Modern Portfolio Theory turned upside down

Modern Portfolio Theory turned upside down

Let's start with a brief discussion of modern portfolio theory (MPT)  just to make sure we're all on the same page.   To avoid a less than exciting academic foray into MPT, I'll provide a basic definition.

Basically, the theory is that individual investment (a particular asset i.e. stock or bond) selection should not be chosen on their own merits. What's more important is how each asset's price moves relative to all the other investments in a portfolio.  Harry Markowitz was the first to articulate this concept back in 1952.

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Dear Insurance Pro Blog: 7702 Plan

Dear Insurance Pro Blog

We recently received the following email from a fellow reader about the 7702 Plan post:

Dear Brandon,

Why so much hate for 7702 Plans? I've been following your blog for a few months now, and for the most part I love what you do. However I think your recent post about 7702 Plans was unfair. For starters, the plan is nothing like a 401k or IRA. Those plans can and HAVE declined in value. The 7702 Plan was created by Federal Tax Code and has served a lot of people very well. I was surprised to see someone like you attack a solid plan like 7702's.


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Can Cash Value Life Insurance be a Substantial Retirement Vehicle?

Can Cash Value Life Insurance be a Substantial Retirement Vehicle

Following up on the Cash Value Life Insurance as an Asset Class post, I wanted to spend some time talking about how Cash Value Life Insurance  get's used for retirement and wealth accumulation.

Believe it or not, there's not a lot oversight when it comes to the financial services industry when it comes to what you can and cannot reasonably recommend as long as you don't violate the really big rules.  Like a real estate agent who suddenly turns into a financial and business adviser in order to convince a client to take a 10% haircut on their selling price because he or she wants to close the deal, financial advice can often be driven by someone's need to pay a mortgage, pay down a credit card debt, afford a vacation, etc.  And for the most part, sadly, no one cares.  It's not until someone kills a sacred cow that problems begin to arise.  Put a 65 year old's entire portfolio into midcap stocks, spread that sale around into different funds so as to avoid the sales load breakpoint, and do it all a few days before the dividend date and you'll really upset some people.  Those are concrete examples of big no-no's any compliance officer should be more than capable of thwarting.  These examples are a violation of suitability.  On the topic of cash value life insurance, and its place as a retirement vehicle, the question is one of suitability.  Is it suitable?

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Whole Life Insurance Distributions, the “Whole” Story

Whole Life Insurance Distributions

Life insurance agents love to fight over meaningless figures in an attempt to inflate the importance or attractiveness of their products.  Truth is, current facts and figures aren't going to matter all that much.  I've mentioned before that design is super crucial, and I've also hinted at the notion that there are core attributes that make some products better than other.  There isn't really a blanket list of features regarding these attributes, so a little consulting with a knowledgeable agent is prudent.  To highlight my point, however, I'm going to dive into the topic of policy distributions.  This will become part of many posts discussing different features and why they matter.  Throughout all this, you'll begin to understand why it's difficult to recommend one carrier as better than all the others, as they can be varied in where they are strong (i.e. one size–or carrier–does not fit all).

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Cash Value Life Insurance as an Asset Class

Cash Value Life Insurance as an Asset Class

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.

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