Our Financial Plan

 Our Financial Plan

  1. Only buy things you need. A want becomes a need, when after about 3 times you could have used the item. A drill press is nice, but if you could have used one 3 times in the past but didn’t have one and you like that type of activity, a drill press becomes a need instead of a want. Vacations, new cars, etc. are the same. Invest the savings.
  2. There is no doubt that annuities dampen the year to year fluctuations in the value of your portfolio. Annuities have very high annual expenses. The expenses over the long term are a very large drag on your net worth. Insurance companies take advantage of investors’ short term fears and it costs them dearly.  On top of that, the insurance company has your money and all you have is a contract that nobody understands, except the insurance companies lawyers.  They will win every time.   You can create your own annuity type investment and over the long term end up with a likely considerably larger nest egg.  How do you do that?  Just figure out how much you need to take out of your investments each year to maintain your annual expenses.  Make sure that you put around 3 years of funds in a no risk investment, i.e. CD’s, etc.  You can use these funds for annual expenses.  If the stock market is cheap, then let your no risk investments drain down to a year or so, if the markets are high you might extend your no risk funds out a bit.  By doing this, the dips in the stock market don’t affect your lifestyle.  It’s not likely you will have to sell your stock investments at a bad time.  It turns out over longer periods, stocks are less risky than no risk funds like CD’s. Why? Inflation causes a higher loss of buying power than the stock market risk over the long term.
  3. The Dow Jones has been going up since 1896. Without dividends, it’s up 81,000%. Insurance companies are betting on America’s growth because otherwise they couldn’t pay off those annuity contracts.  You should too.
  4. If annuities were such a great deal, Warren Buffett would own them. Warren Buffet doesn’t own any annuities in his investment portfolio. You shouldn’t either.
  5. No insurance company can guarantee a 3% to 6% return in today’s world. The safest thing is a 10 year US Treasury note currently that yields 1.68%. What happens is the annuity contract is impossible to read and buried in the contract is the annual expenses that are deducted from the return. These expenses can be 2.5% to 3%.

3 Reasons Annuities Are a Bad Long-Term Investment


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This blog does not constitute an offer to sell, or a recommendation of any security, this update is for informational purposes only.