Gyroscopic Investing

MachineGhost wrote:

rocketdog wrote: Coxon does mention Swiss annuities in the book, but not exclusively.  He covers several different types of annuities.  He does make a strong case for protecting your assets with foreign trusts, but that was before some of the laws changed so I'm sure most of his advice is outdated today.

What does he say about variable annuities?

I pulled out my copy of "Keep What You Earn" to answer your question MG, and Coxon discusses Variable Annuities on pages 101, 104 & 105.  So not a whole lot of substance with only 3 pages devoted to them.  Other than explaining what they are, here are some of the points he makes about VAs:

1. It's a good place for speculative capital, due to the tax free ability to switch between investments or even between annuity contracts. 
2. It contains an element of life insurance.  Example: you buy a $50K policy, the investments you make decline to $40K, and then you die.  The insurance company pays your beneficiary the full $50K, in essence turning your $10K loss into a $10K life insurance policy. 
3. He warns the reader to shop carefully, as costs can vary widely, impacting performance.
4. VAs are tied to a specific pool of investments, so even if the issuing company goes broke you should still receive your share of the underlying investment pool. 

Those are really the only specific details he mentions when talking about VAs.  He talks at greater length about Deferred Annuities in general (VAs are a subclass of DAs) as an overall tax avoidance strategy. 

I think with the creation of IRAs and 401(k)s and the like, reason 1 is not needed any longer.  Those accounts in a traditional brokerage give you far more flexiblity and even a 401(k) is seldom any worse (and in fact could be exactly the same... see group annuity contracts).  The alternatives are so much cheaper than a VA and more money can be added every year you have income, we don't need VAs for #1.

For #2, get cheap life insurance (term) or the most simple whole life policy you can find.  The more options in combination just gives the salesman more knobs to turn to confuse you and increase your costs.

#3 is always timely, solid advice.

#4 see #1.

I don't see a point in a VA.  If you can fully understand the contract and find the point, let me know.  And if you think it is a money saving option compared to "buy term and invest the difference" or even "buy whole life and invest the difference" then read it again.

AgAuMoney wrote: I don't see a point in a VA.  If you can fully understand the contract and find the point, let me know.  And if you think it is a money saving option compared to "buy term and invest the difference" or even "buy whole life and invest the difference" then read it again.

I don't see the point of a VA as an alternative to life insurance, but that wasn't the emphasis of this thread.  It is as an alternative to other retirement accounts when you don't have access to them or have maxed them out.

Realistically, at this point, only Fidelity offers what could be considered a "pure" tax deferred VA with extremely low fees.  However, for me, Fidelity's "market timing" restrictions on fund transfers is enough to make it unattractive as well as the lack of being able to invest in dividend growth stocks.  Very annoying.  I suppose I will have to wait for the industry to "innovate" some more.  But for those that do the vanilla PP, Fidelity seems like a practical alternative to extend the tax deferred space.

I'm not even close to being sold on VAs, or annuities in general.  Maybe when I get closer to retirement - and the product lineup has changed - I can reconsider annuitizing some of my retirement money.  But right now I'll stick with Warren Buffett's advice to not invest in anything I don't fully understand. 

rocketdog wrote: I'm not even close to being sold on VAs, or annuities in general.  Maybe when I get closer to retirement - and the product lineup has changed - I can reconsider annuitizing some of my retirement money.  But right now I'll stick with Warren Buffett's advice to not invest in anything I don't fully understand.

There's really nothing difficult to understand about VA's; its more fear of the unknown than reality.  Just read a prospectus and you'll learn most everything (thanks to government regulations, I'm sure).  But I want to point out that using a VA doesn't automatically equate to having to annuitize.  You can take a regular lump-sum withdrawal just as from any other retirement account or take it out at anytime before 59.5 and pay the typical 10% retirement penalty.

I'd just be more enthused with the "no frills" VA's if the investment options were better and the fees within those plans that offer better invstment options were lower (both the VA as well as the investment options).  It almost seems as if the industry is begging for a disruption by getting rid of the legacy human baggage and infrastructure that is jacking up the fees.  Fidelity and Vanguard are off to a good start but its not enough until more people get involved and demand improvements.

rocketdog wrote: I'm not even close to being sold on VAs, or annuities in general.  Maybe when I get closer to retirement - and the product lineup has changed - I can reconsider annuitizing some of my retirement money.  But right now I'll stick with Warren Buffett's advice to not invest in anything I don't fully understand.

I like fixed Swiss Franc annuities, which I believe Harry may have mentioned in one of his books (it's been a long time since I saw it, though). Unfortunately they are very hard or impossible for Americans to buy these days...

MachineGhost wrote: There's really nothing difficult to understand about VA's; its more fear of the unknown than reality.  Just read a prospectus and you'll learn most everything (thanks to government regulations, I'm sure).  But I want to point out that using a VA doesn't automatically equate to having to annuitize.  You can take a regular lump-sum withdrawal just as from any other retirement account or take it out at anytime before 59.5 and pay the typical 10% retirement penalty.

The last time I was at all close to considering a VA, I had received a prospectus (actually more than one, one for each of the investment alternatives) and it seemed on par with my (very good, it turns out) 401(k) at the time.  When I started asking more questions, I found out there was an additional contract.  I had to insist, but eventually I was shown a sample contract.

That sample contract was many pages of absolutely abysmal "fine print" legalese.

I asked if they were all like that, and was told that there would be a lot of differences, some sections added, some removed, depending on the various options available and chosen and which class of annuity I would be buying.

I don't remember if there was a lump sum option or not.  Mostly I just wanted to run away as quickly as gracefully possible.  This was with a Baird Financial agent ca. 2001 but I don't recall who the variable annuity would have been with.

If Fidelity (or Vanguard) has eliminated all that insurance contract baloney then an annuity might have a chance.  (not likely for me, I've outgrown the point where I was interested in such limited investment choices and who knows if I'll ever go back, but maybe for my sister, say)

But perhaps the insurance contract doesn't come up until later.  The bait has to completely cover the hook or the more wily prey might spit it out before swallowing.