Comments on: 11 Financial Products To Be Careful About

By: Bankruptcy & Debt Carnival 12- Instant Links Online!

Bankruptcy & Debt Carnival 12- Instant Links Online! — Mon, 24 Nov 2008 12:24:24 +0000

[...] Smarter Wallet presents 11 Financial Products To Be Careful About posted at The Smarter Wallet, saying, [...]

By: TheCreditToolBox.com » Blog Archive » Credit Around The Blogosphere

TheCreditToolBox.com » Blog Archive » Credit Around The Blogosphere — Sat, 15 Nov 2008 11:03:15 +0000

[...] attempting to work on your debt reduction, be careful about utilizing certain financial products, from the smarter [...]

By: Mary@SimplyForties

Mary@SimplyForties — Mon, 03 Nov 2008 21:50:38 +0000

There are two reasons I can think of to consider life insurance for young children. If your child develops an illness or handicap they may become uninsurable later in life. If they already have a policy, that policy would not be cancelled based on the medical change so they would continue to have at least that coverage. Secondly, horrible as it sounds, funerals are terribly expensive, if the unthinkable happens and your child dies, at least, in the middle of your grief, you wouldn’t have to worry about how you were going to afford to bury them. Life insurance for healthy newborns is very cheap. I bought a $25,000 Whole Life policy for my son when he was born for $10 a month.

By: financial wellness project » carnival of debt reduction #164

financial wellness project » carnival of debt reduction #164 — Mon, 03 Nov 2008 17:03:03 +0000

[...] attempting to work on your debt reduction, be careful about utilizing certain financial products, from the smarter [...]

By: JT

JT — Wed, 01 Oct 2008 17:05:58 +0000

@GHL,
I absolutely agree with you on all you said about fees and charges. I am big on index funds and my core portfolio is with index funds of all sorts. The fees on annuities can add to already existing fees and charges (even though it is voluntary) and that was what we wanted to express here.

This article does not flat out rag on annuities — our point here is that financial products are not “one size fits all”, and while it may work for others, it may not work for you (and vice versa). So the key is to evaluate them carefully and see if they fit your circumstances and requirements.

In general though, if you really want participation in the stock market, then index funds are a prudent approach to take.

GHL, thanks once more for your thoughtful comments.

By: GHL

GHL — Wed, 01 Oct 2008 11:32:08 +0000

There are many young people who purchase annuities and they work well for them, but in general they are not for young people who need money for many things such as housing, cars, and babies.
The problem that has become apparent to me is the real returns on equities are far lower than the return touted by advisers. The SEC cost calculator shows the effect of a 3% fee over 20 years. Fees and foregone earnings are over 40% of the value of the return. I have looked at the cost of advice i.e. commission based, fee based, and fee only. The striped out cost of advice is at a minimum 2% and when you add management, turnover, and other cost most people don’t have a chance. That was the point that seems to be overlooked by most people in the financial industry. The myth that 12.5% return minus adviser fees, management fees, timing and selection penalties, turnover cost and taxes equals 12.5%. The math says different.
About surrender charges, if your surrender charges are 12%, that is your total down side and it is a voluntary charge. A question: Do you think the market could take away 12% of your account? If yes, was that voluntary surrender or non voluntary surrender charge?
If you have to be in the market, own all of the market through a very low cost (.2%) index fund like the s&p 500.

By: JT

JT — Wed, 01 Oct 2008 07:36:22 +0000

@GHL,
I apologize for the deletion of your earlier comment but it wasn’t very clear (the latest one you provided is quite clear though!). I do appreciate your thoughts. The lack of liquidity argument for annuities simply means that they are less liquid than other financial vehicles. You pay a surrender charge if you try to get your money out of annuities (in general). There’s a place for annuities, but for younger people, it makes better sense for them to diversify and perform proper asset allocation to control their investment risks while seeking reasonable returns. I just don’t see why young people should be buying annuities, I really don’t. But to each his or her own.

By: GHL

GHL — Wed, 01 Oct 2008 01:55:30 +0000

Stacey mis-characterized annuities using descriptions such as try to and attempt to in describing how they work. The correct word is guarantee. She also wrote that they had higher cost and (liquidity) she meant not liquid. That is not true. Fixed and fixed index annuity have no cost. Stacy says they are not liquid. Compaired to what are they not liquid? The stock market? The bond market? Real Estate? CD’s? Checking accounts? Money market account? Then she says you can make your own home made annuity that is better. Not true. Wharton School of Business and Moshe A Milvesky, PHD both have studies that show home made annuities don’t work. She also fails to take into account all the fees and cost that are associated with her recommendations, which are well documented by John Bogle, DALBAR and many others. If you are giving advice do it with full disclosesure. It is not fair to the readers. I listed the common fees and cost associated with equities yesterday and you deleted it. It is your site, suit yourself. Good luck

By: JT

JT — Tue, 30 Sep 2008 18:13:01 +0000

GHL,

I’d like to know what you mean? I am a bit confused by your commentary. Would appreciate some context.

By: Byron Udell

Byron Udell — Tue, 30 Sep 2008 15:49:12 +0000

Good information – thanks for the tips. With regards to life insurance, there are some instances where permenant policies are useful. For instance, in estate planning needs. However, I would strongly recommend buying a policy that you know you’ll be able to afford 5 or 10 years from now. For most people, term is most affordable.