internal account, which is then invested in mutual funds. Of course, this internal fund is thus subject to market volatility and the projections for this type of policy are just as good as the one your stockbroker gives you... which is to say worthless. Maybe it will do better, maybe it will do worse. Like all life insurance, VUL has some interesting tax benefits which are generally the draw for an investor. There are other types of universal life insurance that have fixed internal accounts, or that really only provide life insurance coverage with little to no cash value. The latter are basically "term to age 120" plans, and are often used in estate planning.Some universal life insurance is guaranteed, some is not.</div><div>
</div><div>As for wealthy and estate planning, due to tax advantages life insurance is almost always the absolute cheapest way to fund death taxes.</div><div>
</div><div>If you're using permanent life insurance as an investment-type vehicle, there are several advantages that can make it worthwhile. Life insurance can continue to self-fund in case of your disability. The cash value can be accessed income tax free, even in excess of premiums paid. If you die, it pays a large lump sum to your beneficiaries. You can purchased a variable policy and be fully in the market, an indexed policy and receive market participation while guaranteeing your principal against market loss, or a fixed policy.</div><div>
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</div><div>Whole life contains a fixed account, which will not "tank just like the rest of the market does". The illustration will show a guaranteed cash value and, if the life insurance company is a mutual company, a non-guaranteed cash value which contains dividends. Most mutual life insurance companies have paid dividends for decades upon decades, though the dividend rate paid out will differ from year to year. It's based on the performance of the company's general account and favorable mortality experience (meaning, the company planned for x people to die and less did). Whole life policies are a pretty safe bet to perform close to projections, though policies sold when dividend rates were in double digits (sold in the 80s, early 90s) are not going to meet original projections because fixed interest rates have fallen significantly. Generally it's best to expect performance somewhere between guaranteed and "current" projections, though with current interest rates at historic lows it's possible (maybe likely) that the policy will outperform projections based on current dividend rates. At current rates you can expect an IRR over the long term of 4-6% with a good company. Whole life is very expensive, but provides many guarantees.</div><div>
</div><div>What patdog is talking about is variable universal life insurance (VUL). In this type of life insurance policy you pay premiums into an internal account, which is then invested in mutual funds. Of course, this internal fund is thus subject to market volatility and the projections for this type of policy are just as good as the one your stockbroker gives you... which is to say worthless. Maybe it will do better, maybe it will do worse. Like all life insurance, VUL has some interesting tax benefits which are generally the draw for an investor. There are other types of universal life insurance that have fixed internal accounts, or that really only provide life insurance coverage with little to no cash value. The latter are basically "term to age 120" plans, and are often used in estate planning.Some universal life insurance is guaranteed, some is not.</div><div>
</div><div>As for wealthy and estate planning, due to tax advantages life insurance is almost always the absolute cheapest way to fund death taxes.</div><div>
</div><div>If you're using permanent life insurance as an investment-type vehicle, there are several advantages that can make it worthwhile. Life insurance can continue to self-fund in case of your disability. The cash value can be accessed income tax free, even in excess of premiums paid. If you die, it pays a large lump sum to your beneficiaries. You can purchased a variable policy and be fully in the market, an indexed policy and receive market participation while guaranteeing your principal against market loss, or a fixed policy.</div><div>
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They're the generation stuck between pensions and 401(k)s. Many have some of both but not enough of either. A lot of them are going to basically work until they can't anymore, or else face a harsh reality check upon "retirement". Three thousand dollars seems like a lot of money to someone making $50,000/year, but they'll chew through it in 6-7 years.... assuming their cost of living doesn't go up.