I have read your posts on IUL’s. First, there is quite an assumption loaded up in the idea that IUL’s “hedge wealth against taxes and inflation” as you say. Let’s address taxes first. Yes, the accumulation inside ANY life insurance policy is sheltered from taxes while the policy is in force. That’s an important consideration, because anyone who wishes to actually USE the cash in an IUL is putting “pressure” on the policy such that it is more likely to lapse (creating an UGLY tax situation). We may or may not have discussed “overloan protection riders” within these policies, but once you add these in you start to destroy the very same “inflation hedge” that you claim exists. Factor in the possibility that mortality expenses might blow a policy up and, well, I still don’t like them much. As for the “inflation hedge”, yes, I think a pure indexing strategy of an IA or an IUL will outpace inflation. But the IUL has the drag of mortality charges to factor in.

Briefly, yes, I think mutual funds are sold as a wealth creation instrument. And I think they are also sold as an inflation hedge, although I suspect many mutual fund buyers don’t really understand that. That being said, let’s look at your three objections.

(Client is here, I will finish in my next post.)

If mutual funds were sold as a hedge against inflation then I would accept them for that purpose. But they are not are they? Aren’t they sold as a wealth creating instrument? Aren’t mutual funds inside a 401k/IRA sold as a tax reduction strategy? Aren’t they sold as a retirement income tool?

Facts are I have told at least 5 people in the last month, to hold off purchasing an EIUL until they have developed a working wealth building strategy.

TJ, do you disagree with my three reasons for disliking mutual funds? If so, maybe you could move the discussion ahead by telling us why?

Yet you like IUL? How does that get passed your objections?

If what you said was a map, there would be an arrow for me that pointed to that text and said, “You are here”.

And with all due respect to your hairless friend on the left coast, NEVER invest in a piece of real estate that does not cash flow. Not cash flows on paper with rosy assumptions, but cash flows with the actual income and anticipated realistic expenses. Hoping for appreciation to make an investment work when leverage is involved is even more dangerous than hoping the stock market will go up and salvage your 401(k). Long or short term, speculation can be very enticing, but it is risky and eventually you will get caught.

Also, cap rates are not always in the single digits. When real estate is out of favor, rents are declining, and/or alternative investment yields are higher, cap rates will be in double digits. I distinctly remember looking at small, unanchored strip centers in Silicon Valley in the late 80’s or early 90’s that sold at 13 percent plus cap rates based on the NOI from occupied space (no value attributed to the vacant space).

We have been in a very positive real estate market with free-flowing capital and low yields on competing investments for a long time, long enough for most people to forget the last recession and the transfer of weath that resulted from the S&L crisis. Bad markets can and will happen again. There is risk in real estate, and the “secret” to wealth building with real estate is understanding and defending against the risks.