Question: My husband and I spoke with a financial advisor who is a salaried employee of our credit union regarding two of our retirement accounts. I managed these accounts myself during the boom years, but feel "out of my league" in present market conditions. I really want to protect these two nest eggs and grow them over time, while my husband starts fresh in his new 401K plan.
The advisor mentioned a product called the USAllianz High Five variable annuity. I've spent this evening reading mostly negative things about annuities, but we do seem to fall into the "it might be right for you if..." category, mostly because retirement is still 20 years or so off. Do you have any thoughts on this topic as it relates to us or this product in particular? My husband and I are 44 and 42 years old respectively, with two young children. We live on one adequate but modest income. Saving is second nature--if only we had a similar talent for investing!
Answer: First, don't be fooled by the fact that the person you spoke to is a salaried employee of the credit union. Having worked in a bank environment, I can assure you that there is tremendous pressure on these employees to meet certain quotas. Just because the person is salaried does not mean there isn't a conflict of interest.
Credit unions and banks make more money off of investments now than they do on any other banking product. By using salaried employees, the bank or credit union gets to pocket the 5-7% commission on the Allianz annuity, while the salaried advisor might only get a $50 bonus.
As for the credit union¡¯s recommendation, I am not a proponent of using annuities for IRA money. (See articles on my website.) A Variable Annuity is essential a mutual fund in an insurance wrapper. The problem is that ¡®wrapper¡¯ adds considerable costs to the equation. In most variable annuities, the underlying costs will often total 2.5-3.5% per year¡ªor higher! Plus you are limited to the choices they give you and have no control over what choices are added or taken away.
Secondly, it is important for you to remain flexible. You need to be able to change your investments and advisors without facing any surrender penalties, especially over the 20 years you have until retirement. There are ways to protect your investment from significant loss with growth potential that don¡¯t require you to tie up your money for an extended period of time.
For instance, I use a proprietary money management system for my clients. It is designed to allow them to participate in market growth while significantly reducing their potential for loss (in many cases to less than 3%). It is designed for those who want to grow their money without losing their shirt. And it does so without any commissions, surrender penalties or time commitments. Sounds like you could use something similar
Question: I have heard that there is a stock that covers the Dow and protects your money better than any individual stock. I heard that this stock has all the stocks in the index, so it performs just like the Dow. What is the stock symbol and what is it selling for? Do you recommend it for long-term growth?
Answer: What you are referring to is an Exchange-Traded Fund. ETFs are designed to mimic their underlying index so they give you the diversification of a mutual fund and the liquidity of a stock. There are over 150 indexes with ETFs tracking them. The symbol for the one that tracks the Dow Jones Industrial Average is DIA. There is also another one (IYY) that tracks the Dow Jones Total Market Index.
Ever since the mutual fund scandal and the redemption fees added by many mutual funds, I have switched to using ETFs almost exclusively with my clients. As far as recommending them for long-term growth, that will depend on your situation. I am not a big proponent of strict buy and hold because there is too much risk of having to wait years to recover from a loss. This doesn't make sense if you are retired.
Nationally-syndicated financial columnist and Certified Financial Planner® Jeffrey Voudrie provides personal, in-depth money management services and advice to select private clients throughout the USA. He¡¯ll answer your financial question ¨C FREE at http://www.guardingyourwealth.com
Want me to personally answer your financial question? Go to www.guardingyourwealth.com and click on ¡®Ask Jeff¡¯.
In addition to being a nationally syndicated columnist and Certified Financial Planning Practitioner, Mr. Voudrie provides personal, private money management services to clients nationwide.
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