texflyer[at]gmail.com wrote:

- quote -

It seems to me you are about to make a 30 year (or there-about) bet,
based on a number of assumptions that may or may not come true, as well
as other assumptions regarding the tax structure 30 years hence. All of
this inside an insurance wrapper which may or may not be more expensive
over such a period of time that the alternative. Ironically, or perhaps,
sadly, the same tax laws you fear (raising the cap gain and dividend
rates) are authored by the same yahoos who can impact the the tax plan
you are trying to employ (using an insurance policy to grow money tax
deferred, then 'borrow' it to avoid taxes till you die, I got that right?)

I don't believe the regulars here suggest day trading market timing,
etc. Many/most suggest minimizing costs, and using proper asset
allocation which can take all of a few hours per year of your attention.

JOE
www.blog.joetaxpayer.com

OK, I admit I was commenting on a VUL and made a improper inclusion of
no-load costs, which honestly are typically difficult to compare with
Load funds due to apples and oranges senarios. Apologies for any
confusion. Yes I know the difference. The argument was that the VUL
product will hold its own for those who fit the profile I mentioned in
earlier post, and that is my story and I'm sticking to it. Are they
right for everyone, or does everyone think the same way? Of course
not, so you are welcome to disagree, that's what makes these
discussions interesting. I find big differences in approaches of
Lawyers and Doctors as well, there is more than one way to skin the
cat as they say. Folks can get several opinions and go with the
person they feel has the best approach. Scott

On Aug 27, 12:23 pm, Tad Borek <bore...[at]pacbell.net> wrote:

- quote -

I don't have a tax issue... *yet*. My taxable investments
are spread among Vanguard, Fidelity and (almost 25%)
DODGX. With the exception of bond funds, they don't
produce much in the way of distributions - not zero,
of course, but nothing dramatic.

What this means, though, is that I am already sitting on
sizable unrealized gains and I hope by year 2040 I'll have
much bigger unrealized gains. When I take them out, they'll
be taxed at the 2040 tax rates (*not* today's favorable rates
that you use in your analysis), and I may very well be facing
one hell of a tax issue *then*. More on this below.

- quote -

I see your point, and I agree to some extent
(e.g., we don't have a mortgage in spite of the tax benefits
of interest deduction), but let me also say this...

I am not a professional investor, and I don't have the time or skills
for day-trading, market-timing, etc. For me, long-term (as in 30
years)
investments are all about hedging serious risks. I put money in
blue-chip stocks and I-bonds to offset the risk of inflation (which
most people in the U.S. seem to greatly underestimate, but then
again I come from a country that suffered a bout of hyperinflation
recently, and I've seen first-hand what that can do to people's
lifetime
savings). I put some fraction of my retirement accounts into bond
funds
to offset the risk of a long bear market. I keep a fair bit in
unhedged
international funds to offset some of the currency risk.

But there is one serious risk that I am finding very hard to hedge,
and
that's the risk that the government - either for the sake of
"fairness" or
simply to plug the gaping holes in federal finances- will go after
the biggest pool of money they can raid without raising the ire of
the
average voter, and that's the so called "unearned" income:
capital gains, dividends, distributions from retirement accounts, etc.
etc.

I max out a Roth 403(b) and a Roth IRA, but that's only $20,500 a year
in
tax-free investments. This may not be enough, not when the government
decides that "fat cats" ought to pay their "fair share", as I am
afraid
they will, sooner rather than later.

I look at VUL or equity-indexed UL and - assuming that I am not
misunderstanding how these products work - I see some very unique
advantages to investments inside these policies that I simply cannot
replicate on my own. The fact that I am about to have a genuine
insurance need (albeit possibly mismatched to the duration of a UL
policy,
as I wrote before), makes a VUL even more attractive, provided I can
keep
the annual costs reasonably low, provided the tax treatment of
insurance
doesn't change, etc. etc.

<BreadWithSpam[at]fractious.net> wrote in message
news:yobmywdvv72.fsf[at]panix1.panix.com...
- quote -

Interestingly, there are a few. For example, the following funds are all
different share classes of the same fund.

NTKLX: Front load 5.75%, total expense ratio 1.66%, min. investment
$1,000
NAPBX: Back load 5.75% (declines over 6 years, converts to NTKLX after
8),
total expense ratio 2.31%, min. investment $1,000 (max. $100,000)
NARCX: No direct load except for 1% sales charge on shares held less
than 1 year,
total expense ratio 2.31%, min. investment $1,000 (max. $1M)
NAGUX: No direct load, 12b-1 fee 0.25%, total expense ratio 1.48%, min.
investment $100,000
NAPIX: No load, no 12b-1 fee, expense ratio 1.2%, min investment
$250,000

This is one data point that might indicate what these various charges are
worth to the fund company.

futureretiree[at]hotmail.com wrote:
- quote -

Those VUL comparisons, to my cynical read, are: "look, pal -- I have
some really awful and expensive mutual funds I can sell you, and if you
buy those, you'll lose even more to costs than you would with VUL. So in
most cases the VUL comes out ahead." It's the "dopey investor"
comparison. The comparison to make is: what would I do instead? If it's
going to be index funds with 0% loads, 0.2% costs, 5% turnover, use
those numbers, with your tax bracket factored in.

- quote -

This all speaks to tax efficiency in your portfolio, maximizing the
after-tax return. You might hold your REITs, high-turnover small-caps,
etc. in your qualified accounts for this reason. In the taxable accounts
focus on investments with low turnover and income that gets the capital
gains rate. On bonds you decide between taxables and gov't/munis,
consider annuities as an alternative, and might even use the cash value
of whole life as a proxy for fixed-income.

But you still haven't identified that you have a tax issue yet. If
you're in the $400k+ AGI realm, with six-figure investment income
landing on your tax return, this is the kind of stuff to obsess over. If
you're in the 25% bracket, don't forget the simplicity of "pay the tax."
People make a lot of sub-optimal choices by assuming taxes should be
avoided at all costs, though the economic bottom-line is better when
just paying Uncle Sam (overbuying a home, to get a bigger interest
deduction, is another example).

When I was talking about that extra 1% cost, I was thinking in terms of
marginal cost. It wouldn't surprise me if you do a VUL vs. "smart
investor" comparison and end up with at least 1% in additional costs
with VUL, annually, even after including tax drag. It depends entirely
on the specific product and your alternatives, of course, as well as tax
assumptions.

The other idea I want to throw out there is that it's not a given that
retirement tax rates will be high. I have seen seven-figure portfolios
alongside extremely low tax rates -- in the under-10% range (total tax
paid divided by AGI).

I hear you on the risk with the LTCG/dividend rate...but it's there now,
and it dictates the effect of investment income your 2007 tax return. I
think all of us will be revisiting our investment choices if that's
repealed -- and these other alternatives are likely to be there then.

-Tad

On Aug 27, 8:44 am, BreadWithS...[at]fractious.net wrote:
- quote -

Let's not forget Vanguard Emerging Market Index at 0.42% for investor
class and 0.30% for ETF class? 2ish expense ratios are absurd. What is
this? A hedge fund?

scott wrote:
- quote -


Scott-
1. I think you mean GTDCX

2. You're referring to a C-share (i.e. "level load") mutual fund as a
"no-load" fund...just an FYI -- that would be a big no-no if stated to a
client. Actually, saying it on usenet isn't too good either. Talk to
your compliance officer or OSJ about it if you have questions about this.

3. Your statement "no loads still have costs, in most cases fees that
greatly exceed those of A shares" is not supported by the data. In fact
it's so far from the reality that I can't imagine how you would make the
claim...can you post a link to something supporting this unusual point
of view?.

-Tad

scott <scott.snowboard[at]gmail.com> writes:

- quote -

Clearly. Since the below is *not* a valid comparision of
load vs. no-load:

- quote -

GTCDX has no *front* load. But it has a 1% 12b-1 fee. That
12b-1 fee *is* a load. GTCDX is NOT a no-load fund, and that
12b-1 fee is NOT an administrative or management fee. It's
a sales fee.

Now, if that fee is going to someone who is actively
helping you choose funds, that's fine, but call it
what it is - it's a LOAD - a sales fee.

But you're right, there are very few funds available
both fully no-load *and* with a sales load, so a perfect
comparison is almost impossible. The best you can
come up with is comparing *similar* funds.

Since we've already determined that the class C shares
are not no-load, it's a lot easier to compare class A
shares to no-load shares since the sales fee is easier
to disentagle from the management expense ratio (ie.
they are usually fully separate). So let's make a
more realistic comparison - your choice of GTDDX,
which has an expense ration of 1.74% (including -
get this - a 0.25% 12b-1 fee even AFTER the investor
pays a 5.5% fron-end load!) Compared to the most
similar portfolio s as found by Morningstar's
"similar funds" tool:
Managers Emerging Markets: 1.76% (no load)
Consulting Group's TEMUX: 1.28% (no load)
Fidelity FEMKX: 1.01% (also no load)


Again, I can't comment on the VUL stuff, but I
hope it's better than your comments on loads and
mutual funds.

You can get in serious trouble, by the way, calling
Load funds "no-load". Be careful out there.

--
Plain Bread alone for e-mail, thanks. The rest gets trashed.
No HTML in E-Mail! -- http://www.expita.com/nomime.html
Are you posting responses that are easy for others to follow?
http://www.greenend.org.uk/rjk/2000/06/14/quoting

scott <scott.snowboard[at]gmail.com> writes:

- quote -

In the midst of some otherwise well-thought out advice,
you tossed in the above completely false statement.

No-load funds do NOT "usually cost you even more".

If you "do no-load yourself" - ie. you are not paying for
fund selection advice - and you avoid funds with loads
which are so often *wrongly* called no-load (ie. B shares),
no, in fact, expense ratios on no-load funds are about
the same as expense ratios on load funds, and in many
very notable cases, *lower* (ie. index funds).

I'm not knowledgeable enough about VUL to comment on the rest
of your advice, but I hope it's more accurate than this.


--
Plain Bread alone for e-mail, thanks. The rest gets trashed.
No HTML in E-Mail! -- http://www.expita.com/nomime.html
Are you posting responses that are easy for others to follow?
http://www.greenend.org.uk/rjk/2000/06/14/quoting

On Aug 26, 4:43 pm, scott <scott.snowbo...[at]gmail.com> wrote:
- quote -

Since we are talking, as you say, "no loads" (not "no front-end
loads"), let's compare GTCDX with
FEMKX - Fidelity Emerging Markets, no load, 1.11% annual total
expenses.

Dave

On Aug 25, 7:35 am, Dave Dodson <dave_and_da...[at]Juno.com> wrote:
- quote -

Well to make a valid comparison of different funds is difficult, but
lets say

GTDDX - AIM developing markets A Share, 5.5% front load, annual total
expenses of 1.74%
GTCDX - AIM developing markets C Share, 0% front end load, 2.49%
annual total expenses

The difference in these expenses is .75%, which for a very simplistic
example divides into 5.5% = 7.3 years to break even, obviously not
accounting for the A share's decreased opening balance, but even if
you round up for a long term retirement investment the A share will
indeed be cheaper over say 9 - 10 years. Granted, if you are talking
something generic like an index you can compare across funds easier
and the expenses will be on the opposite end (developing markets no
doubt takes some heavy research).

Basically, if you are having someone else do your fund picking, they
need to be compensated for their efforts, and if you agree to
management fee only, or any commission based compensation (loads),
there is going to be a cost of having someone pick the investments and
monitor them. Paying someone 1% a year adds up and in some cases the
person might be better paying A shares, despite their bad image.
Trading in your best interest is where many firms fall down, but an
honest professional can help keep costs down with a good strategy.

Comparing VUL to managed accounts, either level load, fee based, A
share, etc the VUL usually holds is own. And the selection of
investments is simplified so at least for MetLife's EA VUL most all of
the choices are pretty darn good and the fund expenses are low as they
negotiate on a bulk rate.

As I indicated, I have an annuity that has the same investing account
choices as a VUL by the same company, and my annuity even net of fees
has outperformed the S&P index while being very diversified. When I
compared a VUL vs an plain-jane annuity for someone wanting to invest
long term and get asset protection, even though the annuity was not
doing bad the VUL blew it away over the 15-20 year time horizon.

Everyone has an opinion, but the I think the Orig Poster would likely
be just fine if he chose a VUL as a part of his overall portfolio and
risk management strategy since he is aware of how they work and fits
the product's best fit profile.

Scott

On Aug 20, 8:30 am, joetaxpayer <joetaxpa...[at]nospam.com> wrote:

- quote -

Thanks for mentioning this. I definitely need to consult
an estate planning attorney before setting up any kind
of permanent insurance policy. We are below the
threshold now, but once the death tax goes back to $1M,
we'll be well over the limit between the house, investments
and retirement accounts.

I took a brief glance at the rules for estate taxation of
insurance policies, and I saw enough to convince me
that I need serious professional help. This looks
exceedingly complex, and appears that even if I "hide"
the policy in a trust of some kind, there are lookback
rules and borrowing against the cash value might be
the kind of thing that would kick the policy back into
the estate. I'll have to find a lawyer to help me
work through this.

On Aug 21, 7:35 am, "HW \"Skip\" Weldon"
<skip5700removet...[at]hotmail.com> wrote:

- quote -

Irrevocability does not worry me by itself.
There are plenty of decisions in life - like choosing a spouse
or a career - that have serious financial consequences and
are very expensive to revoke.

What *does* worry me is the potential mismatch between
my insurance needs and the duration of a permanent policy.
Let's fast-forward to, say, 25 years from now, and make
the reasonable assumption that I no longer have large
insurance needs (the kid is out of college, current savings
have grown enough to provide wife with a nice annuity
if I kick the bucket, etc.).

In the ideal case, the stockmarket has grown nicely,
the policy is close to paid-up, and I get to enjoy a stream
of tax-free cash or just let it accumulate inside the policy.

But I can also see a disaster scenario where we hit
a bear market out of hell, and my cash value goes
down dramatically. Now my cost of insurance is
through the roof because the gap between the cash
value and the death benefit is huge *and* I am pushing
60 now. If this happens at the wrong time, I may have
to shovel money into the policy in order to pay for
insurance that I don't really need, which would certainly
kill any tax benefits.

Of course, if I truly believed the latter scenario, I would
probably split my savings between municipal bonds and
gold, and be done with it Nevertheless, it's something
I need to contemplate or, better yet, run the numbers.

On Aug 21, 2:14 pm, Tad Borek <bore...[at]pacbell.net> wrote:

- quote -

Tad, I certainly appreciate your point, but the absence of annual
taxation on capital gains distributions and income may very well
offset the higher annual costs of investments inside the insurance
policy. I see now why you asked about my current tax bracket.

The promotional materials that I saw when looking for
VUL information on the Internet tend to assume something
like 4.5% loads, 2% annual expenses and 25% annual
distributions for taxable accounts. This makes VUL look
very good, but is certainly on the high side. I am not
paying *anything* close to that in my taxable accounts,
more like 0%, 0.5% and 3-5% (courtesy of Vanguard and
Dodge & Cox).

That said, there *is* an ongoing tax cost. Just to give
an example, I like equity-income funds. Both of our Roth
IRAs are in VEIPX. If we held this fund outside the Roth,
it would have thrown off a fair bit of taxable income.
Admittedly, most of it would have been taxed at the low
dividend rate, but I doubt this rate will survive
a Democrat administration

Bond funds is another example. I am aware that I shouldn't
put bonds inside a VUL policy because they are unlikely
to produce the growth I need to make a VUL worthwhile,
but something like a 80/20 stock/bond mix might make
sense (this is how I allocate my retirement accounts).

The bottom line is, I need a good calculator to
run through various scenarios
Since I never found one on the Internet,
I'll try to do it myself in Excel some time soon.

On Aug 25, 4:11 am, scott <scott.snowbo...[at]gmail.com> wrote:
- quote -

I think most people reading M.I.F-P are sophisticated enough to know
that this is a bunch of bull.

Dave

On Aug 24, 5:33 pm, "Cal" <cal-les...[at]comcast.net> wrote:
- quote -

Cal, suggest you re-read my post, as I suggested term for the period
he would have dependents (kids), after that, typically for most folks
their need for life insurance decreases. However, I view (like the
Orig Poster) the VUL to be permanent insurance that you keep for life,
otherwise its MEC, as you know, you are in the business. He can
adjust his coverage to what he deems necessary. Not everyone want to
carry what in his case will likely be a large policy for their entire
life (espeically those expensive later years) when they don't need
that much coverage after kids grow up. I think folks are missing the
point on investment aspect of it, all investments have some sort of
cost associated, owning stocks and holding long term probably the
lowest cost, but not many folks have the inclination or the skill, and
mutual funds - no loads still have costs, in most cases fees that
greatly exceed those of A shares. Even with the cost of insurance and
the drag associated with a VUL, it can perform very well especially if
the client decides to assume tax rates for him/her in the future will
be much higher.

I think you may have missed the point of the original poster, he was
attracted by the tax free investment aspect of it as well as getting
coverage. I had recommended he only do this as a portion of his free
cash flow, not to tie up all his eggs in one basket.

Everyone has a different approach, I respect your opinion but don't
try to force a round peg in a square hole. Some customers are more
risk tolerant and traditional whole life or UL doesn't cut it for
them. This guy is clearly on top of it enough to cleverly use a VUL
to its potential.

Scott


======================================= MODERATOR'S COMMENT:
Please trim the post to which you are responding. "Trim" means that except for a FEW lines to add context, the previous post is deleted.

- quote -

per thousand, inside of a VUL contract is a rather expensive asset, especially
IF you already own TERM insurance.

As you know, I have always been an advocate of Permanent Life Insurance,
for most people. However this poster has a good grasp on things, and
already has an extensive investment portfolio.

His apparent need is for some amount of TERM Insurance, but I do NOT see
the wisdom of VUL & TERM ! ! ! ! ! ! ! ! !

Also there are many avenues open to him for his excess dollars to invest
at a lower cost that the "INVESTMENT ELEMENT" in VUL......................

Cal Lester CLU

First of all, congratulations on your first child. Also, you have
impressed the heck out of me with the degree of research and self
education on the subject you have made on this subject - it
commendable.

I tell my clients is that they should have a diverse investment
strategy - if possible. Contribute to a 401k to get any any matching
so you can get free money. Then, if you could do a Roth, that would
be next. If they already have an emergency fund, 529 college plan,
for some clients one the next options to consider if there is money
left over is the VUL. For small business types the VUL maybe one of
the few retirement options available to stuff a lot of money into.

You appear to be a good candidate for a VUL, and some Term insurance.
Why? Your age gives you minimum of 15 to 20 years until you might
need the money. You appear to be in good health. You need life
insurance anyway. You are making enough money to have free cash flow
and have a desire to save money tax free. You are sophisticated
enough to understand exactly how these things work.

If I was handling your case, we'd figure your insurance needs first,
lets say $1.5 million. Then, you can decide what sort of funding
commitment makes sense for the VUL, and I figure the minumum amount of
insurance to maximize the cash value. For $12k a year about $800k in
coverage would be in the ballpark. The rest would be Term insurance.
If you need to, you can convert this to any form of permanent
insurance with many companies. Its not good practice to try to handle
the entire insurance amount with a VUL in my opinion, unless
circumstances are special as it would require a large on-going cash
commitment.

As the kid(s) empty the nest, you can let the term expire, and as you
mention lower the face on the VUL to make the cost of insurance
minimal.

Yes, there are some costs with VUL's, you are buying insurance after
all, but you know that. Investing in a managed account like a guy I
saw recently was costing him 1% annually - in addition to the fees on
the funds, and some sales charges. Even if you don't have an actively
managed account, loaded funds have a front end fee. If you do no-load
yourself, you are generally paying quite a bit more in total mutual
fund fees so over time that will usually cost you even more than
loaded funds - hard to escape costs.

Regarding the investment alternatives, as example a MetLife EA VUL has
over 50 funding choices with 19 money managers, choices of various
stratgies such as rebalancing. These choices are nearly the same for
the MetLife annuity I own and investing aggressively I have beaten the
S&P 500 index even after all mortality charges and an enhanced death
benefit rider, so the performance of these investing choices can be
very robust! You could do a lot worse.

The advantage of the VUL is that IS fairly liquid as has been pointed
out, but you would also have an emergency fund. You can get loans on
the account if you really needed it w/o tax penalities like an annuity
or IRA, and you don't have to be 59.5 yrs to do so. I don't recommend
someone put all eggs in one basket, but for someone in your situation
who belives that taxes are going to increase, having a VUL as part of
your portfolio and insurance makes a great deal of sense to me.

You have a good head on your shoulders, you will do well either way
you decide. good luck.

Scott

On Aug 21, 2:19 am, futurereti...[at]hotmail.com wrote:
- quote -

Skip & Tad have the right idea. The numbers may look good on paper but
it's quite a commitment to lock down that much money. Maybe if you had
$5K a month left to invest after maxing out retirement plans, putting
$2K into a VUL, $2K into taxable and $1K into emergency/opportunities
fund would be a good hedge for different future scenarios. That's why
VULs are often referred to as retirement plans for the rich. You
really need a ton of cashflow to benefit from them -- not just to max
out a plan to reduce overall expense percentage but having liquidity
to not touch it for emergencies/opportunities/change of plans.

futureretiree[at]hotmail.com wrote:
- quote -


The question is whether that tax-rate uncertainty presents enough of a
risk to commit to additional costs, for the rest of your life. Obviously
it's impossible to know tax rates 30 years from now, but you can assess
where you'll be in a relative sense, and make some estimates. Or at
least, figure out your break-even, because VUL commits you to some
"certain" additional costs, in exchange for a "possible" tax benefit.

A relatively small incremental cost has an enormous effect over a long
investing period -- whether it's investment costs, tax drag, or
product-related costs (as with VUL). $20,000 at 8.5% becomes $523,000
after 40 years; nip it 1% for costs each year and you're down to
$361,000 -- a 31% reduction. Or put another way, if you take on an
additional 1% in annual costs to receive tax deferred growth, you need
to be avoiding over 31% in tax costs at the end of the pipe to justify
it. And that's only rolling forward to your mid-70's, but VUL is a
lifetime commitment, and the gap grows over time. Give you another 15
years to live, and it's $4.0 million vs. $2.2 million, a 45% reduction.
"Pay the tax" might leave a better outcome than "accumulate wealth in a
tax-deferred wrapper and borrow against it to avoid paying income taxes."

-Tad