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How do you save/invest your money?

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15 hours ago, SilentWorld said:

 

 

I'm surprised that you're pushing back so much on this (going as far as to call that other dude a liar). I thought it was common knowledge that insurance salesmen get paid on commission and are considered to be one step above used car salesmen (or below depending on who you're asking) . 

 

Here you go:

 

 

In general, whole life insurance is a TERRIBLE idea if there's any possibility you will cancel the policy in the short term (if you cancel in the short term there are significant fees that pretty much eat up the whole value of the policy)... pretty bad if you might cancel the policy in the medium term (if you cancel after 10 years, you'll basically get your principal back)... and borderline ok* if you 100% know you'll keep the policy for 20+ years.

 

The main benefits of a whole life policy are tax sheltered growth, and the fact that life insurance payouts are not subject to estate tax. So, for very wealthy people, whole life goes from being "borderline ok" to a pretty good idea. 

 

*Whole life is a bundled product -- life insurance PLUS an investment product. When I say it's borderline ok, what I mean is this: After 20 years, you'll end up with a cash value roughly about the same as if you had taken your premiums SUBTRACTED the premiums of a term 20 life insurance policy and invested the remainder in bonds. So... when I say it's borderline ok, that's ONLY true if you actually want/need life insurance. If you don't need/want it, then you'd be better off investing the cost of the premium elsewhere. My sister bought whole life on her freaking baby! What a stupid idea! Why does a baby need life insurance. 

 

Not everyone is a pure  life insurance agent. Some work as financial planners and some work as fee for consultation brokers. The latter still recommend whole life because it's a great part of a diversified portfolio. The reason I push back is because he said the commission came out of the product, which I have yet to see any evidence of. That's just disingenuous.

 

https://www.thebalance.com/stocks-vs-bonds-the-long-term-performance-data-416861

 

Anyway, here's a link talking about bonds. To say that bonds perform better than whole life even after using part of the bond to buy term is again a falsehood. Bonds perform very similarly yo whole life, but without an added death benefit to protect your family. 

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37 minutes ago, Jose said:

 

Not everyone is a pure  life insurance agent. Some work as financial planners and some work as fee for consultation brokers. The latter still recommend whole life because it's a great part of a diversified portfolio. The reason I push back is because he said the commission came out of the product, which I have yet to see any evidence of. That's just disingenuous.

 

I provided you a link saying exactly that, so I don’t know why you’re calling it “disingenuous.”

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I put 10% in company 401k and the rest in the market. The returns from the stock market bought me my house. If you are willing to put the time in, the market will give you the best returns. 

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49 minutes ago, Jose said:

 

https://www.thebalance.com/stocks-vs-bonds-the-long-term-performance-data-416861

 

Anyway, here's a link talking about bonds. To say that bonds perform better than whole life even after using part of the bond to buy term is again a falsehood. Bonds perform very similarly yo whole life, but without an added death benefit to protect your family. 

 

No. This is just wrong. 

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25 minutes ago, SilentWorld said:

 

No. This is just wrong. 

 

How?

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I buy as many shares of Yahoo that I can get my hands on.. it's going to make a comeback I believe it...

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If you are debt free and maxing out your 401k, the next step is indeed funding your Roth IRA. Income limits can be worked around with a backdoor Roth. Tax laws don't allow you to contribute to a Roth IRA if you are over certain income limits. However, you can contribute non deductible amounts to a traditional IRA. Once your money is in your traditional IRA (once again, do not deduct this amount on your 1040), you simply do a traditional to roth ira conversion. Nearly every broker has a standard form to do it. It's fairly easy. https://www.bogleheads.org/wiki/Backdoor_Roth_IRA

 

If you need the money for a car, you really shouldn't be putting it into an IRA or anything that is highly volatile. I would recommend you open a savings account at a bank such as Ally (or choose another competitive bank), which has a yield of 1.75% right now, and put the amount you want to set aside for your future car payments there. 


I don't recommend putting all your savings into a savings account though. I think you should only put an emergency fund together and future major expenses (such as a vehicle). Otherwise, you should be investing as much as you can in equities. An equity portfolio historically doubles every ~10 years (mind you with a huge amount of volatility and this isn't a guarantee). You are right to be concerned about the macro environment and valuations; however I believe it is a mistake to just sit it out. No one (or perhaps only a very lucky few) can accurately predict or market time. I thought the market was overvalued 2 years ago and I was wrong. The best thing to do is to just hold your nose and dive in and continue buying throughout the ups and downs as years go by. The future you will thank yourself immensely for the passive income and huge next egg you build over the years. 

https://www.bogleheads.org/wiki/Bogleheads®_investment_philosophy

https://www.bogleheads.org/wiki/Historical_and_expected_returns

https://personal.vanguard.com/us/FundsInvQuestionnaire -risk tolerance test

 

Invest in low cost index funds. Go anywhere from 60-80% domestic equities and 40-20% international. If you need more stability to help you sleep at night, throw a small percentage in a high interest savings account or buy a bond fund. An example of an index fund portfolio using ETFs could be as simple as:

 

70% VTI - U.S. equities

30% VXUS- International equities

 

or

 

65% VTI

25% VXUS

10% high interest savings/ BND

 

You can do this with low cost mutual funds, or other fund families besides Vanguard. For instance State Street Global Advisers (SPDR) through Ameritrade might look like:

 

SPTM 70% U.S.

SPDW 25% International Developed

SPEM 5%   Emerging Market International

 

 

 

 

 

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On 7/30/2018 at 7:39 PM, Jose said:

 

How?

 

The problem with Whole Life is that it is a long term low risk option. That doesn't make sense. If you need money in the short term, you should avoid risk as much as possible. If you need money in the long term, you want to find investments that have the best combination of most value and most risk.

 

If you had the option to go back to 2007 - right before the housing market collapse - and you could buy Whole Life, a 10 year bond, or buy S&P, the results would have been

 

1. Initial S&P 1500, drops down to 840 DISASTER, but now it's 2840. So you're about a 90% return in 10 years and you had the worst timing imaginable. Subtract some for term insurance if you need it, still ahead.

2. The 10 year bond in 2007 had a return rate of 1.04737, your investment would gain 58% in the 10 year period. Again, subtract some for term.

3. By 10 years all sources say that life insurance would yet to break even with term plus bonds.

 

But let's say in the recession you lost your job. The bonds investor would be happy, he could take his money out no problem to pay his expenses. The stock investor would get punished. Not only did his investment get destroyed, he then has to live on the remainder. But the life insurance is the worst of all. He loses everything he has invested in when he is unable to pay his fees. And you call that low risk?

 

Bonds are a great tool if you need money in the short term, the stock market is a great tool if you need money in the long term, and whole life insurance is a decent tool if you are a millionaire with illiquid assets and want to avoid taxes. For any other scenario it doesn't make sense.

 

 

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Whole life isnt meant to be a 10 year investment. Cherry picking stats to make your argument more favorable is disingenuous. 

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And it only gets worse after 10 years. How are you this dense? I'm done here.

 

Thanks for forcing me to work through this problem. Now I know exactly why WLI is terrible. Before this debate I only knew it was terrible but didn't know exactly why.

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It grows at a guaranteed 4% rate amd has always beat that number. Nothing similar to that exists.

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Also, I dont know of a single reputable mutual life insurance that would charge you a single fee for taking your money out at the 10 year mark. Plus, you could also take a loan out against your policy if you needed liquid money. You can pay it back at your own pace and have the security of knowing that your money would continue to grow untouched. With bonds or stocks, you have to remove the money and lose out on all potential growth.

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While not militantly opposed like @monkk , I do think whole life has a very limited place in a portfolio that 90% of people probably need not worry about. Life insurance in general is a very niche product that finance firms have tricked people into necessity.

 

I only have term life to cover my outstanding business debts so that my wife wouldn’t have to worry about debt service if the businesses to a turn south in my absence.

 

I think the typical middle class investor/saver doesn’t really need to worry much about such things, at most maybe a term life policy to pay off your mortgage if you’re the sole wage earner in the family.

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10 minutes ago, sblfilms said:

While not militantly opposed like @monkk , I do think whole life has a very limited place in a portfolio that 90% of people probably need not worry about. Life insurance in general is a very niche product that finance firms have tricked people into necessity.

 

I only have term life to cover my outstanding business debts so that my wife wouldn’t have to worry about debt service if the businesses to a turn south in my absence.

 

I think the typical middle class investor/saver doesn’t really need to worry much about such things, at most maybe a term life policy to pay off your mortgage if you’re the sole wage earner in the family.

 

That's kind of outdated thinking as I am told. Even when it comes to term, you should be able to provide more for your family in passing than to just pay off outstanding loans. This is assuming of course you are the sole wage earner and your kids are not adults yet. Generally with term,  you should have a policy with a death benefit that is 20 times your yearly salary or income.

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8 minutes ago, Jose said:

 

That's kind of outdated thinking as I am told. Even when it comes to term, you should be able to provide more for your family in passing than to just pay off outstanding loans. This is assuming of course you are the sole wage earner and your kids are not adults yet. Generally with term,  you should have a policy with a death benefit that is 20 times your yearly salary.

 

I would rather keep the additional premium and put it in other products, generally, though I wouldn’t rule out what you describe in all cases. Potential earnings power of the surviving spouse would need to factor in as well. 

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I mean I know you are a business owner and if you feel your spouse could manage your business in your stead, it becomes much less of a necessity. My comment was meant more for salaried employees.

 

 

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Until I'm a) married b) moved home c) hopefully qualified and employed as a teacher, I've accepted that any money I save will largely need to be used within a short time. 

 

Once I'm at the next stage of my life however, I will look to contribute roughly 10% into my pension pot and then take on additional summer work that will be split between holidays/credit card payments or into a separate saving account.

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I don’t want to get into the details, but I would emphasize equities over a whole life policy for long time horizons. Maybe a policy like that makes sense in certain scenarios, but I believe low cost indexing will beat whole life over any 20 year period which is what we are talking about with long term investing. 

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24 minutes ago, Massdriver said:

I don’t want to get into the details, but I would emphasize equities over a whole life policy for long time horizons. Maybe a policy like that makes sense in certain scenarios, but I believe low cost indexing will beat whole life over any 20 year period which is what we are talking about with long term investing. 

 

Agreed. Whole life isn't meant to nor should it compete with low cost index funds. People always want a portion of their funds to be in something guaranteed and liquid, though, which is where it serves its uses.

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