Posted on 02/16/2009 7:17:04 AM PST by george76
Most investors sustained serious damage to their wealth last year -- damage that, in many cases, will be difficult to recover from. Certainly Wall Street titans, reckless lenders and irresponsible home buyers all deserve their share of the blame.
But one part of the financial world has not received much scrutiny for its role in the evaporation of investor wealth, and that is the mutual fund industry.
Sadly, a gullible public has bought into the idea that steady investments in mutual funds, regardless of market conditions, is the way to make their financial dreams come true.
This is one of the biggest fallacies of investing, and why mutual funds are hazardous to your wealth.
To give you a sense of just how flawed the buy-and-hold philosophy advocated by the mutual fund industry was in 2008, just look at the numbers. According to the mutual fund industry's own Investment Company Institute, investors lost almost $3.7 trillion in mutual funds in 2008.
Yet how often do you read about mutual funds leading the public down a losing path? How often do you hear about a fund manager whose performance was drastically lower than the benchmark?
My problems with mutual funds don't stop merely at poor performance or inept fund managers. There are serious problems with mutual funds that have more to do with the design and structure of these investment vehicles.
Advocating buy-and-hold investing is the backbone thesis of most mutual funds. A fund company will never tell you to move to cash when things get tough because it's just not in their best interest. Because most mutual funds must stay fully invested all the time, their concern for managing risk is secondary to their concern for keeping you fully invested.
(Excerpt) Read more at marketwatch.com ...
November 2007 up 45% YTD vs Feb 09 @ 50% of November 2007
We had a government created housing bubble. It’s not capitalism when the government spending is 40 % of GDP and they’re busily inflating a huge bubble with artificially low interest rates and encouraging liar loans.
Remember - 45% increases are not normal. Would that I had listened to myself and others and went to cash December 07.
Cd’s are good for us older folks.
This may not hit bottom for a while.
Ga,
That depends entirely on what you have been doing during
the two years since the top. There have been plenty of money
making opportunities since the top. They have been short lived. Most funds are fully invested all the time. Long/Short Equity funds are not. Others are not.
best,
ampu
www.usretirementrevolution.com
Lets' say you put 500 a month into an IRA or 401k for 35 years and gain 7.5%. You deferred 70,000. You would have 1 million when you retire. However, you will pay about 350,000 in taxes during a ten year roll out. And you will have about 34,000 a year in income after taxes through retirement.
If you put the money into an indexed-universal life program, you will pay the 70,000 in taxes over your work years and no taxes during retirement. Retirement income: 75,000 per year.
Who's retirement are you planning yours or Uncle Sam's?
Try that with Roth IRAs and tell me how it compares; I would seriously like to know. No load mutual funds don’t charge sales commissions but insurance companies do.
You have sevral issues with the Roth compared to the IUL policy.
You can draw out the surrender value at any time with an IUl No tax penalty or repayment reqirement.
The IUL has no age restrictions.
The IUL has no contribution limits. If you have a good year or some assets you want to put in, no worry about annual limits. You can contribue monthly or annually or lump sum.
You can use your IUL as a bank to avoid non-preferred debt.
The IUL comes with a death penalty.
If you have serious medical problems you can insure someone else and still own the policy.
Old Mutual has 1.59 in assest to policy debt ratio.
........and it comes with a free spell check.
The IUL commission runs 1% over time. The cap rate is 8.27% just lowered from 9.6%. Outran the S&P Index the last 25 years. 1% minimum means no loss in principle for your retirement money. Stable.
With AIG? I think not.
We are now a socialist country, I don't think the stock market is a good place to store wealth. But it may be the only option for many.
What say ye to post 30?
AIG was not in default on Life Insurance. They were insuring Mortgages. That was their problem. I think you’re reaction is typical and why so mnay people are uninformed abotu thwt to do. Have you tried a mattress? Or better, stay in the stock market.
My 33. What say you?
bfl
How many life insurance policies were in default under AIG when the governemnt bailed them out? None.
Old Mutual has 1.59-1 assets to policy debt ratio.
States have an insurance guarantee fund. In Cal it's 300,000. Others have 250,000.
Do you really think banks and the stock market are safer. If so, why?
where IS that spell check?
Where are they investing their money to return a consistent 8%?
________________________________
There is a spell check in Firefox that you can activate by going to Tools, Options, and under the Advanced Options - General tab, check the box that says “Check My Spelling as I Type”
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Internet explorer http://www.iespell.com/
They invest in preferred stocks and bonds, real estate and other places I don't recall. Old Mutual provides a prospectus and describes their assets etc.
They're using the index and guaranteeing 1%. So, if you're doing investment for retirement, you don't lose principle in a given year.
If you'd put 100,000 in the index in 1983, you'd have about $850,000 after tax at the end of 2007. In the Old Mutual program, you'd have $989,000.
In response to last year's downturn they reduced the cap rate to 8.27% from 9.6%
For retirement the rate if return is very good, but I prefer the safety and tax advantages.
My point is that insurance bears single company risk. What happens when your insurance company goes bankrupt? Do you lose 100% of the value of your insurance? For example, what of GICs, Term Life, Whole Life, etc. Is their value insured by the Feds in some way?
I prefer explicitly known risk. I have mostly Index funds at Vanguard. I know I risk Vanguard going out of business, but their ability to steal the underlying assets is minimal to non-existent. So, I primarily have Market Risk, a known one that I can control. I can step away from Market Risk by going to CDs, Bonds, MMFs, gold and my checking account.
Insurance purveyors who suppose they are offering an investment, in my experience, are usually A) Frauds, B) Extremely Misleading, or C) Have such convoluted and long-term tax-based advantages that a really smart guy wouldn't dare enter that market without a PhD dissertation to back him up. For example, I have studied Annuities many times over the years, and while they appear to offer some limited marginal tax benefits, their restrictions, costs and opacity always put me off.
As Individual Investors go, I'm quite well studied. I believe in the Efficient Market Hypothesis for most stock investment categories. I know that portfolio allocation and cost minimization are the keys to long term success. I have been recently taught about Black Swans, and am sufficiently chastized that I will slowly take that into account in portfolio construction.
So, thank you very much, I will stay largely in the Stock Market, where my returns have and will continue to exceed (I'm quite sure) virtually any other investment class over my investment time horizon.
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