Close Friend who Came into Some Money

[cowgoesMoO]

I have a friend of the family that just came into some money 300K+

late 50's. risk averse. my first thoughts on recommendations were an indexed annuities. Since, I could care less about making a commission on my friend. I began to think about what I would do with it.

While I am younger and would be more inclined to under go a higher risk/reward situation. Would it not be better for my friend to just follow the basic index annuity chassis on their own volition?

e.g. directly invest 95% into municipal bonds and 5% into 1 yr call options on an index. and just re-asses annually. Essentially eliminating surrender charges and other fees from the insurance company for buying said indexed annuity.

Thoughts?

 

[scagnt83]

I have a friend of the family that just came into some money 300K+

late 50's. risk averse. my first thoughts on recommendations were an indexed annuities. Since, I could care less about making a commission on my friend. I began to think about what I would do with it.

While I am younger and would be more inclined to under go a higher risk/reward situation. Would it not be better for my friend to just follow the basic index annuity chassis on their own volition?

e.g. directly invest 95% into municipal bonds and 5% into 1 yr call options on an index. and just re-asses annually. Essentially eliminating surrender charges and other fees from the insurance company for buying said indexed annuity.

Thoughts?

Carriers invest mainly in Treasuries, then after that AAA corporate bonds.

Your idea is full of risk and would still create what would amount to a surrender charge (via directly investing in bonds... they arent liquid).
Then options are even more complex than Bonds are.

The best thing about the annuity is that you are transferring all of that risk to the insurance carrier.


Unless your friend is an expert in Bond trading, AND an expert in Equity Options it is imo a horrible idea. The insurance carrier has teams of experts to make the behind the scenes investments work.

Also, be very careful making securities recommendations when you are not a registered rep... because if you told him what you posted here you would be wrong... he could file a complaint, and you could face a fine by the state securities regulator and possibly even have your insurance license suspended or face a fine from the DOI too.

 

[DHK]

I have not read this article in its entirety... but this may help:

ProducersWeb - Life - Are caps and floors in IULs realistic? If so, why can't I do it myself?

 

[cowgoesMoO]

That article explained a lot. It was a bit confusing but I got the jist of it. Insurance companies have buying power because of their huge "general accounts".

The average investor with a couple hundred thousand couldn't come close to getting the same guarantees that the insurance carrier is getting.

And this was just a personal thought. That article was basically the answer to my exact question. I only claim to be an expert in health and life insurance, not anything else.

 

[scagnt83]

I only claim to be an expert in health and life insurance, not anything else.

I wasnt trying to say you were. Just to be careful even when giving a friend suggestions. The line between personal & professional can get blurred real quick when there are large amounts of money involved and its years after the fact.

 

[pfg1]

Annuity certainly could be a good option. If he is insurable and has a need for LI or wants tax free cash flow to supplement retirement, I would certainly entertain looking at part of the $ into a max funded PLI contract.

 

[cowgoesMoO]

Annuity certainly could be a good option. If he is insurable and has a need for LI or wants tax free cash flow to supplement retirement, I would certainly entertain looking at part of the $ into a max funded PLI contract.

he has a term product with a decent face value. This was one of my other thoughts. maybe max fund a IUL or WL plan. I really don't care about making any money off of this, and my friend knows that life insurance is my main squeeze, and I know that he would preceive this idea in the wrong way. That I was trying to "sell" him something, eventhough he is in good health and I know that I could design a plan that worked out really well and provided a nice stream of income.

The idea of putting his money into an account for a few years that grows interest makes a lot more sense to him.

I am certainly open to recommendations for annuity products. my internal for annuities sent me some info an ATHENE 5yr FIA. It uses 1 yr ptp S&P with a 3.5% spread. I liked it for the most part, but I wonder if we could do better on the spread.....

 

[pfg1]

he has a term product with a decent face value. This was one of my other thoughts. maybe max fund a IUL or WL plan. I really don't care about making any money off of this, and my friend knows that life insurance is my main squeeze, and I know that he would preceive this idea in the wrong way. That I was trying to "sell" him something, eventhough he is in good health and I know that I could design a plan that worked out really well and provided a nice stream of income.

The idea of putting his money into an account for a few years that grows interest makes a lot more sense to him.

I am certainly open to recommendations for annuity products. my internal for annuities sent me some info an ATHENE 5yr FIA. It uses 1 yr ptp S&P with a 3.5% spread. I liked it for the most part, but I wonder if we could do better on the spread.....

Well since he has term ins - that will run out at some point. I would educate him on the benefits associated with a max funded PLI policy... they far outnumber an annuity. A split between the two would probably do him well.

 

[moonlightandmargaritas]

e.g. directly invest 95% into municipal bonds and 5% into 1 yr call options on an index. and just re-asses annually. Essentially eliminating surrender charges and other fees from the insurance company for buying said indexed annuity.

Thoughts?

Many feel that bonds (including muni's) are best owned in a mutual fund, because of the built in diversification. Vanguard has some fine no load funds that come with very low expenses as well.

 

[MW Agent]

Many feel that bonds (including muni's) are best owned in a mutual fund, because of the built in diversification. Vanguard has some fine no load funds that come with very low expenses as well.

Many also feel that owning a bond fund may force liquidation of holdings at a loss if interest rates go up. The manager is forced to sell at a loss to meet redemption requests. By owning specific bonds, you can at least hold to maturity. Bullet share ETF'S and UITs can provide diversity with the ability to hold to maturity. Not intended as investment advice. General comment only.