Index Annuities
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Sofisticated clients hmm, you mean like hedge funds, investment banks, international commercial banks or RIA’s…call Madoff Securities, I believe they had some!!!
[quote=rankstocks]Hank,
I've brought this up before, but here it goes. If you have your client's best interest at heart, why not impart this strategy: Out of a 100k investment, buy a AAA-rated muni-zero G.O. bond 10 year maturity at about 55 cents on the dollar (55k) Take the other 45k and buy the SPX ETF. In 10 years you have your principal back TAX-FREE, and the upside of the other 45k in the market with only having paid taxes on dividends, and the LTCG's when you sell the ETF. Why wouldn't this work better? Oh, I forgot, your not licensed.[/quote] Can you guarantee the S&P 500 will be positive 10 years from the initial investment? If you can, this strategy may work better. Who knows? Ask those who invested in the S&P for the last ten years and see what they say. Who knows if dividend and LTCG tax rates will go up in the future? (Gun to head, I think they are - Thanks Barry!) As snags put it, some people want ZERO market risk but like the potential for a better rate of return than a traditional fixed annuity. For those clients, an EIA may be appropriate. Hell, even for some of YOUR clients, an EIA may be appropriate. Oh, that's right. You're at EDJ. You can't sell EIAs. No wonder you bash them.No, haven't had to do that for 3 weeks now...thanks for asking though, Hyman.[/quote] It would have been funnier if you'd said "...thanks for asking though, Hymen."[quote=HymanRoth]
So you carry Hank’s briefcase and fetch his coffee for him now?
Please, I’m not picking on you, I’m honestly interested to know how you know when to move clients money into and out of the market without predicting where the market is going???
Again, please do not misunderstand the intent of the question, I'm just curious... I have no idea where the market will be next week, next month, or next year. Nor do I give it much thought. It will be where it will be, I have no control over it. What I do know is that markets tend to move in one direction or the other for extended periods of time (trends). When the market is in an uptrend, the probabilities are in your favor to make money. When the market is in a downtrend, the opposite is true. You (and every one of my clients) have access to the same information I have. I simply have the discipline to act on it. In the last 11 years, the market has gone into a negative trend 3 times, mid 1998 (forget the dates), Oct 2000-April 2003, and in Jan 2008. Didn't catch the top or the bottom in each case (market timing), but I was able to avoid most of the damage. So you are actively managing client portfolios Shouldn't we all be actively managing client portfolios? If not they can save some money with Vanguard. and essentially timing the market. Far from it. To me, this is not smart, but even more risky. Tell that to any client that you have down 40%. I expose my clients to risk when the environment rewards risk (bull markets). I decrease risk for my clients when the environment dislikes risk (bear markets). You are lucky. I have heard this before. It is often the excuse people use to justify their own malaise. One day you will not be. Great point. In 1998, the market dropped rapidly and recovered just as fast (a "V" bear market). Market went into a negative trend and a few months later switched right back into a positive trend at about the same level in the indexes. Unsuccessful? Clients did not see a substantial drop in a short amount of time and make the emotional decision that "they could not lose anymore" and get back in later at a higher level. It did not help linear returns, but helped manage clients from their own worst enemy, their gut.It would have been funnier if you'd said "...thanks for asking though, Hymen."[/quote] That was my intention, but I guess there are some vaginal parts I can't spell correctly.No, haven’t had to do that for 3 weeks now…thanks for asking though, Hyman.
[quote=rankstocks]Hank,
I've brought this up before, but here it goes. If you have your client's best interest at heart, why not impart this strategy: Out of a 100k investment, buy a AAA-rated muni-zero G.O. bond 10 year maturity at about 55 cents on the dollar (55k) Take the other 45k and buy the SPX ETF. In 10 years you have your principal back TAX-FREE, and the upside of the other 45k in the market with only having paid taxes on dividends, and the LTCG's when you sell the ETF. Why wouldn't this work better? Oh, I forgot, your not licensed.[/quote] I'll take a shot at it and I'll start by saying that I'm not opposed to either strategy so long as you understand the costs and benefits. I think the benefits to the strategy outlined above are obvious, so I'll point out a couple of negatives you may or may not have thought of. 1. By using 55% of your principal for principal protection, you've just locked in 45% market participation. Most EIAs offer more participation than that. If you line up against the 5-year contract I prefer, you're going to need more like 80% for principal protection, setting yourself up for a paltry 20% participation rate. I'm confident I can do better than that with most any reasonable EIA contract. 2. You're guaranteeing your principal protection with a state or municipality where the triple A rating may be heavily dependent upon an insurer which may run into unforeseen problems like AMBAC did. Even good uninsured bonds can quickly go south in the hands of the wrong administration. Before you even say it, yes, I understand that insurers may also fail which is why I'm pretty particular about who I offer EIAs through. For now, I'm offering mostly fixed annuities, but I have found suitable sitautions for EIAs, although I prefer 5-year contracts, vs. the ten year "contract" in your example. ...and having a pretty good idea of who Hank is, I'm confident that he's just as licensed as you are. You're not obligated to agree with him, but he's not stupid.[quote=Sam Houston]Please, I’m not picking on you, I’m honestly interested to know how you know when to move clients money into and out of the market without predicting where the market is going???
Again, please do not misunderstand the intent of the question, I'm just curious... I have no idea where the market will be next week, next month, or next year. Nor do I give it much thought. It will be where it will be, I have no control over it. What I do know is that markets tend to move in one direction or the other for extended periods of time (trends). When the market is in an uptrend, the probabilities are in your favor to make money. When the market is in a downtrend, the opposite is true. You (and every one of my clients) have access to the same information I have. I simply have the discipline to act on it. In the last 11 years, the market has gone into a negative trend 3 times, mid 1998 (forget the dates), Oct 2000-April 2003, and in Jan 2008. Didn't catch the top or the bottom in each case (market timing), but I was able to avoid most of the damage. So you are actively managing client portfolios Shouldn't we all be actively managing client portfolios? If not they can save some money with Vanguard. and essentially timing the market. Far from it. To me, this is not smart, but even more risky. Tell that to any client that you have down 40%. I expose my clients to risk when the environment rewards risk (bull markets). I decrease risk for my clients when the environment dislikes risk (bear markets). You are lucky. I have heard this before. It is often the excuse people use to justify their own malaise. One day you will not be. Great point. In 1998, the market dropped rapidly and recovered just as fast (a "V" bear market). Market went into a negative trend and a few months later switched right back into a positive trend at about the same level in the indexes. Unsuccessful? Clients did not see a substantial drop in a short amount of time and make the emotional decision that "they could not lose anymore" and get back in later at a higher level. It did not help linear returns, but helped manage clients from their own worst enemy, their gut.[/quote] Thank you for your response, seems very reasonable. By the way, do you charge clients a fee when their money is all cash, or do you charge a flat rate 100% of the time? Again, just curious, there are many ways to run a practice and I, for one, am not familiar with ALL of them.
Open question to those who choose the EIA option…What is the exit strategy for the client who wants his/her money when it’s all said and done? Is there a walk away option where the client keeps his/her gains (whether capped or not, etc.), or is it always and only going to be an annuitized payout, with a penalty on any lump sum distribution? Does the client keep all gains with a lump sum distribution once the contract is out of surrender? I ask this wanting to understand more fully how these work.
Beemer, I’ve seen some that force annuitization, but the one I used last year (Jackson) had an absolute 5-yar walk away. In fact, you could walk away whole sometime between years 3 & 4 if I recall correctly, even if the market was complete junk and negative the entire time.
[quote=SB No more][quote=Sam Houston]Please, I’m not picking on you, I’m honestly interested to know how you know when to move clients money into and out of the market without predicting where the market is going???
Again, please do not misunderstand the intent of the question, I'm just curious... I have no idea where the market will be next week, next month, or next year. Nor do I give it much thought. It will be where it will be, I have no control over it. What I do know is that markets tend to move in one direction or the other for extended periods of time (trends). When the market is in an uptrend, the probabilities are in your favor to make money. When the market is in a downtrend, the opposite is true. You (and every one of my clients) have access to the same information I have. I simply have the discipline to act on it. In the last 11 years, the market has gone into a negative trend 3 times, mid 1998 (forget the dates), Oct 2000-April 2003, and in Jan 2008. Didn't catch the top or the bottom in each case (market timing), but I was able to avoid most of the damage. So you are actively managing client portfolios Shouldn't we all be actively managing client portfolios? If not they can save some money with Vanguard. and essentially timing the market. Far from it. To me, this is not smart, but even more risky. Tell that to any client that you have down 40%. I expose my clients to risk when the environment rewards risk (bull markets). I decrease risk for my clients when the environment dislikes risk (bear markets). You are lucky. I have heard this before. It is often the excuse people use to justify their own malaise. One day you will not be. Great point. In 1998, the market dropped rapidly and recovered just as fast (a "V" bear market). Market went into a negative trend and a few months later switched right back into a positive trend at about the same level in the indexes. Unsuccessful? Clients did not see a substantial drop in a short amount of time and make the emotional decision that "they could not lose anymore" and get back in later at a higher level. It did not help linear returns, but helped manage clients from their own worst enemy, their gut.[/quote] Thank you for your response, seems very reasonable. By the way, do you charge clients a fee when their money is all cash, or do you charge a flat rate 100% of the time? Again, just curious, there are many ways to run a practice and I, for one, am not familiar with ALL of them. [/quote] I don't go to all cash. Just as I don't go 100% equities. Diversification is still important. What I do is weight various asset classes including cash. I am paid on AUM.
[quote=Sam Houston][quote=SB No more][quote=Sam Houston]Please, I’m not picking on you, I’m honestly interested to know how you know when to move clients money into and out of the market without predicting where the market is going???
Again, please do not misunderstand the intent of the question, I'm just curious... I have no idea where the market will be next week, next month, or next year. Nor do I give it much thought. It will be where it will be, I have no control over it. What I do know is that markets tend to move in one direction or the other for extended periods of time (trends). When the market is in an uptrend, the probabilities are in your favor to make money. When the market is in a downtrend, the opposite is true. You (and every one of my clients) have access to the same information I have. I simply have the discipline to act on it. In the last 11 years, the market has gone into a negative trend 3 times, mid 1998 (forget the dates), Oct 2000-April 2003, and in Jan 2008. Didn't catch the top or the bottom in each case (market timing), but I was able to avoid most of the damage. So you are actively managing client portfolios Shouldn't we all be actively managing client portfolios? If not they can save some money with Vanguard. and essentially timing the market. Far from it. To me, this is not smart, but even more risky. Tell that to any client that you have down 40%. I expose my clients to risk when the environment rewards risk (bull markets). I decrease risk for my clients when the environment dislikes risk (bear markets). You are lucky. I have heard this before. It is often the excuse people use to justify their own malaise. One day you will not be. Great point. In 1998, the market dropped rapidly and recovered just as fast (a "V" bear market). Market went into a negative trend and a few months later switched right back into a positive trend at about the same level in the indexes. Unsuccessful? Clients did not see a substantial drop in a short amount of time and make the emotional decision that "they could not lose anymore" and get back in later at a higher level. It did not help linear returns, but helped manage clients from their own worst enemy, their gut.[/quote] Thank you for your response, seems very reasonable. By the way, do you charge clients a fee when their money is all cash, or do you charge a flat rate 100% of the time? Again, just curious, there are many ways to run a practice and I, for one, am not familiar with ALL of them. [/quote] I don't go to all cash. Just as I don't go 100% equities. Diversification is still important. What I do is weight various asset classes including cash. I am paid on AUM.[/quote]
Liar, when are you going to tell us how an EIA would underperform equities since 2003?
This quote makes me suspicious that you are BSing us or simply haven't been doing this for a long time. The problem is that the stock market is a leading indicator, so any other factors that may indicate a risk averse environment tend to lag equity prices. Hedge funds have the ability to do almost anything, including allocate to cash if need be. Tell us exactly how you outperformed hedge fund managers. And by the way, if you're really that good, you are SERIOUSLY wasting your time in retail brokerage.I expose my clients to risk when the environment rewards risk (bull markets). I decrease risk for my clients when the environment dislikes risk (bear markets).
If you had any interest in improving your ability to service your clients, I would go into detail. However, you would prefer to call people names. So be it. Keep popping people into EIAs for 8%. I will keep doing what I am doing for 1.5% annually. Not only do my clients make more than your clients, but I make more than you. As for an equity that has outperformed all EIAs, try HANS.
This quote makes me suspicious that you are BSing us or simply haven't been doing this for a long time. The problem is that the stock market is a leading indicator, so any other factors that may indicate a risk averse environment tend to lag equity prices. Hedge funds have the ability to do almost anything, including allocate to cash if need be. Tell us exactly how you outperformed hedge fund managers. And by the way, if you're really that good, you are SERIOUSLY wasting your time in retail brokerage.[/quote] Pull up a chart of the S&P for the last ten years. See if you can recognize the trends. Get back to me with your answer. There are enough people of this forum that know me that know I have been talking about this for quite a while. Believe what you want, and please keep doing the EIA or Buy and Hope thing. I always love when prospects have been given the "If you missed the 10 best days in the market" pitch. You set them up, I will knock them down.[quote=Sam Houston]I expose my clients to risk when the environment rewards risk (bull markets). I decrease risk for my clients when the environment dislikes risk (bear markets).
[quote=Sam Houston]If you had any interest in improving your ability to service your clients, I would go into detail. However, you would prefer to call people names. So be it. Keep popping people into EIAs for 8%. I will keep doing what I am doing for 1.5% annually. Not only do my clients make more than your clients, but I make more than you. As for an equity that has outperformed all EIAs, try HANS.[/quote]
Liar.
This quote makes me suspicious that you are BSing us or simply haven't been doing this for a long time. The problem is that the stock market is a leading indicator, so any other factors that may indicate a risk averse environment tend to lag equity prices. Hedge funds have the ability to do almost anything, including allocate to cash if need be. Tell us exactly how you outperformed hedge fund managers. And by the way, if you're really that good, you are SERIOUSLY wasting your time in retail brokerage.[/quote][quote=etj4588][quote=Sam Houston]I expose my clients to risk when the environment rewards risk (bull markets). I decrease risk for my clients when the environment dislikes risk (bear markets).
Pull up a chart of the S&P for the last ten years. See if you can recognize the trends. Get back to me with your answer. There are enough people of this forum that know me that know I have been talking about this for quite a while. Believe what you want, and please keep doing the EIA or Buy and Hope thing. I always love when prospects have been given the "If you missed the 10 best days in the market" pitch. You set them up, I will knock them down.[/quote]
The trend is "down."
you forgot "pants on fire".[quote=Sam Houston]If you had any interest in improving your ability to service your clients, I would go into detail. However, you would prefer to call people names. So be it. Keep popping people into EIAs for 8%. I will keep doing what I am doing for 1.5% annually. Not only do my clients make more than your clients, but I make more than you. As for an equity that has outperformed all EIAs, try HANS.[/quote]
Liar.
[quote=Sam Houston]
Pull up a chart of the S&P for the last ten years. See if you can recognize the trends. Get back to me with your answer. [/quote] Ummm... yeah. Everyone can see the trends of a historical chart. The key is seeing into the future. What would a 10 year historical chart do for me if I want to know whats going to happen in the next 6 months or 1 year? Please just explain how you know where the market is going to go? What do you look for? Is it just your gut feeling?Point and Figure chart. I have questions for you. What do you determine your investment mix on? If you have someone with new money today, are you reccomending the same thing you did 18 months ago? Assume client situation is identical now and 18 months ago. Are you being more aggressive now? More conservative? Why?
[quote=Sam Houston]If you had any interest in improving your ability to service your clients, I would go into detail. However, you would prefer to call people names. So be it. Keep popping people into EIAs for 8%. I will keep doing what I am doing for 1.5% annually. Not only do my clients make more than your clients, but I make more than you. As for an equity that has outperformed all EIAs, try HANS.[/quote]
“Mr. Client of Sam Houston, the first thing we’re going to do is turn off that extra fee that Sam is charging you. Then, we will put your money into an account that only goes up and never goes down and you will not pay ANY commissions or fees.”