Annuities

401(k) funds studied for less time than car purchases

By Walter Hamilton (originally published on LATimes.com)

Americans know that 401(k) retirement plans are important, but they spend only a moderate time researching investments and are often confused about how to pick the best funds, according to a new survey.

Nearly nine in 10 workers view 401(k) plans as essential employee benefits, far outdistancing disability insurance, extra vacation days and the option to work from home, according to the poll by Charles Schwab Corp.

But the typical employee spends only about two hours analyzing 401(k) choices, roughly half the time spent researching car purchases or vacations.

Half of poll respondents said their 401(k)s are more confusing than the medical plans.

Only about one-quarter of survey participants have sought professional advice with their 401(k)s, according to the survey. That’s far less than the 87% who pay a professional to change the oil in their car.

“With so much at stake, the industry needs to take a more active role in delivering personalized investment advice to help individuals’ 401(k)s work harder for them,” said Steve Anderson, head of Schwab Retirement Plan Services.

One-for-all default investments, such as target date funds or balanced funds, can’t be expected to meet the individual needs of workers,” he said. “The industry can do better.”

However, earlier research has shown that employees must be extremely careful about 401(k) advice.

It’s not in the brokerage house’s best interests to make things simple. It’s better for them to offer a wide array of funds for two reasons: 1) Those customers who are financially astute demand it and 2) a wide variety of funds makes it easier for their sales weasels to work…

A study by the U.S. General Accountability Office in 2011 found that what passed as education offered by firms running 401(k) plans often was little more than a sales pitch designed to push high-cost investments on unsuspecting employees.

From Michael Goodman

If you want to discuss your retirement planning.  Let me know.  I can show you ways to increase your retirement income while keeping your money safe from market losses.

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7 Things You May Not Know About Life Insurance and Annuities

7 Things You May Not Know About Life Insurance & Annuities

1. The death benefit in a life insurance policy pays out free of income taxes in most cases. (consult your tax advisor to make sure this is true for you)

2. The cash value in a whole life or universal life policy builds tax-deferred.

3. If set up and managed properly, an indexed universal life insurance policy (an IUL) can provide a retirement income free of income taxes using tax-free withdrawals and zero-cost, or low-cost, policy loans.

4. The cash value in a whole life or an indexed universal life policy (IUL) never goes down because of a bad stock market.

5. The hottest thing in the life insurance business in 2014 is “Living Benefits“; ways to use the death benefit in a life insurance policy WHILE YOU ARE STILL ALIVE!

6. Annuities offer a guaranteed income that you can never outlive.

7. The hottest thing in the annuity business in 2014 is still the Lifetime Income Benefit Riders, which offer higher incomes, protection from loss, and an income for life.

Enter your comments or questions below.

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Why Mutual Funds Can’t Protect Against a Stock Market Crash

 (originally published October 21, 2013 on ProducersWeb.com)

(This article was written for Financial Advisors, but I thought everyone would benefit from this advice.)

Why mutual funds can’t protect against a stock market crash

 By Roccy Defrancesco, The Wealth Preservation Institute

I recently saw that the stock market was crashing due in part to the government shutdown and the looming debt-ceiling extension, and I thought it was the perfect excuse to talk about how it’s nearly impossible to protect money from a crash if it’s invested in most mutual funds.

The fact of the matter is that most Americans use mutual funds for some part of their investment portfolio. This, of course, is because we have a broker-dealer-driven industry.

If you’ve been reading my recent articles, you know I’ve been trying very hard to change the discussion in our industry from using historical rate of return to investments to asking the following much more important question: What risks are you taking to achieve your expected rate of return?

Mutual funds stay invested in stocks, even when the market is crashing

Most investors don’t know that most mutual funds stay invested in stocks even when the stock market is crashing (and most advisors who sell mutual funds don’t seem to think about the ramifications).

Don’t believe me? Go to www.finance.yahoo.com and look up the symbols of two of the more popular mutual funds. On the profile page, you can find the percentage (%) of how much each fund is invested in the market. I’ve listed it for these two funds.

-FBGRX (Fidelity Blue Chip Growth)          80 percent invested

-AEPGX (American Funds EuroPacific Gr A)     80 percent invested

The by-product of being invested in the market with 80 percent of the fund’s assets is that when the stock market crashes, so does the mutual fund. In other words, the fund managers will not go to 50 percent, 75 percent, or 100 percent cash, even if they know the stock market is crashing. It’s proven true by the numbers. Look how each of the above funds did during the crash years of 2008, 2002, 2001, and 2000:

-FBGRX: 2008 = -38.60%; 2002 = -25.32%; 2001 = -16.55%; 2000 = -10.54% Total losses = -91.01%

-AEPGX: 2008 = -40.53%; 2002 = -13.61%; 2001 = -12.17%; 2000 = -17.84%  Total losses = -84.15%

It’s crazy to think that these and many other mutual funds would stay invested in the market when it’s crashing, but that’s the reality — a reality that most clients are unaware of.

Because the mutual funds themselves do not protect clients when the market is crashing, who does that leave to protect the client? The local financial planner. Is it realistic for a local advisor to recommend that clients go to all cash? That would be nice, but most think they already did their job by picking the “best” mutual funds.

Using tactically managed strategies

How would your clients have liked the following returns during the crash years?

2008 = +8.03%; 2002 = +7.04%; 2001 = +7.55%; 2000 = +2.07%

Total returns in crash years = +24.69%

These returns look a lot better than the negative returns of the above-listed mutual funds. Would it help you to know that the tactically managed strategy with the above listed returns has not had a down year in the last 21 years and has had an average net rate of return in excess of 9 percent?

If this article doesn’t make you wonder if mutual funds are the best place for your client’s money and consider learning about truly tactically managed strategies, then I have failed.

Alternatives to mutual funds

What are the logical alternatives to growing wealth with mutual funds?

1. Tactically managed investment strategies — These are strategies that are managed to limit downside risk and capture gains in up markets. One of my favorite managers has a 21-year audited track record of no down years and net returns in excess of 9 percent. So, for the money a client should have “in the market,” being in a tactically managed strategy is the way to go.

2. Equity indexed universal life insurance (EIUL) — As many of you know, this is one of my favorite wealth-building tools for clients under the age of 55. Gains are locked in, no downside risk due to negative markets, tax-free loans, etc.

3. Fixed indexed annuities (FIAs) — I don’t like to say FIAs are a replacement for a market driven portfolio; it’s comparing apples to oranges. However, especially for clients 55 and old, using an FIA (especially those with guaranteed income riders) can be a much more prudent decision than using what most financial planners would recommend — an asset allocated portfolio.

Bottom line

Mutual funds will not protect your clients’ money during stock market crashes. They need to know this so they can make informed decisions about whether to use them or whether they should seek out other tools to grow their wealth in a truly protected manner.

 

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