A decade ago, my ‘trusty’ financial adviser at H&R Block (read ‘broker’) became exercised with my habit of ignoring his ‘advice’ and making my own decisions as to what securities I would hold in my retirement accounts. I later quit him like a bad habit and set up a retirement account with an on-line brokerage. I’m no financial wizard, but my choices have resulted in real returns exceeding 25% since then.
Now, at the beginning of 2015, the market seemed to me to be smelly in the extreme, and I reduced my stock holdings significantly by getting rid of energy stocks and some others I had been holding in biotech outfits. Simple soul that I am, I believe in buying low and selling high, but my basic strategy is to research companies carefully, analyze their financials, read their 10K reports to the SEC, check insider trading and so forth, and then buy and hold for the long-term.
Now, my current position is largely cash in the form of money market holdings that are returning about 0.5%. In my 401K, because of tax-deferred income, the real return is around 1 %. Anyway, my old broker (with a new firm) called me up out of the blue the other day and requested a meeting at his office. I went because at my age you need all of the comic relief that you can get.
He advised me to put my 401K cash into a variable annuity, enthusing that this was a no lose proposition: I could get a predictable monthly income of 5% (on an annualized basis), a guarantee of no loss of principle if the stock market went down, the ability to withdraw my capital if I had an emergency, and the possibility to get even more monthly income if the market went up.
Sound wonderful, doesn’t it? Almost like free money!
But, his allusion to the tax-deferred return raised my hackles. I was already getting that because it was a 401K tax-deferred account! What advantage did I have changing horses in mid-stream, as it were? So, I requested that I take home and study the contract documents that he thrust under my nose. His bit his lip a bit and his hand holding the pen for a signature quivered slightly. I raised the tension in the room by studying his tie and his slicked down hair, like he was a villain in some B movie. He said okay, and handed me the documents. I glanced at them briefly and after a dramatic pause while I scratched my crotch, I told him I would get back to him in a few days. This is what I found out:
- These sales reps for what is essentially an insurance product, are paid on average a 10% commission!!!
- The ability to withdraw your principle in full is only possible after 8 years—in my case, perhaps an eternity, considering my age. Early withdrawal has a penalty of 7% of your principle!
- The management fees turned out to be about 2.5% per year—an outrageous amount—much more that some of the worst mutual funds.
- You have no protection whatever if the insurance company issuing the annuity goes belly-up.
- The funds you invest can longer be used as collateral, and essentially disappears from your ‘Net Worth’.
- I check the NASD website, and sure enough there were many warnings posted about annuities being a bad investment.
So, my advice is to be very skeptical of any advice you are offered by ‘financial advisers’ who make a commission on your trades. If you need an adviser, select one that charges an annual fee for management services, and watch him/her like a hawk!!! Fire him/her quickly if you see losses on your statement. You pay them money to make you money. Better still, do your homework, and make your own choices. No one cares more about your money than you do!
Now, one more thing before I go. I have made a careful study of the price of oil, and guess what? Considering the worldwide reserves and global consumption rates, oil should be trading for about $30 USD per barrel, maximum and not a penny more. Any price difference is entirely due to the activities of traders and speculators. And, as the USA and other countries go ‘Green’ demand is likely to lessen.
And now, a couple of jokes:
ELECTRIC COMPANY
A young husband comes home one night, and his wife throws her arms around his neck: “Darling, I have great news: I’m a month overdue. I think we’re going to have a baby! The doctor gave me a test today, but until we find out for sure, we can’t tell anybody.”
The next day, a guy from the electric company rings the doorbell, because the young couple hasn’t paid their last bill: “Are you Mrs. Smith? You’re a month overdue, you know!”
“How do YOU know?” stammers the young woman.
“Well, ma’am, it’s in our files!” says the man from the electric company.
“What are you saying? It’s in your files?????”
“Absolutely.”
“Well, let me talk to my husband about this tonight.”
That night, she tells her husband about the visit, and he, mad as a bull, rushes to the electric company offices the first thing the next morning “What’s going on here? You have it on file that my wife is a month overdue? What business is that of yours?” the husband shouts.
“Just calm down,” says the clerk, “it’s nothing serious. All you have to do is pay us.”
“PAY you? And if I refuse?”
“Well, in that case, sir, we’d have no option but to cut yours off.”
“And what would my wife do then?” the husband asks.
“I don’t know. I guess she’d have to use a candle.”
PERKS OF BEING OVER 50
1. Kidnappers are not very interested in you.
2. In a hostage situation you are likely to be released first.
3. No one expects you to run–anywhere
4. People call at 9 pm and ask, ” Did I wake you ???? “
5. People no longer view you as a hypochondriac.
6. There is nothing left to learn the hard way.
7. Things you buy now won’t wear out
8. You can eat dinner at 4 pm.
9. You can live without sex but not your glasses.
10. You get into heated arguments about pension plans.
11. You no longer think of speed limits as a challenge.
12. You quit trying to hold your stomach in no matter who walks into the room.
13. You sing along with elevator music.
14. Your eyes won’t get much worse.
15. Your investment in health insurance is finally beginning to pay off.
16. Your joints are more accurate meteorologists than the national weather service.
17. Your secrets are safe with your friends because they can’t remember them either.
18. Your supply of brain cells is finally down to manageable size.
19. You can’t remember who sent you this list
And you notice these are all in Big Print for your convenience.
