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The LIES We Are Told May 17, 2012

Posted by shaferfinancial in Uncategorized.
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EIUL by the numbers

I have clients who come from all different professions. One of the unique things about my business is that I sell EIULs to a lot of really smart people. I have many, for example, who are computer engineers. These folks love the numbers and will spend their spare time doing all sorts of calculations to make themselves comfortable with the product. A recent client wrote code to look at the arithmetic mean returns for the S & P 500 versus an EIUL with a 15% cap. And he came up with similar numbers to what I have done 5 years ago and 15 years ago. With his permission I post them here for you to look at. Here is the url to Greg’s blog page where he outlines the math behind the numbers for you math whizzes! Oh, and if you get averages from a financial advisor always ask them if it is arithmetic means or Geometric means??? The former is useless in determining how much money you would have with any given mean return.

Greg Turnquist Blog Post

10-year stats
S&P 500 stats: Avg geom mean = 7.08 (-3.04..16.06) 68% chance between 2.22 and 11.94
EIUL stats: Avg geom mean = 8.08 (5.48..10.34) 68% chance between 6.83 and 9.33

15-year stats
S&P 500 stats: Avg geom mean = 7.30 (0.90..15.59) 68% chance between 3.58 and 11.02
EIUL stats: Avg geom mean = 8.18 (6.51..10.54) 68% chance between 7.22 and 9.14

20-year stats
S&P 500 stats: Avg geom mean = 7.16 (2.73..13.95) 68% chance between 4.07 and 10.25
EIUL stats: Avg geom mean = 8.13 (6.81..10.16) 68% chance between 7.32 and 8.94

25-year stats
S&P 500 stats: Avg geom mean = 7.15 (3.94..13.05) 68% chance between 4.77 and 9.53
EIUL stats: Avg geom mean = 8.18 (7.10..9.82) 68% chance between 7.52 and 8.84

30-year stats
S&P 500 stats: Avg geom mean = 7.17 (5.14..10.05) 68% chance between 5.66 and 8.68
EIUL stats: Avg geom mean = 8.20 (7.36..9.00) 68% chance between 7.74 and 8.66

Note in every year range that the EIUL reduces variability and increase mean returns. I have talked at length about the damage of sequence of return risk for retirement funding. [here & here]. By decreasing expected variance and eliminating negative years it dramatically reduces sequence of return risk. And there is no expected cost to accomplish that [unlike mutual funds which the proponents want you to increase your bond exposure as you age as a way to reduce variability]. In fact the expected return is around 1% higher against the actual index and even higher advantage if you take the status quo advice and mix in bond funds with your equity funds!

Following statistics are the low and high in each time period [Geometric Means]:

All years from 1951 for comparison sake:

S & P 500 Index 6.86% average mean total growth factor 53.76
EIUL [15% Cap] 8.22% TGF 114

10 year Windows
S&P 500 Worst Performance -3.03% [1999-2008 ]
Best Performance 16.91% [1989-1998]

EIUL Worst Performance 5.48% [1969-1978]
Best Perfromance 10.33 [1980-89]

15 Year Windows
S&P 500 Worst Performance .9% [1960-1974]
Best 15.59% [1985-1999]

EIUL Worst 6.51% [1960-1974]
Best 10.54% [1985-1999]

20 Year Window
S&P 500 Worst 2.72% [1972-1991]
Best 13.95% [1980-1999]

EIUL Worst 6.81% [1959-1978]
Best 10.16% [1980-1999]

25 Year Window
S&P 500 Worst 3.94% [1957-1981]
Best 13.04% [1975-1999]

EIUL Worst 7.1% [1957-1981]
Best 9.81% [1975-1999]

30 Year Window
S&P 500 Worst 5.14% [1952-1981]
Best 10.05% [1975-2004]

EIUL Worst 7.36% [1952-1981]
Best 9% [1970-1999]

OK, let’s review…..total growth since 1951 more than twice as much for EIUL. Check. Each time period higher average returns for the EIUL. Check. Reduce risk or variance for the EIUL. Check.

Now why do people still listen to all those mutual fund salesmen?

What are you waiting for? Contact me today.


1. gregturn - May 18, 2012

Talk about lies! I was astounded when I found an article where the author purported that going back to 1951, there wasn’t a single 10-year period where the S & P 500 showed a negative return! That is absolutely and unequivocally wrong! Either that guy is lying, incompetent, or both. This is why Dave says that YOU must dig in and learn for yourself how these things work so you can size up the advice you are receiving.

P.S. I have since posted a small update at the bottom of my blog post, where people can navigate to the latest-and-greatest version of this software.

2. Financial Math II: Averages and standard deviations | The Wealth Building Society - November 11, 2014

[…] can see an example in a blog post I wrote for Dr. Dave. In it, I compare the average performance of the S&P 500 compared to an EIUL. To do an […]

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