Barron’s Top 50 Annuities

Given a dizzying number of features and restrictions, contracts for some annuities — variable and otherwise — can run 300 pages or more. And because each comes with its own small twists, these products can be very difficult to compare.

That—and the fact that annuities tend to pay a lot higher commissions than comparable mutual funds—is the main reason I’m not a fan of annuities.

That said, Barron’s has their annnual list of the 50 top annuities out today.

The market has changed:

“We’ve seen investment options in variable annuities diminished, guarantees brought down substantially and fees going up,” says Nigel Dally, an analyst at Morgan Stanley. “Protracted low interest rates and high volatility in the stock market have made it far more expensive for annuity companies to support their products.”

My thought: Stick with low-cost fixed immediate annuities. Put a portion of your assets in one or two fixed immediate annuities to give you some dependable monthly income and invest the rest of your assets in a conservative portfolio of stocks and bonds. It’s not rocket science but advisors try to make it that way to confuse and scare the hell out of people.

As far as the rest of annuities are concerned: BUYER BEWARE!

Happy Saturday!

College 18 Years From Now…

Another link posted by Russ.

College in 18 years

In 18 years, the average sticker price for a private university could be as much as $130,428 a year (See chart.) The situation isn’t much better if you go the public route. Sending your child to a state university could set you back at least $41,228 a year.

Seems unreal. But…

I remember looking at one of my old spreadsheets from the early 2000s where I used $13,000 as the cost of one year at the University of Texas. It’s now around $25,000 a year. Unbelievable.

Maybe it might be wise to consider some college alternatives.

Great Piece from Forbes on Social Networking in Old Businesses

This is a great idea:

The Gents Place Puts a Modern Twist on Barbering

My introduction to the Gents Place was through a Facebook ad that offered a free cut, shampoo and hot towel treatment—a $35 value—in exchange for my name, phone number, e-mail address and preferred social network. Who could resist? While waiting for my turn at the shop in downtown Leawood, Kans., I took advantage of the Wi-Fi access to catch up on the news on my iPad. Since the chop was free, I opted for a $10 add-on, a lathered neck shave with a straight razor. Ah, nice.

When I got home I mentioned the experience to my Facebook followers. Next day I got a message via LinkedIn from Davis, the 29-year-old founder of the Gents Place. He personally connects with every new client who provides a contact via LinkedIn, Google+ or Twitter. “I realized pretty early on that our business is social, by its very nature,” he says. There’s no better way “to connect like-minded guys in the local community and create long-term relationships.”

Think about how social networking could impact other “old line” businesses…

Looking at the Math of Season Passes

Right now I’m on the Schlitterbahn website looking at ticket prices. We’re a family of five. We would need 4 adult tickets and one child ticket. Their one-day prices are $42.99 for adults and $31.99 for kids. It would cost us $204.95 (plus taxes and any other charges) to visit the park one time as a family.

Now, I could go with season passes. They are priced at $135.99 for adults and $95.99 for kids. Our total for season passes would be $639.95 (plus taxes and any other fees).

Dividing $639.95 by $204.95, I get 3.12. That means we would have to visit the park at least 3 times over the summer before the season passes would make financial sense.

We aren’t doing the season passes. Why? Because we live two hours from the park and I just don’t see us being able to get there more than one or two times during the summer. Plus, it always seems that once we go one time, we’re not too interested in going back again any time soon.

What about you? Do you buy season passes? Do you do the math before you opt for season passes?

NPR: Partisan Psychology

I’m not a fan of NPR but this article is interesting: Partisan Psychology: Why Do People Choose Political Loyalties Over Facts?

When pollsters ask Republicans and Democrats whether the president can do anything about high gas prices, the answers reflect the usual partisan divisions in the country. About two-thirds of Republicans say the president can do something about high gas prices, and about two-thirds of Democrats say he can’t.

But six years ago, with a Republican president in the White House, the numbers were reversed: Three-fourths of Democrats said President Bush could do something about high gas prices, while the majority of Republicans said gas prices were clearly outside the president’s control.

I think we’re all guilty of this to some extent. Let’s face it: politics is a game. Politicians say whatever they can in order to get elected and stay elected. Truth does not matter. And, let’s not forget mainstream media’s part in all of this. Back when oil prices were high during the Bush administration, we heard a lot about high oil prices. Now that Obama is president, we don’t hear as much (this could just be me and my own self-admitted bias). It could also be that high oil prices are boring the second time around.

So, how do we change this? It would help if media would quit trying to shape the public’s opinion and just focus on facts without interjecting opinion in news pieces. It would also help if politicians would quit lying about each other. Negative political advertisements have done a lot of harm to this country’s political dialogue.

Those are my thoughts. What are yours?

AFM Reader Question: Roth IRA for Emergency Fund?

I received the following email the other day:

I read a blog post a few weeks ago at about using your Roth IRA as an Emergency Fund. Here’s the blog post: Does Using a Roth IRA as an Emergency Fund a Good Idea?

I’ve been following your blog for several years now (you even wrote a blogpost about a question I wrote to you in 2009).

Anyway, I used to contribute to my Roth IRA regularly, but then stopped amid job transitions. I have a decent sized emergency fund set up, and recently decided to target 6 months expenses. I understand not having the entirety of an emergency fund set up in a Roth, since the value can actually go down when you might need it. I was just wondering what your take is on the blog post linked above?



Here are my thoughts:

First I would focus on getting 3 months’ worth of expenses socked away in a cash account for the bulk of the emergency fund. Then, I would invest through a Roth IRA and use it as a backup if necessary. So, I think the strategy has some merit. Yes, there is some risk involved due to volatility but if you already have 3 months saved up in cash, you may never need to take from the Roth.

The most important thing regarding emergency funds is to make sure you use it just for real emergencies (like the air conditioner goes out or for an insurance deductible). Too many people think new shoes are an emergency.