I've been meaning to do a piece on Cash Value Life Insurance as an Asset Class. And this discussion will stem several additional posts to address how placing cash value life insurance in your personal portfolio can significantly improve your financial situation, by leaving numerous options on the table that most people forfeit because they pick up and hold onto really bad financial advice. Approach the following with an open mind, and be prepared to have your outlook on personal finance changed forever.
I've been known to quote stock market returns from a Compound Annual Growth Rate (geometric mean) point of view. This calculation takes into account the effect time has on a rate of return and is wildly more useful than simply looking at average rate of return (usually quoted as the arithmetic mean).
But any good hardcore day trader or even the wannabe home gamers in the investment world should quickly ask a disarming question: “so what?” So the markets have traditionally failed miserably to consistently post a year over year positive return over the course of the past decade. There are still people who make money investing in equities, even your precious insurance companies.
And you know what? They are correct. Read More…
Spring is here, time to enjoy warmer days (if you're with me in the Northeast), blooming flours, and a fight between a so called financial educator who hustles a selling system to insurance agents known as Bank on Yourself and a fee based financial planner who is pretending to be a consumer/journalist. Here's the story.
So what does this all mean? Pam is being exposed for the swindler she really is? Allan is looking to knock some competing savings strategies off the table as he competes for your business? Or perhaps CBS is just doing what all good media outlets do, selling a story. Let's take a closer look at this, shall we?
Now that we know the basics of indexing, we can dive into a much more interesting topic: Does it work? We're going to use a hypothetical contract (it's actually a real contract from which I have borrowed heavily, but we won't name names) where there is a minimum interest rate of 2% per year and a maximum of 12%. I'm going to attack this from two different approaches, one will be a model based on Monte Carlo methods, and the second will be a historical analysis of 140 years of annual growth in the S&P 500 index.
For several decades insurance companies have been using an approach to determining credited interest rate that is known as indexing. It's a practice that has had it's detractors (yours truly for a little while) and has been a method that has been used for good an evil by well educated and unscrupulous agents respectively. Today we're going to dive into what it is, what it's not, and ask if it works (i.e. is it worth your time).
The answer to yesterday's question. It's roughly where the DJIA would need to be today in order to have achieved an 8% annual growth rate from its peak in May of 2008 (just a little over 13,000). I bring this up as there was a lot of excitement over the Dow's breaking into and closing above 13,000 yesterday, but we've been there before, we've fallen, and now we're back…4 years later. In case you missed it, that number is 17,581.9 or about 4576 above where we closed yesterday.
I don't intend this to be an Us vs. Them statement that shuns stocks. Simply a way to keep things in perspective and note that risk associated with what a lot of financial advisers have treated as the common practice (being an “investor”). Also, it's a reminder that we are no where near territory where we should feel comfortable celebrating. There's still plenty of lost ground we, as an economy, need to recover.
So the Dow closed over 13,000. Big deal. Call me when it's over 18,000. Now that would be something exciting. However, only if it happens this year. Fingers crossed.
Do you know what this number represents? Hint it has something to do with this number: 13,005.12. If none of this makes sense, that's ok. I'll elaborate more tomorrow. For now, just understand that while we've approached this topic before, it's always a good idea to keep things in perspective.
See you all tomorrow!
So last time we covered that cash value life insurance is a great vehicle for your college funding plans because it yields favorably and is extremely reliable. On top of that, it's also rarely included in financial aid eligibility calculations and can be used for anything and have a tax free distribution, not just so called “qualified” educational expenses.
Today, we're going to dive a little deeper and hammer on a topic we've brought up before. The fact that you can use cash value life insurance to pull double duty and help you accomplish more than one financial goal, and do it better than individuals plans.
For parents, proactive-forward-thinking students, and perhaps even newer financial professionals who want to tackle the topic of college planning, you may have noticed that this is a subject that the the retail financial services industry seems to be very contradictory about. On the one hand they champion a tempered risk exposure, and on the other they point out that to keep up with the soaring cost of a college education (growing annually by some accounts by as much as 7%) you need to make stocks a very serious part of your college funding game plan.
So what to do? Again, we find the source of our problem in America's huge deficiency in creative thinking and problem solving–not to mention our lack of applying math appropriately. Today, we'll dive into a new plan that has worked for quite some time, and has few detractors.
While most financial advice is heavily focused on maximizing return while minimizing fees (and this perhaps is one of the reasons so many people fail long term in their financial plan) I'm going to take time today to introduce a concept that is by no means new, but one of those golden little nuggets that could dramatically change the way you look at financial matters through the lens of your personal self worth. Because SOPA and PIPA went down a ball of flames I'll post the following picture to illustrate what today's post will be all about. Not, of course, before acknowledging that it's not my original work and noting that you can purchase it directly from despair.com (I haven't started selling ad space; I'm not getting paid for this, FYI)