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Investing/Strategies / Retirement Investing
|Subject: Re: Strategy comparison S&P500 vs. IUL||Date: 4/4/2013 8:01 PM|
|Author: Dwdonhoff||Number: 71715 of 75378|
Who said anything about a fire? You response is a nonresposnive to my question.
YOU said, that's who. You asked how haz insurance protects against a value decline, and I showed you how.
I understood what you meant (but did not say) was how you could insur against a drop in market value, and I then explained how to do *that* with options.
You said there were no such thing as options on real estate, and I objected (which you are now acknowledging that I was right... and are now merely objecting to the terms of options, not their existence.) You never specified 'standardized exchange-traded options' and the distinction would have been irrelevant because its not necessary for undertstanding the concept of hedging.
Of course using options to hedge values of non-commodity assets is inefficient, nobody was suggesting to actually do so. We are talking about using options to hedge retirement accounts, which are just as critical to lifestyle maintenance as the roof we sleep underneath.
Whichever source that you cited calling a hedge insurance was either a simile or a metaphor (I do not recall the exact wording and do not want to go back through the thread) and not a definitional equivalence.
We can let it speak for itself;
A Beginner's Guide To Hedging
The best way to understand hedging is to think of it as insurance. When people decide to hedge, they are insuring themselves against a negative event.
I still believe that for most people, if you need insurance, buy insurance. If you are looking for investment choices, buying an investment wrapped in insurance is rarely the best way of doing so with first dollars, which not to say that there are not some people for whom it makes sense.
The overwhelming majority of people I talk to who want zero-floor, market growth features do not give a damn about getting any additional life insurance death benefit, and if I could structure the trade better with the same features outside of an IUL I would... but I can't at present because tax law allows the IUL companies to provide much higher safe-leg crediting from their established general accounts than new money can get in equally safe fixed yield securities.
When zero downside, market upside strategies are available that outperform what IULs provide, I'll use those instead for the people that want that.
For people who can afford to lose 25% to 50% of their account value and wait 10-20 years to catch it back up, I can do *MUCH* better than an IUL... but that's not what we are talking about.
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