The Trade

Article headline image. Paul Truesdell on

Posted in  Fixed Annuities, Social Security Haircut, Pensions, Safety

This morning I was listening to an audiobook about the history of Germany. The author wrote, "...the people traded freedom for security." The context was the implementation of German Social Security under Bismark, which at the time was far beyond anything any other country had at the time. I stopped the audiobook, poured a cup of coffee, and sat down this Thanksgiving morning with a MacBook Pro to capture those six keywords: The people traded freedom for security.

This is a profound problem with mankind. Not only do investors trade freedom for security, but so too do the elderly, young, parents, and busy business owners. Who has time to do something half-way when that something is pretty darn important? It is logical, and entirely understandable, that a bit of freedom is given up to have safety and stability. We did this lock-stock-and-barrel after the highly unusual plane-based attacks on September 11, 2001. I could opine for hours about the unconstitutional powers given to the Chief Justice of the United States Supreme Court, the President of the United States, key oversight members of the Senate and House of Representatives, and for that matter, everyone who carries a badge with arrest authority. But in times of concern, fear, and outright terror, based on fact or fiction, the reality at the moment is in the mind of the beholder and rash actions often take years, decades, and lifetimes to correct.

From a pure investment point of view, continue with me as I walk through the brier patch of Social Security, defined benefit pensions, and qualified savings schemes.

"To get something, you have to give something." I have spoken these eight words on many occasions. In the 80s, 90s, and 00s, I was a prolific public speaker, and upon reflection, I dare say that those eight words were spoken in front of fifty to seventy thousand people many, many times. The eight words would often be followed by these: "However, all things being equal, those who pay less have more." Now that makes sense. It's simple, and it works. From that combination of words, I would launch into why complex bundled financial schemes were mere ploys to line the pockets of the Wall Street Shysters with gold, silver, and diamonds. In essence, I have long campaigned, railed, lectured, and served as an expert witness on class actions and individual suits, about the evils of high-cost variable annuities, equity index annuities, and non-traded real estate investment trusts. These schemes, along with many others that I will not get into in this writing, are designed to pull the wool over the eyes of many gullible investors, seeking security in exchange for freedom.

Now let's go back to September 11, 2001. A day that many of us will not forget. A day that I was supposed to have died. Yes, that was the day I should have been killed while attending a conference in New York City with the Oppenheimer Group in the World Trade Center. Yeah, that's getting pretty real, isn't it? But a few months earlier, I chose to attend by satellite via an ancillary conference at the World Trade Center in New Orleans and take the family on a mini-vacation. Sidebar: There many "World Trade Centers." The number in the United States alone often surprises those I speak with when it comes up in conversation. All trade centers are organized through a little-known organization called "World Trade Centers Association," whose sole purpose is to facilitate world trade. Now back to the story. Yes, I lived and continue to be me because of luck. We could just as easily take in a play in New York City rather than Bourbon Street in New Orleans. But choices have consequences. Some things in life you can control and others you have no control over, what-so-ever.

Let's tie this together and connect the dots. Do what you like, are good and profitable at, and can control. If you are a client or have met me, you've read and heard these words repeatedly. If you are going to give up control, it damn sure better be worth it. Especially if the thing you are giving up control over is important to you, and money is one of those "pretty darn important" things in life.

  • Participation in Social Security is required, and you are forced to give up control over your money in exchange for the possibility of a retirement income.
  • Participation in an employer-based defined benefit pension plan is required, and you are forced to give up control over your money in exchange for the possibility of a retirement income. Note: "Possibility" refers to the fact that when you die, and you have not elected a spousal survivor benefit, or if your spouse has died, your pension stops at your death; which may occur before the pension begins.
  • Giving money to an insurance company in exchange for outrageously high commissions and ongoing costs that can easily reach 3.5% to 5% each year, in exchange for a weak sister promise is not good. A weak sister promise is one where the promise made carries such a low risk while the premium being charged is so high, that the only winner in the exchange is the insurance company. That is what most living and death benefit riders are when attached to many annuity contracts, are, "weak sisters."

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Like the Germans under Bismark and Americans under Roosevelt with Social Security, the Americans under Bush with Homeland Security, and Obama with Health Care, or with variable annuities, equity index annuities, pensions, or whatever a Wall Street or Political Shyster is pitching today, merely ask yourself this question:

How much freedom am I giving up, for what, and at what cost?

Give thanks this day for the ability to think, and...

Think about it.

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