Thursday May 15, 2014

Sell In May?

There is an old saying in the world of Wall Street “Sell in May and walk away” Well it seems it has come true again and if you didn’t already sell you might want to take a look at your position and decide if you are going to ride this one down or if you think it is going to be okay.

I personally don’t hold any positions in the market because I believe that it is rigged against me and I also know that I suck at picking stocks. So if you ask me it’s time to sell and run like hell!

However, I never get tired of reading the articles and some of the comments that people like to add to financial news stories, especially the ones on CNN Money. Today they had an article titled “Fear is back on Wall Street: Dow falls 200“. Click here to see article. This is a day after the S&P 500 crossed the 1900 mark for the first time. The article goes on to talk about the “fear and greed index” and how it is at the “extreme fear level” which is an index that is made up by CNN Money. Then it goes on to say that it is Wal-Marts fault, because their earning numbers are poor and then Wal-Mart blamed that on the weather and the government shutdown last fall that slowed the tax refunds.

Wow, all of that stuff is effecting the stock market where you keep your retirement money? The funniest part of the article however is reading the comments. Of course you have the people that are going to blame all the moves of Wall Street on Obama and then you have the ones that blame the GOP, I personally like to skip over these and read the ones of the people that are of course stock market professionals. Like the guy that said he is out until the Dow hits 13,000 or another genius that is going to buy after the 15% drop that is coming. Sometimes I wish I had a crystal ball like the people that comment on these articles. However you will always have the die hard stock jockeys that just keep saying that they are in it for the long haul, you have to “buy and hold”, keep it for 10 years at least.

Here is what I have to say to this whole thing. First off if you have to hold a stock for 10 years to possible make money and you don’t know how much or little money that it will be. Then all the paperwork that is associated with the stock market with all the pretty graphs of how it has preformed end with “Past performance is no guarantee of future returns”. Why not just buy a 10 year annuity with a guaranteed rate of return, know what you going to end up with in 10 years and get a good night sleep? I personally like sleep!

Wednesday May 7, 2014

You Can’t Have 4%

Have you ever heard about “The 4% Rule”? Well let’s start with the fact that it is not an actual “Rule”, it is just a “rule of thumb”. It is the recommended value that you should take out of your retirement portfolio every year and hopefully not run out of money before you die.

I don’t know about you, but that doesn’t sound too promising. It is what you “should” be able to take out of your portfolio and “hopefully” not run out of money? I guess by calling it a “Rule” makes it sound like something you should believe in.

For many years now financial professionals have been using “The 4% Rule” while helping their clients set up a retirement income distribution plan. Well unfortunately times have been a changing and with the last recession “The 4% Rule” may be too aggressive. Another problem with using “The 4% Rule” is that we are living longer in retirement, so we need the money to last 30 or 40 years.

The new studies that are coming out are suggesting that the rule should be changed to 3% or even 2% to be “safe”. Safe being that you only have a 5 to 10 percent chance of running out of money. So now your retirement income will be half if they use the 2% rule to be safe instead of “The 4% Rule”.

This is where using the proper annuity can help you. If you are looking to retire sometime in the next 20 years and you want more than 2% of your portfolio for retirement income. Using a properly structured annuity can get you an income stream of 5% or more and guarantee that income will never run out of money while you are still living.

It is not too good to be true it’s just “common cents financial advice”.

Friday March 7, 2014

Happy Birthday the Bull Market is now 5

The Bull Market is now 5 years old and some people want you to believe that it is going to continue for a while yet to come. The S&P 500 if up 177% since March of 2009 where it hit its low during the Great Recession and some are thinking that it will go up another 20% comparing it to the Bull Market of 1982 to 1987. I don’t know about you, but I was alive during that Bull Market of 82 to 87, I was actually going to college at the University of Pittsburgh at the time. I can tell you that the world was very different then. My friends were graduating college and jumping into middle management jobs with major corporations, walking around with that big brick of a cell phone and everyone was driving a Porsche 944 turbo. Well maybe not everyone, but I don’t remember my friends saying that they are moving home with their parents because they can’t find a job, or working at the mall just to make ends meet.

The continuance of the Bull Market is coming at a cost like none that I have seen in my lifetime. The media will tell you that there is no inflation to worry about. I guess they don’t go to the grocery store or put gas in their car. I have read articles that people have no money left at the end of the month to save for retirement and the average 401K balance is $10,000. If things are so great why are we all not feeling it? I can’t remember a time when the price of goods actually went down and things became more reasonable. Even during the Great Recession the only thing that went down was the value of your home, where you had you equity stripped from you and got to take it on the chin.

Jeffrey Kleintop, chief market strategist for LPL Financial says that the market will continue to go up because of all the people on the side lines jumping back in and this Bull Market could last another 10 years. However that reminds me of a quote from Warren Buffet, “Be fearful when others are greedy and greedy when others are fearful.” So what if Buffet is right and the people on Wall Street and in the media are wrong and the Bull Market ends, and the market experiences a major pull back? I am not a market predictor but if I was up a over 175% in my portfolio over the past 5 years. I would probably take some of my winnings and put it in an annuity, which is contractually guaranteed not to lose money in the event of a market pull back.

If you have nay question or comments about this article please don’t hesitate to contact me directly and don’t forget to share.

Tuesday January 14, 2014

Fixed Indexed Annuities Part 1

Fixed Indexed Annuities Part 1 will be the beginning of several blogs that I will write to break down how these complex annuities work and how they can be used to benefit you or how they could hurt you. Let me start by saying that Fixed Indexed Annuities (FIA) are new to the insurance world. They were developed February 15, 1995 by a company called Keyport (now called Sun Life), so you can see they are not even 20 years old. The insurance industry dates back to the Babylonian times but really wasn’t made affordable until the 1700s. Something else that you have to know is that is FIA have a few different names that they are called. You may have heard them called “hybrid annuity”, “ratchet annuity”, “indexed annuity”or “equity indexed annuity”, basically they are all the same thing called different names by different insurance companies. The reason that FIA were created was to give people another option besides mutual funds and they are designed to give you better returns than other traditional fixed products like CDs, money markets and bonds.

Now lets take a look at how these work. First you need to know that your money is never put directly in the stock market even though your growth is determined by the market. Therefore if there is ever a pull back in the actual stock market you do not have to worry about any loss in your account. That seems like a great feature for an investment, right? However when you give up risk you will also give up some of the reward……maybe.

Let me explain how you can earn money in you FIA without being exposed to the market. Generally your account is credited annually with your gains, if you have any, and then that money is yours to keep no matter what happens in the market in future years. You gains are base off the indexes usually the S&P 500, Dow, or NASDAQ, some of the elaborate annuities will use other indexes but we will just keep it simple for now. The insurance companies have many different way that they calculate your gains and some can be quite complicated as well, so we will wait to discuss them in a later blog. For now let just say that you will rarely get 100% of the market upswing in one year, but really that is okay because remember you do not have to take part in any of the down swing.

In true fashion the best way to explain how you earn money in a FIA would be to say that you will earn a portion of the indexes returns in the up years, and that money is yours to keep, and if the market goes down you don’t lose any money that year, you just don’t earn any.

Let me use a Blackjack table to help you get a picture of how this would work. Lets say you sit down at the Black jack table with $100.00 and you bet all of the money on your first hand. Unfortunately you lose, however the dealer doesn’t take any of your money, they just let it ride until the next hand. Then on the next hand you win and the dealer is supposed to give you $100.00 but instead you only get $50.00, now you have $150 that you are betting with. The next hand you lose and the dealer takes nothing, the following you win and the dealer instead of giving you $150.00 only gives you $75.00. You now have $225.00 because you can never lose. So the question is, if you can only win lets say half of the pot but you never have to lose how long would you want to sit at that Blackjack table?

To sum this blog up on FIA we have learned that our original investment is protected from loss but the future gains are not guaranteed, if the market goes up we may not see the full amount of the swing in our accounts, however what ever is added to our accounts we get to keep forever.

Please leave me a note and let me know if this helped you understand or if it just confused you more and you want to play Blackjack.

Thursday January 9, 2014

It’s getting hot in the Kitchen

Even thought it is cold outside it’s getting hot in the kitchen. I’m however not talking about the kitchen in your house I am talking about the kitchen on Wall Street. Let’s face it the stock market has been HOT and last years we had all kinds of new highs and new records were set. For those of you that are in the market, you must be happy with the way your portfolios have performed. Some of us on the outside of the market might look a little jealous, but on the inside are happy to know we are not at risk of a pull back.

“Pull back you say? What pull back, this party is going to last forever!” I wish it was that easy but we all know that someday the market will correct itself as it always does. Even the people on Wall Street will tell you that the market is cyclical and they are saying that they do not think that this is going to be a great year. Who knows when the correction will be 2014 maybe 2015 or even 2016. I am not here to be all doom and gloom and try to tell you that the end is near, it is not fear I am trying to instill, it is just some common sense.

For all of the people reading this that think they are going to let it ride until they see something change and then get out, let me ask you this. Have you ever had a friend that won big in Las Vegas? Did you ever ask them how they won? I am not sure how the whole conversation went but I am sure it ended with “and then I got up and cashed in my winnings.” Well the S&P 500 is up over 100% since 2009, that means you should have doubled your money if not more. Now might be a good time to “get up and cash in your winnings”, because they are not yours if you don’t take them off the table.

Look to annuities to help you keep some of your wealth, with so many options out there I am sure we can find something to help you keep your winning safe. Leave me a comment and let me know what your ideas are for the 2014 investment year. I hope it doesn’t get too hot in your kitchen.

Monday January 6, 2014

Not all annuities are the same!

When I start talking to people about annuities they often think that all annuities are the same, and they have been told by the media that annuities are bad. Therefore they no longer want to listen to what I have to say. I could go off on a tangent at this point about why you shouldn’t believe the media but I will save that for another Blog on one of my other sites. Let me just make it clear at this point NOT ALL ANNUITIES ARE THE SAME! I would also like to make the point that not every annuity is right for every situation.

Let’s just take a look at all the adjectives they use to describe different annuities;

Fixed
Indexed
Immediate
Longevity
Secondary
Hybrid
Variable
Single Premium Immediate
Multi Year Guarantee

It is easy to see how someone might get confused just trying to figure out which annuity could be beneficial to them. But instead of breaking all of these down right now, I think that we should start with just some annuity basics.

An annuity is in it’s basic form is a cash contract with an insurance company that will liquidate the original lump sum of money out into installments over a period of time. All annuities have two distinct time periods. The first is the accumulation period, which could be between 1 month or up to 20 years. The second period is the distribution period which again could be in one lump sum or could be sent to you monthly over the entire rest of you life, with many options in between. The nice thing about annuities is that it removes the worries of market losses and gives most people some peace of mind.

So before you say you don’t want an annuity because they are too confusing or you heard that they are bad, keep in mind that Social Security and Pensions are just that…..an annuity! If you would like more information about annuities just leave me a comment and I will cover it in an upcoming blog.

Monday December 16, 2013

Why would anyone want to buy a Car?

Why would anyone want to buy a car? First off you don’t even know how they work, when was the last time you changed a spark plug or set the timing? Then just think about how much they cost, they are very expensive and when you’re done with them they aren’t worth anything. Sure they might be a little more dependable and easier to use than public transportation, but then I am sure that you could figure out how to get from point A to point B without a car.

Why would anyone want to buy an annuity? First off you don’t even know how they work, when was the last time you heard of a lifetime income rider or long term care rider? Then just think about how much they cost, they are very expensive and when you’re done with them they aren’t worth anything. Sure they might be a little more dependable and easier to use than the Stock Market but then I am sure that you can make your retirement money last from point A to point B without an annuity.

Seems a little silly but I know that most of the people that are reading this own and drive a car, maybe it is time to test drive an annuity.

Leave me a comment and let me know what you think of the new blog!

Ask The Annuity Guy