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Old 09-24-2020, 04:41 PM   #141
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I am looking to both guys for opinions. The Schwab guy has never tried to sell me anything and he is very thorough when answering questions and pulling Schwab research for me. The other FA works through LPL, but I have no sense of that company as a product supplier (if they even are), just as a custodian.
Quoting myself, I'm reporting back on what I learned.

Schwab guy was not much help. Gave me some basic information and pointed me at their web page.

The FA was great. He took a couple of days to answer because he was researching the question. Remember this was in the context of a nonprofit investor. Here are some snips:

Since we have not purchased a MYGA for any of our nonprofit entities to date, we have consulted with the Insurance & Annuity team at LPL to determine what issues are involved. They tell us that it is not uncommon for 501c3 nonprofit entities to own a MYGA, and that LPL has a number of issuers available on its platform. Currently, the best available rate for a 5-year MYGA is 2.4% from an A-minus rated issuer. Here are a list of other issues to consider:
  • Lack of marketability Ė Unlike bonds, there is no secondary market for these contracts, in the event we wish to sell them at some point. This also makes them more difficult to value for reporting purposes.
  • Surrender charges Ė In order to exit the position before maturity, we need to surrender the contract back to the issuer, which involves surrender charges and Contingent Deferred Sales Charges.
  • These contracts cannot be held in an advisory account. A separate brokerage account would need to be established to hold the contract, ...
  • Credit risk of the issuer Ė There is no FDIC coverage but in the past states have stepped up and honored contracts of defaulting issuers up to a certain amount.
  • Lastly, while a nonprofit organization can own an annuity and be a beneficiary, it cannot be listed as the annuitant. The annuitant on any policy must be a natural person, whose lifetime would be used as a reference point for determining the contractís annuitization period (even though at the end of the contract term you would likely just let it expire as opposed to receiving an annuitized income stream). You would need to select a specific personfrom the Investment Committee or Board for this purpose.

In summation, the rate is certainly attractive in relation to a highly rated corporate bond or CD. If the lack of liquidity and logistical issues are not a concern, a MYGA may be a viable alternative for a portion of the fixed income portfolio. We would be happy to discuss this with you and others on the Investment Committee if this is something you would like to consider further.
No real news there, I guess, except that nonprofits with fiduciary duties are buying MYGAs. I don't know if the investment committee will pursue this, but if we do I am going to try to get some kind of equivalence between AM Best ratings of a company, and Moody/S&P ratings of the company's bonds. It seems to me that they ought to track at least roughly.
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Old 09-24-2020, 05:26 PM   #142
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Thanks for the folliwup OS. The lack of news is Good News to me. I am very likely on the path to dabbling in the MYGA market at some point next year.
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Old 09-24-2020, 05:29 PM   #143
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Quick... in less than 5 minutes name and write down 10 bonds that have gone into default... the clock starts.... NOW
Troll. Thread now on ignore
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Old 09-24-2020, 05:30 PM   #144
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I was going to mention Hornbeck. Planet Money recently did an episode on them. They wanted to buy and follow a junk bond, and picked them.
https://www.npr.org/2020/09/09/91116...uy-a-junk-bond


I heard that broadcast live. Funny. One of the things they reported that stood out to me is that Fidelity makes it somewhat difficult to find junk rated bonds. That was my experience when I searched for the Ford issue that was cited here.
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Old 09-24-2020, 05:34 PM   #145
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Thanks for the folliwup OS. The lack of news is Good News to me. I am very likely on the path to dabbling in the MYGA market at some point next year.
Yeah. Me, too. I am still scratching my head over the high rates. Current wild theory is that MYGAs are a gateway drug and many buyers will annuitize, where the insurance companies make the real money.
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Old 09-24-2020, 05:56 PM   #146
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....but if we do I am going to try to get some kind of equivalence between AM Best ratings of a company, and Moody/S&P ratings of the company's bonds. It seems to me that they ought to track at least roughly.
Moody's, S&P and Fitch all offer financial strength ratings for the major annuity writers that are an assessment of the issuer's ability to pay claims that would be appropriate for the MYGA's issued. These are usually a notch or two better than their bond ratings since claims-based products rank ahead of debt in the event of insolvency.

From S&P:
Quote:
An Insurer Financial Strength Rating is our forward-looking opinion about an insurance organization's ability to pay its policies and contracts.

Insurer Financial Strength Ratings may be useful for buyers of insurance, risk managers, and employee benefit administrators. Insurance brokers and agents may also use these ratings to meet due diligence and disclosure requirements. ...
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Old 09-24-2020, 05:58 PM   #147
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Yeah. Me, too. I am still scratching my head over the high rates. Current wild theory is that MYGAs are a gateway drug and many buyers will annuitize, where the insurance companies make the real money.
IME, very few MYGA owners annuitize.... most get withdrawn or rolled over at the end of the term....at least where I worked but I left in 1998 so my experience isn't current... and I was the annuity CFO for a while so I would have known.

A couple of the newer entrants are owned by PE, who think they are the smartest guys in the room and are banking on higher returns from unconventional investments.
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Old 09-24-2020, 06:04 PM   #148
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And I bought AT&T Bonds that are paying 9.455% coupon yld/7.9%
copy/paste from Fidelity just now...

AT&T BROADBAND CORP NOTE
9.45500% 11/15/2022
Basic Analytics
Price (Bid)119.114
Price (Ask)119.359
Depth of BookView
Current Yield7.921%
Yield to Sink--
Third Party Price119.370
Spread to Treasuries0.270
Treasury Benchmark2 YR.(7.625% 11/15/2022)
Recent TradeView Recent Trades
Price119.370
Quantity20
Date/Time09/24/2020 14:18:46
Buy/SellCB
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Don't bother. This guy is either an idiot or a master troll. He or she has hijacked a thread where I'm much more concerned about Ally bank dropping their savings rate to .6%
I vote Troll. Time to send he/she traveling methinks, lest he unduly influence those who genuinely seek solid investment advice.
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Old 09-24-2020, 06:14 PM   #149
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Come on guys/gals.... if your not learning anything from this then I'm waisting my time here

wake up ... at least a little bit...
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Old 09-24-2020, 07:03 PM   #150
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IME, very few MYGA owners annuitize.... most get withdrawn or rolled over at the end of the term....at least where I worked but I left in 1998 so my experience isn't current... and I was the annuity CFO for a while so I would have known.

A couple of the newer entrants are owned by PE, who think they are the smartest guys in the room nad are banking on higher returns from unconventional investments.


The background info Iíve come across states that MYGA rates are ďalwaysĒ higher than CDs, but I couldnít find out why. That may be true and the bias against annuities in some circles and lack of enthusiasm by the sales channel compared to products with fatter commissions. I expect more folks will discover MYGAs in this environment and maybe they just lag CD rates on the way down. By the time Iím ready Iíll be wishing I could get todayís rates. A 5yr @ 3.45 from an outfit Iíve never heard of. Why not?
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Old 09-24-2020, 08:31 PM   #151
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Come on guys/gals.... if your not learning anything from this then I'm waisting my time here...
True enough, so you might as well leave. Spend your time instead studying common homonym and other spelling errors.
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Old 09-24-2020, 09:55 PM   #152
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The background info Iíve come across states that MYGA rates are ďalwaysĒ higher than CDs, but I couldnít find out why. That may be true and the bias against annuities in some circles and lack of enthusiasm by the sales channel compared to products with fatter commissions. I expect more folks will discover MYGAs in this environment and maybe they just lag CD rates on the way down. By the time Iím ready Iíll be wishing I could get todayís rates. A 5yr @ 3.45 from an outfit Iíve never heard of. Why not?
I don't think they MYGA rates are "always" higher than CDs if you take credit risk into account... compare CD rates to similar term MYGA rates from highly rated carriers like NYL, Guardian, etc. ... 5 year is currently 1.35-1.40%. Navy Federal 5 year CD is 1.25%.... so same ball park. But I concede that right now that MYGA rates have an edge over similar credit quality and term CDs but in my experience it isn't always that way.
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Old 09-25-2020, 05:28 AM   #153
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Thatís a reasonable assessment. Itís the same ballpark, but better seats. Iím simply repeating what Iíve read many times. Hereís an example excerpt albeitís 6 yrs old.....


So how do MYGs and bank CDs stack up against each other? To start, let's acknowledge the conventional wisdom holding that MYGs are generally the better choice because they offer higher rates and certain tax advantages. But is that the final verdict?

The entire article which favors CDs due to simplicity of the product is below. It discusses the MYGA tax deferral which seems significant to me but Iím not sure I trust their analysis....

https://www.marketwatch.com/story/co...ers-2014-03-28
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Old 09-25-2020, 05:38 AM   #154
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Thatís a reasonable assessment. Itís the same ballpark, but better seats. Iím simply repeating what Iíve read many times. Hereís an example excerpt albeitís 6 yrs old.....


So how do MYGs and bank CDs stack up against each other? To start, let's acknowledge the conventional wisdom holding that MYGs are generally the better choice because they offer higher rates and certain tax advantages. But is that the final verdict?

The entire article which favors CDs due to simplicity of the product is below. It discusses the MYGA tax deferral which seems significant to me but Iím not sure I trust their analysis....

https://www.marketwatch.com/story/co...ers-2014-03-28
If one is managing their income for ACA purposes, then a MYGA in a taxable account with deferred interest could come into play.
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Old 09-25-2020, 07:17 AM   #155
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Originally Posted by jazz4cash View Post
Thatís a reasonable assessment. Itís the same ballpark, but better seats. Iím simply repeating what Iíve read many times. Hereís an example excerpt albeitís 6 yrs old.....


So how do MYGs and bank CDs stack up against each other? To start, let's acknowledge the conventional wisdom holding that MYGs are generally the better choice because they offer higher rates and certain tax advantages. But is that the final verdict?

The entire article which favors CDs due to simplicity of the product is below. It discusses the MYGA tax deferral which seems significant to me but Iím not sure I trust their analysis....

https://www.marketwatch.com/story/co...ers-2014-03-28
The bulk of the $1,747 advantage in the article arise from the difference in interest rates (2.25% for the CD vs 2.45% for the MYGA)... if the interest rates were the same at 2.35% the benefit of tax deferral is only $441 (at 28%, lower for lower tax marginal tax rates).

 CD  MYGA  
 Interest @ 2.35%Taxes at 28%BalanceInterest @ 2.35%Taxes at 28%Balance
   250,000  250,000
05,875-1,645254,2305,8750255,875
15,974-1,673258,5326,0130261,888
26,075-1,701262,9066,1540268,042
36,178-1,730267,3546,2990274,341
46,283-1,759271,8786,4470280,788
56,389-1,789276,4786,599-10,468276,919
 36,775-10,297 37,387-10,468 
    612-171441

The one disadvantage is that annuity withdrawals are interest first and then principal and that the interest being taxed in one year might push one into a higher tax bracket if they are close to the top of a tax bracket to begin with.
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Old 09-25-2020, 07:46 AM   #156
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whats every ones thoughts on XOM hitting the 10% dividend payout good buy or not ??
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Old 09-25-2020, 08:41 AM   #157
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Moody's, S&P and Fitch all offer financial strength ratings for the major annuity writers that are an assessment of the issuer's ability to pay claims that would be appropriate for the MYGA's issued. These are usually a notch or two better than their bond ratings since claims-based products rank ahead of debt in the event of insolvency ...
Thank you. Helpful as usual.

I am no expert on bond ratings but even stupider on AM Best ratings. You're a pretty conservative guy I think. What AM Best rating would you consider to be an acceptable risk level for a 5 year MYGA?
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Old 09-25-2020, 09:02 AM   #158
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I personally think that there is little credit risk with most MYGAs from well-rated insurers given regulatory constraints and risk-based capital requirements.... especially over a short 5 year term. While I personally would probably be ok with A or better, as a fiduciary I'd probably shoot for A+ or better.

If you're comparing to CDs that have no credit risk, then only A++.
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Old 11-01-2020, 11:31 AM   #159
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Is that same as MYGA (multi year guaranteed annuity)? I will consider these products when the time comes to replace my maturing CDs.
i think this is what's known as CD type annuities and they are good depending on the insurance that sells them. So what's important is the reliability of the insurance co. so it takes some time to find a good one. I'm going to see if I can find a good one for no more than 5 years.
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Old 11-01-2020, 11:57 AM   #160
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The background info Iíve come across states that MYGA rates are ďalwaysĒ higher than CDs, but I couldnít find out why. That may be true and the bias against annuities in some circles and lack of enthusiasm by the sales channel compared to products with fatter commissions. I expect more folks will discover MYGAs in this environment and maybe they just lag CD rates on the way down. By the time Iím ready Iíll be wishing I could get todayís rates. A 5yr @ 3.45 from an outfit Iíve never heard of. Why not?
Many years ago I had a few CD type annuities at great interest. I'm ready, like you, for more but I'm afraid that my money availability now is not enough for these?: around $29K? Anyway another reason I didn't do it yet is I lost my nerve and can't decide which insurance rate to get. Have you found a good one? If so would you maybe let me know which? In December 1 I'll have a CD maturity of $40K and wonder if I should wait and find a MYGA for Dec.?Thank you in anticipation.
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