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Author: Rayvt Big gold star, 5000 posts Top Favorite Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 78165  
Subject: Re: IUL vs. S&P500 spreadsheet Date: 5/30/2013 11:44 PM
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1. what are the odds of a significant drawdwon within 1, 5, or 10 years ...
"drawdown" as in the markets... not spend-downs.

Who cares? What you've described is not drawdown -- it's fluctuation in value. And it doesn't matter. What matters is the final value at the time you start taking money out.

what are the odds of a significant cash-demand in life elsewhere during the same periods,..what are the lost opportunities if liquidity is unavailable during these periods.
Doesn't matter. We are talking about accumulating money for retirement, not an account that is being used as a source of funds for non-retirement expenses.

Let me ask that of you. What *are* the odds of a significant cash-demand before you get to retirement? If low, then you shouldn't contort your retirement vehicle to cover these emergencies. If high, then you should address that by having an account devoted to these easily forseen expenses.

With fully funded retirement savings and emergency funds, why would liquidity be unavailable?
Because you are theoretically naked in a market that just halved your position. A 50% surrender charge in the S&P is heavier than anything in any IUL contract.

If you started with $100,000, and the market drops it to $50,000... the homerun opportunities are available at *THIS* point in time... but your ammunition is gone.

This is like living your life based on what would happen if you got squashed by a runaway gravel truck -- so you never leave the house so that it'll never happen.
Sure, a disaster *could* happen, but you don't make your plans as if it *will* happen. Low probability events are low probability. It's an error to treat them if they'll never happen, and also an error to treat them as is they are likely to happen.

You're obsessing about the chance that you put in all your money, AND immediately thereafter you unexpectedly need to take it all back out AND the market immediately crashed at the same time.
These are both low probability events, and the odds that BOTH will happen concurrently are extremely small. Probably smaller than the odds of encountering a runaway gravel truck.

What is MOST probable to happen is that you put in $20,000 and it's been growing for 10 years, and then a dot-com crash occurs and your S&P account drops from $109,000 to $60,000. And you suddenly have an urgent need for $100,000.
But your risk-adverse neighbor cleverly put his money in an IUL and his never-decreasing account is worth $42,000.
Your cut-in-half account has more money than his IUL account.

You keep shifting time-spans. These accounts sre intended to be long-term accounts, yet you keep emphasizing the short-term volatility. NEITHER a S&P500 B&H nor an IUL is appropriate for short-term investment needs.
Found in an IUL-FAQ: "IUL is a long term investment strategy, so not appropriate for short term needs. Just like short term investments don’t look good in the long term, long term investments don’t perform as well in the short term."
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