Free Lunch, FIA
- Thread starter frayne
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Can you tell us about the vast resources the ins companies have and where they get them from?
Bond mutual funds are guaranteed? Clearly you're having a difficult time comparing apples to apples. You may be smart, and have excellent strategies that will help many people, but your common sense pertaining to what MANY PEOPLE actually want is disheartening. Further, you think the average person can safely diversify an individual bond portfolio?
Can you tell us about the vast resources the ins companies have and where they get them from?
Money..more money, better deals.. it's pretty simple economics, banks do the same.
Thank you, brewer.
Are CD's robbing people too?
brewer12345
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Bond mutual funds are guaranteed? Clearly you're having a difficult time comparing apples to apples. You may be smart, and have excellent strategies that will help many people, but your common sense pertaining to what MANY PEOPLE actually want is disheartening. You think the average person can safely diversify an individual bond portfolio?
I think most of the people who get talked into this kind of strategy don't have a goddamn clue what they are doing and are buying the sizzle rather than the steak. You will find vanishingly few of the generally reasonably sophisticated posters here will have anything to do with either an EIA or the roll your own version, and that is for a reason. Agents selling these things are simply preying on the ignorant.
If you wish to roll your own with this silly kind of strategy and be assured you get your principal, the best way to do it would be with a CD or one or more high grade corporates. Another alternative would be one of the target maturity date funds that are designed to be a diversified portfolio that all matures at once. Then use some or all of the interest on the fixed income to buy the options package on the equity index of your choice. That is all the insurers do with the policyholders money (what is left of it after they pay a fat commission, overhead expenses, dividends to shareholders, ivory handled backscratchers, etc.) when they sell these products.
You don't believe me or something? The poster I was chatting with pretty much explained it, not to mention of course you get better deals when you have more money to invest. If you can and want to do this on your own, diversify with your own money, tie up your own time, great.. if not, there shouldn't be shame to those that don't. We all win
Oh ok, well the General Accounting Office (GAO) did a rather extensive study on the matter to see what the difference is in trading between retail and institutional (ins. co. etc). They found retail traders are being overcharged by 2.5% on small trades, compared to institutional investors. "When a transaction does occur in the municipal bond market, institutions normally get a much better price than individual investors."
brewer12345
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Wow, spin, spin, spin. Don't you get dizzy from all of that?
He asked me twice to answer his question, so I did. And as directly and to the point as possible. Sorry you think it's such a conspiracy
OP
OP
frayne
Thinks s/he gets paid by the post
KRobby, a simple concept that most here understand very well. Anytime you put a middleman between you and your investment(s), it is going to cost you money, restrictions, and even penalties. Oh and by the way, it is very easy for an individual to diversify any type of portfolio by doing just a little homework.
rescueme
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I get the first three, but what's the mule for (unless you're going to use it as food?)
...
More like transportation for the ammo and MREs.I get the first three, but what's the mule for (unless you're going to use it as food?)
brewer12345
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I get the first three, but what's the mule for (unless you're going to use it as food?)
General agricultural purposes.
I have been buying emergency survival stuff for the house (like a 55 gal potable water storage drum) and for while in the bush (hunting this Fall/Winter at ~9000 feet elevation) as well as buying a few firearms for hunting. As such, I get exposed to some of the hardcore survivalist mentality and those people are big on being able to grow your own food after a societal collapse. So non-hybridized packs of seeds and similar sell well.
brewer12345
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He asked me twice to answer his question, so I did. And as directly and to the point as possible. Sorry you think it's such a conspiracy
I think we are about done here, but I will leave you wil a parting thought, "Rob."
Life, Investments & Everything: The Limitations of Magic Factories
"
Despite what an insurance salesman might have you believe, insurers face pretty much the same capital markets that retail investors, banks, mutual funds and other participants do. They can trade the same yield curve, invest in the same equity markets and trade the same futures and options you and I can access. There are a few opportunities insurers have that most retail investors cannot access, such as commercial mortgages, non-registered bonds, hedge funds, and the like, but most other types of financial product manufacturers (banks, brokers, mutual fund families, etc.) do have access to these instruments and can use them to offer products to investors. It would be nice if the insurance industry had a magical source of returns to offer investors a leg up, but the world is simply not built that way.
Insurers also labor under a number of constraints which do not affect retain investors. Insurers must pay significant commissions to the people and organizations who sell their products, and these commissions can be quite hefty (up to 10% of your investment or more). Insurers must cover their generally quite significant overhead costs. Insurers must also adhere to very substantial regulatory requirements (all 50 states have their own independent insurance regulatory machinery) and put up quite significant amounts of capital against the products they sell. Capital is a scarce commodity and insurers generally wish to show a strong balance sheet, so a return must be extracted on the capital employed when an insurer sells a product. Investors putting up this capital generally demand a double digit expected return and that has to come out of the policyholder’s pocket. Finally, insurers must pay a percentage of revenues in excise taxes to their home state. These “premium taxes” are built into the price of insurance products and (again) come out of the policyholder’s pocket."
So you don't buy mutual funds either, all individual stocks and bonds?
(Are homebuilders a scam too?)
1. I understand that quite well, but not everybody has the economic opportunity to diversify their own individual security portfolio and obtain 50+ face value bonds etc.
2. Diversifying does not equate to minimum guaranteed rate or protection from loss. Diversifying does not rescue you from loss. If diversification is able to meet YOUR minimum risk tolerance, then GREAT, but it won't meet everybodys.
3. FIA's don't cost money. There's no sales charges or fees unless you elect a rider or bail out early.
I think you need to 'diversify' where you get your information. Too bad we're done, I was looking forward to more informative 'blogs'.
REWahoo
Give me a museum and I'll fill it. (Picasso) Give
Why are you wasting your sales pitch on us?
Haven't you figured out by now we aren't interested in funding your boat payment and no matter what chapter or verse of "Annuity Sales for Dummies" you quote, we ain't buying.
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pb4uski
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I know I shouldn't feed the trolls, but I just can't help it.
Actually Rob, most of us here are fine with paying a fee for services provided by a mutual fund company, insurer or whatever - but we are looking for good value for our money. My entire portfolio cost is only 16 bps and I am glad to pay it for the services that my mutual fund company provides to me (don't tell them though
)With most insurance products the value provided in relation to the cost is not something that interests me and isn't anything that I would recommend to others.
I realize that many people are not interested in DIY and as a result end up being sold insurance products that have fees and expenses that are much more than what I am willing to pay.
BTW, minimum guaranteed rates, particularly on EIAs are a bit of a joke since the minimum guaranteed rate is only applied to 90% of the premium for most contracts which has the effect of significantly overstating the effect of the minimum rate. After 10 years, the effective guaranteed rate is only 1.9% and for 20 years it is only 2.5%, much less than the 3% trumpeted with great fanfare by salesmen.
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brewer12345
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Sweetheart, I am a financial professional who has spent the bulk of his career analyzing, consulting to, rating, investing in, and beating over the head insurance companies. I am not an actuary, but I was mistaken for one earlier this month by an insurance company exective. Please don't embarass yourself by suggesting I don't know what I a talking about.
OP
OP
frayne
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Actually I only own a few stocks outright as most of my diversification comes from a number of no load stock/bond index funds.
I don't understand your comment about homebuilders being a scam too, as I am not saying anything is a scam.
Diversification is a basic tool for spreading risk, no more, no less.
FIAs may be a good vehicle for some but if you actually believe there are no fees, you are only fooling yourself.
Sales pitch? I quoted the Federal Government Accounting Office (GAO), from an official study. The other guy quoted a blog that is filled with misrepresentation from an unlicensed 'guru'. Belief what you wish. Besides, how could any common sense person be pitching on here, you realize the industry is regulated right?
Why so jumpy and defensive? Did a fixed index annuity assassinate Archduke Franz Ferdinand?
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