joetaxpayer wrote:
- quote -

You're right, while the percentages owning stock have crept up a bit,
the amounts most people own are small, and stock ownership by
individuals is heavily concentrated. According to the Fed study
"Currents and Undercurrents: Changes in the Distribution of Wealth,
1989–2004", the top 1% of households held almost 51% of stock, and the
top 5% held 79%, considering only the stock that is held by households.
That's direct ownership of individual stocks; the top 5% own about 70%
of mutual funds (of all types) as well, though more money overall is in
individual stocks.

Plus, retail investors are just one piece of the market...they hold only
about 1/3 of stock (another Fed study). So 95% of households -- assuming
this 95% includes the boomers that won't be wealthy enough to let most
of their investments ride -- share ownership of perhaps 7% of stocks.
Even if this group leaves stocks entirely, I don't buy the premise that
the liquidity needs of 7% of the market dictates pricing for the other 93%.

-Tad

Elle wrote:

- quote -

I got though Siegel's "The Future for Investors" and you are right. He
does discuss the aging demographic in the US, and goes on to suggest
that growth (i.e. demand for stock) will come from abroad. It would take
more analysis than a post here can offer, but I do believe that the
willingness for the next generation to own stocks (the pension reform
act helping to push the savings rate right from the time of hiring)
directly as traditional pensions fade away and defined contributions
being the way of the future. Also, as you allude to my email above, one
must consider the distribution of wealth. Most people who retire simply
have no assets to sell, the numbers are alarming. The wealth controlled
at the top (the top 1% own what percent of assets?) is not going to be
sold to fund retirement, it gets passed along in tact.

I'll maintain that the prudent path is to assume the lower rate of
return (7-8%) and if that leads towards over funding one's retirement,
then so be it. The alternative is to assume 10-12%, and realize at 50
that retirement is still 20 years away.
JOE
JoeTaxpayer.com

jIM wrote:
- quote -

Yes it is accurate. Thanks!
Steve

There is an e-mail address on your yahoo profile, is it accurate?

The one I use here works (most of the time) and if I know to check
it... I will look.

I can send the spreadsheet I use...


Steve wrote:
- quote -

"HW "Skip" Weldon" <skip5700removethis[at]hotmail.com> wrote in message
news:1brlm2d4a2t0ui9chuve1sedsnefipu7v8[at]4ax.com...
- quote -

I should have clarified that when I said "better than average growth" I
meant in a comparable safe investment. A fixed annuity (whether indexed or
not) is similar to a money market or bank CD as far is risk is concerned.
When compared to a fixed interest rate annuity, bank CD, or money market
account the indexed annuity offers "better than average growth." For the
conservative investor it can be a good fit.

An indexed annuity is not rocket science... the concept is pretty straight
forward despite all the hype in the media and elsewhere. Here is the concept
in a nutshell... let's assume current interest rates in a fixed annuity are
4%. The annuity owner can take the 4% or use an index crediting method. If
they choose to use an index crediting strategy (the annuity could have 1, 2,
or 20 different strategies available) the insurance company will use the 4%
to purchase an option on the movement of the index. How much the option can
return will be based on many factors.

Let's assume the insurance company can purchase an option that will capture
the first 7% of the growth of the index. That means if the index grows at
least 7% the annuity owner will earn what ever the growth in the index is up
to 7% (that's called a cap). If the index drops the option is worthless.
Even if the option is worthless (produces no return) the insurance company
has only spent what it would have given to the annuity owner anyway (4%). So
the annuity company has not taken on any additional risk. The annuity owner
did gamble the index would grow at least 4% in hopes of earning up to 7%.

There are other variations on the concept such as an option that has no cap
on the upside, but does not pass the first 1%-3% of growth. So if the index
grows 10%, but the option does not pay the first 1% the annuity owner would
earn 9%. If the index grows 30%, the annuity would earn 29%.

Most fixed annuities (including indexed annuities) do not have any upfront
fees, annual fees, sales charges, etc. which is almost always cited as a
"major problem", how it can be a problem when it does not exist is
interesting to me. What a fixed annuity does have is a surrender charge or
penalty period. This concept is not new or unique to annuities.. you find
these in bank CD's and mutual fund B shares. The idea is you pay no upfront
fees or charges but must hold the investment for a certain period of time.
If the period is too long or penalty too high to meet your objectives, than
do not consider the product.

There are good indexed annuities and bad indexed annuities. Just like there
are good and bad mutual funds and equities (would anyone consider Enron a
good investment in hind site?) All you can do is learn how the annuity
works, look at past performance, and base your decision on facts.. not sales
hype or uneducated misinformed journalists. I pick on the media because I do
not think I have seen an article yet that was critical of indexed annuities
that did not contain some statement about "high fees, commissions, and
charges" to the owner. I have yet to find a single indexed annuity that has
"high fees, commissions, and charges", so when I see this in the article the
author is immediately suspect.

Tad Borek wrote:

- quote -

This is called an "immediate annuity" and as any product has its trade
offs, one trades the principal for a higher annual return.

For a 60 year old, www.immediateannuities.com shows a man can get
$7500/yr for $100,000 premium.
Given today's rates of about 5.25%, a withdrawal of $7500/yr will last
23.5 years. If you die sooner, the insurance company 'wins', but if you
last beyond 84, your return is better than the 5.25% you'd have gotten.

To me, this is pretty straightforward, I know what I am getting,
guaranteed. The unknowns are certainly there, I don't know when I'll
die, nor what impact inflation will have. But for the client who needs
that $7500 and accepts the tradeoff, it can make sense.
JOE

Steve wrote:
- quote -


Steve, just one comment on that last sentence...annuity isn't a dirty
word and you could end up using annuities as part of the mix. You
wouldn't buy them for tax deferral, of course. But one thing that an
annuity can provide, which is unique, is a guaranteed stream of income
for your lifetime, even if you have a very long life. They're sometimes
called "longevity insurance" for that reason.

They also are an easy way to buy downside protection for volatile
investments, which is more or less what you described initially. Not a
cheap way, not the only way, but an easy way, if that's something you're
willing to pay for.

On this second rationale...after learning more about investment risks
may make you rethink the value of the protection (my point that it may
be worth "zero"). But the first rationale (longevity insurance) remains
valid and so they may fit in at some point. A few things in your post
even point to it...that retirement is going to be long (30+ yrs), and
you're not too concerned with leaving much behind. Buying an annuity
lets the insurance company figure out how much to pay you for life, and
transfers the risk to them that you'll live much longer than average.

-Tad

jIM wrote:


- quote -

I would sure be interested in trying the spreadsheets you referred to
above if that would be ok? I did my own "simplified" attempt of a
couple versions I came up over the weekend with just using a #2 pencil
on a sheet of paper and using a calculator and I would like to see if
mine even come close to a professional version.

Thanks,
Steve

Will Trice <wwtrice[at]paragondynamics.com> wrote:

- quote -

John Mauldin (Bull's Eye Investing) and Ed Easterling (Unexpected Returns), as
well as Siegel and Shiller all argue good cases that overall domestic stock
returns are going to be mediocre at best. We went through this in the 70's
primarily because we were unwinding the bubble of the 60's, like we are
currently unwinding the bubble of the 90's.

In my mind, this becomes a stock picker's market. While indexes are going
sideways, individual stocks can and will do well. The trick to is find them
ahead of time. So I'm putting money into funds such as ACRNX that have long
track records (including the 70's) of doing well even in sideways markets.

-- Doug

- quote -

The classic doom-and-gloom economic projection has been the social
security's
annual trustees report, the past ten which are on the web. Their
analysis which
includes a dozen sub-factors sounds very reasonable, but it has been
consistently wrong, under-predicting a US economic performance half of
what it
actually was in the past decade. (The goofed on demographics and
productivity.)
So I am skeptical about so-called projections.

On Mon, 27 Nov 2006 07:26:39 -0600, "Harry" <misc.tax[at]dcomptech.comwrote:

- quote -

My understanding is that this product offers guarantees which of
course involve additional annual costs (over and above normal
investment costs). As a result the product always underperforms the
targeted stock market index by those costs.

If that is true - and I am open to being educated - then I would be
uncomfortable with the suggestion that this product offers "better
than average growth". Especially after compounding that difference
out into the future.



-HW "Skip" Weldon
Columbia, SC

"rick++" <rick303[at]hotmail.com> wrote in message
news:1164124248.533600.177300[at]h54g2000cwb.googlegroups.com...
- quote -

I don't see anything in the original post that indicates it is an equity
indexed annuity. In fact it sounds just like a standard variable annuity. As
other posters have noted there is no real value in putting qualified funds
into a variable annuity. You are still invested in securities (usually
mutual funds) so you are not making your money safer.The only real advantage
of a variable annuity is the tax deferral on non-qualified funds, even then
it is hard to justify the 2%-4% in additional fees.

The basic guarantee on a variable annuity is a death benefit that insures
against loss if you die and the market is down. This usually has a cost of
1%-2% of the account value (it is basically life insurance, and expensive
life insurance at that). Many have a rider that will guarantee a minimum
amount of growth (between 5%-7%) over a term, usually 10 years. What most
people are not told (or at least no clearly enough) is that to get the
guarantee you must annuitize the annuity (take the balance in payments) over
at least 10 years. This rider has an additional cost of 0.5%-1% but to
benefit from it you must keep the annuity for 10 years and withdraw the
balance over 10 years, if you don't there is no guarantee, but you paid the
fee every year you owned it.

So the notion that a variable annuity gives you safety or guarantees is very
weak, which is why tax deferral would be the only real value in owning one.
Since you already have that in your IRA (401k) there is no value in a
variable annuity for you.

Equity Indexed annuities are a whole different animal, they can give you
safety, they can give you better than average growth. I think they get a bad
rap primarily because they are compared or confused with variable annuities.
If anyone takes an unbiased look at them they would see some value. Remove
the negative hype from the securities industry (and journalists that rely on
them) and the positive hype from the salesman that earn a living from them
and just examine the data on how they perform (like you would any
investment) and they can make sense for some people (not everyone of
course).

Douglas Johnson wrote:
- quote -

What market predictions lead you to putting more money in managed funds
(as opposed to index funds)?

-Will

Elle wrote:

- quote -

I don't necessarily disagree with you, but the folks at Long Term
Capital Management (several of whom were Nobel laureates) put their
money (and that of many others) where there mouths were as well.

-Will

"Douglas Johnson" wrote
- quote -

I do not think this at all does justice to Siegel and
Shiller's claims.

You might want to contemplate that, while so many "experts"
were saying in the late 1990s that old market pricing models
were invalid; the sky's the limit (or nearly so) for stock
returns, Shiller spoke of "irrational exuberance" and
pointed out, with elaboration, that a serious correction
would have to occur.

- quote -

I think you mean, "how exactly." That seems a trivial point.
Siegel and Shiller do offer their explanations of why they
think the market will be different, and do say domestic
stock returns, for one, will be quite a bit lower.

- quote -

They are planning their retirement in wherever. Both put
their money where their mouths are.

"Elle" <honda.lioness[at]nospam.earthlink.net> wrote:
- quote -

One of the easiest stock market predictions is that next year will not be like
last year, the next five years will not be like the last five, nor the next ten
like the last ten.

The question that no one can really answer is how they will be different. If
they could, they would be planning their retirement in Aruba, not writing market
forecasts. That said, reading and understanding a variety of forecasts and
commentaries is essential to investment success.

In my opinion, a well diversified portfolio and focus on the long term has
carried us through the last few hundred years and will do so for the next few
hundred. I think it is reasonable, after reading all those commentaries, to
"lean" in the direction you think the market will be going. For example, I'm
over weighted in international stocks, under weighted in long bonds, and
focusing my equity efforts in specific stocks and actively managed mutual funds
as opposed to indexes. But these are shifts of 5-10% of my overall portfolio in
each of these areas, not bet the farm shifts.

-- Doug

Chris Cowles wrote:

- quote -

FWIW, the spreadsheet I created is web-based, and links from my site;
http://www.joetaxpayer.com/retirement.html
On it, the 15% is taken to be a gross number, so, yes, if you put in 10%
and the company matches 5%, there's your 15%.
If no match, the individual needs to save 15%.

The sheet itself lets you change the assumptions, the rate of return,
saving percent, etc. The math is simple, I just thought a web based
sheet would give access to those who don't use excel.
JOE

"joetaxpayer" <joetaxpayer[at]nospam.com> wrote in message
news:-tOdnehrRO_JI_XYnZ2dnUVZ_qKdnZ2d[at]comcast.com...
- quote -

When you refer to "15%", do you include the company match as part of gross
income? Or, if the company matches 50% of the first 10% of gross, does that
sum equal 15% of gross?
--
Chris Cowles
Gainesville, FL

"joetaxpayer" <joetaxpayer[at]nospam.com> wrote
- quote -

I agree this paper is an interesting read. It's only four
pages long, so one cannot lose by taking a look at it.
Combining it with some of Jeremy Siegel's arguments about
how the change in demographics (baby boomers retiring) will
reduce demand for stocks further suggests we should not
count on 10% returns, on average, in the next few decades,
from domestic stocks. Though a point I think you made
recently, in a private email, Joetaxpayer, is still on my
mind: What fraction of the population participates in stock
purchases and sales? And hasn't this fraction been on the
rise, as people become more educated? So more people will be
in retirement and shifting stocks to bonds, say, but an
increasingly larger fraction of younger folks will have the
smarts to invest in stocks, too, no? Not sure if Siegel said
anything about this.

Elle wrote:

- quote -

A paper hosted by www.crestmontresearch.com supports that view (that we
are currently at a point in history where future returns will be on the
lower side of average. The article "waiting for average" can be found
directly at
http://www.crestmontresearch.com/pdf...0and%20MPT.pdf
I post that as the sight is pretty busy with papers.

When playing with the numbers (the assumptions for market returns) the
difference over time is quite dramatic.

It takes 8% return for someone to replace their income 100% at 62,
having saved 15% of salary between their contribution and company match.

Bump that to just 10% (the number often tossed around) and you will
achieve the 20X salary by 54.

Reduce it to 6%, and at 62, you'll have only 12.5 your income saved.

So to Elle's point, Monte Carlo will address the random aspect of the
market, but centered around the long term 10%. This can be misleading if
we are in for lesser returns these next 10-15 years.
JOE