Put Your Money Where Your Mouth Is
January 24, 2012 by Michael Ham
By Michael Ham
January 23, 2012
News Flash: The big investment houses on Wall Street
and the mega no-load investment shops are all rapidly jumping into your pool of
insurance products (namely, index annuities) and quickly adapting their
proposals to include products with living income benefits.
Paul Revere I am not, but the Red Coats are coming!
With annual point to point cap rates on index annuities hovering near 2.5 percent
and fixed annuity yields not any better, it’s time to step up, lead the pack
and put your money where your mouth is. Meager returns on fixed and indexed
annuities are leading investors to have a wider perspective of alternative
places to invest. Hopefully, you are not solely recommending index annuities
primarily as a place to stash cash or hoard money…but instead as an investment
for future retirees, (baby boomers, Gen X and Y) to conservatively grow their
assets to produce a future income stream.
Advisors and agents who have relied solely upon insured or guaranteed products also need
to adapt a broader perspective of the investment spectrum and offer up to their
clients and prospects an unbiased, professional long-term strategy and advice
on how to build their portfolio.
Obviously, the “world” has realized what insurance professionals have known all along‑not
going backwards in one’s investments is a superb way to amass wealth. Offering
these insurance-based products is a path to generating a nice living and
career. Although the “win by not losing” mantra has worked well the past 12
years, pragmatism is the key to longevity and uber-success in this business.
An intelligent agent or advisor wouldn’t recommend an annuity issued from a
subpar, non-profitable carrier. And looking at the past few tumultuous years in
the financial industry, those insurance carriers that have survived and
prospered are emerging stronger than before. Ergo, if you love the insurance
carriers’ products and your clients love their products…you and your clients
should own a piece of the carrier, right?
As I write this article, Aviva PLC (NYSE Symbol: AV‑yes, the Aviva that is a leader
in the annuity and life industry) pays a dividend on their common stock that
yields near 8 percent annually. Wow, that will turn a few heads. Is the
dividend insured? No. Is stock ownership “safe?” Who knows? They’re certainly not
as “stable” or predictable in the short term as an annuity. But, what better
way of proving your commitment and smarts to your clients (and those pesky Wall
Street gurus who think insurance folks are sophomoric and unsophisticated in
their asset allocations and investment acumen) than to own a piece of the rock
(so to speak).
I am not suggesting that you as an advisor or rep recommend to the public to buy
equities. I am not recommending to you, the professional, that you purchase
stocks either. My goal is to enlighten the licensed professionals who read this
to the opportunities of voting with your knowledge, experience, education and
checkbook to support what you represent and stand for as an investment
professional. A “portion” of almost anyone’s portfolio should include ownership
of an asset that has proven to outpace inflation over the long haul.
And here’s the kicker: In addition to being “enlightened”
about the ownership potential in something that you believe in and possibly buy
or utilize often, check out the whopping dividend yields currently offered up
by “Mr. Market” (see Warren Buffett’s description on “him”) on other good and
service providers. Do you use an Iphone or Blackberry, desire a Swiss bank
account or marvel at how many people (especially overseas) still use tobacco
products, have high blood pressure or need a boost in the male libido
department or need Tylenol for a headache?
Then team up with AT&T or Verizon, Credit Suisse, Phillip Morris (aka Altria),
Bristol Myers or Pfizer or Johnson & Johnson? Do you buy diapers, tissues
or toilet paper; feed your children cereal, Mac and Cheese or a Big Mac, use
toothpaste or a computer other than an Apple; drink diet cola, or send
parcels/letters overnight via Big Brown? Then maybe owning a piece of Kimberly
Clark, Kellogg, Kraft Foods, McDonalds, Proctor & Gamble, Microsoft, Coca
Cola and UPS may make sense for the uninsured portion of your portfolio.
Every one of these aforementioned classic American enterprises are all paying more
than 3 percent in their dividends, and have been paying dividends for eons of
time. Better yet, over time dividends have typically increased. Do you know too
that you can automatically have the dividends reinvested with the company for
free? Just stop and think about how much wealth you could amass and pass to
your family and heirs by starting a dividend reinvestment program (DRIP) with
blue-chip, high-quality companies.
I won’t blow your mind with how many things you probably buy or own that General
Electric or Dow Chemical had a hand in manufacturing. Guess what? Their
dividend yields both exceed 3 percent. And not only do these companies have
multi-international exposure (no need to buy riskier China or India stocks) you
get relatively stable income and practically no currency risk. Note: Aviva and
Credit Suisse will have special income tax treatment since they are
foreign-based companies (see ADR, or American depositary receipt) and as
always, do your own homework before buying anything. And then put your money
where your mouth is…And diversify.
Michael Ham is an investment advisor but does not intend this to be an offer or
solicitation to buy or sell securities. This information is not intended for
“public use” and only for licensed investment professionals. Investments in
publically traded securities have no insurance or guaranteed feature and can
lose substantial portions of your money. Do not invest without seeking the
guidance of a professional investment advisor.
