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.
But when we begin to look at markets like England and Japan that have fallen from world dominance over the last 200 years, the picture of 20- and 30-year infallibility is not as clear. One need only to look at England after World War I, when its colonial powers began to wane. This is where Evensky and Murray can meet up at the O.K. Corral together. There’s an old bumper sticker that says, “You can’t tell which way the train went by looking at the tracks,” but one can tell just by asking John Q. Public that diversification beyond U.S. equities is paramount if the nation is in peril — and more than 70 percent of the folks out there think we are heading in the wrong direction as a nation, according to Fox News.
Enter indexed annuities as a diversification resource against political risk. Japanese investors are jubilant once again because of Abenomics, and are looking at Nikkei 20,000 again or recouping nearly 50 percent of their losses 26 years later. So maybe that’s why indexed annuities are hitting record sales volumes as well: political diversification and the uncertainty of geopolitical impacts upon the republic for which we stand. These are some reasons why it is good to see the indexed brain trusts developing uncapped indexed strategies and linking to indices other than the U.S.
Nick, a consummate bond-basher despite the greatest bull market in U.S. history, and Harold will also recognize that with interest rates that have been higher 95 percent of the time, savers and investors are clamoring for an alternative that protects principal, provides a lifetime of income and defers taxes. In Japan, they call a man that invests your money a “broker” for a reason, so it is no mystery as to why the idea of a private pension plan or a lifetime retirement income solution is catching on as we race toward more global instability with each passing day.
They may not make it to the Rock and Roll Hall of Fame in Cleveland, but the group Timbuk 3’s hit “The Future’s So Bright, I Gotta Wear Shades” closed out the 1980s with a bang. Now that the shades of a six-year bull market have come off, maybe Evensky and Murray are reading the tea leaves and taking a second look at indexed annuities. As Yogi said so wisely, “If you can’t imitate him, don’t copy him.” The chances of copying or imitating this enormous bull market for stocks and bonds for another 30 years are slim to none, unless the U.S solves a lot of its problems.