Summary: Over the past year or so, we've been hit with this question quite a few times: If the market rally keeps up, how long before all the people who've been buying cash value life insurance as an alternative asset decide it's time to rush back into stocks? So, today we decided it was time to address it. Actually this is part 1 of a two part series that we'll be doing on this topic. The first part will focus exclusively on what the stock market rally and subsequently higher investment returns means for participating whole life insurance. Next week, we'll focus on how this all effects universal life insurance. I think what people are really asking us is --are we worried that a continued rise in the market will lead people away from purchasing cash value life insurance? No, we’re not concerned about this in the least. Why? Because the market doesn’t rise in a vacuum, if the market continues to accelerate we’ll likely see whole life insurance benefit as well. Huh? Yes that’s right. Even though participating whole life insurance is directly linked to the performance of the stock market, one cannot deny that market forces effect everything in our economy. That’s just a fact. So, in a rising market we’re likely to see every sort of investment/savings/asset benefit from the rise as it signals growth in the economy—at least over the long run. One certainly can’t pay attention to short term market fluctuations as any sort of indicator other than erratic human behavior. Also, let’s not forget the best reason for warehousing cash inside of a whole life insurance policy… Safety You will not see a decline in your cash value when the market takes a dip. Yes, it’s true that you won’t see a year that your dividend yield matches the return of the S&P 500 but we’d contend…you shouldn’t really compare the two. For years, it seems that too many advisors/agents have felt that selling whole life insurance meant they had to compete with other market type investments i.e. mutual funds, ETFs, stocks, real estate etc. We think that’s flawed logic. Indeed we’re big advocates of employing cash value life insurance as an asset. But there’s a devil in the details of that statement…I said “an asset” not “the asset”. No we don’t think you should have ALL of your money in cash value life insurance and there’s no right answer as to how much of your money you should have there. However, as things stand today in our world, we’re not aware of any other alternative that offers the degree of safety, liquidity and yield that rivals the cash value of your permanent life insurance policy. Is the Prosperity Train Back on Track? That’s hard to say, with every great rise comes a great decline or at least a consolidation where people begin to take money off the table. We always have to consider institutional investors, who are always under pressure to post ever higher returns to report to their existing clients and to bolster their marketing to new investors. These mutual funds, pensions, and hedge funds can move the market by making large buy/sell decisions at any time. Where do we think the market is headed…we don’t predict that sort of thing and we don’t sell securities of any kind. But we’ll share something with you that is interesting to see and let you reach your own conclusions. That is a five year snapshot of the SPY (and ETF that mirrors the S&P 500). I’ve highlighted and circled the value on Dec. 1, 2008 and you can clearly see the value as of this morning. "The four most dangerous words in investing are: 'this time it's different.” Sir John Templeton, legendary investor and philanthropist. So we’ll assume that all the financial pundits are correct and that investment returns do average out quite well over time. Our problem with this philosophy is—how much time? If you were 65 and planning on retiring in January 2009 the downturn in the market derailed that retirement plan of yours.
