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September 29, 2011 at 08:00 PM
“Cap rates are too low, the market is too volatile, marketing’s too expensive–wah, wah ,wah.” When the world throws you lemons, well, you know the rest. The insurance products we are licensed to sell are tailor-made for just this kind of investment climate. We may have another five to seven years of a sideways-trending stock market, according to historical trends. Therefore, this is prime time for financial advisors and their products.
Financial media gurus such as Jim Cramer and Dave Ramsey spew their investment advice and self-serving message of long-term stock market returns and preach avoidance of whole life and annuities to the lemmings who follow them. But here are two of their myths and the simple truth that blows them away.
Myth #1. Buy and hold because the market always comes back. This is ultimately correct but deadly advice. Eventually your principal likely will recover, but lost forever is the purchasing power of your dollar. Staying or getting back to even is a losing position.
Imagine if you could earn 10 percent on a $100,000 investment every year for the next three years. Then, in the fourth year, you lose 10 percent. Guess what your total average annual return for those four years would be? Answer: 4.5 percent. Granted, cap rates on variable annuities are historically low but for an investment that bears no stock market risk and yet captures the realistic upside of a volatile market, it’s a slam dunk and your opportunity to redirect those lemmings.
