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Question: My husband and I spoke with a
financial advisor who is a salaried employee of our credit union
regarding two of our retirement accounts. I managed these accounts
myself during the boom years, but feel "out of my league" in present
market conditions. I really want to protect these two nest eggs and
grow them over time, while my husband starts fresh in his new 401K
plan.
The advisor mentioned a product called the USAllianz High Five
variable annuity. I've spent this evening reading mostly negative
things about annuities, but we do seem to fall into the "it might be
right for you if..." category, mostly because retirement is still 20
years or so off. Do you have any thoughts on this topic as it
relates to us or this product in particular? My husband and I are 44
and 42 years old respectively, with two young children. We live on
one adequate but modest income. Saving is second nature--if only we
had a similar talent for investing!
Answer: First, don't be fooled by the fact that the person you spoke
to is a salaried employee of the credit union. Having worked in a
bank environment, I can assure you that there is tremendous pressure
on these employees to meet certain quotas. Just because the person
is salaried does not mean there isn't a conflict of interest.
Credit unions and banks make more money off of investments now than
they do on any other banking product. By using salaried employees,
the bank or credit union gets to pocket the 5-7% commission on the
Allianz annuity, while the salaried advisor might only get a $50
bonus.
As for the credit union’s recommendation, I am not a proponent of
using annuities for IRA money. (See articles on my website.) A
Variable Annuity is essential a mutual fund in an insurance wrapper.
The problem is that ‘wrapper’ adds considerable costs to the
equation. In most variable annuities, the underlying costs will
often total 2.5-3.5% per year—or higher! Plus you are limited to the
choices they give you and have no control over what choices are
added or taken away.
Secondly, it is important for you to remain flexible. You need to be
able to change your investments and advisors without facing any
surrender penalties, especially over the 20 years you have until
retirement. There are ways to protect your investment from
significant loss with growth potential that don’t require you to tie
up your money for an extended period of time.
For instance, I use a proprietary money management system for my
clients. It is designed to allow them to participate in market
growth while significantly reducing their potential for loss (in
many cases to less than 3%). It is designed for those who want to
grow their money without losing their shirt. And it does so without
any commissions, surrender penalties or time commitments. Sounds
like you could use something similar
Question: I have heard that there is a stock that covers the Dow and
protects your money better than any individual stock. I heard that
this stock has all the stocks in the index, so it performs just like
the Dow. What is the stock symbol and what is it selling for? Do you
recommend it for long-term growth?
Answer: What you are referring to is an Exchange-Traded Fund. ETFs
are designed to mimic their underlying index so they give you the
diversification of a mutual fund and the liquidity of a stock. There
are over 150 indexes with ETFs tracking them. The symbol for the one
that tracks the Dow Jones Industrial Average is DIA. There is also
another one (IYY) that tracks the Dow Jones Total Market Index.
Ever since the mutual fund scandal and the redemption fees added by
many mutual funds, I have switched to using ETFs almost exclusively
with my clients. As far as recommending them for long-term growth,
that will depend on your situation. I am not a big proponent of
strict buy and hold because there is too much risk of having to wait
years to recover from a loss. This doesn't make sense if you are
retired.
Want me to personally answer your financial question? Go to
www.guardingyourwealth.com and click on ‘Ask Jeff’.
In addition to being a nationally syndicated columnist and Certified
Financial Planning Practitioner, Mr. Voudrie provides personal,
private money management services to clients nationwide.
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