About a week ago, someone signed up on the website, maybe read a couple emails and watched the Flex Strategy videos.  Rather than schedule an appointment to see whether it would work for him, he went and posted a question on the Bogleheads forum.  You can only imagine the response he got from all the “experts” hiding behind an anonymous screen name and a photo.

Here’s the question: Anyone familiar with the guy at Straight Talk Annuity and his flex plan?
Fixed Index annuity with no income riders to get fees as low as possible. Maybe use it instead of bonds in combination with your equity allocation.When stocks do well withdraw from your stocks.When stocks lose you withdraw from your annuity to preserve your stocks.

I have to compliment the guy.  That’s a great synopsis.  But, of course they didn’t answer the question because they have no idea about how to distribute assets in retirement.  I mean no offense to anyone who lives off CD interest, bond coupons or stock dividends, but these guys are all about parking money and not touching it.  I like to talk about using money.

My first problem is I never met the guy.  I had no idea about his financial situation but he apparently took the videos to mean I thought he should buy an index annuity.  Well of all the people I’ve talked out of buying index annuities, it’s hard for me to believe that someone I’ve never met would accuse me of trying to sell one.

What you’ll see on this forum is a perfect example of confirmation bias.  These guys will say anything to back up what they already believe.  I started to respond to each claim but got bored.  No one ever really said anything of substance.  A quick page from a contract or illustration could refute any of the arguments.  Just remember that the question posed was drawing attention to a strategy, not a product.  I’m sharing this because it’s exactly the kind of crap you’ll run into when trying to verify things on your own.  But you have to push through and that’s why I’m doing this.

One guy kept asking for a prospectus.  Aside from the fact that I never proposed an annuity to this individual, fixed insurance products don’t have a prospectus.  A prospectus is a legal disclaimer for securities contracts.  It lets you know all the information about the company and investment offer so you fully understand that you can lose money but can’t come back later with a lawsuit.  A couple other guys thought they were smart and posted links to an annuity prospectus from both Brighthouse (MetLife) and TransAmerica which are obviously from variable annuities because those have mutual funds as the underlying investment.  Since the underlying investment is a security and can lose money then the SEC regulates variable annuities and requires a prospectus.

FINRA is the Financial Industry Regulatory Authority and does not regulate fixed insurance products.  So, I don’t expect them to have completely accurate information when it comes to guarantees in an insurance contract.  I’ll take what the insurance company offers in the guaranteed summary of values over what FINRA insinuates any day.  What FINRA did in this case is highlight how some contracts guarantee less than the initial premium in exchange for higher cap and participation rates, except they left out the part about higher growth potential.  This is a thing of the past and there aren’t many contracts that do this anymore.  It’s much like the fact that I’ve changed a lot of information on this website because annuities have evolved over time to become much more user friendly.

My proof of misleading information from FINRA and the SEC is that I took the series 65 test to become a Registered Investment Advisor a couple years ago.  I passed easily.  All of the questions about index annuities were written as if the products haven’t changed in 20 years.  I had to answer incorrectly to get them right.  And I answered all the questions about index annuities correctly, according to my results.  You can disagree if you want but you’re wrong.

The following comment is one of my favorites…

Stinky says that there is an excessive internal cost to these products.  While the investment banking team required to administer index annuities would certainly add cost over a traditional fixed annuity, the fixed rates on both products are within a half percent.  So I call this one bullshit.  At least he’s somewhat fair and doesn’t think an index annuity will kill a portfolio but I still say he’s off the mark.  You can trust the guy named Stinky if you want but let the current contracts speak for themselves… Below are a couple I shared in the last six months that show no fees, good growth potential and a surrender value that is no less than the initial investment, plus interest in both cases.

Double Digit Annuity Yield

What it’s Like to Own a Good Annuity

Time for a definition for those of you who are new at this.  The ‘surrender value’ is the amount of money you get back if you surrender the contract.

What is really funny is that the thread has evolved throughout the week.  It went from being a criticism of me to being somewhat comical.  Toward the end all the guys seem like they are trying to figure it out; talking about CDs, bonds, dividend stocks, taxes etc.  And they haven’t even come close to designing an income plan for anyone.  It’s not like there was a case study they were asked to comment on, these guys are just trying to be relevant.

The guy who asked for a prospectus added a laundry list of items anyone should look for when verifying if an annuity is legit.  I’m pretty sure that’s the same guy who says he worked at an insurance company for 40 years but obviously doesn’t understand that a prospectus is a very specific legal document that doesn’t apply to insurance products, unless it’s a VARIABLE annuity.  His list of required disclosures is more or less what I go over with everyone before a transaction occurs.  But he doesn’t know me and just assumes I’m an illiterate salesman.

There are lots of individual things I could pick apart if I wanted to start an argument.  They called me out by name and I almost went there and started to respond.  But I have better things to do and didn’t really have time this week.  If I’m going to write a response to anything I’m going to write it to the loyal readers on my list and ask you to decide for yourself.  This actually was some pretty easy material for my weekly newsletter.

Fortunately, the man who started the thread, eventually admitted that we had never spoken and only exchanged a few emails.  I think he actually bought a fixed annuity from a never-heard-of-before insurance company and it seems as though the Bobble Heads are impressed with daily account values.  Either way, there’s proof I never proposed anything since I never had the opportunity, aside from quoting a couple fixed rate annuity options.  That was enough for the Bobble Heads to jump to conclusions and assume I’m trying to do something I’m not.  If any of them had a better idea, they didn’t share it.

Bottom line:  I can prove what I say but they can’t.  One guy claimed to have evaluated three annuity contracts.  Wow!  I’ve reviewed thousands so you can choose who you trust.

Talk to you next week, where I plan to show you something that will make those Bobble Heads spin!

Bryan

Boy would I ever love it if there was a best time to buy an index annuity.  Let’s say there was a three month period in the year that always produced the best returns.  I’d work 18 hours a day and seven days a week then spend the other nine months fishing saltwater flats and riding the mountains of Montana and Wyoming.  Sadly that doesn’t exist so it doesn’t warrant a newsletter but timing in other ways causes hesitation for lots of people.

Everyone tries to time the market whether intentionally or subconsciously.  But rarely does anyone pay attention to all the indicators and make every move at the right time.  Market rallies, interest rate changes, politics and dozens of other indicators all give clues but it takes an algorithm to sort it all out, and those are still wrong a lot of the time.

Not only have I heard this a bunch recently but also it has been a common theme with people hesitant to pull the trigger on an index annuity.  Many times I’ve heard someone say, “this looks good but maybe I should wait until the market drops to get it.”  The thinking goes that if you are using a contract with growth tied to the market then a lower starting point gives more upside potential.  Buying low and selling high, right?

On the surface it makes sense but going a bit deeper, I don’t understand why anyone would want to play the market while trying to get out of the market.  It’s going to go one way or the other and most of the time the result isn’t positive.  Bigger money is always moving by way of faster computers and we all have no control over the day to day and year over year swings.

Did you ever think that maybe the ‘buy and hold’ mantra is promoted by institutions because they want you to stay in one place?  That way they can make more money by shaving pennies off of millions of shares and thousands of transactions.  It’s kind of beside the point but these things pop into my head from time to time.  Try reading the book Flash Boys by Michael Lewis for a real eye-opener.

If you are thinking about trying to time the market before buying an annuity it’s not so simple.  And in all honesty it doesn’t make any difference in the end.  An index annuity is built to time the market.  If the market drops in the first contract year then you start the second year from a lower point, giving more upside potential.  What if the market doesn’t drop?  Well you had less risk and probably locked in some gains.

2017 was a really good example of this.  Lots and lots of people thought the market would correct and decided to sit it out in cash.  The S&P 500 was up something like 23% that year so all those people who were risk averse missed out on a year where I saw plenty of double digit annuity yields.  Just remember that big gains are nice but it’s all about consistency, like I wrote about last week.  Hit the green button at the top to go to the main page if you missed it.

Index annuities are all about averages.  People often comment about how the sequence of returns might affect cumulative yield.  While that is very important in stocks and mutual funds it matters much less with index annuities.  Instead of the up, down, up the index annuity goes up, flat, up.  This product alone solves the problem of reverse dollar cost averaging for retirees.

Just look at the lost decade from 2001 to 2010.  It was one of the best times to have owned an index annuity.  The S&P 500 was down around 20% at the end of it but index annuities were positive by a healthy margin.  Volatility creates opportunity when your downside is protected from loss.  Many analysts suggest we are headed for another lost decade and using that as a reason to not buy an annuity is just an excuse.  If any of you really feel that way then what the heck are you doing in the stock market?  In another lost decade index annuities will shine bright.

Is there merit to timing the market before buying an annuity?  Maybe but in the end I just don’t think it will swing the needle.  At best it will give you an extra couple percentage points in one year but you’ll get the other side of it somewhere so I’m sure it will all even out.  If you think this is your reason for waiting I’ll bet that the real hesitation comes from somewhere else.  This would be a perfect spot for me to send you back to an old newsletter:  9 Reasons People Don’t Buy Annuities.

Enjoy your weekend!

Bryan

It’s a common misconception that truly comes from an uneducated place.  You’ll often hear, “annuities would be fine if not for the hidden fees.”  In almost every case that is nothing more than a scare tactic because all but one annuity that I’ve seen has the fees clearly disclosed up front.  There is a reason why fees are valuable and a reason why fees don’t exist on a lot of products.  You need to understand both.

Ken Fisher does a really good job of warning people about annuity fees.  So much so that many people disregard annuities altogether because of the perception that what he writes pertains to all annuities.  That is not the case.  Many are surprised to hear that I actually agree with most of what he says.  I do, however, think his writing is misleading because he never says that he is speaking specifically about variable annuities.  So what he writes doesn’t apply to the majority of products available.

For purposes of this article I’m going to reference fixed and variable annuities.  I’ll use the term ‘fixed’ to generally apply to both fixed rate products and fixed indexed products.  Both have the same foundation so that’s where you need to focus.

Fixed annuities don’t have fees.  Before anything else is added, every basic fixed contract is a spread product.  It means an insurance company invests your money, earns yield and subtracts a portion for expenses and profits.  What’s left is the yield stated in the contract.  You don’t buy a higher rate minus a fee, you get the advertised rate and the insurance company took their piece before you even came into the picture.  Anyone who complains about this should look into just how much money a bank makes when you buy a CD.

Fees only come into play when you add something to the base contract.  Some people want an income guarantee, additional death benefit or some kind of long-term care payment.  If you want the additional benefit you will have to pay a fee.  If you don’t want to pay the fee then don’t take the benefit.  Fees are a choice in fixed annuities.

Variable annuities have fees for many similar reasons, only to add benefits you may or may not want.  Again, the base contract has no fees but the costs go up when you add mutual fund expenses and any insurance you want on the account value, future income payments or even a protected death benefit.  Total costs can approach 4% only because insuring all those things against market risk is very expensive.  The blend of risk and insurance inside a variable annuity makes for a complicated list of considerations so if you don’t want the benefit, don’t pay the fee.

In most cases, the difference between fees for Ken Fisher’s management and a variable annuity only come down to the cost of a guarantee.  Go ahead and ask him how much he would charge to guarantee what he says, and he might pull down that one-sided report of his.

I don’t sell variable annuities, not only because high fees create sticker shock but also because I’ve found you can do better with the right mix of a fixed annuity and market securities.  On one side you have the protection you need while on the other you get the upside growth you want.  This combination can reduce fees to near-zero, depending on how you invest in market securities.  If you want to see how much this saves you over time then check out my newsletter from last year:  How Fees Affect Investment Performance.

Fees always cost something in the end.  Aside from the out-of-pocket cost there is always an unrealized cost, which is often much bigger.  I suggest you avoid fees if at all possible.  Knowing how to do that requires you to understand why fees exist and how you can avoid them if you don’t want the benefits provided.  Like everything else this is very simple and it’s best to avoid the hysteria if your goal is to find the best solution.

I have sold some contracts with fees to those who wanted an additional guarantee.  But, 90% of the contracts I’ve place with customers have no fees whatsoever.  I wouldn’t mind a few comments from current contract owners who can confirm my claim, for the benefit of any pessimists in the crowd.

Enjoy your weekend…

Bryan

This started just one year ago.  A standard case came across my desk and I showed one couple how my approach might give them more control over retirement assets.  They had been to a seminar and got the usual pitch.  Being a few years from retirement they had already decided to protect some assets and an annuity is a good way to do that while also making sure all retirement income is secured.  But as is common, they felt like there might be a better alternative to the usual pitch.  At the time I wrote the below newsletter to remind everyone of the benefits of a different approach.

How to Beat a Guaranteed Income Contract

It works for some but not others.  Many people are skeptical of annuity performance and a common sentiment is that an insurance company is going to change the rules and offer nothing on the back end.  For those it’s a risk to not take the guarantee but I’ve tried for a long time to convince people it’s not that hard to beat a guaranteed income contract.

On a side note, there was something really cool about that post last year.  An advisor left a comment to the article asking if I’d recommend a contract for his personal portfolio.  It’s not the first time that has happened.  I know of at least a dozen retiring advisors who have designed their personal plans based on information from this website.  Food for thought…

This couple decided to skip the guaranteed income contract and go with something that had no fees and much more growth potential.  It was a good move that just paid off in the first contract year.  It may have been hard to see the money not moving when the market was at an all-time high earlier this year and then a relief in March when 30% of the value was stripped away in a matter of a couple weeks.  Sure it’s coming back now but what a wild ride.  For anyone who isn’t a professional trader the past year has not been a settling experience.

Over the past few weeks I showed you some things to avoid and then something that works.  Rather than another hypothetical performance, below is actual proof of something that worked well in spite of all the global drama.  I’ll explain a few important points below but first click the link below to view the pdf.  It should be all the explanation anyone needs.

Annual Statement

Yes, this contract gained a hair over 12% when the market had one of the wildest 12 month periods ever.  The market is up from a year ago by about the same amount, but which was the better ride to get here?

Correct, there are no fees in this contract.  Interest credits are net to the account value and death benefit.  Many have a hard time believing this but it’s quite true.

They could surrender this contract and still walk away with a 4.5% yield, but that would be silly.  Having those out of the way in the first year opens up a tremendous amount of flexibility

Don’t forget, the earnings are now locked and guaranteed in the contract and can never be lost or taken away.  Again, no ongoing fees to drain the principal if it doesn’t grow next year.

For the critics who think insurance companies are out to take advantage of people, all cap, participation and spread rates for the available indices remained exactly the same for the second year.  You’ll have to take my word for it.  You only get to see what I show you with consent from the client but you can always buy your own to get a look at the full five page document in a year.

Annuities aren’t scary or too complicated.  Protect money and get upside growth potential.  You can take the guaranteed income and there’s nothing wrong with it but it’s a good idea to explore alternatives as well.  Some contracts are good and others aren’t all that great so it pays to work with someone who is used to competitive situations and has a broader view of all the options.

I am happy for these guys and I really just want to see all of you be successful in retirement.  It won’t always produce like this but it’s nice to see at a time when the world seems to be falling apart.  I’ll continue working to dispel myths and offer education so people can make objective decisions.  It is just not as hard as you think.

Enjoy the weekend…

Bryan

It’s time for me to pick on a couple different products that have proved to not be worth the hype.  About once a month, on average, I get an email touting the incredible opportunity of some new contract or index.  I look at all of them just to see if the claim merits me adding something else to my list of recommendations.  Most things that gain traction with other advisors don’t immediately get my attention but when I start seeing a change in sales trends, I keep track so I can compare performance.

Just like when a first-round draft pick never makes an all-star team, plenty of these past ideas have not lived up to the hype.  I have more inside knowledge than other because I service several contracts that I never sold in the first place, which suggests the agent didn’t stick around to explain the lack of performance.  That’s why I feel I’ve earned the right to label some contracts at overrated.

Two companies come to mind since both have been popping up a lot lately.  I’m going to specifically explain why I don’t like the New Heights products from Nationwide and speak more generally about why Athene seems to be pushed harder than it should.  Each of these companies has products that many agents claim to be the absolute best opportunity so I’m calling that out and will show you why.

Six or seven years ago, Nationwide got into the index annuity business with the New Heights line of products and to this day they don’t have much else.  This is a good company and the products are safe but the growth potential was tied to the JP Morgan Mosaic Index and according to sales literature the index had never returned less than 8% in a single year.  Agents clamored to sell the contract using illustrations that would turn Warren Buffet’s head and I just kind of sat there and watched it.

The problem?  I will always be hesitant to push something that does 8% every single year but whether that was true or not, the contracts required a three-year reset on all options.  That means you had to wait three years to see if you made any money.  Longer resets come with higher participation rates so the illustrations looked outstanding but the longer resets also bring about a lot of risk.  And that’s exactly what happened.  The index never did quite as good as promised and at a few key points the market cratered and several people went three years while making little or nothing.  That puts a whole lot of pressure on the next period since one could theoretically go a whole six years without earning interest.  One quarter of retirement could be gone and you only have two chances to lock in money.  I don’t recommend it.

Athene was a B rated company back in 2013 when it acquired the US operations of Aviva, a major British insurer with roots going back to the 18^th century.  It’s not often that a small company buys a big one but it’s beyond my pay grade to explain that one.  Since then, Athene has been growing rapidly and at times is creating new products faster than they process applications.  To me it seems like this company has too many things going on at once.  When another agent says this is the best opportunity available, it really depends on which contract.  Athene has 21 index annuities up for grabs.

This is one that I hear about nearly as much as Allianz and that’s because of the distribution structure.  Athene is paying marketing organizations a lot of money to push the products so you have a really good chance of running into one of them when someone solicits you.  It’s hard to pick one specific product but if we’re talking growth, just about all of the 21 have the same index options so it’s easy to lump them all together.

The index options are just OK but participation rates are not very high right now so I think most of them will do well to yield 3% on average.  That wouldn’t be the worst result but it’s not that exciting and that’s not my problem with Athene.  All contracts offer a blend of one and two-year resents.  Again as above with Nationwide, longer resets come with higher participation and more risk of not making any money.

It’s fine if you want to pursue that strategy but agents are pushing it mainly for one reason.  It’s not because it’s best for you, just that it is the only way they can make an illustration look good.  My experience from the past suggests you are better off sticking with the consistency of one-year resets.  You have to think about more than the potential of an index and right now is not the time to enter a long crediting period.  The market is down from the historic top but up about 5% over the past year.

Again we have an overvalued market and an absolutely miserable economic outlook.  Going long on an extended market run right now makes no sense to me.  Go short and reevaluate next year.  If you have a Nationwide contract you may not have much choice and the agents for Athene are more interested in making a sale than giving good advice.  Maybe they should switch to or at least branch out to other companies to provide more opportunity for clients.

The best contract is partially a matter of opinion.  Certain things can be verified but in the end it comes down to what you like and who you trust.  Beyond any opinion, Nationwide and Athene do not have the best contracts.  As I was writing this I realized I should have done more detail on each individually because there’s a lot more to it so comment below or send me an email if you’d like me to work on the extended version.

Enjoy your weekend!

Bryan

I’ve never been too successful talking about interest rates.  Most people have a pretty light appetite for fundamentals which unfortunately leads to the majority settling for something less than the best deal available.  So I’m going to give a simple example of how recent conditions have changed annuities in a way that will underscore my recommendation to defer and grow money safely.

In a case I’ve been working on for the past few months, I started by showing a 65 year old couple the payouts for a single premium immediate annuity.  In the beginning they could expect to receive 5.3% of the investment as guaranteed annual income for life.  This was back in February when the 10 year treasury was trading at about 1.5%.

As many of you understand, my first objective was to compare the guaranteed income payout to a deferred contract while using free withdrawals to match the income.  With modest growth, you can match income but have a substantial remainder down the road while staying in control of your money the whole time.  It’s so simple that a redneck from Montana can figure it out.

The main point of me suggesting you approach income that way is because most people think rates will rise in the long run.  Payouts increase with age as well so if you defer the income decision there is a high likelihood you will get greater cash flow in the future and quite possibly much greater.  Whether or not it’s the easiest way to do things, it is the most profitable.

As with many people, this couple had a hard time making a decision for several reasons relating to a general skepticism of annuities.  That’s ok because I promote detailed research as the best way to make a decision you can live with.  As time dragged on we entered into some serious economic calamity and interest rates dropped significantly.

Last week, I ran the numbers again and the same couple was now looking at a 4.9% payout from an immediate annuity.  In just two months the payout dropped by a meaningful amount because the ten year treasury had come down by almost a full percent.  When things turn around the exact opposite will happen and you will get paid more for the money you put in.  Or it will take less money upfront to meet the same income goal.

Please don’t argue with me about deferred products or bonus rates and the like.  Waiting to take payments is a lost opportunity cost and with all factors considered the IRR is identical to immediate income payments.  I love to argue so call if you’d like to be proven wrong.

Low interest rates are not the problem as commentators will suggest.  You just have to think outside the box and I’m not talking about anything complicated like finding a vaccine for a rapidly mutating virus.  It’s only a matter of a few simple principles that make sense.

A return to normal is the first thing that needs to happen before payouts recover.  Low rates have required the insurance industry to dial back offerings and several companies have been rated with a negative outlook.  That speaks more to company profitability than safety of your money, but such is life for those insurance companies who not only need to protect policyholders but also appease stockholders.

Private companies, however, don’t have to worry about stockholders and can build greater levels of reserves to keep business running smoothly during volatile time periods.  There’s no more magic to it than finding the stock with consistently high dividends.  The ability to reinvest profits without concern for stockholders sets them apart when you find slim pickings elsewhere.  These few companies are currently standing above the crowd with reasonable offers while others are pulling back in order to maintain stock values and financial ratings at the same time.  Where would you rather have your money as we wait for a recovery?

About seven years ago I helped a similar couple find the highest payout for an immediate annuity.  Their annual lifetime income equated to a 7.2% payout of the initial premium.  That amounts to 50% more annual income than the same couple could get today.  Rates don’t have to go to hyper-inflationary levels in order for you to get substantially more income for the money.  Modest growth will keep you in position to capitalize on the opportunity when it becomes too good to pass up.  The right strategy along with the best companies will put you in position to do just that.

I approach things the way I do because of what I’ve seen in the past.  Grow your money safely and access the funds as you see fit.  As conditions change you’ll be in position to make the most of it when the timing is right.  It’s really not that hard to figure out.

Let me know what you think… comment below or send a response to the email.

Bryan

One year ago I wrote a quick story about Bill.  We had been working together for about a year after he called asking for help with a retirement plan.  Initially he was looking for guaranteed income and came with a long list of requests in regards to benefits and company rating.  I came back to the second meeting with the best contract on the market only to find Bill had decided he needed more income than he had previously thought.

This illustrates the problem with guaranteed income.  As great as it is, in many cases it’s pretty expensive and takes more money to secure than most people are willing to spend.  I mean, the mathematical models and academic research based on historic numbers have all proved that the security from guaranteed income provides the highest level of growth to offset inflation and leave a legacy, but most people still don’t buy it.

When Bill’s income needs increased so did the amount of premium required to make it work.  In his case it would have meant 2/3 of his portfolio, where previously he was expecting to be able to do it for half.  So I showed him the Flex Strategy and why it would likely be a more efficient way to provide the security needed.

I’m not going to go through all that again so if you’d like to go back a year and read the basics of Bill’s story you can read it here:  Why I Call It the Flex Strategy

The result was a plan that met his expectations with respect to both cost and benefit.  He we are two years later and we each got a renewal letter in early February.  When we spoke I asked if Bill wanted to make any withdrawals from the annuity.  He said that because his equities were up so much in value he had already decided to sell off some gains and bank the cash to cover his income for the next year.  His annuity credited a solid yield as well so things were right on track.

A couple weeks later, all hell broke loose and I don’t need to remind anyone what happened.  I called Bill and told him that with all the market losses his portfolio was way out of balance and he still had a 10% free withdrawal that could be accessed if he wanted to pursue more growth after the decline.  So he did it and bought back all the securities he sold at a 30% discount.  Poetry in motion…

Now, it will not always happen this perfectly but then again, free withdrawals can be taken at any time during the year.  I’ve been seeding the idea for reinvestment of additional cash for the past year now and if any of you get the chance to do it two or three times in retirement it will make a phenomenal difference in portfolio values in the long run.

Timing the market is difficult and every professional trader will have an opinion one way or the other on the subject.  But it’s clear to me that if you make 30% or lose 30% you ought to think about making a move.

Bill never did anything besides replace the bonds in his portfolio.  I’ve been banging that drum for more than ten years and it might be time to get a bullhorn and start shouting!  Why does everyone hang on to an asset with almost no upside?

You made some money and lost some money.  The market’s coming back but will it last?  You don’t have to do anything crazy but you should do something.  I told you all a few weeks ago so go look at it again if you need a reminder.  Don’t sell stocks. Do this instead.

Have a nice weekend…

bryan

Take a look at the chart below and you’ll see the values of the S&P 500 since 1996.  This was recently released from JP Morgan and I grabbed a screenshot in order to point out a few things.  It maps out the high and low points or extreme volatility of probably the second best market period in history.  Throughout, everyone became addicted to the highs and devastated by the lows.  Exceptional yields were realized along with crippling losses.  It hits home with me because I have worked with retirees in each period, with the exception of the high point in ’99.  What’s interesting to me is how quickly sentiments change because every point along this chart I heard someone make a definitive statement about what was about to happen.  Some guessed right but most guessed wrong.

If you go back to the high point of March 24, 2000 and compare it to where you are today, the yield might not be so impressive.  Had you entered the market at that starting point and exited on February 19, 2020 you would have had an effective yield of something in the neighborhood of 4.25%.  But if you didn’t get out and rode it all the way thru the end of March 2020 your yield over 20 years would be a fair bit less than 3%.  Now, dividends would have enhanced the yield by around 2.5% on average but you’re still not crushing it.

There are two lessons here.  First, reducing volatility DOES increase yield over time.  The second lesson requires a story…

Early in the week I spoke with a guy in his early 50s.  Protection of assets is his mindset so he’s looking at annuities.  He has been following this blog for a few years and figured it was time to reach out and schedule an appointment.  I learned about his strategy of protecting 75% of his assets and only putting 25% in the stock market.  His recent losses didn’t affect him that much and he thought this might be a good opportunity to make a move.  We didn’t talk about how much money he has or what his retirement goals are because that’s several years away but I did get to share with him something I’ve learned of successful people and I’ll share that with you now for the second lesson.

The vast majority of people I know who have been successful got where they are because they were good at saving money.  Investments were calculated moves but setting money aside consistently always produces results.  Most of you look at the assets you have and think that it’s the stock market that produced it, when the money you saved is what made the difference.

The yield on the S&P 500 isn’t that great over the past 25 years but most of you don’t see it so dramatically because contributions created more of your growth than did the actual yield.  Take some time to think about it and you’ll realize that the market never really helped, it only caused stress and now might be the time to change your perspective.

If one more person gripes to me about the yield of an annuity I’m going to use this chart.  I’ve seen a lot of things beat this in the last 20 years but I write about that too much.  Once you realize that the market really isn’t giving you anything then you might decide to keep saving money and spend as you see fit.  How nice would it be to not worry about a portfolio right now?

Call or email any time…

Bryan

Most people don’t want to get too technical but those who do are able to make much better decisions.  My best clients often take as much as a year to make a decision and as a result they are all comfortable and happy with how things are working out.  I don’t expect deep analysis from everyone but you need to know that I am willing to get in the weeds with anyone who wants to prove a strategy from every possible angle.

Opposite from me is the guy from Tucson who runs weekend annuity infomercials on TV.  He answers softball questions from an adoring interviewer who pretends to be just as gullible as he wants all his clients to be.  I’m never going to do that because I have a conscience that tells me you all should do better with your safe assets if at all possible.

Over the years I’ve met some fantastic people, not just prospects and clients but other professionals in various parts of the industry.  One of those people is Kerry Pechter, a financial journalist and editor of the Retirement Income Journal.  It’s a subscription-based newsletter that takes the reader behind the scenes of the financial industry, offering product reviews, academic research and analysis of current market trends.  In short, it’s what you should hope your advisor is reading.

This week Kerry wrote an excellent article about Equity Risk Premium, which in simple terms is the additional amount of yield you expect to receive for taking risk in the stock market.  Interest rates, stock valuations, inflation and several other factors all affect ERP.  But almost no one thinks about it.  Understanding this will give you a serious advantage when trying to make the right financial moves at the right time.  It’s important now because we are in the midst of rapidly changing times.  The end of 2019 was no different but everyone was so giddy after making a bunch of money in the stock market that most people disregarded any and all fundamentals.

I’ve never succeeded at getting technical with this newsletter so I won’t try to further explain something that’s already been done well enough.  Kerry has given me permission to re-post any of his articles but I feel I’d be taking advantage of his generosity by sending it out to the entire list.  For those who are interested, respond to the email and I’ll send you a copy of this article.

Additionally, Kerry Pechter has some pretty solid contacts of his own.  Next Friday he is hosting a webinar with Wade Pfau of the American College, one of the foremost experts on retirement allocations.  The subject of the webinar is “De-Risking Retirement Portfolios.”  For those interested I will send a webinar invite so reach out to me via email and I’d be happy to have you join the call.

Call or email any time…

Bryan

At a time when everyone is looking for a little something to keep busy, my wife would say that personal health and wellness should be a priority.  She is the most diligent, dedicated and disciplined person I know.  When the local gym closed down two weeks ago, she couldn’t teach her popular fitness class so decided to stream it live every Tuesday and Friday from our living room.  It messes up my schedule a little but we all have to work together.  Erin has made it her mission in life to get people active and keep them healthy.  It’s a nice diversion from the general insanity that’s going on all around us.  If you want to know more about me then you should meet my wife.  Check out her website on the link below and if you feel brave, find her on facebook and join the live stream of Body Forge next week at 9 am mountain time on the days mentioned.

Stay safe, healthy and active!

Visit Body Forge Fitness

Erin with daughters Lily and Sage at Braun Brothers Reunion Festival in Idaho

A highly recommended summer trip if you like good music

Another concert – Willie this time