My free dinner and sales pitch

[BellBarbara]

We went to one of these. My husband drank the coolaid. I have been just hanging back. I don't think he would do something without my research first, that is our pattern as a couple. It was one of those products where you lose no money when the market is down, but gain some when it's up. And of course there are no fees, the insurance company pays her, not us. So many people were signing up. It was a very effective sales program - these people, like my husband are afraid of losing their principal. She didn't need to follow up with us as at least 30% of the people there sat down with her right then.

 

[Happyras]

+1

After all these years of admitted mistakes, why not just DIY? You appear to know more than enough at this point. Why pay any $ at all? What do you get for your money?

Even though you say the % is low, for a high $ portfolio it is still probably a high enough amount to buy some nice gifts for yourself each and every year.

-ERD50

You raise a good point, but I found the emotional element a little difficult to work, as proven by my holding all my clients oil sands stocks until they go insolvent, despite my best friend on the other side of the world in the know telling me it was all over and how it would play out this year. My DW won't let me manage it do to the stress, and my need to vent over it.

I fall into the classic trends outlined in Peter Mallouks book, I buy and hold and can't let go when going down, or get really disappointed when I put a stop loss on a stock, and it drops 40% for 2 seconds by some manipulator who saw my stop loss as a target for a sweep (true story for another day, tell me its not rigged).

Individual investors in a shark pool of traders is not a good fit. Index funds, low cost, are a good fit for long term, but in our case we wanted to shorten the near term downside risk while maintaining a full investment in the markets until we get through the next 5 years prior to medicare/other pensions etc. I was convinced by "the bank" that they met as a team every morning to do the same review I would do, but there were many of them with better resources that would act appropriate while being long term focused. Since the "others" in our family relation account have no time for such tracking, it seemed like a good thing to jump on an 8 figure family leverage for a low fee for sound investment tracking. Compared to what we were paying for such "advice", it was 1/4 the cost.

Now I wait and see how it plays out. My experience in the past has not been good where I am the low balance investor, in this case only 7 figures. Money managers in the past have certainly bought and sold the same securities in our accounts as others under management, but the first pigs to the trough (lowest buy, highest sell) have always been the higher invested folks. Again, a reason to DYI, but then there is that shark pool out there......

 

[pb4uski]

Psst..................................................

 

[ERD50]

You raise a good point, but I found the emotional element a little difficult to work, as proven by my holding all my clients oil sands stocks until they go insolvent, ....

.... I buy and hold and can't let go when going down, or get really disappointed when I put a stop loss on a stock, and it drops 40% for 2 seconds by some manipulator who saw my stop loss as a target for a sweep (true story for another day, tell me its not rigged).

Individual investors in a shark pool of traders is not a good fit. Index funds, low cost, are a good fit for long term, but in our case we wanted to shorten the near term downside risk while maintaining a full investment in the markets .... Again, a reason to DYI, but then there is that shark pool out there......

All that is so easily solved. Don't hold individual stocks, buy a simple index like SPY and you stop worrying about what any one stock will do.

You won't use a stop loss order, since no individual stock is going to tank on you and take you out. I and several others have warned about those before - I won't tell you it's not rigged, I will just say NEVER use a stop loss order (and this is one of the very few times I break my rule of 'never say never').

Don't go into the shark pool, get an index fund/ETF and fuggetaboudit.

Think long term. If it really is a shark pool out there, what does some banker have against that? What can he/she do, really? They are small time compared to the flash traders. Don't play with sharks then.

If you really want to stay invested, but be protected against a short term downturn, buy puts on SPY. It'll cost you, but it is real protection, the kind I doubt any banker can provide.

Or....

Psst..................................................

Forum code for 'buy Vanguard Wellesley' (a balanced fund), and fuggetaboudit.

-ERD50

 

[Lakewood90712]

Were are kind of drifting from the op , I think we could use a whole new thread for Happyras

 

[ETFs_Rule]

Individual investors in a shark pool of traders is not a good fit. Index funds, low cost, are a good fit for long term, but in our case we wanted to shorten the near term downside risk while maintaining a full investment in the markets until we get through the next 5 years prior to medicare/other pensions etc.

If you're afraid of stock market volatility then you simply diversify into bonds. You can't be fully invested in the stock market and "minimize short-term risk". Stocks and bonds tend to move in opposite directions.

 

[Happyras]

Were are kind of drifting from the op , I think we could use a whole new thread for Happyras

Agreed, I will start a new thread, this was a thread on slimy steak dinner insurance salesmen, which I choked on too often.

 

[mickeyd]

And of course there are no fees, the insurance company pays her, not us.

How wonderful. You get a free lunch that is valued at least $5 and no-cost insurance product. What could be better?

Just about everything else.

 

[ETFs_Rule]

Free lunch = $5 saved
Expensive annuity = $200,000 in lost returns over a life time

 

[ERD50]

Agreed, I will start a new thread, this was a thread on slimy steak dinner insurance salesmen, which I choked on too often.

And for anyone who is interested, that 'new thread' is here:

http://www.early-retirement.org/for...iy-hands-off-etf-or-mf-78210.html#post1620089

-ERD50

 

[Ready]

The sales guy called me today to follow up. He confirmed that the fixed account only guarantees .1% interest. He said it makes no sense to buy that product. He is recommending the market annuity with the 25% performance bonus and the 1.15% rider.

I went through the math with him on how the performance is calculated, but he insists the product returns 8-10% per year. When I pushed him for data, he said he would be happy to show me other clients returns. Pushing further, it appears this product has only been out for two years. He said his client earned 8% in the first year, and nothing this year.

I told him that it makes no sense for me to invest in a product with only two years of history behind it, one of them being zero. He said he could show me the same product without the rider, showing consistent returns of 10%. He offered to bring me statements from other clients that I could review to see these returns.

I asked him to point me to an article written by a credible author suggesting this is a worthy product to purchase. He directed me to the web site indexannuity.org. Looking at this site it appears to be a web site designed to help salespeople sell more annuities. He tells me there is information on indexed annuities that will satisfy my desire to have an independent person substantiate the worthiness of this investment.

It appears most of these articles cost money, so I'm not really sure what his purpose was in sending me here.

I'm still curious what returns he could show me that demonstrate 8-10% returns for 10 years in a row.

 

[braumeister]

I'm still curious what returns he could show me that demonstrate 8-10% returns for 10 years in a row.

Regardless of his claims, don't forget that we have been a long bull market, so any collection of recent performance is unlikely to be representative of long term future results.

 

[aja8888]

I'm still curious what returns he could show me that demonstrate 8-10% returns for 10 years in a row.

Making me think.....the last guy that offered 10 - 12% returns annually was this fellow:

Allen Stanford Ponzi Scheme

 

[Ready]

Regardless of his claims, don't forget that we have been a long bull market, so any collection of recent performance is unlikely to be representative of long term future results.

Good point, but his counter will be that the product allows you to share in the market gains while guaranteeing no loss of principal during the market losses, so my pointing this out will feed right into his sales pitch.

 

[jazz4cash]

So the very last slide referred to a fixed income product that he personally invested $50,000 in about ten years ago. He showed how the investment went up in value by 20% when the stock market went up 20%, but when the market went down, he did not lose any money.

Tell him THIS is the product that you are interested in and see what he says.....

His tactic of showing this investment and then offering something not as effective is a classic bait and switch.

 

[ERD50]

Good point, but his counter will be that the product allows you to share in the market gains while guaranteeing no loss of principal during the market losses, so my pointing this out will feed right into his sales pitch.

I like to think in very basic terms. So basically:

1) They take $X money in from clients.

2) They invest the money, minus Y% to pay their overhead and make a profit.

3) They supposedly provide a steady stream of money (never negative at least?) to clients with $X - Y% plus/minus their investment returns, even when the market is down.​

So where does the money come to cover the down years in the market? Obviously, some comes from the cap on the good years - they are just holding your money for you, and give it back later. Unless they have some magic-mojo to consistently outperform the market, that's all there is.


Brewer has outlined how you can do this with a fixed investment that buys call on the market. DIY, it's not magic, and you save their fee drag.

And did I follow this - he was proposing product A, and now that you have exposed product A, he is now touting product B? That is easily seen through. If Product B was > A, why didn't he show you Product B first? Don't you fully expect to find similar gotchas in Product B?

I hope you are enjoying the journey, the destination is predictable and leads nowhere.

-ERD50

 

[dallas27]

A product that gives 8% guaranteed returns and has little risk wouldn't require a salesforce.


Sent from my iPhone using Early Retirement Forum

 

[Lakewood90712]

I would ask for another "free" dinner before considering product " B "

 

[ETFs_Rule]

he insists the product returns 8-10% per year. When I pushed him for data, he said he would be happy to show me other clients returns. Pushing further, it appears this product has only been out for two years. He said his client earned 8% in the first year, and nothing this year.

He said he could show me the same product without the rider, showing consistent returns of 10%. He offered to bring me statements from other clients that I could review to see these returns.

Ask him if you're speaking the same language when he talks about "return". Is he talking about return on investment? NO! He's conveniently only talking about "income base", "protected benefit value", "interest crediting", etc.

Those "income riders" are toxic. They cost you 3 - 4% per year, all subtracted from your principal (the REAL bucket value of the annuity).

These products can be expected to earn between 2 and 5% ROI over a lifetime when held for life.

The Ugly Truth about Equity Index Annuities

 

[rayinpenn]

Consider this
1) Your salesman is either selling you a product that he knows isn't very good or
2) he isn't smart enough to know the product is terrible

Would you keep a set bear trap in the middle of your living room? After all you know where it is so it poses no danger right? My advise stay away from salesmen..


Sent from my iPad using Early Retirement Forum.

 

[rayvt]

So where does the money come to cover the down years in the market? Obviously, some comes from the cap on the good years - they are just holding your money for you, and give it back later.

From my spreadsheet (SPX 1950-2015) , a 0% (no loss) floor saves you from a -11.8% (average) loss. For a 12% cap, the average gain when above 12% is 22.7% -- which gets capped at 12%. The average gain when between the floor and cap is 6.6%

People don't realize how often the S&P500 annual gain is more than 12%.

Below 0% = 27% of the time
Above 12% = 44% of the time
Between = 29% of the time.

So.. about 1/4 of the time you avoid losing -12%, about 1/2 the time you get 7%, about 1/2 the time you get 12% when you should have gotten 23%.
Overall, you miss 11% gain twice as many times as you avoid 12% loss. That's a net loss right there.

The average annual gain is 8.8%, the average gain with cap & floor is 7.2%.

AND...you don't get the dividends which is about 3.5%.

AND...they charge you fees in the range of 3%-5%.

Oh, and if they feel like it, they can reduce the cap from 12% to 1%.

==================

It took me quite awhile to come to the realization of what you said. They hold your money, take a huge skim off the top, and then cover your down years with what's left of your own money.

 

[RISP]

[...] The average annual gain is 8.8%, the average gain with cap & floor is 7.2%.

AND...you don't get the dividends which is about 3.5%.

AND...they charge you fees in the range of 3%-5%.

Oh, and if they feel like it, they can reduce the cap from 12% to 1%.

==================

It took me quite awhile to come to the realization of what you said. They hold your money, take a huge skim off the top, and then cover your down years with what's left of your own money.

Absolutely magnificent post. Thank you very much!

 

[ERD50]

From my spreadsheet (SPX 1950-2015) , ....

The average annual gain is 8.8%, the average gain with cap & floor is 7.2%.

AND...you don't get the dividends which is about 3.5%.

AND...they charge you fees in the range of 3%-5%.

Oh, and if they feel like it, they can reduce the cap from 12% to 1%.

...

Thanks for the numbers to illustrate the details behind this.

... It took me quite awhile to come to the realization of what you said. They hold your money, take a huge skim off the top, and then cover your down years with what's left of your own money

Outside magic, that's really all they can do.

Other than academic curiosity (which is fine), I really don't understand what Ready expects to get out of this. That's all there is. It's buried in fine print and formulas, but there is no way out.

-ERD50

 

[Ready]

Other than academic curiosity (which is fine), I really don't understand what Ready expects to get out of this. That's all there is. It's buried in fine print and formulas, but there is no way out.

-ERD50

Well, I've learned a lot about indexed annuities so far. Learning about new things is an important aspect of my ER experience. And, I'm curious to see how far I can push this salesperson before he gives up, or flat out lies to me. I suppose it's a form of entertainment for me.

 

[ERD50]

Well, I've learned a lot about indexed annuities so far. Learning about new things is an important aspect of my ER experience. And, I'm curious to see how far I can push this salesperson before he gives up, or flat out lies to me. I suppose it's a form of entertainment for me.

OK, I can relate to that. I just wasn't sure if you were thinking there was possibly 'something' to these products.

It might be a little interesting to see where the salesperson goes. I suspect he/she will move to greener pastures, rather than try to justify the products to someone asking hard questions.

-ERD50