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Friday, January 28, 2011

MONEY magazine gives good advice

Lest there be any possible misunderstanding, the heading of this post is a MYTH, OK?  A solid myth.
In a recent article, MONEY vilified Equity Indexed Annuities (EIAs) focusing, naturally, on the most sensational anecdotes, worst products, most corrupt advisers & most heinous practices.
Their main talking point was that there were a couple of options other than EIAs that have performed better over the last couple of years.  I don't dispute that.  Unfortunately, MONEY apparently didn't know what those options were in 2007 because in Ben Stein's "Perfect Portfolio" article he recommended 90% of your money be exposed to the market, 5% in real estate & 5% in energy.  He then goes on to recommend "20% of your portfolio in cash", (which adds up to 120% by the way).
So let's compare Ben's Perfect Portfolio with an equity indexed annuity between 2007 and 2011.  (I have to confess that it gives me great pleasure to write this next sentence.)  With $100,000 in Ben's portfolio you would still be down 30%, meaning you would need to gain 42.85% this year just to be even with where you were in 2007.  Impossible.  What if I had planned to retire this year, Ben?
In contrast, how would the EIA have performed?  With just the average mediocre EIA, you would now have no less than $115,829 assuming a 6% bonus & minimum guaranteed rate of 3%.  In addition, had you planned to retire this year, your Income Account Value would be $145,911 which would provide you with lifetime guaranteed income of $8025.yr.  (Try that with a CD)  At that rate of withdrawal, Ben's portfolio would run out in 8.7 years unless it enjoyed pretty hefty future returns.  Which is unlikely.  The key point here is that EIAs are for your safe money.  They are never intended to compete with aggressive growth portfolios, even though they coincidentally competed quite well over the last ten years.,
It's easy to look back in time and rag on someone else's advice.  But it's hypocritical to do so without applying the same magnifying glass to your own recommendations.  The vast majority of Registered Investment Advisers want the absolute best options they can find for their clients.  Too bad Wall Street can't make the same claim.

Monday, January 17, 2011

Favorite MLK Jr. Quote

"Even if I knew that tomorrow the world would go to pieces, I would still plant my apple tree."

There's no way to tell what Dr. King meant by that statement.  But I know it was more than Pollyannaish foolish optimism.  He's not saying he believes or has faith that the world will not go to pieces and will therefore plant a tree.  He's saying "even if I knew" things were falling apart he would still take the long view, get down in the dirt, and do something organic and basic.

If Armageddon were indeed upon us would you run around screaming, pulling your hair out?  Or simply continue trying to relieve suffering in the world by becoming more awake in that moment?

Sunday, January 2, 2011

Studded Snow Tires are the safest

I've been harping on this myth ever since studless snow tires emerged on the market.  Here are the reasons I believe studless tires are safer than studded tires, and are more economical as well:
  1. The feeling of safety from studded tires is more psychological than anything else, probably due to the aggressive sound of the studs destroying pavement.  At Tire Information World  studies are cited that studded tires have an advantage only in a narrow range of circumstances, which most drivers would rarely ever encounter.  Studless tire are equal to or better in most normal winter conditions.
  2. Studed tires grind troughs in the road which are extremely hazardous, wet or dry.  Perhaps, as a result, they create more hazard than they prevent.  I could find no studies about the cost history of this hazard.
  3. Consequently, tons of asphalt dust are spewed into the air, into our lungs and onto our agricultural crops.  It costs billions for states and municipalities to replace this material.  Who know the dollar value of the health effects.
  4. Tire Info. World states that studless tires cost 50% more but that has not been my experience locally.  They are actually cheaper.  Regardless, studded tires should be taxed sufficiently to repair all the damage they cause, in which case they would cost even more.  It is unfair for the rest of us to subsidize this damage.
  5. Studless tires accelerate & stop better than studded tires.
  6. Studless tires have better traction on wet and dry pavement when temperatures are above freezing.  This is important because it is very common for people to keep their studs on clear through April, even though temperatures are above freezing most of the time.
  7. As the studs wear down, the effectiveness of studded tires (already inferior or just equal to studless tires) diminishes.
Although it is merely anecdotal, my personal experience bears out all of the above.  I had a 4x4 rig with traditional studded tires on it & although it did better than with ordinary tires it still did poorly on black ice.  Our Subaru Forester, armed with Blizzaks, cruised up the road to Timberline lodge on solid unsanded black ice as if it were dry pavement.  I had at the very least expected to need some inclement weather driving skills.  But I didn't.  It was pleasantly boring instead.  You've all seen gouges in icy roads from spinning studded tires.  Those Blizzaks stuck to ice like glue.