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)
Recently I got a little upset over a post made by another blogger who positions himself as a financial guru for a specific audience, and my issue with a particular piece he did was based on some serious flaws concerning his framing of the issue.
…but there's some gold that I think comes from people like him (and please understand, this is not one my über sarcastic moments). I'll be bold enough to state that when he and his followers state emphatically that insurance agents are con-artists, they aren't referring to me. They are instead referring to the thousands of fly-by-night agents who get picked up from within the dark and scary gutters that the likes of many an insurance sales manager goes looking. Those attracted to the business with champaign wishes and caviar dreams. Those who have a vision board hanging up over their desk with a sports car and lake-house on it. Those who categorize their clients by the size of the paychecks they produced them.
People know that I'm generally a pretty big fan of policy blending. It's essentially a process of combining term insurance with a whole life policy to increase the MEC limit on a whole life contract so that more paid-up additions can flow into the policy. This means more of your outlay goes towards PUA's which means the policy has a higher cash value from the start. This is the design feature that really separates whole life used primarily for death benefit from whole life used for cash accumulation purposes. It requires a little deeper understanding of what's going on, and so isn't always a first choice method among newer or less skilled agents (and there's a big difference between an agent who has been in the business for 10 years and an agent who has had 10 first years in the business).
I'm not going to commit personal finance heresy when I say that as we get older safety of principal becomes way more important than rate of return (personally I believe it's a lot more important even for the younger crowd than a lot of people would have you believe, but that's a fight for another day), today instead I want to talk about Single Premium Whole Life. Also, as people get older and tend to realize they aren't immortal, life insurance suddenly becomes a lot more coveted. If you want to set me off on a several hour long discussion about putting things in order before it's too late, ask me about the number of people in the 60+ crowd I've talked to who stress over whether or not they can afford that 20 year term premium and if they think they'll be dead in the next 20 years so they can “make good on the policy” (copious amount of forehead slaps understood).
Enter Single Premium Whole Life Insurance…
Note: This one took some time and I'm a few days past my normal schedule. It seemed necessary.
So I've known about this guy who is apparently an emergency room physician who got burned some years ago by an NML agent who did what a lot of career agents do (promise someone the sun, the moon, and the stars, and fail miserably to deliver). I've not made this comment publicly here until now, but I've long believed that usually the only difference between Primerica agents and the rest of the career guys and gals is the name of the company on their business cards. They all love to dream up these great strategies, but once the hammer drops on the part they care most about, they're off to the next one.
My original decision on this individual was to simply leave him be. Let him do his thing and pay him no attention (despite the frequent requests I get from people asking what I think about his stuff). But, he recently put together a piece with a truck-load of inaccuracies. I don't care if you want to go against my advice, or think you can build a better mouse trap, but I start to get a tad irritated when someone wants to build the illusion of being an informed resource for personal finance, who has enough time to write about it, but apparently doesn't have enough time to fact check.
(I've removed the link at this time, because I've decided not to promote this crap)
I came a cross this today and thought it was a nice piece done on the subject. Though I don't personally think LBS is all that and a bag of chips like Guardian career agents (who have exclusive proprietary access to it) do. The bigger message is certainly spot on. As a fellow colleague of mine (who is a Guardian career agent) always says, “There are plenty of people out there who are wizards of this stuff, and don't need LBS, so I don't make it the core reason to do business with me.”
Guardian does do a really great job highlighting the use of life insurance as a low risk asset class. Being domiciled in NY state (Home Office is in Lower Manhattan) they've been dealing with a sophisticated financial clientèle for years, and their message tends to be a little more subdued than the all or nothing feeling one might get from Nash and Yellen.
I especially like the message at the end about running off to tell the younger folks. If you're 85 and missed the boat, there's still a lot of good you can do in telling your kids, grandkids, friends kids etc. about how powerful a strategy this is.