UnThreaded | Threaded | Whole Thread (85) | Ignore Thread Prev | Next
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 75340  
Subject: Re: 7702 Private Plans (indexed universal life) Date: 3/30/2013 12:57 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 3
Happy to do so on a strictly apples-to-apples financial performance basis. Since it is impossible for you to guarantee that any strategy you design will avoid have consecutive drawdown periods during your eventual retirement distribution years, you can structure anyway you want as long as it delivers zero annual drawdown risk, and I'll do the same.

I'm totally up for this (with the eyes-open awareness that there *ARE* a handful of periods that an IUL might not win.)


I wasn't asking for a p*ssing contest. This is not a mano-a-mano contest. (I suspect that mano-a-mano, most of the long-timers on the Mechanical Investing board would skunk you.) There's no gotcha's involved.

It's an investigation to see what the data is. Approach it as, "We have 2 proposed strategies, let's see how they compare when applied to historical data." Final value, of course, isn't everything. Things like volatility and drawdown need to be considered.
Different people will place different importance on different aspects. Some people (like CC) demand no drawdown ever. Some people are okay with large drawdowns as long as the total return is high. Some people are okay with moderate drawdowns as long as the risk-adjusted return is adequate.

I'm interested in applying the IUL rules & costs (whatever they accurately are) to the actual historical S&P500. I can get the price data (but not dividend data) going back to 1950. That's probably too far to reasonably go back, so let's start at Jan 1965 to Dec 2012. Eyeballing a chart, it looks like the yields varied between 4% and 1.5%, with an average of around 2.75%, so I'd just hardcode 2.75% yield.

Really, my "challenge" was more along the lines of: you tell me what the periodic costs, fees, and bonuses, floor/cap rules are which would emulate the way an IUL would work. We already know that IULs don't credit you with dividends, just with the raw price change in the index.
Provided that there's nothing too wierd or too complicated for me to do in an excel spreadsheet, as long as we get the major items close -- then I'll model it in excel and apply all those rules to the historical S&P data. And we'll see where the data takes us.

For example, I read something last night about some IULs having a "no loss over a 5-year period" rather than "no loss in any 12-month anniversary period". That's too complex for me to model -- and anyway I bet that it's to the detriment of the IUL holder -- there's no was the insurance company would introduce that sort of complexity unless it benefitted them.

you can structure anyway you want as long as it delivers zero annual drawdown risk
Nope. Not a p*ssing contest. I am completely uninterested in developing a strategy that mimics what a IUL does.
Anyway, if it *was* such a contest, I wouldn't allow you to introduce such a rule, any more than you would allow me to make a rule like "no cap on gains".


Actually, the thing that got me interested in working on the data was the bit about gains being capped at 12% (or whatever). The implication is that this doesn't happen very much, so it doesn't cost you very much (cost as in "foregone gains"). Everybody tends to think that it doesn't happen much. But being data-driven, I had to ask myself, "So, okay, how often DOES it happen? How often do you hit the cap, and how often is the gain way higher than the cap?"

And the answer is "Surprisingly often."
35% of the rolling 12-month periods have a return more than 12%.
13% of the periods are more than 20%.
You hit the cap a lot, and you miss out on a lot of VERY LARGE gains.
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (85) | Ignore Thread Prev | Next

Announcements

The Retire Early Home Page
Discussion on accelerating retirement day.
Post of the Day:
Value Hounds

Medallion Financial: TAXI!
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement