More Knowledge, More Wealth - Ep 160: Annuities and Why You Shouldn’t Invest in Them
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[00:00:00] gabe: Good afternoon. This is Gabriel Shahin, certified Financial Planner and your host of More Knowledge, More Wealth here on every weekend, talking about all important topics of personal finance. Our goal is to give you the knowledge you need to increase your wealth. Now to the listener, you can always reach out to myself or any one of our colleagues here at Falcon Wealth Planning.
[00:00:18] Our phone number is eight 50. 9 6 3 25 26. That's 8 5 5 96. Falcon like the Bird, or visit our website@falconwealthplanning.com. That's falcon wp.com for short. Now, a principal of Falcon Wealth Planning, we are a fee only financial planning firm. We do manage money as well, but we specialize in comprehensive planning.
[00:00:42] That's talking. Where you are today, where your money's going, where you should be saving your money, when you could retire, when did it take Social security? You talking about taxes, investments, state training, state planning, insurance folks who name it. Anything that involves a dollar sign we can help with and we are offering a free financial assessment that can truly just help.
[00:00:59] Relate this show to your specific situation. Folks. Give us a call. We help people all across the country. We got office in the Midwest. We've got office in Southwest, We got office in the Northwest. Folks we can help. Our phone number is eight fifty five. 9 6 3 25 26. That's 8 55 96. Falcon like the Bird. We can help put a personal plan together for you to help answer the questions you have.
[00:01:27] Our assessment can point you in the right direction and tell you exactly what you need to do. Cuz we're seeing this now more than ever folks. This is the time where people do need, in fact, help only. markets are down now. This has been a decent week, right? So, uh, there's ups and downs that happens all the time.
[00:01:46] We've talked about last week how we're on track for a record year of the most volatility that we've seen, even approaching 2008 levels. My point of this of course, is that also annuity record sales for the year has happened this past quarter, and so a lot of people are now buying these junk annuities Now, excuse me for saying junk.
[00:02:07] I'm sure regularly theirs won't like that, but here's the thing. The commission charges on these annuities are astronomical. Why are they so good? Because nobody would pitch them to clients. Think about that. If it was so good, why do you have to incentivize somebody so much money to sell them to you?
[00:02:23] Because, and the IRS proves this showing that you lose money with an I with a annuity. When you put money in, half of that money will be. You take out less than half of that money throughout your life expectancy. So are you sold it because it's being pitched as a low risk, no risk office option. You are being able to put your money in something just to take your principal out securely.
[00:02:48] It's crazy. And now on top of that, you have these treasury rates paying north of four, four and a half percent, one to two year treasuries. And these annuities are barely paying that depending on your. So why are you buying these things and why do they have records money going into it? We'll check this out.
[00:03:07] The reason is, is if they had a million dollars and it was fully invested, it's now worth potentially as low as 700,000, maybe even more. Heck, some of these kids that have put their money in those meme stocks are down. Some of them, 90%. My point of is this is, let's just say on average they're down 30%, so they're a million dollars at 700,000.
[00:03:27] Now they're selling low. to go put into an annuity. This is craziness. And they're being sold this annuity cuz saying, Oh, you can't lose here. It's risk free. You get all the upside, but no downside. Like, gimme a break guys. Like seriously, gimme a break. That is ridiculous. That is preposterous to think that you can do that now.
[00:03:50] Now the funny part is, is the way it's position. Yeah, sure. But the way it works behind the scenes is that's not how it goes guys. You will have unlimited loss potential and limited upside potential, and these are positioned and sold to you because they know that you'll be lucky to get a 4% return on average.
[00:04:09] Lucky. Keep that in mind. I said lucky to do that over the time of these annuities, and some of 'em have surrender periods of th 3, 5, 10, 15, 20 years where you can't get out of it. Once you put your. Now by the time you put it in folks, in times like this, when record numbers are going into annuities, that's when you have to think, Wow, we could be at the end of this negative cycle in the market.
[00:04:35] Because the issue when people are buying into that, it's they're selling at the not lowest parts, but some of the parts that really should not be selling at. Like if you were gonna sell, you should've sold last year at the all time. And you still probably shouldn't have put it into an annuity, cuz like I said, it's a return of principle product.
[00:04:55] And it's sad when I see these record numbers hit. It's sad when I see people putting their money in a product like this because they really should not be fooling themselves into a product that's truly deemed unnecessary. That's truly just point. When you look at it from a return, a principle production, and let's just get the reverse side of it.
[00:05:15] Forget you having a million and losing 300,000, now you have 700. Let's say you have a million bucks, would you still, or 700,000, You just have 700,000 in the bank account. You decide to invest. Would you take that 700,000 and put it into the annuity now or would you put it into the stock market now after being.
[00:05:34] 30%. By the way, folks, if you're just joining us, you'll listen to Gabriel Shahin, certified financial planner and your host, more knowledge, more wealthier on every weekend, talking about all important topics of personal finance. And today we are discussing the stock market. We are discussing ways that you cannot make sure you don't get taken advantage of and being sold these insurance products by your local banks, by insurance salespeople, by commission based individuals.
[00:06:02] I see that far too. . So the last point I made was if you had $700,000, would you rather put it into a return of principle, arguably cd, even at a best case scenario, we'll call it a fixed annuity, or would you rather put it in the stock market that's already down 30%? Think about this. You're buying at a low point.
[00:06:23] Let's just say dropped another 10%. The point is, in three years from now, assuming that's when you need the money, don't you think the stock mark will be higher or lower, let's say 10 years from. and so you're able to capture that loss today. And if 30% drop, if you buy in now at a 30% drop the rebound. If it goes back to where it was, it's not back at 30%.
[00:06:47] It's a 42% increase to go back to where it was. But guess what? You didn't have to lose a 30%. Which gets to my point about bonds. Now bonds are down, some bonds down over 30% for the. So think about you lost 30% of the bonds. You have to ask yourself, do you think you're gonna make over the next 3, 5, 10 years more investing in bonds or stock?
[00:07:16] So if you already took the risk similar to stock, might as well get the reward. By investing in the stock market, it may make sense. It takes some of the bonds that you have and sure, cut your losses on 'em, but invest into stock because you are eligible to get the return now from the stock market. And this, the way the markets are working right now is ridiculous.
[00:07:37] It's truly makes no sense how it's working. And let me explain. So it used to be, I feel like. , if the feds discussed that rates were gonna start going up, they said this in 2019, that rates were gonna go up. The way it historically worked was, is that the second they made that comment, the bond prices with truck?
[00:08:00] Because now we know we all have access to this knowledge and information that markets are going to adjust according. What do I mean by that? The Fed just said they're gonna raise rates, which means the, We don't have to wait until the Feds raise the rates, cuz we all know it's gonna raise. The bonds are less valuable today.
[00:08:20] The second the Fed said it back in 2019, the bonds dropped because we knew it was gonna be raised. But the crazy thing that happened in 2022 was every time the Feds raise rates, bonds dropped. Well, we know they're gonna raise rates. We know they're still gonna raise rates throughout the rest of the. It's insane to think that right now, that even though we know they're gonna raise rates, the bonds are still gonna drop.
[00:08:46] That's what's happened. Like even professionals here are a bit dumbfounded by this because we know when they announce it's gonna drop, the bonds drop in value, but now they're like, Drop it twice. They drop it when they announce it and they drop it when they actually do it. So now you have to think about this.
[00:09:01] What has more. One of the biggest ask classes that have lost money is the long term bond index, and some people are still staying in it and not doing anything. One of the more popular ones is ag, the aggregated bond index, B N D, BN d s. These are very popular bond indexes that have gotten some moed.
[00:09:22] They're down 20 plus percent of value, some of it over the s and p 500, some of it over nas. . My point of this of course is that what are you doing to be proactive about this? You should have made changes months ago to reposition your bonds into maybe a one to two year treasury that's paying 3, 4, 4 and a half percent.
[00:09:46] Maybe you should have repositioned to other fixed income, whether it's short term bonds, whether it's private debt, whether it's another form of. , you should have been doing multiple things at this point. Cuz now think about this. We knew it was happened in 2019, but what we're seeing now, you seen such a reaction based market where historically just cuz rates go up, bonds don't go down because we knew they were gonna go up when they announced it few quarters back or a few years back.
[00:10:16] Now you're seeing it. So with that being said, now you know how the markets are behaving now is the. To make moves and to make sure you do not have bond exposure that can hurt you. Knowing that the feds have said they're gonna continue to raise rates up until q2, Q3 of 2023. So if historically speaking, every time they raise rates, even though we know they're gonna raise it, they raise it in, the bond markets gets crushed.
[00:10:44] What are you waiting for? Now think about that for. . And yet people have consistently lost. That's why at Faco Wealth Planning, the company I founded almost eight years ago, we have consistently stayed proactive on this approach. We've consistently taken a look at ways you can reduce your risk, put your money into place that's safer, and make you more money long term.
[00:11:04] And part of that is by being proactive, is buying into equities on the dip. It's reallocating certain money in your portfolio to equities to other types of fixed income. It's being disciplined enough to buy when nobody else wants to buy. We need those people not wanting to buy because right now the fearful sell and go put their money in annuities that secure and guarantee their losses.
[00:11:30] And what I want to talk about when we get back is how we can help you with that to make sure you make the right decision. And if you need help. Give us a call, folks. That's what we're here for. Our phone number is (855) 963-2526. That's 8 5 5 96. Falcon like the bird. Folks, we're gonna take a quick break and we'll be right back after a few words.
[00:11:53] Welcome back folks. This is Gabriel Shahin, certified financial planner and your host of More Knowledge, More Wealth here and every weekend talking about all important topics of personal finance. And today we are just discussing how sadly people are putting their money into annuities. And I was just kind of joking, like historically speaking, when you have record people putting their money into annuities, it almost feels like that's the end of a bear.
[00:12:18] only because that's what people do. You're supposed to sell high and buy low, but what a normal people do is they sell. That's just a human reaction of what they do. They do everything backwards, right? Cuz these are, we're emotional beings and we act irrationally and I get it right? I look at the mistakes I made in my personal life.
[00:12:40] It's based on emotion. I'm an emotional person. I'm a passionate person, is what I say. That's why an attorney, what do they do when they get in trouble? They hire another attorney. They're not gonna do it themselves. You get it? That's why a surgeon doesn't operate on their child. So my point with you, Is, I get why you're doing it, but please have more sense and discipline than that and if nothing else, get a second opinion.
[00:13:05] I mean, you are capturing at securing these losses. I know what you're thinking. I can't afford to lose anymore. If it goes any lower than X, then that's it. I'm calling it quits. Well guys, this isn't like you got your life in a roulette table. Well, you can guarantee you can lose everything. No, I get it. If all your money's in Peloton I got, I can see that concern.
[00:13:28] If all your money is in Nicola , the EV company that was based on fraud. I get it. If it's based on a company that's all your money's in one basket. Yeah. . I, I, I get it. But that's just not the reality of how investing in a globally diversified portfolio works. If you have a professional that's not selling you junk and always trying to move you from one thing to another and trying to call you and say, Hey, I got this really good investment opportunity for you, versus just investing on what's in your best interest at all time.
[00:14:00] That's not commission based, and you know exactly how you pay them. If you don't know how you pay them folks, that's a concern. That's a problem. You should be. For guidance, you should be looking for help. You should be looking for somebody that is able to look at everything as a whole to make sure when you win, they win.
[00:14:18] When you make 10 to 20%, they make 10 to 20%. When you lose five, 10, 20% of your portfolio, they lost five, 10, 20% of their income. This is the only way to work with a professional that's truly. Biased. It's difficult and sad when I see people working with people that are just selling them junk all day long.
[00:14:40] When you're working with a fee only advisor, they can offer anything. Assuming they're an independent registered investment advisor, they can sit, you know, offer you anything that the sales commission person can offer. But here's one big catch. The benefit catch is they could do it without the. Literally, there was no incentive to be working with the other broker dealers out there.
[00:15:04] Whoever they are, wherever they are, and even if you are looking for the banking side of it, whether it's the free checks, the free safe deposit box, or even the free loan, the really great loan that you can get because you have. 500,000 at your bank or 50 million at the bank. Independent registered investment advisors like us at FA Wealth Planning can get preferred lending beating those banks more times than not, because we don't have to get paid for offering that to you.
[00:15:35] Those sales guys are gals are incentivized to sell. , the mortgage product, the line of credit product, they're getting paid from that. Well, we don't get paid. We only get paid for the advice that we give and for the man money that we manage. That's it. We refer out somebody, a realtor or a mortgage rep or whoever.
[00:15:56] We don't get paid from that. Folks. We're not allowed. We can only get paid directly from our clients, folks. That's why I recommend getting a pre-con consult. Lay everything on the line. Let us know what you need help with and what your goals are. We've seen this movie multiple times and some of your retirees, You know what the problem with you is right now is that you used to just not even watch this part of the horror movie.
[00:16:19] Well, now that you're bored, you're removing your hands from your eyes and you're watching this part of the movie and you're realizing, Man, I don't like the scary parts. Well, before you were too busy, well, now you kind of claim you enjoy this. Well, how do you enjoy? Loss period. Well, I don't like it. Of course I don't like it.
[00:16:37] I don't like it then. I don't like it now. But you know what, which you don't know is it's actually a good thing that it's happening. I'm not saying it's a good thing you lost money. I'm saying it's a good thing. It's happening now, not deep in retirement. It's a good thing happening now while you have assets and you can reallocate, reposition, and rebalance your portfolio to take advantage of these market jobs, and that's not even including any tax planning opportunities.
[00:16:58] You may. I don't know why people continually just put their head in the sand and ignore this. You should be acting now. This is the best time to talk to a professional and we are offering one to two meetings, one to two hours of our time at no cost. To help answer these questions, you have folks give us a call.
[00:17:18] We'll be happy to help. We've got multiple offices, multiple advisors, and we help people all across the country. Our phone number is (855) 963-2526. That's 8 5 5 96. Falcon like the Bird, or visit our website@falconwealthplanning.com. That's falcon wp.com for sure. We got our headquarters here in Southern California, but we help all across the country folks.
[00:17:47] Give us a call, would love to do it. By the way, folks, if you're just joining us here, listening to Gabriel Shahin, certified Financial Planner and your host, More Knowledge, More Wealth. You're on every weekend talking about all important topics of personal finance, and my goal with you is just to tell you do not be scared of what's happening.
[00:18:03] We've seen this movie before. We've seen it with a very deep recession in 2008. We saw it with a Covid crash in 2020. We saw it during the.com bubble in nine 11, in the early two thousands. We seated in the nineties. We saw it in the eighties. We saw it in the. You get my point. And some of those, we were in wars like this is not the first time we've done this, so don't do anything Rash and rash and sell everything in your retirement account.
[00:18:28] Sell everything in your brokerage account and on top of that, go buy an annuity with it. What people don't understand is market drops are good. Market drops are healthy. I'm just saying you have to know what to. You don't wanna go buying something that you're gonna regret, and especially think about this.
[00:18:47] You took the risk of the drop. Now it's time to get the reward. The reward is coming. Look at earlier this week, fantastic results of the stock market. You can't look at things in a macro, micro perspective. You can't look at what happened last month or last quarter or this past year. Today you have to understand where we are today and are we gonna get better?
[00:19:09] You have to think how much worse can it? We have a lot of negative things going on right now with the inflation numbers and with interest rates and with a lot of indices down. But you gotta think, how much higher are interest rates gonna go? How much higher can inflation go and how much more can the markets drop?
[00:19:27] I'm not saying it cannot drop anymore. What I'm saying is you have to have the risk and reward, and by putting. A hundred thousand dollars or a million dollars in the beginning of the year, that's now potentially worth $700,000 or 70,000. You gotta think to yourself, where will it be? Where will my 70,000 be?
[00:19:46] Especially if I don't need it now in a year, two years, in, five years from now. Yeah, historically speaking, which of course you can't guarantee that, but historically speaking, you're gonna be better off if you just leave it. And on top of that, you're collecting dividends while you're. . And by E being able to reinvest those dividends, especially at times of duress, like now you're able to come out more ahead.
[00:20:11] It's just sad that you are consistently surrounded the convenient nature. You're surrounded by your local bank or your local people selling you stuff, calling you up, things you see on infomercials, just people selling crap. They're selling you the gold that's out there, the real estate that's out there, the crypto that's out there, the annuity and insurance products, the index.
[00:20:32] a universal life policy or the invariable annuities that are out there, or even fixed index annuities. It's just sad. Get a second opinion before you put your money in that if it's not transparent and you don't know how much you pay and you don't fully understand it, do not do it. Haven't you heard that before?
[00:20:49] So why are you changing scope? Just because if that's your local bank and you feel it's safe, why are you changing it? Cause you found on the internet and the person, the salesperson you talked to is really. . Why? Cuz they work for a big company. That doesn't matter. You know why you see them traded on the, uh, New York Stock Exchange or you see their names on Big Story buildings?
[00:21:11] It's not because they're just doing what's in your best interest. They gotta take care of themselves. They gotta take care of their boss. They gotta take care of their company. Here at FA Wealth Planning, we are a fee only financial planning firm. Folks, we only get paid directly from the clients. No third.
[00:21:29] No revenue share. No broker dealer paying us to push anything that they want us to push. We work directly for you. We're legally obligated, legally liable to do what's in your best interest. . That's why we're offering a free financial assessment. To really help relate this show to your specific situation, we rec recommend you give us a call.
[00:21:49] We're giving you one to two hours, one to two meetings of our time at no cost. Folks. Our phone number is (855) 963-2526. That's 8 5 5 96. Falcon like the bird where we can. Put together an assessment to tell you exactly what you need to be doing, and if we find out a bunch of ways that could save you money and help you, that's out there, we're not gonna withhold it and say, You have to hire us first before we tell you.
[00:22:15] That's ridiculous. You can look at our Google reviews, how high many people have rated us. You can look on Fin Around, see how we've had no negative disclosures. You can look at every single advisor to have only positive things that's happened. And nobody negatively bashed in anything that we've done. We are held to the highest of standards, which is why we are consistently ranked as one of the top advisors in the country of some of the biggest publications our industry has.
[00:22:42] We want that opportunity to help you. And so, especially at times like this, when people freak out and do the incorrect thing, I can't tell you how many times I've saved people millions of dollars by not selling low and missing that. . Our phone number is (855) 963-2526. That's 8 5 5 96 Falcon. Like the bird, or visit our website@falconwealthplanning.com.
[00:23:08] That's falcon wp.com. For sure. Folks, that was a fast, fast show. I wanna thank you for tuning in with me this weekend. Feel free to reach out to myself or any one of our colleagues here at Falcon Wealth Planning. Our phone number is (855) 963-2526. That's 8 5 5 96 f. Like the bird. We'll be happy to help.
[00:23:29] Have a confidential conversation to relate this show to your specific situation. Folks, have a great week, Have a great weekend and God bless.