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Investing/Strategies / Retirement Investing
|Subject: Re: 7702 Private Plans (indexed universal life)||Date: 3/31/2013 12:04 AM|
|Author: Dwdonhoff||Number: 71590 of 79066|
I don't know the sizes of the people you typically see. But if you have a $100K account and lose half, it doesn't matter. Neither 100K nor 50K is going to put you on easy street, or make a significant change in your life-style. (Or maybe it would -- perhaps I'm jaded.)
Its all relative to your net worth, not any particular account size. If $100k is all you have in the world, a 50% haircut is devastating.
Does anybody have a $1,000,000 IUL? Did anybody with a $1M IUL account build it up from zero? Bet not.
Nobody builds up a $1M account from zero on returns, everybody has to make savings contributions, regardless if its in a hedged or naked account.
So, it seems to me that an IUL is functionally useless to somebody with a low net worth. The protection is useless because half of a low number is still just a low number.
Actually, its the exact inverse. Only those who have enough money that they can afford to lose 50% and not have it affect their desired lifestyle can afford to take the risks of substantial drawdowns.
That's a very fine & rare number of folks.
Looking at my equity curve chart, with a $10K initial value ....
dropping from $66K to $40K in 2 years (2000-2002) hurts bad.
It took about 4 years to get back.
But it did.
If 1,000 people ran this plan, statistically how many would get trapped into selling/liquidating during the drawdown? I don't know the statistical answer, but the risks are significantly greater than most people are comfortable with when they are aware of the danger.
And in 7 years from the 2000 peak, 5 years form the bottom, it got to $76K.
Not such as big catastrophe, is it? 6 years to get back to the previous peak.
If you're among the lucky, its OK.
And then the drop from $76K to $40K in 1 1/2 years (2008-2009).
It took 3 years to recover back to $76K.
A little under 5 years to get back to the previous peak.
Not such as big catastrophe, is it?
Again, for those remaining standing, all is hunky dory.
Ray showed pretty convincingly that IULs don't outperform "the market" over time.
Anyone who was 'convinced' didn't pay attention.
There are only two reasonable conclusions from those data:
1) Ray's backtest was in error Right
2) The original claim was bogus Nope
Since the IUL proponents haven't pointed out any errors in Ray's methodology,
I did, Ray's test fail to apply in sequence, as I previously explained.
When distributions are added to the effect, ignoring sequence quickly becomes not just underperforming, but catastrophic.
Do IULs provide market returns without market risk? AFAIK, the answer to that question is no. And none of the IUL proponents have tried to step up and show the answer is yes.
I have done so at least thrice;
Once in a prior thread, then