Posted: 7/15/2006 5:27:12 PM EDT
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I sat down with a financial advisor for the first time a couple weeks ago... now my question is are they worth the money? OK heres my situation: Im 22 and Just graduated college and started a new job about a month ago. Pickup is nearly paid for and other than that I have no debt. It was really informative to look at long term goals and life in general in a big picture sense, but at the same time I'm wondering... will I be paying for something that I could be doing for free? So please tell me when a financial advisor does or does not make sense. |
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Yes, you're paying for something you could do on your own for free ... HOWEVER, unless you're an expert in his field and have more experience, he will give you better advice than you will be able to do on your own for free. If you're debt-free at 22, I think a financial advisor is a great idea. He will help you use debt and credit in a smart way, to build credit strongly, while simultaneously building a nest-egg for future investment and/or savings. |
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Buy Money magazine go with it most of the good things that come from investing early are from compounding. put the money away, let it compound, buy a house when you have the money, go with life, save the couple grand a year. Nobody cares about your money more than you. |
Ask to see his balance sheet |
I guess overweight doctors won't be treating you either. |
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OregonShooter, see also www.ar15.com/forums/topic.html?b=1&f=133&t=476175 ar-jedi |
e.g. "One Up on Wall Street" "The Bogleheads' Guide to Investing" "The Four Pillars of Investing : Lessons for Building a Winning Portfolio" and just about anything by John Bogle. meanwhile, surf over to www.morningstar.com/ news.morningstar.com/article/article.asp?id=167812&pgid=wwhome3a and find these compendiums of articles news.morningstar.com/archive/archive.asp?inputs=days=365;colId=11;sortField=publishDate;sortDirection=desc&pgid=wwhome3b news.morningstar.com/archive/archive.asp?inputs=days=60;sortField=colName,publishDate;sortDirection=desc ar-jedi |
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open a ROTH IRA. put as much money as you can afford into it, automatically withdrawn, each month. even if you have to cut back on the amount later in life it will be worth it now. if you start with $100. add $100/month for the next 40 years, your total out-of-pocket investment is $48,000, 9% avg return. at age 62 you will have $425,000. the trick is to start early in life. so many people don't. |
yes 401k up to the amount that is matched by the employer then Roth IRA fully (i think it's 4000 this year) then 401k up to the max (I think it's around 15,000) check with your tax advisor for the total limits DO NOT exceed the limits There are some income based tests that you may not be able to fund a Roth IRA if you make too much money. (like 150k or so) check with your tax advisor |
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401(k) maxxed out is foolish. Would you rather be taxed on the seed or the harvest? Do up to the matching. Forgo the roth and put it into the CORRECT universal life policy (EIUL). You are young enough that if you ran the numbers your retirement income from the policy would be very high. Read Missed Fortune All of the math and laws are products are in there. Money is made with math, not opinions, please please do your research. |
You are selling life insurance. |
Life insurance is not a "scam", and up until this point, no offense Boze, the most ignorant post I've seen you author EDIT: to date. ( you generally make sense ) |
We have two life insurance policies as investments. They didn't make a lot of money, but they did make money when many lost during the last tech stock downturn. They are not a scam, however, as you age, they will begin to cost you more in maintenance, fees, and cost of insurance than you are making. I am at that point, and need to dump them for something else. That is as far as I have gone with that. Since it was an after-tax investment, the amount contributed is non taxable, only the profit is. I am not sure what that will cost me............ 
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Let me repeat All insurance is a scam. life insurance is 90% a scam, even term. I'll use myself as an example. I'm married, no kids. I made 80k last year My net worth is over 500k My wife doesn't work. Why should I have life insurance?, she gets more than 5 years worth of my earnings if I die? complete waste of money. If you are single, it's a total waste of money, who are you insuring? your dog/cat? people sell insurance (and buy insurance) for little kids? who are they insuring? life insurance is a scam. Take care of yourself, save the 50% margins and invest it. The only kind worth buying is disability insurance, that really screws you over if you become disabled and can't work. But just dying? bah, total scam. <soapbox off> |
Hell, I just went back to the original post. WTF does a 22 year old with no debt need life insurance for????????/ No reason at all. Invest your money, be worth something. |
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I never said, "Boze, you need life insurance." But I am surprised you say "all insurance is a scam." The concept of insurance and its various applications (property/casualty, health, life...) will not be explained here. I wish you the best, that everything goes perfect and as planned for you, good luck and Godspeed. |
Assuming the 22yr old. does not have high networth resulting in an estate planning issue, is not a business owner/key employee as part of a succession plan, not in a deferred compensation plan, has no charitable bequests, etc..(I could go on but each should be explained and I'm not as stated in previous post) the reason to insure at a young-ish age might be to lock in insurability/low premiums while still in good health. |
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lol I've never really been flamed before. I'll try and be as civil and articulate as possible in my response. I DO work in the financial services industry, I have over 650 agents, and yes we sell insurance among pretty much every other product out there, including products inside of your IRA and professionally managed "wraps" for your 401(k). Our total client base now represents over $1 billion in assets. Please use mathematics for the basis of your argument, not an uneducated opinion. What I'm talking about has nothing to do with brainwashing, lol, I'm not even sure where the basis for that comment came from. It comes from a fundamental understanding of ALL products out there, and of the tax laws governming wealth accumulation and distribution. You've got to learn these, rather than read one book and make baseless attacks. Retirment planning in not ONLY about maximum accumulation, but about maximum NET AFTER TAX DISTRIBUTIONS. It's not what you accumulate, but what hits your bank account after uncle sam takes his poind of flesh. The richest in this country have understood this forever. Why? Because they don't worry about making money, they worry about keeping it. They understand that products and strategies exist to maximize take home income and their estates. 1. Why you shouldn't put more in your 401(k) than what the employer matches: Because there are products that exist that allow you to achieve tax free growth and tax free distrubtion like a ROTH. Why do you think that the government limits what you can put into a ROTH, but not into a 401(k)? Because dollar for dollar, you are better off being taxed at today's income tax rate on your contirbutions TODAY and then never be taxed, then to put in pre-tax and get taxed on the larger amount. I call a 401(k) a trap because the government would rather tax you on the millions you have accumulated 30 years from now than your dinky paycheck today. Also, you have no idea what your captial gains rate will be when you are retired. You DO know what your income tax rate is today, and hopefully that income is offset with the most deductions possible. So, contribute to the matching limit, and that's all. But I guess if you don't believe there is a vehicle that gives you the tax free growth and distributions of a ROTH, then this doesn't apply, and I can see why you would flame this. However, such a product does exist, see number 2. 2. Why Universal Life is like a ROTH but in some ways is better: Life insurance is NOT a scam. I can understand being bent out of shape if you were sold the wrong product for your needs once. However, life insurance does have a viable place in retirement and estate planning if used correctly. In a Universal Life policy you have a death benefit for life, as long as you continue to pay premiums. A portion of your premium funds the death benefit, and the rest goes into a cash value account. This account grows tax deferred, and when you take distributions in the form of policy loans you are not taxed on this income. Sound like a roth??? However, you can put AS MUCH as you want into the policy (unlike a limited roth) as long as there is a death benefit in place. Because distributions are taken in the form of policy loans, you can either: a. spread distrubtions out longer compared to a non-life insurance product, or b. take a larger amount of distributions for the same period of time. So, even though pound for poind during accumulation, your 401(k) will outperform the cash value account, because you are not taxed on distribution and because of the distribution method, your take home income by the time you die via the UL will be much higher. If you die early in retirement, the death benefit is guaranteed to be higher than the cash value. The reason for using an equity indexed UL is that you cannot lose any cash value when the market goes down, but can participate as the market goes up. In reality, the UL strategy has nothing to do with the death benefit, it has to do with maximizing tax free retirement distributions. The death benefit is simply what the IRS requires you to purhcase in order for it to still be considered insurance and not an investment account. Why would it be good for a 22 year old? Because to take advantage of the stategy costs insurance, and while that person is young, more of their premium goes towards the cash value than say a 45 year old. It's not about good or bad. It's about suitability and using the UL as a strategy to take advantage of IRS laws. Contribute to the 401(k) up to matching, then ROTH, then UL. The 1990's are over. |
How would this be superior to some one investing in ETF's with after tax dollars? The dividends would be taxed, but the cap gains would be deferred, and stepped up after the investor's death. If the dividends in later years did not produce sufficient income, distributions could be taken tax free in the form of margin loans. Fees would be very low, no money is spent on any unnecessary insurance. (Insurance might be necessary for some people.), and the lion's share of growth escapes taxation both before and after the investor's death. (Not considering estate taxes). Of course, laws could change in a life time which would mess up this plan, but you also take that kind of risk with any UL based plan. This course seems more appropriate for me. |
Good question. The right ETFs are good products, and do defer some taxation because when you sell your ETF shares you aren't selling the underlying assets, just the share, so in most cases there is no taxable event. However, while holding the ETF, the activity of the underlying assets may force distribution, which is now taxable, and upon liquidation the ETF distributions are taxable (unless taken in the form of margin loans as you mention). However, margin lending against a variable account is a MUCH different game than taking policy loans against a known cash value, and where the cost of the loan is built into the product. You and I may be comfortable with this, but unsophisticated granny smith may not. Also, typically EIUL loan costs are going to be less than margin lending, but this is case by case. So in a sense it's a step up from a mutual fund in terms of potential tax advantages, and can offer better returns than an EIUL. However, EIUL proceeds taken as loans are NEVER taxed, nor is its growth. Also, look at the actual fees and commissions on your ETF, and do the numbers, especially if you are putting in money over a long period of time. If there is high turnover, the expense ratio may not make the tax savings as attractive. Another side-effect of the tax advantage of the ETF is when there is a capital loss in the underlying account, the client is not able to realize that loss to offset other gains they may have. Can't have your cake and eat it to, of course, and this is the price you pay for tax advantage. A sideways or down market would actually make a comparable mutual fund more attractive at that point... In a sense, many clients would prefer to buy insurance instead of paying commissions on every deposit and being taxed on cash distributions. This is a somewhat personal opinion and risk tolerance issue (since ETFs are variable). Bottom line, we all want a hole in wall, and have many drills to choose from. An ETF would be a good alternative to an EIUL if the client did not want life insurance benefits and had some level of sophistication to understand and operate the account, and wanted more of a variable roller coaster ride. edited to say that I personally would have an ETF for the higher potential rate of return than an EIUL (not necessarily the tax benefits for reasons discussed), and depending on your cash flow situation have both. |
IMHO, a FA is not worth it at your point in life. YOu are better served with putting your money away in a mutual fund. That is what he/she is going to do anyways. ONce you build a foundation(cash) where you would need tax, estate plannning and asset management. Then and only then would a FA is worth it. Not sure how much you can invest, but back when I was in production. I would not touch anything less than $100K. Because there really is nothing I could do for my clients that they can't do themselves for free or minimal cost. There is not much you can do in a form of asset management for less than $100k. |
To get back on track on the thread also, I have to agree with lordtrader's advice as well. In fact, many of the better CFPs don't touch "newbie" investors and instead target high net worth individuals anyways. I do have friends that are american express FP's (they recently changed names to something else), and that type of FP does work with everyone, mainly because they make commission from their products. Thre is enough information out there to spend a month researching your options. Also, I would recommend if you personally know someone wealthy, ask them how they got there and how they keep their wealth. |
and like the hair club for men, I'm not just the president I'm also a customer.  edited to say that I have no problem with Boze or anyone else for that matter (well, unless they steal from me or point a weapon at me, or call my mama a bad name). we can respectfully agree to disagree. I gave my advice, and it was not in context of saying anyone in specific was wrong. I did take exception to the personal flame at me, rather than an attempt at a productive and objective discussion, but I'm not in control of that so I don't worry. 
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Insurance has its purpose in financial planning and business management. As well as college planning. A Variable Life, Universal Life and Whole life gain cash value that can be accessed. An insurance trust can pay off estate taxes in time of death. A variable annuity is great for hiding money from uncle sam. It is also what I would call a super IRA. In that it has the same tax deferral laws as an IRA but is not limited to its contribution. I have used this vehicle with some clients that get large sums of cash up front and have no use for it, and with their portfolio allocation already set. I would not call it a scam. There are a lot of way to tweak an insurance product. But it is not for everyone. It is used for Wealth Managment. NOT Wealth Gathering. |
I apologize for the personal attack. Congratulations on acquiring your "agents" and accumulating $1B AUM. However, I won't state my credentials/designations/education/profession as that is meaningless here. And I'm not going to convince you of anything as obviously you totally believe what you're selling. Good for you, Mr. Agency. 1. I agree with this point except for the meat of it. Universal life insurance is life insurance. Even factoring in the tax advantages for life products, its guarantees (with or without investments/subaccounts) and death benefit inherently make it more expensive than a pure investment instrument/account offering no guarantees. You do not get something for nothing. 2. I agree mostly with your first few sentences EDIT: and the short education on how one could use the cash value in a permanent life policy. From then on you are selling...equity-indexed life products? Wow. You are hardcore and/or old school? Good luck, Z, I really do enjoy reading your diarrhea of words. Good day.  |
wow. thanks for the apology followed by more personal attacks. wonders never cease. a. You did not originate this post nor is this your forum, so I'm not sure what merit you have to steamroll others' posts in response to someone else. b. Have tolerance for others views, they may just have value to you one day. 100% Troll. Your feedback and communication have no positive value to add to this guy's post except to attack me, when I've never even met you. At the least I hope someone got some education out of all of our information to make an educated opinion for themselves. |