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Why I prefer Minnesota Life EIULs…… August 8, 2019

Posted by shaferfinancial in Finance, mutual funds, Mutual Funds for Retirement, Retirement Income.
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I often get asked why I prefer Minnesota Life EIULs.
There are many reasons:
1. Comdex of 95, meaning it is in the top 5% of life insurers with regards to financial stability
2. Past performance is #1 among EIULs.

But there is another reason. I have included a clip from an e-mail I sent to a client today.
Obviously I have stripped any personal identifiers from it.

ML is raising the cap rate on the blended option to 15%.
It also added an uncapped low volatility S&P 500 option to the Eclipse. This was an additional option for the Orion, their latest EIUL product last year and they also added it to most of their existing EIULs at the same time even if you purchased it years ago like you did. That option will now have a 90% participation rate, meaning that you multiple what the index does times .9. This option demonstrates the highest 28 year historical returns of all the options. (Blended is #2).

Finally, I’m not sure if you are aware, but Minn. Life added a bonus onto its EIULs after year 10 several years ago. Again, they added it onto all their existing EIULs even if you bought years ago. That bonus looks at the total interest credits from the 10 years previous years and multiplies it by .01. Crudely calculated this will add about .8% onto the return at your 11 year anniversary because your overall return average is right at 8%.

So, in short, your existing policies have been improved since you bought it and are poised to take off.

I think the uncapped option with the 90% participation rate is one to consider seriously. If we have a market index break down, history suggests that we have rapid increases after that. Since you won’t share in any index downward movement, but will get the benefit of its return that can supercharge the no cap option. Usually the more dramatic the downturn, the higher the following years returns are.

The takeaway from this note to a client is that even after purchasing, Minnesota Life added on several positive options for their existing clients. Something no other company does. Another interesting take away is that this client has averaged 8% over 9 1/2 years of ownership. I find that to be about average for folks that have owned their policies over 5 years.

Minnesota Life continues to be my go to company.

Just for fun, I looked at the 10 year average return for the S&P 500 with dividends reinvested. It was 6.8%. And that doesn’t take into account the large effect that negative numbers do to your overall total cash. In this case, since there have been only 2 negative years in the last 10 (-6.3% and -.7%) the straight index hasn’t been as affected by negative numbers as it usually is, but it’s still returning 1.2% less.

But people continue to believe in 401Ks funded with mutual funds that are pushed by the Financial Planning industry. Next post will be an explanation of why.

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On the Misbehavior of Elites/Corporations March 20, 2019

Posted by shaferfinancial in Finance, mutual funds, Mutual Funds for Retirement, Retirement Income, trust.
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Last month a couple of insurance companies, ones that I don’t do business with, added new EIUL products. Both of these products are examples of companies putting out products that are not only inferior to their competition, but goes against the benefits of owning an EIUL in key areas. I am always surprised when things like this happen. It’s like back in 2004 or so when I was in the mortgage business and mortgage companies started to put out the pick-a-pay mortgages with teaser rates that lasted 3 months so they could get people qualified for property they couldn’t afford. I wonder why they would do something so harmful to consumers and would give the whole industry a black eye.

But, then I remembered there are always these folks out there. Ones that are just predatory by nature. They act the way they do because they are pretty sure there will be no repercussions, just like those mortgage executives. In that whole mortgage mess, the only people who were held responsible were a few bad mortgage brokers who took advantage of the rules set up by the mortgage companies and added in outright fraud.

So, where does that leave us? For consumers, it is even more important to deal with responsible folks who have been in the business long enough to recognize the faults within the given industry. When I was in the mortgage industry, I refused to write pick-a-pay mortgages because I knew people got fixated on that teaser rate and refused to understand the total cost of the mortgage, which was higher than the conventional mortgages. I know I lost a lot of business because of it. There was nothing I could say to someone desperate to buy a house, a house way too expensive for them, that is looking at the teaser rate and thinking they will be OK with the monthly amount. They were already into a system where the real estate agent had pushed them into a mania because of rising RE prices, got them to fall in love with a house they couldn’t afford and now the mortgage broker was going to complete the financial death with a bad mortgage that would push them into foreclosure and probably bankruptcy.

Fortunately, the bad EIUL structure isn’t going to push anyone into foreclosure. But, it will give the insurance industry another black eye and give the mutual fund/Wall street industry more ammunition against good products. (another industry full of sharks with no regard for consumers)

There is never a good time for the uninformed or the naive in the financial world. What everyone must do is find an ethical guide to get between them and these large institutions we all must deal with. That in itself is problematic as the consumer has a tough time seeing the difference between a corporate shrill and someone that truly will align your needs with the guide against the large institutional forces. It’s the conundrum of our age. Institutional propaganda plus an army of sales folks aligned in saying the same thing with no place for dissent is what we all deal with. Combine this with government interest in pushing Wall Street plans and you have a mean stew for people to deal with.

Trust is in short supply in our society now as it should be. And that might be the biggest victim in all of this. How can a society function with this loss of trust with each other, our government, our large institutions?

Sorry about this negative post, but it needs to be said. Any thoughts you have are appreciated.

Been spending some time thinking about the future of investing February 27, 2019

Posted by shaferfinancial in Uncategorized.
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Over the last year I have spent time thinking about the future of investing. No one says I am a fast thinker!!!!! Going forward I am going to write some posts about that subject. Stay tuned as I start to put forward my thinking.

Short note on Bull Market August 21, 2018

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Tomorrow, August 22nd, the bull market will officially be the longest ever in history.
While this event means nothing, you have to realize the market will go down at some point in the near future. Last two downdrafts were both over 50%. Given the length and amount of this bull market, you would think that when it does happen, it will be significant.

More Evidence of Poor Investor Performance July 24, 2018

Posted by shaferfinancial in Finance, mutual funds, Uncategorized.
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Usually, at least once a year, I post recent Dalbar, Inc. results for investor mutual fund performance.  It does get redundant to keep posting the same underperformance for investors.  The vast majority of folks will continue to ignore these results in some sort of “not me” denial of the obvious.

To break things up, here is a bar chart from JP Morgan. They include in their average investor bar the latest Dalbar results [2.6%].  Note which is the second lowest!!

What this chart is pointing out is that the average American who invests in mutual funds inside their 401K/403B/IRA and their home [80% of average American wealth resides in their home] have barely gotten over 3% returns over the last 20 years.  And they have the majority of their wealth in places that are hard to get to without penalties.  There are substantial tax penalties when drawing from a 401K even if you are over 59 1/2,  You have to pay income tax [both federal and state] on those withdrawals. [Roth’s you do not.] And real estate you either have to sell your home and pay a realtor or you have to mortgage your home and pay interest to access your money.

So, not only are Americans getting a very small return, but they have to pay for the right to access their money from these places. And when the average American really needs to get at these funds, like after being laid off or getting sick, the penalties are high and you probably won’t get a mortgage without a job.

Does this really make financial sense?

Feeling more secure now?

 

 

Latest on EIULs July 19, 2018

Posted by shaferfinancial in Finance, mutual funds, Mutual Funds for Retirement, Retirement Income.
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It has been 20 years since the Equity Universal Life Insurance product was introduced. The critics have been warning about the impending implosions of the product since the day it was introduced. Yet, none of that gloom and doom has even come close to coming true. We have been through a major recession, “to big to fail” banks, 2 major stock market swoons, real estate implosion [where were the critics on that one?], derivatives issues, and of course many good years. Through it all, the EIUL has not only survived but thrived. The growth rate has been phenomenal.

Even more important is that the product is producing exactly how it was designed too. The internal rate of return on the Minnesota Life product and the North American product [the best two in my opinion over the last 10+ years], has been 8%+. This has been accomplished in what has been a terrible interest rate environment since 2008. Cap rates have gone up and come back down, yet the overall return has been solid overall.

Folks I put into an EIUL over the last 15 years have had twice the return than the average returns of an Mutual Fund. Dalbar Inc. continues to demonstrate serious underperformance from folks in mutual funds whether inside an 401K/IRA wrapper or outside the wrapper. Note that his continues in light of almost 10 years of up years in the stock market. What is it going to look like when we have the inevitable down draft in the stock market?

I was recently asked about the future of EIULs. I think the future will look closely like the past 20 years. Overperformance compared to the government/Wall Street pushed retirement plan. Significant tax savings during your retirement years. Protection against sequence of return risk.

Keeping it simple; What should be your main concerns on retirement funding? March 23, 2018

Posted by shaferfinancial in Finance, mutual funds, Mutual Funds for Retirement, paradigm shift, Retirement Income.
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The finance world is famous for how complicated they want to make the analysis. Warren Buffett is famous for saying you only need basic math and a few metrics to make investment decisions.
The more I read about decision making, the more I lean toward Warren.

Currently, I am reading

    Thinking in Bets: Making Smarter Decisions When You Don’t Have All The Facts

When I get done, I will post a book review.

But for now, given the current financial environment, here are the three concerns you should have on retirement funding:

1. Sequence of Return. Simply put this is the #1 stealer of your retirement income.
2. Taxes. Yes taxes have gone down for some. But over your lifetime it will be variable, sometimes going up and sometimes going down. How about just reduce or eliminate that risk altogether.
3. Work. With corporations rarely demonstrating loyalty or rationality with its employees, do you really want to depend on their generosity for your retirement?

So there you have it. Keep it simple and solve those issues as best you can.

More and more large corporations using annuities for their pension benefits! February 27, 2018

Posted by shaferfinancial in Uncategorized.
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Just a quick note. CBS bought a group annuity to offset its pension plan risk. The amount of the offset was $800MM representing 20% of its pension obligations. This is not an isolated case as more and more large corporations are turning to insurance products to manage their obligations. I have written before about the use of Life Insurance [COLI] for asset protection by large corporations a practice that goes back 100 years.

So why do financial planners not encourage their clients to offset risk by doing the same? After all large corporations have much less sequence of return risk than do individuals.

More and more people are now realizing that the financial planning industry is in bed with Wall Street.

Interesting read on the stock market and Berkshire Hathaway February 27, 2018

Posted by shaferfinancial in Uncategorized.
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This is a long, but interesting read centered on Berkshire Hathaway. It mimic’s some of my issues with passively managed mutual funds: Berkshire

On the stock market movement February 13, 2018

Posted by shaferfinancial in Uncategorized.
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Some big movements down and then some up leaves the market down over the last couple weeks. Probably just a correction, but corporate earnings are still strong so don’t expect a full out panic. My dividends are still strong and Berkshire holding strong at this point. Clients are all protected from huge downdrafts inside their EIULs. So, no problem sleeping here!