This past summer, I worked summer school at one of the high schools in my school district. Just like at my school, there was an opportunity to get a free meal from a financial advisor. I normally avoid the teachers lounge on these days, because I like to avoid the awkward conversations. This time, I was interested to hear what they had to say. I took this as an opportunity to listen to the message and report back to my readers. Plus, I was interested to learn more about TRS.
As an educator in Texas, I am required to invest 7.7% of my income into a pension fund called TRS (Teacher Retirement System of Texas). This account sends out a yearly statement. So, I have been able to keep tabs on the money in the pension fund that I have accumulated, but I still didn't know as much as I needed to know. I set up this appointment to specifically talk about TRS and estimates if I wanted to retire early.
This is exactly how the meeting began and the advisor from National Life Group was very knowledgeable about the TRS. He gave me an estimate of the account in ten years and discussed my options. I could either pull it out in a lump sum and roll the money into an IRA or I could take monthly payments for the rest of my life from TRS. It was interesting learning this information and I thought the agent did a good job of answering my questions.
The meeting was going so well, but then it took a turn for the worse. He started to push Whole Life Insurance and Universal Life Insurance. He pushed it so hard that he threw out a completely bogus line about the stock market and showed me a completely bogus graph. You can find my crappy sketch of this graph below.
Prior to showing me this graph, we were talking about my wife and I's net worth and how it has grown a lot over the course of 3 years of marriage. I had mentioned that we invest in the market and he told me a story about a friend of his who invested in the stock market. This friend was always nervous about whether the stock market was going to go up or down. His friend was a day trader (I assume) and worried about the ups and downs of the market. This guy had no idea that I was not a day trader, but instead I am a long term investor and I don't worry about the ups and downs of the market. He was trying to push me away from the market, because it is 'scary.' Of course, right after telling that doom and gloom story about the stress of investing in the market, he showed the graph above.
As you will notice in this graph, the stock market does worse than any other category on the graph. This graph is a complete lie and is a business ploy to try to scare people away from investing in the market and push people into investing in Whole Life and Universal Life insurance products. After the meeting, I did some research and found a calculator on Bankrate.com. The image of the graph below is the results of investing $10,000 in an S&P 500 index fund, which mirror's the S&P 500.
So, the graph that the Universal Life agent showed me, stated that investing $10,000 in the market would have got you no where from 1970 to 2040, whereas the bankrate calculator shows that the actual returns from 1970 to 2013 would have given you a little more than 732 thousand dollars. Also, notice that the Universal Life account would have only earned you $10,000 dollars over the course of those years. Only earning $10,000 in an account, will not help you for retirement. Twenty thousand dollars is not enough to live on in retirement and you should not be investing in these types of accounts. The graph presented by the agent is meant to show you that the market is scary and unpredictable, therefore invest in the steady accounts of Universal Life insurance. Some people will fall for this scare tactic, because they are scared about the stock market. They won't even look at the numbers, but instead they will just sign the papers, because they feel like they are investing in a safe investment. I hope this is not you.
As I continue to grow and evolve in my financial walk, I like to learn and meet with people to see where they stand. You have to be strong in your position and your plan. We have a strong plan of investing in mutual funds that have long historical track records of gains at around 8-11% on average per year. These funds will sometimes produce less than 11% and sometimes they will earn more than 11%. You have to be willing to ride the low and high points of the stock market. You have to trust your plan and not be scared into investing in investments that earn 4% every year. That's what these companies push, a consistent earnings rate no matter how the market reacts. That can sound good, especially in 2008, but look at how the market has recovered since. Anyone who sold in 2008, lost a lot of money. Anyone who continued to follow their plan and stay invested in the market have earned back the money they lost and then some.
I personally think that you should be wary of any financial professional trying to scare you into any investment. Don't be afraid to go get more information after meeting with any financial professional. It is always good to take time, research and make a good choice that you are comfortable with. I am more comfortable with risky investments, because they give more reward over the long run. Some people would not be as comfortable with risky investments. Just remember that we are talking about personal finance and you should be comfortable with everything that you invest in financially.