April 20, 2017

IPB 065: According to DALBAR Average Investor Results Are Below Average


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.

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's a more detailed rundown of the key points from the DALBAR report:

  • In 2016, the average equity mutual fund investor underperformed the S&P 500 by a
    margin of 4.70%. While the broader market made gains of 11.96%, the average equity
    investor earned only 7.26%.
  • In 2016, the average fixed income mutual fund investor outperformed the Bloomberg
    Barclays Aggregate Bond Index by a margin of 0.19%. The broader bond market realized a
    slight return of 1.04% while the average fixed income fund investor earned 1.23%.
  • Equity fund retention rates decreased in 2016 from 4.10 years to 3.80 years.
  • Fixed Income retention rates increased by almost 2 months in 2016, from 2.93 to
    3.09, eclipsing the 3.0 year mark for the first time since 2012.
  • Asset allocation funds experienced the a significant decline of retention rates in 2016. The
    average retention rate shortened by over 5 months, decreasing from 4.53 to 4.09.
  • In 2016, the 20-year annualized S&P return was 7.68% while the 20-year annualized return for
    the Average Equity Fund Investor was only 4.79%, a gap of 2.89% annualized.
  • The gap between the 20-year annualized return of the Average Equity Fund Investor and
    the S&P 500 continued to contract in 2016 (from 3.52% in 2015 to 2.89% in 2016).

Just further proof that behavior rarely aligns with reality.

Psychology and emotion play a very large part in 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. 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.

April 13, 2017

IPB 064: Sorry, You’re Not Rich Yet


A million bucks ain't what it used to be. There is a movement afoot to liberate people from their life of indentured service aka “a job”. While we believe it's a noble pursuit to pursue financial freedom–having a passive income that exceeds your living expenses–we also feel that people are going to need more money than they think to safely make this happen.

That's what we're discussing in today's episode.



April 6, 2017

Wait…Aren’t Fixed Indexed Annuities Evil?


According to all media reports and the long fought battle around the Department of Labor's new “Fiduciary Rule”, fixed indexed annuities are evil. If that's so…why are more people than ever choosing to purchase them?

Based on recently released numbers from 2016, sales of fixed annuities are on the rise. Here are some of the highlights:

  • Total fixed annuity sales for 2016–$117.4 billion, 14 percent higher than 2015
  • Fixed indexed annuity sales were up 12% to a total of $60.9 billion
  • Fixed deferred rate annuity sales $38.7 billion, an increase of 25% over 2015
  • Fixed immediate income annuity sales only grew 1% to $9.2 billion
  • Deferred income annuity (DIA) sales increased by 4% to $2.8 billion
  • Variable annuity sales continue to falter, down to $104.7 billion from their peak in 2007 of nearly $190 billion

But why would we even care? And more importantly why would you?

Opponents of fixed annuity products have been on the warpath the last few years which has culminated in the Department of Labor's “fiduciary rule”. Without getting lost in the minutiae, the thrust has been to convince the public that the only reason someone would ever buy an annuity (in particular a fixed indexed annuity) is that a crafty insurance salesperson snookered them.

Because you know, everyone who earns a commission for making a sale is evil…right?


March 30, 2017

IPB 062: The Long Term Care Insurance Debacle


We're veering off course slightly this week to discuss long term care insurance.

The recent decision to finally allow the beleaguered long term care insurance company, Penn Treaty (not to be confused with Penn Mutual) to be liquidated, sparked a need to discuss the ongoing issues with long term care insurance in general.

We are asked about long term care insurance on occasion and we certainly think using the product is a good idea for some people.

However, there continues to be turmoil in the industry at large as to what sort of premiums need to be paid to sustain these products over the long term.

The jury is still out on that matter obviously as we see fewer and fewer companies in the business of issuing new long term care insurance policies and substantial increases on existing blocks of business continue to increase.

To be clear, we're not talking about long term care insurance benefits that sit atop a life insurance chassis. There a handful of options that do this quite well.

In today's episode we're strictly dealing with the issues associated with what we call “traditional long term care insurance”. These products require a premium paid monthly or annually strictly for use as insurance to provide long term care benefits.

March 16, 2017

IPB 061: Life Insurance Premium Financing


It's honestly a bit shameful that we produce a podcast for well over a year that has life insurance as its primary subject and we've yet to discuss the subject of life insurance premium financing.

Well, that stops today.

With one caveat…

Please keep in mind that this is a complex topic with many moving parts and we can hardly do it justice in a half hour. We are merely scratching the surface with how it works and when it may be an appropriate solution.

In the future we may discuss in more detail some of the misapplication of premium financing.

Do you have experience with using premium financing to fund life insurance? We'd like to hear from you We'd like to hear from you–contact us here.

March 9, 2017

IPB 060: The Retirement Nightmare


If you believe the government needs to figure out a way to help you better fund your retirement, you probably should just skip this episode. On the other hand, if you'd like to hear us discuss a recent survey regarding retirement preparedness and how 80% of Americans believe the government needs to fix their problem, you're in for a treat.

Here are some other useful statistics from the survey results compiled by Greenwald & Associates for teh National Institute on Retirement Security (NIRS):

  • The perceived “retirement crisis” is not a partisan issue– among the 800 people surveyed, 83% of Democrats and 72% percent of Republicans favor state-sponsored retirement savings plans for those who are not offered work sponsored plans.
  • Government spending cuts that might lead to a reduction in Social Security benefits are highly unpopular as 76% said no to that suggestion.
  • 80% of survey respondents say the average worker “cannot save enough on their own to guarantee a secure retirement”
  • Making sure that Americans have a secure retirement should more of priority according to 88% of those surveyed.

Wow…just curious, what do you think about this? Please let us know.


March 2, 2017

IPB 059: Leverage…You’re Probably Doing It Wrong


In episode 59, we're not directly discussing the finer points of cash value life insurance. Just thought I'd get that out of the way in the spirit of full disclosure.

No, we're adding another episode to our Soapbox Series. It actually comes on the heels of a private discussion Brandon and I were having about using leverage to “juice” your returns.

Every now and then, one of us will stumble upon a blog post, magazine article, or something of that sort that makes our skin crawl a little bit. To us, “financial advice” that seeks to demonstrate the merits of using leverage aka “other people's money” (OPM) is pretty high on the list of things that sound like a good idea but rarely work in practice.

On the other hand, the carnage left behind in failed experiments using leverage is a much longer list.

Yes, we understand the math.

Yes, we know it should work.

Yes, your logic is almost perfect.

Except it seems there's most often an “x” factor. Some variable that flies in from parts unknown that ruins your perfectly balanced equation.

Take a look at the picture toward the beginning of  this post, it is the perfect example…it looked good in the picture, I had all the right instructions, so what went wrong?

Well, I was way out of my depth. I discounted the fact that the person who constructed and baked this cake likely has years of experience. They certainly gave me clear instructions but there are probably hundreds of little things that they just do without thinking based on their past experience. These little adjustments weren't intentionally omitted.

However, those little adjustments when compounded make the difference between the picture on the top and what my result would be if I attempted this cake (the one on the bottom). Glorious success or complete failure.

To hear more specifics of our discussion, listen to the full episode.


February 23, 2017

IPB 058: When Your Insurance Company Decides to Go a Different Direction


Typically when someone says, “we've decided to go in a different direction” I get the image of sitting in the conference room of my very first job post-college. The conference room was affectionately known as the “fish bowl” because it was all glass and all of your co-workers could gawk at you being admonished by the boss. It always felt more like a terrarium with a heat lamp to me.

Great memories…[side note] I think my first trip to the bowl was for taking too much time talking with customers. You know, you gotta talk to at least 50 people a day or you're not getting the job done (sarcasm light is glowing).

At any rate, these sort of meetings often end with bewilderment.

Now, imagine that you've bought a life insurance policy from a company that decides they don't wanna be in the business anymore, they sell the business to another company (you've never heard of) and then proceed to under-deliver on your questions (i.e. servicing your policy).

Unfortunately, this sort of thing happens in our industry.

But what does it mean for you? Well, that's kinda hard to say with certainty, however we are happy to share our experience with you in today's episode.

Do you have any experience that you'd like to share? Reach out and let us know.

February 16, 2017

IPB 057: Stock vs. Mutual Life Insurance Companies


The debate between life insurance company structure rages on into the 21st century. It's not as big a headline as it once was in the industry.

So, does that mean that we've decided that it really doesn't matter? Obviously, there are real structural differences in the the capital structure and there are perceived differences in the culture of the two types of life insurance company, but are there any real, practical differences? Read More…

February 9, 2017

IPB 056: No, You’re Not Rich…But You Could Be


After taking another week off from recording a podcast we're back and we're taking another slight detour from diving into the minutiae of life insurance. Not to worry, today's episode is related to life insurance but the relationship is tangential.

Something we've seen repeatedly over the last several years is a notion that taking baby steps with your finances and in particular your saving habits is something to be praised. Now, we're always in favor of consuming less and saving more. So don't get any ideas that we're knocking a philosophy that seeks to improve financial behavior.

Our problem isn't with the philosophy of consuming less. Read More…


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