Thanks for the recommendation! Very useful information that is quite succinctly presented. I’m already halfway through it.
As the author writes:
Anyway, I’ve now purchased a Kindle copy for myself, and a paperback version to share.
Thanks for the recommendation! Very useful information that is quite succinctly presented. I’m already halfway through it.
As the author writes:
Anyway, I’ve now purchased a Kindle copy for myself, and a paperback version to share.
And the THIRD downside is that such annuities often do not include the dividends from the index which it tracks, it only includes the price increase. So not only are you capped at a certain percentage, you don’t even get the full benefit of an increase within that percentage! They are truly terrible products for 99% of people.
Sorry, I’m quoting myself, but a FOURTH downside is that, for non-qualified annuities, earnings are taxed as regular income rather than (lower taxed) capital gains, as they would be if you had invested in stocks or mutual funds in a regular brokerage account.
As said upthread, the only legit value an annuity has is serving as a long-term lockbox you can’t raid. If you really need to pay somebody to help you keep your greedy little hands from blowing through your assets they’re great. Otherwise, you’re paying half or more of your return to them for a pair of handcuffs you’re not really needing to wear.
Second point about (some forms of) annuities. Mortality credits are real and can really boost your annuity return. If you’re the person who buys young and lives long. Selling such a product to a 90yo amounts to elder abuse.
If one is wanting some kind of strong downside protection to your equity portfolio in exchange for losing some of the upside, it’s remarkably easy to DIY that with zero fees and overhead. You can construct any degree of downside protection from “a little” to “a lot” to “total”. The more protection you buy, the less upside you get, but all investing is like that.
Here’s an article from 10 years ago giving the basics.
That was back in the 2% interest days when the technique was fully functional, just not very practical, especially if you want lots of downside protection. As interest rates go up, you can get the same downside protection without giving up such a large fraction of upside participation. Right now the tradeoff is pretty good. If interest rates continue to climb, the tradeoff only gets better.
And once again, you’re paying no costs or fees to anyone. The efficiency of the process (amount of downside protection bought per amount of upside participation lost) is all down to how large bond yields are or aren’t.
Nothing else about the ideas in that article has changed.
Great additions.
It should be noted that an advisor need only have a Series 6 license (allows them to sell prepackaged products such as life insurance, mutual funds and variable annuities). Advisors who are unable to pass the 65, 66 or 7 (which are not all that difficult) can’t sell other securities.
I will add my voice to those who have said this. It seems like, at best, malpractice.
To @pullin I would say that your Dad should at the very least get an impartial second opinion. Though it may be too late if he has signed some irrevocable documents.
And of course I know nothing about the family dynamics: will your Dad listen to you anyway? Maybe the finance guy is regarded as a ‘trusted friend’? This is how some unscrupulous ‘advisors’ take advantage of their ‘clients’ AKA ‘victims’.
Agreed. That’s one of the reasons I sought information in this thread. There are many factors that I can’t seem to get real info on. Mainly the exact nature of the surrender period, and details about what changes when an investor “bumps” the protected initial investment amount upward to include all the current growth (IIRC, it can be done 3-4 times/year for a fee).
I’ve gone over all the Trust and Will documents with his advisor, and later with my attorney – and it appears I’m inheriting all this at some point. Dad has done the Python-esque “One day Lad…” speech and is encouraging me to get more knowledgeable and involved with the details.
As always, I’m trying to balance details with brevity, and avoid walls ‘o text (which I tend to do sometimes). But there’s more to the story.
Dad is well-off with plenty of income streams, and has had no need to access these investments. As far as he’s concerned, the only purpose of wealth is to generate more wealth, and among his few pastimes is watching the pile get bigger.
Unfortunately, he’s now interested in my investment strategies. Realizing that I’m not “Maximizing Growth!!!”, he has begun pushing me to switch to His Guy. I’ve refused, but am trying to learn all I can about these annuities in the meantime, in case there are other downsides I’m not aware of.
Tempted to do this as my next step. So far, I’m just getting “this is how much money you could’ve had, if only…”, instead of actual growth rates etc. Trying to pin down exactly what happens to the original money and how or if it can be accessed is difficult. A time may come when Dad requires more assistance than his (LTC) insurance can provide, and I’m trying to find out how much of his investments can be readily accessed, and by who.
My family tends to choose the familiar over the credentialed. In fact there are some horror stories in the past due to this and other family dynamics – but I’ll skip them to stay on subject here. But there’s no chance of my advice or that of another FA being heard.
I appreciate everyone’s inputs, and have read them all. In this case, I don’t think it qualifies as “abuse” since he strongly prefers these investments and appears to understand the basics at least. I talked to him about it at length a few days ago, and he regards the lack of fund availability as a feature instead of a bug.
What I think I’ve learned, is that these annuities aren’t structured in any defined format, and the fees/rules/accessibility are whatever the providing company has chosen. I’ll need to dig deeper with his FA to find out exactly how this particular product works. There doesn’t appear to be any standard for these.
Again, thanks for all the info/advice everyone.
I was reading a bit about the global debt crisis. Assuming one believes we are headed to something akin to the 1929 crash, but in the debt markets, what investments would one make today to either ride out such an event, or better still, to profit from it?
Not asking as advice, since I don’t think this is coming, just wondering as a curiosity.
Looks like, probably:
Whee.
I’d probably wait for the crash to buy in, though, if you expected things to go that way. E.g. park your cash in inflation proof commodities and then move it over into a casino and online gambling ETF after the stock market tanks.
Realizing that I’m not “Maximizing Growth!!!”, he has begun pushing me to switch to His Guy.
Just Say No. If you actually want to ‘Maximize Growth’ annuities are about the last thing you should consider. But it seems that you don’t have a lot of influence here… the best you can do is probably try to stay clear of the situation, at least as far as your own investments are concerned.
Good luck!
A question relating to stock selection: what are people’s thoughts on the merits (if any) of what’s broadly termed ‘technical analysis’ but seems to me nothing more than a variation of reading tea leaves?
I’m talking about the sites that look at trading volumes, and try to forecast future price movements. They talk a lot about ‘momentum’ and ‘price signals’.
I’ve always felt they over-promise on their reliability and would only be useful when combined with fundamental analysis like comparing PE ratios and EPS across the industry, for example. And even then, very much subservient to those fundamental factors.
I could perhaps see some merit for those who follow particularly volatile stocks and trade on extremely short timeframes (even multiple trades per day), but for anyone looking to hold a stock for a year or more, they are dangerously useless IMHO.
Thoughts?
Any technical analysis is by now a game played by massive computer data crunching looking back testing in ways no human entrails reader can compete with, but competing with each other as their moves change the thing being measured… even down to trying to have their algorithms a microsecond ahead of everyone else’s…
Yep. The market used to price on a basis of a mix of fundamentals and human emotion. You (any you) might be able to divine some clues about emotion from looking at charts, and use that to (partly) inform your decision making.
The market now prices on a basis of a mix of fundamentals, human emotion, sub-second scale algorithmic trading, AI, and blatant market manipulation by social media bots. IMO the relative importance of individual human emotion is now the least of those five factors. Which is where technical analysis now falls: 5th place in explanatory power.
“Technical analysis” back in the day was things like crossing over some arbitrary moving average, or the alleged stability of “double bottom” chart formations … that sometimes had predictive value just because enough traders believed they did. The big houses are spending lots of computing power to discover if there actually are any statistically predictive predictive chart formations, and to exploit them before others do and the predictive power vanishes.
I’d put emotion, in particular fear, of missing out and of loss, above that.
Longer term hold type investing may be better suiting to fundamentals.
Technical Analysis has the same limitation as Fundamental Analysis in a way. There are millions of people spending billions of dollars trying to find the edge you are looking for. It’s pretty arrogant to think that when you find it, you’re going to be the first. Especially now with AI.
Three decades ago Long-Term Capital Management was founded by, among others, a couple of future Nobel Prize-winning economists. They were going to use quantitative analysis to make bond trades. They had fabulous returns until a financial crisis in Russia. My point is that there is always going to be some unprecedented event that messes with your strategy.
what are people’s thoughts on the merits (if any) of what’s broadly termed ‘technical analysis
I’ve always thought ‘technical analysis’ is nonsense. They use physical metaphors like ‘momentum’ and ‘resistance’ which as far as I can see have no real existence at all (except possibly as a very indirect hint at overall investor sentiment). Even more so when applied to indexes rather than individual stocks.
Tea leaf reading, as you say.
Humans want to see patterns, and meaning. They see them in clouds, in the flight trajectory of birds, in the movement of planets against the background of the stars, in the chaotic dripping of a water faucet, in the change over time of the average length of skirts… you name it, and somebody will claim some significance.
I think the name “technical analysis” is a misnomer: there is nothing technical about it. It is, at best, an attempt to create a self-fulfilling prophecy. The proponents of technical analysis try to influence the movement of the herd so they can claim afterwards that they explained it beforehand. Even when they get the result right, which happens, they get the explanation backwards.
What I don’t know is how many get it backwards in good faith, i.e. they believe what they say, and how many know that what they say is worthless, but make a living of it without regrets.
I don’t know enough to understand if it’s right or not, but will just add this. AI, algorithm, excel, etc, they can only tell you what to do. A human still has to actually do it. Humans are emotional and it’s hard, or not reasonable, to expect us to blindly follow those inputs/computer model decisions.
I saw one, it was probably absolutely true and doable as a machine, but not reasonable for a human to do. It was effectively like a doubling down scheme over 30 years. If you did it, it would work. But could you imagine your life savings getting completely and utterly wiped out 15 years in and you have to just “trust the process”. There’s no way.
So, I’m guessing there are systems that can do the actual investing for the human? Completely remove the human element. I’d be interested in learning about that.
My point is that there is always going to be some unprecedented event that messes with your strategy.
That’s always been my feeling too.
In a recent report from the broker I use, I was attracted to Telix Pharmaceuticals (TLX on the Australian exchange). The report went into some detail of their competitive advantage, cash reserves and all the rest of it and ended with a ‘Strong Buy’ recommendation. I duly bought (only around $1k) and then had to watch as it dropped by 35% a couple of days later. Why? Because the FDA issued a ‘Complete Response Letter’, highlighting deficiencies in Telix’s Biologics License Application for one product.
That’s definitely not something that would ever be signalled by looking at a chart.
I’m now considering whether to add to my holding while it’s effectively ‘on sale’, but I admit that good old nervous emotion is a big part of my calculation. Bargain - or ‘Good money after bad…’?