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Buyer’s remorse—we’ve all had it from
one time to another. But when it comes to investing your life’s
savings, the last thing you want is an investment that you will soon
regret. Here are some secrets that can prevent that from happening.
Staying out of the wrong investment in the first place is much
easier than trying to get out of one later. Often, the problem is
that you aren’t given all of the information, or it’s presented
using terms that you aren’t familiar with. Either way, the deck is
stacked against you.
When you sit down with the typical commission-based advisor, their
job is to sell you something. They’ve been well trained on how to
present a product in the best possible light. They know how to
handle your every objection. They have a number of closing
techniques to persuade you to make an immediate buying decision.
They don’t have to have a great product to offer in order to get you
to invest. In industry lingo, sometimes advisors have to “put some
lipstick on that pig.” Many times a product isn’t accurately
portrayed. An investment’s blemishes can be well hidden by some
clever salesmanship.
Here’s a real life example. These are phrases pulled from a brochure
for a well-known equity indexed annuity: ‘Get an immediate gain with
a 10% premium bonus.’; ‘Your principal and bonus are never subject
to market risk.’; ‘Protect your principal and bonus from market
loss.’; ‘Lock in your index and/or interest gains and get your best
year’s growth – guaranteed!’
Sounds like the perfect investment, doesn’t it? But when you take
the time to drill down through the fine print in the actual annuity
contract and decipher all the legalese, you quickly find it’s a
pig-in-a-poke. Although this annuity is a ten year contract, if you
take your money out 10 years later you don’t get ANY of the promised
index gains! If you initially invested $100,000 you are guaranteed
to only get $101,457 ten years later! That’s right. You will have
made $1,457 after 10 years!
In order to get any market gains, you must annuitize the contract
over a 10-year period. If you don’t find out about that until the
10th year, you will have to leave your money invested for a 20-year
period to get ANY index gains. Even then, you don’t get any of the
index gains that occurred during the second 10-year period. It’s not
sounding so good now, is it?
It gets worse. If you ever need more than 5% of your money in a
year, you have to pay a stiff surrender penalty to do so, up to
12.5%, plus you lose your bonus. So you can get back less than you
invested even after 8 years! Even if you die before the contract is
up and your heirs cash out, they are virtually guaranteed to get
back less than you put in.
And these are just a few of this investment’s blemishes. Even if the
salesperson mentioned these disadvantages, it’s done in a way that
makes them seem unimportant. Many people have purchased this pig
without realizing what they were getting themselves into. Many won’t
even know until they go to cash it in after 10-years. Since they see
the index gains on their statement they believe all is well.
I’ve used equity indexed annuities as an example, but the same story
can be said about any number of investments. There are no perfect
investments! Every investment has advantages and disadvantages.
Don’t take what advisors tell you at face value. Do your homework.
Research the product on the internet. If it’s an insurance product
like an annuity, make sure you see and read the contract before you
invest. If you don’t understand it, find someone who is unbiased to
help you (not the person trying to sell it to you!). The insurance
company will only do what is in the contract regardless of what the
agent makes you think the contract says.
Never give into pressure to buy right then. That’s just a sales
tactic. Make sure you know how your investment works and how you can
get at your money. Doing so may prevent making an investment you
will live to regret.
I’ll personally answer your financial questions. Go to
www.guardingyourwealth.com and click on ‘Ask Jeff’.
In addition to being a nationally syndicated columnist and Certified
Financial Planning Practitioner, Mr. Voudrie provides personal,
private money management services to clients nationwide.
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