Changed thinkingArticle added by Karlan Tucker on December 3, 2009
Karlan Tucker

Karlan Tucker

Littleton, CO

Joined: August 18, 2006

My Company

Tucker Advisors

Our world changed in October 2007, when both the real estate market and the stock market plummeted together.

For most of our lifetime, Americans have been able to be irresponsible with their income and not pay a price for it. When the credit card debt became more than they could bear, most simply took out a second mortgage on their homes to tap into the new equity the rising real estate market had provided. The other option was to borrow against their 401(k), since the stock market was also rising.

A new era began when neither the home nor the market accounts offered a solution for Americans accustomed to living beyond their means. As reality set in, Americans went from a negative savings rate in 2008, to saving 6 percent of their income in 2009. This represents a huge shift in thinking.

That isn't the only thinking that has changed. According to Bill Gross, CEO of Pimco, America's largest bond fund manager, "Americans will shift from risk to thrift for at least a generation."

People are becoming more uncertain about the viability of the stock market as a place that has the sustainable horsepower to actually make more than much safer alternatives over the long haul alternatives such as treasury bonds that a recent study showed has outperformed the S&P 500 for the past 40 years.

Other studies, like the Real World Index Annuity Returns Study from the Wharton School of Business, show that since the inception of fixed indexed annuities in 1995, most FIAs have outperformed the S&P 500, money markets, McCann's 50/50 portfolio made up of 50 percent bonds and 50 percent stocks, as well as Vanguard's S&P 500 fund, a stock mutual fund.

The chart from this study is shown below and summarizes the returns from January 1995 to January 2009. In this study, Professor David F. Babbel of the Wharton School of Business found that most fixed indexed annuities outperformed the strategies listed in the chart below, not in a year here or there, but every year since 1995.

We have been taught our entire lives that to make a good return you have to take risk. Well, as you can see, that is no longer true. I repeat a quote from John Maynard Keynes to my clients quite often: "When the facts change, I change my mind. What do you do [sir]?" I love this new information with which I am closing many new sales that I may not have otherwise had.

In 2010, with more liberal guidelines for Roth IRAs and with the threat of much higher taxes as a result of America's massive debt spending, people are re-thinking whether deferring the taxes until later is such a good idea. You can no longer count on being in a lower tax bracket when you retire. Since it makes sense to pay the taxes on the seed instead of on the crop, many are changing their thinking here as well. I am encouraging my clients to characterize their fixed indexed annuities as Roths whenever possible. Instead of fighting the new thinking, I am embracing it, with greater sales as a result.

It is likely that if you have a position in the market, you have been told that "buy and hold" is the strategy you must stick with, since in the short run the market is volatile, but over longer periods of time you will make money. With the events we all have lived through in the market since 1990, we have learned a new reality. You can hold for a long time and have nothing to show for it. Take, for example, the Dow, which was at 7,487 on November 13, 1997 and again at 7,486 on March 18, 2009, almost 12 years later. I tell people the good news is that it only lost one point. The bad news is you may not even have what you put in 12 years ago, let alone any gain. Today, prospects are becoming my clients because they are not willing to lose another decade to a volatile market and have nothing to show for it. This also is changed thinking.

In the past, many have thought that a flight to safety also meant a flight to throwing in the towel -- giving up on their dreams, not being able to keep pace with inflation, which would mean an eroding lifestyle. Perhaps it even meant that they could not generate the income their household needed to live comfortably. With the powerful FIA products you and I offer and with studies like the one prepared by the Wharton School of Business, we can show that moving your nest egg to an FIA is not throwing in the towel. In fact, let me list for you what it does mean. It means that our clients no longer have market volatility in their nest eggs. It means they can sleep at night because their principal is safe. For the first time, our clients can lock in interest without market timing on an annual basis and without triggering a taxable event. They can have the appropriate liquidity to allow for emergencies and annual income without prematurely depleting their nest eggs. With the new income riders, they can create an income stream that will never run out. Moshe Milevsky had it right when he said, "Stop thinking about how to beat the market and start thinking about an income you can't outlive."

Lessons learned in the market have changed many people's thinking and with that, the fixed indexed annuity fits better than ever before into what many now know is true. Use the recent events in the stock market, real estate market and changes in tax laws to assist you in selling more. I do.

1Forbes, January 12, 2009
2"Bonds: Why Bother?" by Robert Arnott,, April 20, 2009
3Money Magazine, October 2008
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