When you are investing or managing your wealth there are some basic tenants that bear repeating. Buy low, sell high is the obvious one. When interest rates rise, your bonds decrease in value is another to be mindful of. Absolute statements are another one to be aware of in that they rarely are true.
Be very weary of anyone opining on things financials when they make absolute statements. “Stocks always go up when this happens…” “The economy does better when this policy in in place…” Absolute statements, absent the fundamentals such as the inverse relationship between interest rates and bond prices, are usually not true and can get an investor into trouble.
For example, there have been recent cable ads run by a notable financial advisor that states categorically, “Annuities are bad, and my firm has a better alternative”. Now it is true that annuities are not for everyone, but that applies to virtually all investment products. No one product or service is meant for 100% of the populations use, however to emphatically state that a product that is many decades old, approved for sale by state regulators, with millions of families on record having been benefited by it, is a blatantly false statement.
Annuities are complicated products to be fair. But the reality is that there have been and are annuities whose payout amounts cannot be changed and in fact guarantee the recipient a fixed and dependable amount of income for the life the client. It is this feature that makes it appealing and one of the reasons why a growing number of financial academics are suggesting investors and financial advisors review annuities. In this time of low interest rates and growing longevity, it makes sense to evaluate such products.
What this advisor should be saying in his cable tv ad is “annuities MAY not be best for you and speak with us or your financial advisor to learn why”. The only way to determine if something is appropriate is to weigh it versus the alternatives and look at the pro’s and cons of both options for you, the investor. This is usually best done with the help of a licensed financial advisor, not an ad or talking head on cable.
Be wary of absolute statements in personal finance, regardless of who the messenger is. While the intent of the message may not be malicious, glib and absolute declarations may prevent an investor from seeking an option that could be ideal for them.
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