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Author: Dwdonhoff Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 74759  
Subject: Re: Hi gang... wow!!! Date: 9/16/2013 5:48 PM
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Hi Spinning,

But I thought you were saying that an IUL was good for investing when you don't need the money for many years.
No, if you are investing in an account with the S&P that you are holding untouchable for many years, you must keep an additional safe reserves account sufficient for potential catastrophic expenses (at least to the degree of potential drawdown of the market used for investment.)

If you put all your money into the volatile market, without sufficient catastrophic reserves in place, and then 'life's situation hits the fan,' then you are forced to spend down principal after its been eroded by market drawdown.

An IUL can immediately employ the equivalent of all the S&P account risk principal, *PLUS* the catastrophic reserves, since it has zero market downside, and 90% liquidity at a positive arbitrage (borrow against it at 5.5% or less, while average net returns are 7.7%.)

Now you are saying it is for the situation where you need every penny to get enough yield to meet your needs.
Prior to reaching the financial point of retirement, you *DO* need every penny of both principal and gain to meet that objective.

AFTER financial retirement is achieved, the *ADDITIONAL* funds beyond lifestyle maintenance can be risked without a need to build in the loss factor.

These are two very different scenarios. Are you saying IUL's are only better than stocks when you need the yield immediately and cannot take any losses, or do you still think IULs beat stocks when you don't need the money for decades?
IULs outperform the S&P500 on a buy & hold basis when compared on a risk-factored basis.

Other buy & hold markets would potentially compare differently if they have lower drawdowns, with less frequency, and higher returns, or a combination of all three, sufficient to outperofmr the risk-weighted returns of an IUL (or, more explicitly, and IUL as I demonstrated. IULs can be designed for different purposes... I'm talking about trimming away all features *except* for financial performance.)

Dave Donhoff
Leverage Planner
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