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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.

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.

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.

Dangerous times in the market! May 26, 2017

Posted by shaferfinancial in Finance, mutual funds, Retirement Income.
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Just wanted to put out my thoughts here. We are in a serious transition period that adds tremendous risk to all markets. We seeing more and more irrational market movements. Interest rates are being pushed up gradually, companies are reporting mixed results. Oil markets are running off of only emotions, forgetting fundamentals. Real estate and the the equity markets have both had fairly long run-ups by historical standards. And politically, there is huge risk with a new untested leader.

Now is the time to be very careful if you have market driven financial products. If you are planning to retire anytime soon, protect yourself. If you can’t emotionally deal with huge losses in the equity market, move to products that protect principal.

Frankly, I am not good at “timing” market issues and usually keep my money at work. But I have plenty of time to recover if the market goes south and have a good amount in my EIUL which won’t go south. Additionally, since half my stock portfolio is in Berkshire, which performs best in down markets, I feel safe. My oil stocks have already done poorly for the last couple years, so no more damage can be done to them.

Protect yourselves going into the summer.

There is more than 1 right answer! May 2, 2017

Posted by shaferfinancial in Finance, mutual funds, paradigm shift, Retirement Income.
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I recently pulled out and wore an old t-shirt. It was a t-shirt from an old friend who is now deceased. He was a jeweler who made fine items for folks. The ultra-wealthy from all over the east would come to buy his wares. He was a mountain of a man with huge hands. I was always amazed that those club hands could make such fine jewelry. When he walked the beach he lived on, most people thought he was some biker and stayed away from him. He like it that way.

On the back of the t-shirt is his saying: It’s better to be a well known drunk than an anonymous alcoholic.

You can imagine the looks I got when I took my son to the playground wearing this t-shirt. 🙂
Anyway it has spent way to much time tucked into my closet and now I just don’t care what looks I get.

But the saying on the t-shirt it speaks to perspective. He lived the life of a rich and somewhat famous person and pretty much did what he wanted to do. While 12 step programs are all about conforming to society’s norms around substance abuse.

Where is this all going? Well most of us conform to the norms of society in our everyday life. We go about our business never really questioning the reality taught to us by those in power. Now I am not saying that we should all go around drinking excessively and doing what we want without regards to others. But I am saying that there are always alternative ways of thinking that are just as valuable as what we have been taught.

I dedicate my life to helping people understand that in the financial world. I am grateful that so many people come to understand what I am teaching them and have found financial success as a result.

As my son is now a freshman in HS, we often have discussions about the world. I find myself having to play “devil’s advocate” with some of his now strongly held beliefs. I hope he will learn from our discussions and not be so quick to buy into what is being told to him whether it is political, financial or the propaganda from the medical system about what is good for him and what is not. I hope he learns to be a critical thinker. He will need to be.

Wall Street invents another way to beat you with “Robo-Advisors” April 6, 2017

Posted by shaferfinancial in Finance, mutual funds, Mutual Funds for Retirement, Retirement Income.
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Wall Street has always put their profits ahead of the people they advise on stock buying.
This, of course, should not be shocking. But, even I am amazed at how inventive they have become. So called “Robo-Advisors,” or using computers instead of human advisors to help folks make decisions on their market securities are being introduced. These “Robo-Advisors” are just computer programs that attempt to pick up sensitive/hidden market movements and place trades for folks. Now, most people know that Wall Street already employs computers on their own accounts [so called high-frequency trading] and these have allowed Wall Street firms to make huge profits at all of our expense. Now, they are saying that they will employ computers on your behalf. Does anyone really think that they will organize these computers to beat the ones they already have working for their own accounts?

Or is this just another marketing strategy? Retail accounts for most of these Wall Street firms are huge money makers and these Wall Street firms have generally moved to prioritizing getting company 401ks under their direction away from trying to talk to individuals. Of course once they control your companies retirement accounts they put a “representative” in charge of talking to you with cookie cutter advice. These representative job is really to just get people happy with what the marketing is, at least enough to not complain.

Ever ask yourself why it is you have so little control over “your” 401K? Ever ask yourself why you can’t access your accounts, move them, take money out when you want and need to? Ever ask yourself why the investment choices are so minimal? Wouldn’t it be great if you could control $Billions of dollars of other peoples money with those people having so little ability to wrest control of their money away from you, pretty much having to leave their job to do it? And if you were in this position of controlling all this money, why you would suddenly stop putting your own trading accounts ahead of this other money? You earn fees on “managing” this money no matter how it does in the market. In fact, you advise people to just buy index funds and ride the out any market, which if they listen to you only stabilizes these earned fees.

Let me add all this up for you:
1. Wall Street has always put its account ahead of yours when it comes to making profitable trades and stock owning strategies; and
2. Their main concern has always been how best to market to you; and
3. They, along with the US Government, have designed a system that steals control of your “retirement accounts” from you to them. Really the only way most people can get control of their 401Ks is to leave the company they are working for;
4. Their best advice is to not do anything, just leave the thinking to them; and
5. They never are honest about the final results of this system.

So this is the system you want to be involved in? Is that match really worth it?

Now they are telling you that they will employ computer programs that will increase your returns and make you a successful investor. And these computers will in direct competition with the ones already employed on their behalf.  But, don’t worry.

Really???????

Are people waking up to the issues of mutual funds as retirement vehicles? October 17, 2016

Posted by shaferfinancial in Finance, mutual funds, Retirement Income, Uncategorized.
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An interesting trend is occurring with the people who are contacting me about EIULs. I am getting a lot of calls from folks in their early to mid thirties who start the conversation off with something like this: My 401K is going nowhere, I know there must be a better way to save for retirement. Now I find this very interesting because most of these folks weren’t in the market in 2008, the last time we saw a significant negative year.

I had this conversation recently with a 35 year old.

DS: What are you trying to accomplish?
Client: Well, my 401K is going nowhere, so I am looking for something that will do better and work for me.
DS: When did you start your 401K?
Client: Well, I don’t really remember, but it was somewhere around 2008 or 2009. Before that, I really didn’t have a great job and I wasn’t married so I was spending everything I made.
DS: Do you own a home?
Client: Yes, after getting married, my wife and I were able to buy a home with assistance from our families.
DS: How much are you able to save now?
Client: Well, between my wife and myself we are saving around $1200 month including what we put into our 401Ks. Before our 1st child was born, it was a little more.
DS: Do you remember the stock market dropping significantly?
Client: Well, I do remember it, but it did’t really affect me, so my memory of it is vague. Around 2007 or so right? But we do remember the housing prices dropping, because we were able to pick up a nice house for a decent price in 2010.
DS: Yes, 2008 was the last time we saw a big drop in the stock market.

What is surprising to me, is that this 35 year old recognizes the issues with mutual funds even though he hasn’t had a truly big negative year. People tend to forget the fear of big drops in ones finances, but the scars remain long after the memory fades. But, this person was able to recognize the issue without the scars or the memory. And he isn’t alone. I have been getting increasing amounts of calls from folks in this same situation and similar age group.

That is progress.

What I would like to ask the mutual fund shrill’s? April 26, 2016

Posted by shaferfinancial in Finance, mutual funds.
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Sometimes I imagine the ability to actually press the facts on the mutual fund industry.
Alas, this isn’t likely to ever happen. But what if it did? Here a made up scene of a mutual fund executive getting grilled on the witness stand by an attorney. Again, this is a product of my imagination!

MF= Mutual Fund Executive
TA= Trial Attorney

TA Your company has 10,000 sales people giving advice to people on retirement savings, right?
MF We don’t call them salespeople, they are Registered Investment Advisors or Certified Financial Advisors, but yes that is about the number.

TA The majority of the time they suggest clients invest in mutual funds, correct?
MF Not sure about that
TA How many of your mid income clients are suggested to be in stocks or bonds and not mutual funds?
MF In that group I would agree with you that most are in mutual funds.
TA In fact, your company in involved with over 100 of the fortune 500 employees, correct?
MF Sound about right
TA So you have a fiduciary duty to put 100’s of thousands of employees into the correct retirement savings vehicle.
MF Yes

TA Have you seen the Dalbar reports on individual returns for those investing in mutual funds?
MF I believe we give that out to our representatives
TA Does you company have any internal analysis of individuals’ returns that invest in mutual funds with your company?
MF Yes.
TA What is the average returns that you are finding for individuals?
MF I’m not sure
TA Can you read the report generated by your company that I just handed you [Exhibit 34]?
MF Yes, give me a second
TA Just read the last paragraph out loud to the jury
MF Overall returns average around 3.3% over the last 25 years for individual investors……..

TA Where in your printed advertisements does that number appear?
MF Don’t know, you would have to talk to advertising
TA Does it ever appear in your companies advertisement?
MF Not sure
TA Again, are you aware if that result ever appearing?
MF No, not aware of it.

TA Does being a fiduciary mean you should disclose items like that?
MF No, the SEC has never made a rule like that.
TA So because it is not required by the SEC you don’t feel the need to be honest with your clients?
MF That is not how we think of it. If our clients do what we tell them too, they will get much higher returns than that.
TA But they don’t do they?
MF I’m not sure.
TA Did you not just read your internal research indicating that they don’t?
MF I’m not sure we are talking about the same thing

TA What is the object for these employees in their 401Ks that you are suggesting they fund with mutual funds?
MF To save for retirement
TA Would you say that the objective is to ultimately have a stream of income when your clients no longer work?
MF Yes, that would be correct
TA Would you also say that you want to have them get the largest stream of income they can?
MF Yes
TA Would you say that part of your fiduciary duty is to make sure you suggest financial instruments that would accomplish the largest stream of income they can achieve?
MF I would agree with that

TA Have you heard of sequence of return risk?
MF Yes, but what does that have to do with mutual funds?
TA Explain what your understanding of sequence of return risk is
MF The order of returns. In other words, is the order of returns such that it increases the risk to the overall return given a certain time period.
TA When people save for retirement are they looking for a return in a certain time period?
MF Well, yes I guess, they are going to retire at a point
TA So wouldn’t they have to deal with sequence of return risk?
MF Yes, but we have products that deal with that
TA What are those products?
MF Annuities and certain mutual funds that move the percentages of equities down as one ages.
TA What does that do to the overall return?
MF Well it would decrease it.
TA Your products that your company suggests to deal with market variation reduce the returns below the 3.3% return you previously read?
MF Well….if you put it that way….but anytime you reduce risk you reduce returns
TA What percentage of your clients are in these risk reducing products?
MF It would be a small percentage of folks approaching retirement.
TA So, for most of your clients sequence of return risk is a real concern?
MF We aren’t concerned with it for most of our clients
TA Why?
MF Most of our middle income clients are more concerned with overall returns
TA Do you think if they understood SOR risk they might be concerned with it?
MF We don’t speculate on that, we give the clients what they want
TA But aren’t you a fiduciary?
MF Again, the SEC doesn’t require us to talk about SOR risk

TA As a fiduciary you are not discussing the overall returns experienced by consumers and the ways to decrease SOR risk?
MF We discuss what the most appropriate vehicle is as required, and for most of our middle income clients mutual funds are the most appropriate vehicle. We have worked hard to get the overall expenses down in mutual funds and are very proud of our products that lead the industry in low fees!
TA So you are very proud of the fact that your clients are receiving 3.3% returns over the long run when the market has returned over 8%?
MF Well that is a function of investor behavior that we have no control over. The product itself does great when matched up to our competition.