Over the last few years…basically since the beginning of the Insurance Pro Blog going back to the summer of 2011, we've been preaching the gospel of whole life insurance.
Sure, there have been plenty of people who've come along to tell us how wrong we are and how a simple investment in an index fund could certainly outperform the return on the cash value of a whole life insurance policy.
To this, we've never disagreed. Yes, in fact, we too believe that a long term investment in stocks or equity funds of any kind should…outperform the return on cash in a whole life policy. But that's kind of like us all agreeing we'd live a much longer and healthier life if we only ate raw vegetables and less prime rib smothered in butter.
Data is one thing, human behavior is another altogether.
I should preface this introduction to episode 004 by saying that if you've not read these two posts, you should, it will give you a great frame of reference for the discussion in the episode and there are numbers discussed that you can see in the post(s):
Our point is that while average annual returns for various index funds and the indices themselves look great, most people aren't able to achieve returns anywhere close to those numbers.
Here are some numbers from DALBAR's annual “Quantitative Analysis of Investor Behavior” based on end-of-year 2014 returns.
Here's a more detailed rundown of the DALBAR report:
Just further proof that behavior rarely aligns with reality.
Psychology and emotion play a very large part in your long term financial success. It's better to build a plan to “control the control-ables”. It's not sexy, it involves more planning and probably requires you to save more money because you're accepting a plan based on lower average returns.
But in the end, if you plan conservatively, and end up with more money, you'll be happier than if you over-project higher than average returns and miss your target thereby not having enough money. I've yet to have anyone complain that they had too much money.
You can't buy groceries with average annual returns. And averages also mean that half the people get less than average returns. How do you know you'll be average or better?
If we've done our job effectively and you feel like this is a concept that you'd like to explore for yourself, feel free to reach out to us, by contacting us here.
Brantley is a practicing life insurance agent and has been for nearly 18 years. After years of trying to sell like his sales managers wanted him to, he discovered that people want to buy life insurance if you actually explain the benefits.
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