Average Returns v. Actual Yields, & Why Whole Life is a Great Bet
December 30th, 2009 // 4:00 am @ Andrew Rosenbaum
Here’s a message for all investors who like playing with high-risk investments: Math is not money, and money is not math.
Imagine you are investing $1,000 in a mutual fund. You have a fantastic first year, earning a 100 percent rate of return, bringing your balance to $2,000.
In year two, things go poorly and the investment loses 50 percent. Your balance is now back to $1,000.
In year three, the market goes up and you earn 100 percent again, bumping your balance back up to $2,000. The fourth year markets tank again and you lose 50 percent. Your balance has now fallen back to $1,000.
Notice that your beginning and ending balances are exactly the same. Your actual yield is a big fat 0 percent.
Here’s the interesting thing. What is your average rate of return? 25 percent.
I know any investor would love to get a 25 percent return. A mutual fund with this exact performance could advertise, “Our fund has averaged 25 percent over the last four years.”
It’s a true statement. It is not illegal or blatantly dishonest. It simply fails to illustrate the fact that investors actually ending up with no return.
One of my clients is a major league hedge fund manager. He knows something about high-risk investments. But what does he have in his portfolio? A guaranteed contract –- a whole life insurance policy.
In the past year he doubled the size of his policy. In this economic environment, he told me, he needed to lower the overall risk of his investments. And a guaranteed contract is a smart alternative to treasury bills, which are currently paying a very low yield.
Here’s how he explains it in his own words:
Whole life is an investment with its own risks and rewards. But the risk is relatively low. The return is virtually guaranteed, you can borrow against it over time, and you can use it for estate planning purposes. I know that when I die my family will have enough money to manage their own lives. I could invest in ExxonMobil, but who knows what the stock would be like in ten years?”
He told me he thought that whole life has a bad rap, which encourages people to think they can outperform the policy. To quote him again,
Many savvy investors believe they can stimulate the characteristics of life insurance benefit on an after-tax basis – it has to be after tax because money accumulates within a policy tax-free. They think they can take $10,000 a year and invest it, but what happens is they never do it, and their portfolio is skewed.”
My hedge fund client really understands risk, and he certainly understands rewards.
Category : Financial Certainty &Financial Planning &Investing &Market Volatility &Permanent Insurance &Stocks & Mutual Funds
Can You Spot Your Investment Flaw?
December 9th, 2009 // 4:00 am @ Andrew Rosenbaum
The federal government says the country is coming out of the recession. My biggest fear is that, with the market recovery, people with a lot of ground to recover in their portfolios will chase risky high returns again.
But with high-risk investments you will inevitably lose your money. That’s not financial planning; it’s legalized gambling.
A wealth swing coach helps you spot your investment flaws. Investors try to outsmart market volatility. They mistakenly believe they can cash in at the top, then balance their portfolios to preserve their wealth.
They rarely do. Sooner or later, the market will turn down again and they’ll have lost the opportunity.
Trying to outplay market volatility is like trying to control the weather. It’s impossible.
Remember the old expression, “save for a rainy day”? Don’t assume it will always be sunny.
As a golf fan, I like golf analogies. Tiger Woods never tries to outplay the weather. He doesn’t take wild risks. He meticulously measures, plans, and calculates every move he makes.
He starts out playing conservatively and defensively. Only if the weather’s right and only if he thinks he’s playing well does he go on the offensive.
So balance your investments by including assets that will endure no matter whether markets are sunny or stormy, and you’ll be better prepared if other investments decline.
Category : Financial Certainty &Financial Planning &Investing &Market Volatility &Wealth Swing Coach
Andrew Rosenbaum Featured in Life Insurance Selling Magazine
December 7th, 2009 // 11:44 am @ Andrew Rosenbaum
Brian Anderson of Life Insurance Selling magazine recently published a story on Andrew Rosenbaum entitled “The ‘Wealth Swing Coach’ of Wall Street.”
Here are a few highlights from the article:
“Rosenbaum, 55, has been in the insurance industry as a financial advisor for 33 years. He joined Strategies for Wealth, a General Agency for Guardian Life, in 1976 and has been there ever since. His focus on simplified and ‘safe risk’ financial, estate and retirement planning has stood the test of time. He is a 33-year qualifier for Guardian’s Leaders Club, a 24-year qualifier for Guardian’s President’s Council, and is a former president of the Executive Committee of the Leaders Club, the highest honor to be bestowed on a member of Guardian’s field force.
“While there was some initial struggle and he came close to leaving the business early in his career, discovering the principle, ‘Remember the mission, forget the commission’ struck a chord. Instead of focusing on what he wanted, Rosenbaum began to focus on the client’s wants and needs.
“…While competitors were shouting about being product-centric, he excelled by becoming client-centric. He went from selling to serving.”
The article continues by quoting Andrew:
“Safety is key, and that’s why my message is so timely. A sound financial plan is not about wringing every last bit of return out of an investment — it is about balancing and offsetting risk. Even if overall returns are lowered a bit by adding whole life, on balance, the entire portfolio is stronger as a result.
“I use the analogy of how Tiger Woods plays. He doesn’t try to hit the ball 350 yards every time he swings. He assesses the conditions he is playing in that day, and then swings. People need to do that with their money.
“In a golf swing, there are pieces of the swing that cannot be isolated by the player. You need another pair of eyes to see where those flaws might be. In financial planning, there are flaws that people do not typically see or understand. A prime example is that people go crazy over big rates of return, but they don’t take into account the taxes and fees they have to pay to obtain those returns. They fixate on a gross number. As a ‘wealth swing coach,’ I enable them to see that what’s really important is not what you make — it is what you keep.”
Category : Financial Planning &Press & Media &Wealth Swing Coach
Tiger Woods Shows Why You Need a Wealth Swing Coach
December 2nd, 2009 // 3:53 am @ Andrew Rosenbaum
A few years ago I was watching a major golf tournament in which Tiger Woods had the lead going into the final day. Tiger is widely recognized as the greatest golfer in the history of the game.
So Woods was taking practice swings before teeing off, as an older gentlemen stood off to the side carefully studying his swing. The commentator informed the viewers that this man was Butch Harmon, and that he was Tiger’s swing coach.
I was somewhat shocked. I had no idea he still had a swing coach. Why would Tiger use one?
At that moment the commentator said, “Butch Harmon is one of the best-kept secrets in the game of golf. He consistently helps his students knock two to three strokes off their score by increasing their efficiency.”
The storehouse of knowledge Harmon had acquired from studying thousands of professional golfer’s swings enabled him to spot tiny flaws in even the greatest golfer’s swing. Though Tiger knows he’s the best in the world, he’s wise enough to know he cannot see himself swing.
So Butch serves as Tiger’s “eyes of wisdom” outside of himself to make sure he’s optimizing efficiency.
What the swing coach does for the world’s greatest golfer is exactly what I do for some of the world’s smartest executives and entrepreneurs. I’m their wealth swing coach.
Most of my clients are highly successful. But they all have tiny flaws they can’t see. Over the short-term these flaws are barely perceptible and seem to be of no consequence. But over the long-term, they can be disastrous.
A common flaw I see is people choosing to chase wealth instead of building lasting economic confidence. People hope they will amass so much wealth they’ll be financially secure no matter what. But the events of the past 18 months prove how shortsighted that vision can be.
Some people stopped opening brokerage statements because it upset them to see how much they had lost. But they lost more than money — they lost their peace of mind because of this common flaw.
A “wealth swing coach” would have discovered and showed them how to correct it.
More people need a wealth swing coach. I’m ready to share what I’ve learned working with hundreds of financial planning clients. That’s the purpose of my book and this blog.
Category : Financial Planning &Wealth Swing Coach
Economic Confidence: The Goal of Your Financial Plan
November 17th, 2009 // 11:13 am @ Andrew Rosenbaum
What most clients really want in simplest terms is economic confidence. They don’t want a tremendously complex plan that requires luck for it to work.
Economic confidence can only be experienced if their plan is designed to work under almost any circumstance. The certainty would be derived by mitigating risk as much as possible, while simultaneously providing for what I call the “hit list.”
The “hit list’ is my pet name for the universally-shared objectives all people want to see their plan provide them with, including the following:
- Optimized cash flow
- Maximized actual rate of return
- Legally pay the least amount of taxes
- Have more tax-free and tax-advantaged money
- Feel greater security by balancing risk/actual return
- Make philanthropic and charitable giving possible
- Enjoy a near-guaranteed financial safety net so that higher risk financial ventures become tolerable
- Know that one’s wishes for their family’s ongoing financial needs will be planned for and realized no matter what
- Have a scientific measurement that verifies your plan’s ability to achieve all of the above goals, free from rhetoric or salesmanship
These are the positive outcomes that people seek. They also want to ensure protection from the following negative outcomes:
- Possibility of premature disability
- Possibility of premature death
- Unforeseen income and estate tax situations
- Unexpected lawsuits
Does your financial plan give you economic confidence?
Category : Featured Content &Financial Certainty &Financial Planning
