“It’s a great investment!” replied Ed when I asked him why he had purchased his variable annuity. “I get 5% guaranteed—and if the markets do better I get all the upside too!” The promise sounds too good to be true. And, in this case, it is too good to be true. I’ve seen this annuity many times over the past few years. The sales pitch is very convincing—who wouldn’t want no downside risk and full upside benefits. Has anyone tried to sell you this annuity?
“What do you think of these annuities?” Mel asked. “An insurance guy I know is advising us to transfer all of our remaining IRAs into these two investments, and I’m not confident it’s the right approach for us.” Since these annuities didn’t look appropriate for Mel and Ginny, I figured the annuity salesman’s rationale was the big commissions he would earn on the sales.
Risk is a funny thing. Everyone perceives it differently. For example, I would never go bungee jumping, but I know a bungee jumper who is scared of the stock market and keeps all his money in cash.
As a fee-only financial advisor I know that the perception, understanding, and realization of risk is of the utmost importance when investing, whether for retirement or fun. It is vital to be become aware of the risks that aren’t obvious as well as to not over exaggerate the ones that are.
Why “take the money and run” may be your best strategy at work
I remember the first time the markets slapped me hard like it was yesterday—the sinking feeling in my stomach, the nausea, the disbelief with which I stared at my Bloomberg screen. The employment numbers had just been released and my first interest rate option position was tanking. I had planned to be the new hot shot. I had been so confident. I knew what the markets were going to do. Why couldn’t everyone else see what I saw? It was so obvious. What an idiot I was. The risk was staring me in the face all along, but I never really expected the downside to materialize for me!
Harnessing your deal hunting skills to score investment bargains
Ah, January! The month of sales. The shop windows are all advertising 60 and 70 percent off. I get daily emails filled with deals on everything from apparel to car parts. Who doesn’t love a sale? They can dramatically shift the value equation—getting more stuff for less money. We as Americans have become highly skilled at navigating the retail system to score big bargains. My husband came home from the grocery store the other day on a value high after a particularly successful hunt: he purchased Italian sausage that was not only on special by the manufacturer for 20% off, but the store was offering an additional 30% discount, and, because the sausage was close its expiration date, the manager tagged it with a $2 off at the register coupon. Wow! I felt like the store was going to pay him to take the sausage.
Lessons learned in an investment club can yield significant returns in profit, education, and fun.
Up 10.8% since inception! At a recent meeting the twelve members of the New Jersey based Athena Investment Club admired their portfolio returns over a glass of wine. The etching on their glasses read, “Athena Investment Club: Check Out Our Alpha!” In the three plus years since club formation, their portfolio’s risk adjusted returns have consistently outperformed the market. Was this a group of financial professionals? Wall Street executives? MFP Global employees?