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Old 12-08-2018, 12:36 PM
 
Location: Philadelphia/South Jersey area
2,875 posts, read 1,404,432 times
Reputation: 10088

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Quote:
Originally Posted by NewbieHere View Post
Yeah, but salesman are pretty sketchy, they expect people to come and eat so they can rip them off. I have not even attended one free event, but I have no problem others who do.
Naw, I don't think they are that Machevillian. I've only been to the crash proof retirement ones. They do believe their "system " does what they claim. Which is to "protect your nest egg from market conditions ".
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Old 12-08-2018, 12:42 PM
 
71,584 posts, read 71,730,589 times
Reputation: 49179
well they actually do protect you . it is not just a claim . if you read my instructions above for doing your own , your principal is in fixed income with a guaranteed interest rate .

your money less the interest goes in the fixed income investment . so principal is guaranteed you can say . they then take what is left over from your money and buy options . but the amount of options they can buy is low and you get no dividends with options . so the returns are better then the cd in up markets but not by much \ most years
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Old 12-08-2018, 12:44 PM
 
Location: SoCal
13,228 posts, read 6,331,374 times
Reputation: 9844
You can do the same thing I guess,why bother.
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Old 12-08-2018, 12:46 PM
 
71,584 posts, read 71,730,589 times
Reputation: 49179
the problem is when rates are low there is little interest to buy options with on your own . there is just not much to work with for individuals , that is why i stopped .

but insurers have mortality credits and policy option money coming in so they can still have more money then us to buy the needed options .

we need 5-6% to make it worthwhile . insurers need 1/2 that to make it work .
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Old 12-08-2018, 12:51 PM
 
Location: San Diego CA
4,868 posts, read 3,383,810 times
Reputation: 7769
I've probably been to maybe 6 to 7 of these dinners over the years on both coasts. I can only recall one that offered a decent meal. Steak dinner, dessert and wine. The others were in the back of the restaurant on folding tables elbow to elbow. Invariably the dinner was variations of chicken and mashed potatoes. Had to watch a presentation of course but never succumbed to any of the sales pitches.
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Old 12-08-2018, 12:57 PM
 
Location: Philadelphia/South Jersey area
2,875 posts, read 1,404,432 times
Reputation: 10088
Quote:
Originally Posted by NewbieHere View Post
You can do the same thing I guess,why bother.
Remember though that not everyone on the planet gets into investing. People say stuff like "just put it into a vanguard fund" and don't "worry". Like it's the easy answer.
My dad for example does not know about stocks, does not trust wall street and has no desire TO trust them. He has two annuities and a pension along with social security. For him that works.
Many people aren't going to do it themselves. We see that with 401ks also. Employees want the plans that are year specific even if it comes with higher fees. They pick a date and set it and forget it. Many did not use the option to pick your own investment.
I don't go to those dinners but i do know many happy campers with the products
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Old 12-08-2018, 12:59 PM
 
71,584 posts, read 71,730,589 times
Reputation: 49179
if you read my directions i posted , you can see it definitely is not easy to do on your own even if rates are higher . you need to not only know about invesing , you need to be good with options trading too .


Quote:
Originally Posted by mathjak107 View Post
here is how to do your own , i found my old instructions from many years ago . the numbers are different of course now .



How to replicate an equity-indexed annuity (EIA)

--------------------------------------------------------------------------------

A word of caution:

This is not intended to be investment advice. Everything described herein has significant risks, including, but not limited to market risk, default risk, tax risk, the possibility that you will screw up the trades, etc. Please consult your advisor and/or due your own due diligence before making any investment whatsoever..

What is an EIA?

An EIA is an insurance contract that theoretically offers the buyer the opportunity to participate (to some extent) in equity market performance while guaranteeing a minimum payout at the end of the policy guarantee period. The extent to which the buyer participates in equity market performance typically varies year to year as does the minimum guaranteed crediting rate (AKA interest rate paid on the policy). This has proven to be a tantalizing pitch for many conservative investors. The problems with these policies are that you have little control over how much you participate in the equity market; the policies typically have high early surrender fees and very lengthy surrender periods (10+ years is not uncommon); the internal expenses of these policies are quite high; you are exposed to insolvency of the issuer; the participation is typically limited to price changes in an equity index, with no compensation for dividends on the index; the participation in the index is capped at a predetermined level so that really big gains are truncated within the annuity structure; and the tax treatment of eventual distributions may be less than optimal.

How you can “roll your own” EIA, part 1:

By far, the simplest way to set up an EIA is to do it in an uncapped version. The simplest uncapped replication portfolio consists of a 1 year fixed income investment (such as a CD) and a call option on whatever equity index ETF you want exposure to. So let us assume you can buy a 1 year CD that yields (APY) 4%, you want exposure to the S&P 500, you have $100,000 to invest, and you want a minimum yield of 1%. To replicate an EIA, you would buy the following:

CD: You want $101k in a year, so you invest $101,000/1.04 = $97,115 in a 1 year 4% yield CD. In a year, the CD matures and you get $101,000, which is your desired minimum payout.

Options: Your CD purchase leaves you with $100,000 - $97,115 = $2,885. You take this amount and buy at the money 1 year call options on the S&P 500 index ETF (ETF symbol SPY). At the money means that the option exercise price is about equal to whatever the ETF sells for today. So with SPY trading at $137.93 as I write this in April 2008, we wish to buy April 2009 calls with a strike of $138. Such a thing doesn’t exist, so we will settle for the closest month we can get, which is March 2009. March 2009 calls (Symbol SFBCH) sell for $12 each and must be bought in contracts on 100 shares each, so you want to buy $2885/$1200 = 2.4 contracts, but must buy 2 contracts for $2400.

So you end up with a CD that will pay $101,000 in a year, $485 in cash, and options on 200 shares of SPY struck at 138. The options cover a notional amount of $138 X 200 = $27,600, so your “participation rate” in the index is 27,600/100,000 = 27.6%, meaning that you catch 27.6% of the appreciation of the S&P 500 through next March while bearing none of the downside. When the options are about to mature, you can sell them for cash, assuming the market has gone up and they are worth anything. Otherwise, you collect your $101,000 from the CD, have your $485 plus whatever interest it generated, and decide if you want to play this game again for another year.


Rolling your own, part 2:

Instead of having a small, uncapped participation in the index, you could have a larger participation but cap it at a given level. This is essentially what is done inside the EIA contract sold by most insurers. To replicate the EIA, you would buy the same CD as in the above example. However, the options portion would include:

1) Buy the at the money options on the index as in the above example
2) Sell out of the money options for the same expiration date and underlying ETF.

An example will be helpful:

Lets assume that you would be willing to cap your upside in return for a higher participation rate. That means you want to buy call options at the money ($138 strike) and sell call options at a strike that is about 10% higher ($152 strike). The $152 strike options currently trade for about $5.50 a share. So we buy:

4 contracts of the at the money options (SFBCH) for 400X12 = $4800

And we sell:

4 contracts of the 10% higher strike $152 (symbol SYHCV) and receive cash of $400X5.50 = $2,200.

Total out of pocket for the options is $4,800 - $2,200 = $2,600.

So you end up with a portfolio that consists of a CD that will pay you $101,000 in a year, $285 in leftover cash, and a package of options that gives you up to 10% of the upside on 400 X $138 = $55,200 worth of the S&P 500 index. Note that by capping your potential upside you have increased your participation rate to $55.2% of your $100,000, or double the uncapped version.


About taxes:

If this is done in a taxable account, the CD interest will be taxable and so will the gains or losses on the options. In this case, you would want to set up the portfolio for at least 1 year and 1 day to qualify for long term cap gains on the options. So instead of buying a 1 year CD, perhaps you would buy an 18 month CD and options that expired in 18 months. Inside an IRA or other tax sheltered account this would be of no concern, but your broker may not allow you to set up the capped EIA replication inside an IRA.

Other odds & ends:

- I have ignored transaction costs here. The CD should cost you nothing. Most discount brokers will charge less that $20 for an option trade.
- Brokers generally require customers to apply for approval before they can trade options.
- Note that you can buy options on any index you like that has an ETF with options traded.
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Old 12-08-2018, 01:22 PM
 
Location: northern New England
2,450 posts, read 1,065,316 times
Reputation: 9552
Quote:
Originally Posted by Midpack View Post
If you go to a free steak dinner with ZERO intention of buying the sellers product, you’re just as sketchy as the seller - you deserve each other. Integrity and self respect are scarcer commodities these days. But to each his/her own, not worth debating.

And if the salesperson is irritated once they find you showed up with zero interest in what they’re selling, I don’t blame them for being ‘displeased.’
So if you were walking down the street and someone offered you $10 to come into their shoe store and look at the merch, you would say no thanks, I don't need shoes?


We had this type discussion with a timeshare salesman once. My reply, if your product is so crappy you have to bribe people to listen to your sales pitch, OH WELL.
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Old 12-08-2018, 01:38 PM
 
Location: Chicagoland
1,802 posts, read 1,653,735 times
Reputation: 1640
Quote:
Originally Posted by mathjak107 View Post
we were in charleston and got suckered in to not a time share presentation but a travel club one . they made you turn off your phones so you can't google them .

then they try to peddle this crap for thousands .
Yeah, we fell for a timeshare presentation when we were younger, won't ever make that mistake. The young lady started her pitch and we weren't buying. She kept trying, and her sales manager came in and loudly berated her in front of us. Not sure what the point of that was, he didn't turn his venom on us - maybe he thought we'd feel sorry for her and buy?
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Old 12-08-2018, 01:44 PM
 
Location: Chicagoland
1,802 posts, read 1,653,735 times
Reputation: 1640
Quote:
Originally Posted by VTsnowbird View Post
So if you were walking down the street and someone offered you $10 to come into their shoe store and look at the merch, you would say no thanks, I don't need shoes?
I sure would. Do you think the shoe store just wants to hand out $10 bills for fun? Almost nothing is really free in this world. The salesperson has a right to make a living. If you listen to their pitch and you're open to it, and decide against it, fine you got a free steak dinner, $10 or whatever - no harm, no foul. But if you've already decided you have zero interest and aren't buying before you even sign up (as several peeps have admitted here), you have zero integrity and zero self respect. And for those who then complain about how they were treated, or the quality of the meal - seriously?

Are you OK with people knowingly, deliberately wasting your time and money in your line of work? And then bragging about when they got a free dinner off you?
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