Is Pamela Yellen Misleading Her Followers?

I have seen Pamela Yellen’s books before, but never really paid attention to them until I read this piece by Allan Roth.

Yellen is known for her “Bank on Yourself” books, a strategy that utilizes whole life insurance (UGH!).

Yellen is very outspoken when it comes to traditional financial advisors (on that we can agree). Perusing her blog, I found mentions of how misleading Wall Street is and such. Okay, fine.

BUT…

Ms. Yellen is also misleading. Take a look at the following graphic she posted on her website to see why (click on the graphic to see a larger version):

Your-Retirement-Plan-Slide2 - 420wide

Do you notice anything interesting in that graphic?

She left out dividends!

Is this an oversight or was it done to make her strategy look better? Either way, it doesn’t make her look good. If it was an oversight, it makes her look amateur. If it was done to make her strategy look better, it makes her look dishonest. She looks no better than the Beardstown Ladies did when they calculated their returns INCLUDING their contributions.

Regardless, there is NO REASON for this.

How big of a difference does leaving out dividends make? A lot.

I did some research and found that the S&P 500 Total Return Index closed at 2107.28 on March 24, 2000. The same index closed at 3127.87 on February 3, 2014. There are 5064 days (13.8644 years) between the two dates. If we divide 3127.87 by 2107.28, we get 1.4843. If we raise 1.4843 to 1/13.8644 and subtract 1, we get .0289 or 2.89% as the annualized rate of return between the two dates. No, it’s not good, but it’s a lot better than the .95% return that Yellen states in her chart.

I mentioned this in a couple of comments on her blog, but my comments went to moderation and I’m pretty sure they will end up in the trash. She is not interested in having a discussion. She is not interested in people who disagree with her. All of the comments I read were very positive about her strategy, which I find unbelievable and yes…dishonest. I pray her followers are more sophisticated than they appear.

DISCLAIMER: I have not read any of Yellen’s books. I do not want to spend money on them.

11 thoughts on “Is Pamela Yellen Misleading Her Followers?”

  1. I saw Allan’s article yesterday along with your comments on LinkedIn.

    It’s scary that this book has become a bestseller while misleading consumers through the omission of important information like dividends.

    This is bad as the index annuity pitch, which in my experience, also leaves out dividends when they “give you the upside of the market.”

    Another great example of buyer beware

  2. I understand why she does this (inappropriately). The indexing method inside some of the insurance contracts does not allow for the payment of dividends when calculating interest. (If she is using a Universal Life Indexed product in the example.) It was a good catch on your part to see this and if she were being honest she would correct her marketing materials. If she is using a participating whole life product in her example… well I have no explanation other than the ones you’ve offered.

  3. Actually, Pamela DOES discuss the dividends of the S&P 500 just below the chart that you showed above from her website. Here’s what she says:

    “Even when you include re-investing dividends, the real purchasing power of your investment remains negative after 14 years! And this assumes you have no fees, commissions or taxes, which will take another big bite out of your savings.”

    Most likely, the difference between the return you calculated and the one Pamela mentions (2.89% vs .95%) is the inflation rate for that period of time. That’s what is meant by the phrase Pamela used, “real purchasing power”.

    Pamela also made the same comment about re-invested dividends in her book on Page 23, right above the chart.

    Funny how both Allan Roth and YOU missed that altogether! Oh! I know why. There’s that pesky statement about assuming you have NO fees, commissions, or taxes, which is never going to happen.

    So, you are correct that a 2.89% annualized rate of return is not good. But it looks pathetic when you account for inflation, fees, commissions, and taxes.

  4. In Pamela Yellen’s book, in the paragraph just above the graph you included in your blog, is the following paragraph: “And even if you look at the total return of the S&P 500 (including reinvested dividends), the real (inflation-adjusted) purchasing power of your investment remains negative after thirteen years. This assumes you have no fees, commissions,or taxes – not gonna happen.”

    It’s interesting that you assume Allan Roth is being completely forthright and assume that it’s Yellen who is being misleading. Given the lack of critical thinking in our society, you’re a good example of a person who prefers THEIR facts to THE facts.

  5. UNLIKE Ms. Yellen, I will approve comments that don’t agree with my blog posts.

    I mentioned at the end of my post that I did not read the book. I based the entire post off that one graphic, which does not mention dividends and makes it look as though the price return of the S&P 500 Index was what investors would have received. It’s misleading.

    I have known Allan Roth for years and he has never been less than forthright. He is an honest person.

    Paul wrote:

    “Most likely, the difference between the return you calculated and the one Pamela mentions (2.89% vs .95%) is the inflation rate for that period of time. That’s what is meant by the phrase Pamela used, ‘real purchasing power’.”

    Wrong.

    Her .95% comes from the following equation:

    (1742/1527)^(1/13.8644)-1

    She simply used the difference between the values of the price index on those two dates.

  6. I don’t sell whole life, I BUY it. Given that your post is based on that one graphic, and not the book, without including the above mentioned paragraph, your post is preposterous. If Roth was being forthright, why didn’t he include the paragraph I mentioned in his review of the Book? It’s directly above the graph in the book, and you can’t miss it unless you were trying to. Since you’re a friend of his, why don’t you ask him?

  7. I have never seen someone so dedicated to a product before.

    Mr. Roth didn’t need to post that paragraph because her examples are all based on price performance, not real returns. Why doesn’t Yellen post that disclaimer on her graphic?

    Are you and Paul the same person?

  8. To me, Pam is another person using the “Lost Decade” to scare people into making her rich!! A low-cost portfolio (preferably using index funds, but that’s MY choice) that included international (both developed and emerging markets) funds and REITS with a bias toward small-cap and value stocks (also include International components) and rebalanced occasionally could provide 7-8% (depending on your allocation) during those lean years.

    Here’s what I learned from the “Lost Decade”: Even the 500 largest companies (by capitalization) of the greatest economy on the planet will experience extended periods of underperformance from time to time. That is why diversification across sectors and rebalancing is a MUST in any portfolio!!!

    Unfortunately, there will always be people like Yellen that will use the “Lost Decade” and the “Great Recession” to scare people into investments that enrich the sellers without providing any benefit to the buyers.

    Additional note: Please use REITS that are traded daily and transparent (again, a low-cost REIT index would be preferable). Non-Traded REITs can be quite risky. I believe FINRA has even issued a warning about them.

    Assnap Kined
    assnapkined@gmail.com

  9. So what does the S&P 500 need to be at to equal the 2000 high of 1527? I would think we are higher now, of course after discounting for the inflation losses, but also including those sweet dividends.

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