One of my favorite Yogi Berraisms is the insightful: “The future ain’t what it used to be.” One of the chiefs of the financial planning industry, Harold Evensky, recently changed his opinion on annuities, admitting that they make sense as a lifetime retirement income source. I also recently read an interview conducted with the dean of financial advisors, Nick Murray, and even he has come around to the idea of utilizing a variable annuity as a lifetime income source.
Now another Yogiism is being played out when fixed indexed annuities aren’t included in the mix as well. First, I am a huge Nick Murray fan, and have read everything from “The Excellent Investment Advisor” to his latest, “The Game of Numbers.” He is also a former graduate of the EF Hutton Alumni class, where I started as a retail advisor. We both can say, as stock market advocates, that we were with the company that invented universal life and those marvelous 11 percent illustrations that live today in the form of fixed indexed universal life policies. It was fantasyland then and now, and I am glad the life insurance industry is doing something about it.
My concern with Nick at times is he assumes U.S. equities that have flourished as a result of U.S. power are a linear relationship that is infinite until kingdom come. I asked Nick one time at a broker-dealer conference for a major life subsidiary what he would have told a Japanese investor who, in the 1980s, invested in blue chip dividend-paying stocks at an all-time high price of 38,915 and proceeded to watch it fall, according to Ibbotson, 82 percent to 7,055, 20 years later. Nick replied, “I would have told the sucker not to buy into an overvalued bubble like Japan.”
What is the truth about the future? This is why mutual fund prospectuses say, “Past performance is no indication of future results.” Nick tends to presume, like many did with Japan as a world power in the 1930s and 1980s, that the United States will always be the world’s economic power and that equity markets will follow. True, equity markets in the United States have proven to be mainstays in preserving principal over 20- and 30-year periods, according to Lipper Analytical.