Let’s start with our bank of bad habits, shall we? The most common one I see is the annuity. How do they even get into a portfolio? I’ll tell you.
“Well,” a prospective client might say, “I had a cousin who told me about that one.” Or, “It was sold to me years ago by some guy. I don’t remember his name.” Or, “My employer brought in this company to give us a presentation.” You get the idea.
When investors are young and start making a little scratch, they don’t spend time researching investments. They’re too tired. They don’t have time. They trust who they’re talking with. Plus, the kids are hungry. Where’s the pinot gri?
When investors are older, they can’t afford to lose their life savings. They want income, and they want to spend time on more pressing matters like choosing between a Sig 226 or a Glock 19 (I like both). They don’t want to think about what could happen to their money if, say, cities start burning.
Annuities are sold by shiny happy people laughing, holding hands, walking the beach at sunrise or sipping chardonnay by the fire at sunset. They tell you: “We have all this, plus we get the highest daily value of the stock market every single year.” Then, there’s the small print or voice like the one you hear for the medication commercials trying to eat your eggs. “May cause upset stomach, internal bleeding, or…” You get the point.
When I think about annuities, I picture a guy in a white lab coat working in compliance, in charge of protecting the company with a prospectus, staring at the ad campaign on his computer and saying to himself, “Oh, boy, this might take a while.” Working in a Wuhan lab never looked so good.
Because you and I know, nothing is for free, someone needs to pay for the advertising. Someone needs to pay for the salesforce, never mind dealing with negative interest rates and the bonuses for the creeps on the trading desk—what a mess.
So, the next time you or someone you know starts talking about annuities, make sure you get a few things in writing. Real simple: What’s the annual fee, what’s the surrender fee, and what happens if the insurer goes bankrupt?
Then, you’ll have all the time in the world to find the right handgun and perhaps an advisor you can trust with your life savings.
