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Hi All,
I've been swamped with client work & am on a strict maximum 30 minte/day TMF diet ;~) So bear with me while I try to hammer out responses inline in a long scrolly answer;

"Retirement funds" are what are left over when you stop taking a paycheck... that's the only distinction. They are not some separate account that you "never touch" because they are all your money until you need it for income when you no longer work.

Liquidity is mandatory, its not optional.
If your only access to liquidity is selling decimated positions, you are S.O.L.

If you have to draw income in a declining market by selling positions, you get the worst of reverse dollar cost averaging.

If you have to draw cash to cover uninsured catastrophic demands during a drawdown, you get kicked while you are down and lose a leg at the same time.

If you are blocked out from exploiting "unfair investment opportunities of a lifetime" that occur when the market is down & others are losing their legs... because the market is down and *YOU* are "waiting it out" to regain your own lost leg.. you've lost the deals of a lifetime.

Safety: The 'naked' S&P 500 strategy does have more volatility, with some pretty substantial losses probably 2 or 3 times during any particular 20 year timeframe. (And because we are talking RETIREMENT investing, the timeframes are long - generally at least a 20 - 30 year build-up period, and planning should be for at least a 20 - 30 year withdrawal period, so a 20 year period is actually on the shorter end.)

This is *REAL* simple to explain in a way I trust you will finally understand;

GIVEN: It is financiall faster to eliminate your mortgage liabilities by accumulating your cash in a compounding growth account separate from paying down the mortgage itself.

Question; Which is the more suitable of 2 options:
a) A naked S&P position?
b) An IUL?

Virtually everyone here at BOSAH agrees that putting the money that equals the safety of the home you sleep in and raise your family in should *NEVER* be put at a 50% risk of loss.

Why would anyone think the certainty of their income when they can no longer work is any less critical? Especially when they are given full freedom to take risks *BY CHOICE* when they want to?

But you keep saying you will provide data, and all you (and CC) ever provided were words.
I'll still post up some illustrations & spreadsheets, but it may be awhile yet. Again, PSUE only mentioned yesterday that anyone was actually interested.

It is critical to note, however;
A) There is no contest between the naked S&P500 & an IUL. You cannot ignore the risks of ruin in one, in order to compete against the safety of the other.
B) Ray already conceded he can't come up with *anything* that performs better than the IUL with the same features.
C) I have already conceded that there are *MANY* ways to outperform an IUL when risks of loss are not an issue.

And yet, a few short years after the financial crisis, the S&P has been hitting new record highs, so anyone who stayed the course has a bigger pot of money than they would have had if they put everything in an IUL.
Not if they couldn't afford to "stay the course" because of financial distress they couldn't overcome when the markets were down.

Not if the hedged account holders were able to exploit opportunities yielding 50-150% because they had access to cash that wasn't lost, when the distressed sellers of the opportunities were bleeding out of their wallets.

But you were the one who kept trying to say that IULs would have 'no' losses. Then, when the possibility of a loss is pointed out, you backpedal and say 'there is no absolute safety'?

THIS is what I mean by "religion." I have repeated over & over that IULs have no risk of *MARKET* loss. They are still subject to systemic risks... but they are less exposed to systemic risks than *any* naked securities position.


Hi 2 gifts,

True or not, the impression that I have been left with is that you cannot disprove the case that Rayvt has made,
Ray's yet to address the risks of ruin, as far as I know. So far the best he's done is wave his hands in the air & say "it doesn't matter, it doesn't matter... as long as you never sell the losses aren't real." Of course, that's exactly correct... *EXCEPT* for those who are forced to sell.

It is also a failure for everyone who is presented with opportunistic exploits when everyone else is down in the naked markets.

and that is putting IUL's into that category in my mind where the product enriches the sales person and not the client, and should be avoided.
Actually, this is true... for *EVERY* financial strategy that doesn't fit the user.

Its equally true for hucksters that pitch dangerous strategies in a religious fervor that they don't even make a dime from pitching... but which leave bodies on the fields when danger arises.

I hear you saying this is not true, but I'm not seeing anything to back that up except loud proclamations that no one will listen anyhow. If there's a case to be made, I'd like to see it, but just declaring that anyone listening isn't really interested because they have already made up their minds seems silly and counterproductive to me, and unfortunately, it also leaves me with a tainted impression that I'm now using to filter everything you write.
You seem to be sliding down a slippery path that is far more dangerous to you than anyone else.

Here's the simple case;
1) The key to ending up with the most money is not losing it in down markets so you can exploit the up markets. This is 'trading 101.' It is no different in small to big numbers, or short to long time frames.

2) Catastrophe happens. You *MUST* plan for it, even if the odds of occurence are low, as the rate of devastation may be very high.

3) Never miss an unfair deal/trade/exploit, *ESPECIALLY* due prior unplanned loss exposures. The 'insider deals' that present themselves 4, 5, 6 times a lifetime can by themselves often represent 80% or more of your longterm gains. This is another chapter of 'Trading 101' and applies regardless how many zeros immediately left of the decimal point, or how many pages on the calendar.

I don't think that is the desired response, and I have typically found your posts informative, although I do admit to getting lost in some of the longer ones, particularly when you seem to redefine words that I already thought I understood, but seem different in your analysis. I'd like to see less of that so that I could be better informed and educated with the information you have to share.

Many times the things you think you are certain you understand need to be "re-set" (wouldn't you agree? I know this is true for me as well.)

Often the best way to do that is to shock the system by forcing an obvious truth to be viewed from a different but perfectly valid angle.


But so far, all we've gotten is hand-waving and words. (And CC left in a huff.)
The spreadsheet I built is publicly available. You are free to look at it and point out any errors or bogus assumptions. In fact, I welcome that. I find it difficult to believe that IUL perform so terribly bad in the long run. They couldn't possibly be that bad, could they? But I've gone over and over my calculations and I don't see any glaring bugs.

I'll admit I have only glanced throught hem so far. How have you accounted for risk of ruin?

Without that, all the analysis so far is meaningless for comparison purposes.

BTW, Dave, et. al. ---- I don't have a dog in this fight.
My interest in this is strictly intellectual. I just loaded historical data into a spreadsheet and attempted to duplicate the strategy's rules, to see what the real historical data shows, and to compare that with the claims being made.
It's great being retired and having plenty of time on your hands to amuse & entertain yourself. ;-)

I sincerely hope this means that when I dig in I *AM* going to see the effects of random catastrophic costs, or missed 2-3-bagger opportunities during down years...


Hi SykeSix,

Hang with me... I'm actually going to support one of your points;

There is also the risk the policy itself goes bust. That happened with fair regularity back when regular UL policies were popular.
That's actually a risk of poorly designing the plan in the first place. If its properly designed for conservative funding with the barest minimum death benefit required by the IRS for the tax benefits, the risks of lapse are extremly low. How low is that, you ask... so low that the insurance companies themselves guarantee against it with their own reserves for contract holders older than 70 (during the years they would normally be consistently drawing out loans, which could begin to get near the area of balance where the risk of lapse is possible.)

There is another risk too, in that the commissions and fees are front loaded.
Actually, that's not a risk, that's an absolute.

One policy I looked had a 5% front load.
Quite standard actually... but that 5% front load is one time only. Building the same performance in the markets on a DIY basis with new money (not accumulated positions) would have costs along the lines of 2% to 2.5% each and every year... so a one-time 5% hit (on an apples-to-apples basis) is a very low cost.

BY THE WAY... to add to your concern... the upfront loads are not the ONLY charges within an IUL (though they are certainly the highest.) There are sundry other nickel & dime fees (I call them junk fees) along with the mortality costs of the minimized death benefot as well.

All together, on a well-designed case, the 20+ year total costs, all inclusive, dip under 1% (often well under.) This for the safe "capital carrier" performance that would cost 2-3 times that on a self-done basis in securities.

So, it isn't true there is a solid floor. You start off with a -5% loss. I guess that isn't a risk exactly, because you know you are losing the money but it is definitely a loss.
OH... ITS MORE THAN THAT! The initial year, due to the accounting of all the initial one-time charges, could be up into the teens or higher even. They key however is the fact that they are ONE TIME charges... and even if you calculated the opportunity costs on those funds "lost" due to the up front charges, after avoiding risks of ruin you are still better off hedging.

However, the main risk is the one Dave was talking about earlier: Opportunity cost. Ray showed at after the end of 20 years or whatever, a simple buy and hold strategy simply steamrolls the IUL. You wind up with vastly more money. While you were putting money in a poorly performing IUL, you were missing out on far more attractive investments.

What's the latin term for "repeating previous references"? "Ibid"?

Whenever I see the willing blindness of catastrophic ruin, or missed exploits in down markets for lack of equity, I'm just going to type "IBID' from here forward.


Hi AJ,

Howver, not all states cover variable insurance products (like IULs) with their insurance funds,

IULs are not considered "variable insurance" family, but rather they are regulated in the 'Fixed Insurance" world. Its a significant difference.


Hi crackdclaw,

My end impression: continous dollar cost averaging over a long period of time into an S&P500 index, and then using a SWR of say 4% easily outperforms an IUL.


Hi Spinning,

I too have noticed that the people on these boards who accept the risk of the market over long time periods often favor FRMs, while those who in the past favored ARMs now like IULs to avoid market risk. I would like to understand this correlation better.

For me, the 2 considerations fit hand-in-glove.

The strategy of using a 5 yr ARM at a 35%-45% interest discount, and banking that difference in a side compounding account gives a guaranteed advantage over the 30 FRM for 7-10 years in the WORST case interest rate environment, which probably has odds of occuring deep into the single digits... arguably less than even a 1% chance (for anything near a catastrophic interest rate rise causing the 5 year to *ONLY* outperform the 30 FRM for *MERELY* 7-10 years.

In other words, the odds of overpaying on the 30 FRM, and thereby over-extending how long a person is to remain in debt, is likely 99% or more greater than the 5 yr ARM and grow the difference strategy.

IN CONTRAST, the odds of complete financial ruin by building your entire financial foundation on a naked securities position with regular random 30-50% drawdowns... all in pursuit of 10-13% returns... immediately appears foolhardy on its very face. *STILL*... that is without comparing it to what the alternatives may be. If the alternatives were even riskier, or even drearier in actual eventual returns, then maybe the 50% risks for 13% gains bet might be the best in town.

But its not.

You can build your own position over time, or in the immediate run buy a retail position from an IUL, that gives you the ability to build a financial foundation with zero market loss risks, and a longeterm net/net average rate of return of 6-8% tax-free.

Further, this position is collateralizable at an interest cost that is typically 1-3% *LESS THAN* the principal growth rate.

In a short-run opportunity (or catastrophic ruin avoidance,) the funds can be pulled without decimating the position of the principal, and life can be managed. uninsured medical bills can be paid that might have caused others to collapse... and real estate, or businesses, or intellectual property assets, can be acquired at 50%, 30%, or much lower on the dollar.

In the long-run, the positive arbitrage pays for the internal costs of the entire contract in later senior years when tax-free income is peeled out as interest-bearing loans.

REMEMBER I mentioned you can build your own hedged position? Its true and very doable (and in fact its how I have positioned my own overall balance sheet.) My overall household notional net worth *CANNOT* lose value in down markets (not even the non-insurance parts.) My accumulated real estate portfolio mimics what the IUL companies do with bonds... but at higher net yields to my own position.... and I can put "the casino's money" (the yields only, not principal) at highly leveraged risk to generate 150-300% returns with bull call debit spreads.

I am not saying IULs are the only way to do this... not at all! I am showing how to do this with or *WITHOUT* an insurance company. Its just easier to initially get the benefits without building your own safe yield portfolio by piggybacking on the internal general account yield paid by the IUL companies.

P.S. I too would like to see the spreadsheets. I would like to understand when IULs are the right product

Any spreadsheets will only be valid if/when they incorporate the effects of catastrophic risk of ruin during down markets, and the loss of low risk/high reward exploits during down markets.

Ray's the spreadsheet champ with retirement time to burn... so we'll see if he can model that (or maybe he already has?)


Hi vkg,

I still feel that the pick-a-payment loan with qualification based on the lowest possible payment (that resulted in negative amortization) is a bad product.
Its a *HORRENDOUS PRODUCT*... for people who can't or won't manage their cashflows.

I've got 3 of them... and even after they hit their recast point (where they've now begun amortizing involuntarily on the shorter remaining payoff period,) the interest rates are consecutively (last time I checked) 0.6% (yes, under 2/3 of 1%,) 0.875%, and 1.75%... and they are all on my rental properties, which supports a very nice yield in the rising rental rate markets!

BOTTOM LINE THOUGH... they were overwhelmingly sold by loan officer that didn't understand them, pitching features that should only be used carefully, to borrowers who not only didn't understand them but often bought them for all the wrong reasons.


Hi sykesix,

That's clearly not true. A simple buy and hold not only accumulates more money than the IUL, it accumulates vastly more money

Not if you are forced to liquidate when the market is down, and
Not if you count the lost gains from the deals you can't take when the market is down.

Let's go back to the original example of $10,000 initial + $100/month starting in 1975.
Why not roll the dice again & start in '73?
What if you need that non-FDA rated surgery for your kiddo in '75?
What if your law firm partner is caught with a hooker and you have the opportunity to buy him out at 20 cents on the dollar (thanks to his non-lawyer wife)?

What if you didn’t start with $10,000, but $100,000 proceeds from an inheritance, home or business sale in 73?
How about you start in ’81 and need access in 83?
Start in 2000, and need access in 2003? 2009?

Smart investment management treats every dollar the same, risk-wise… adding or subtracting zeros on the right side never changes prudent risk management strategy. If you wouldn’t put your entire net worth of $1M at a risk of 50% loss, you should never put your entire net worth of only $1,000 at that risk either.
The most dangerous time to have new money in a naked S&P position is when it is at or near all-time highs…
Where are we now?

Same thing with the 87 crash. B&H still beat the IUL.
Nope; IBID



How is this different than putting the mutual funds/ETF in a margin account, and borrowing against it?
Its actually conceptually very similar... I point this out all the time so folks can much more quickly wrap their heads around how it works.

The differences are;
IUL; 90% access
Securities: 50% max... 30% functional

IUL; fixed interest rates available, from 5-6%
Securities; Floating rates relative to indexes

IUL; non-callable, and no call risks due to market drops
Securities; Callable at any time, and especially sensitive to market drops

IUL; after age 70 the IUL company will guarantee no lapse, (the functional risk equivalent of a margin call in securities.)
Securities; no guarantees of any kind whatsoever.


OK... I have definitely burned wayyy beyond my time budget for today (damn... actually that was yesterday, and I've burned way over 45 minutes into today/tomorrow too...)

I probably won't be around TMF tomorrow much, if at all... but I *WILL* get back to Retirement Investing to see if there is any better comprehension over there yet, and if not i'll do what I can.

Good night, and all the best to everyone!
Dave Donhoff
Leverage Planner
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