[quote=NASD Newbie]

[quote=Philo Kvetch]Oh, and one more thing…pay no heed to NASD Newbie. He knows nothing, and frequently proves it.[/quote]

OK Philo, why don’t you instruct the assembled on how an Indexed Equity Annuity is going to work.

I’ll tell you what, just correct my thinking.

I deposit $100,000 which is reduced to $93,000 by the sales charge.

I am in an indexed annuity with, let’s say, an 80% participation.

Let’s suppose the index drops 15% this year. Since I am only an 80% participant my portfolio will only drop by 80% of 15% or 12%–so my $93,000 is now $81,840.

The next year the index rises by 10% but since I’m only an 80% participant my increse is only 8%–so now my $81,840 is $88,387.

We could do this mental masturbation for a number of years, but the reality is that because of the huge 7% juice taken right off the top, plus the annual invasion of principal for fees of various sorts, and the only really good deal about these things is that the sales weasel gets 7% off the top.

Where am I wrong–especially with the weasel part?

Whaddya bet they’re sold buy guys who take the market action from September of 1982 to September of 1987, smear some grape jelly on the dates, seal the chart in plastic and talk about “…this is what would have happened in a recent five year period…”

[quote=bankrep1]

2. you're wife hates you
3. you're broke so you can't afford to leave your house and do anything fun

[/quote]

One of those you're is correct.  Which one is it, moron?  Are you so dumb that you can't even use them in the same time frame and realize the mistake?

[quote=NASD Newbie]

[quote=babloony]

"If you are going to bitch about this product, you might want to actually know a little bit about it."

[/quote]

When you are in a college class if the professor asks you to explain something do you assume he doesn't know?

Yes. If, during the lectures, he is using examples that clearly indicate that he really doesn't understand the function or rational behind the topic in which he is trying to present himself as an expert.

Or would you think of it as a way to get the student to discuss it so that the discussion can be disected into right and wrong components?

I would if the professor would actually shut up once in a while and listen with an open mind.    No offense.  We can all learn from each other here.  I really appreciate the threads on the option strategies

I would think all 3 are correct

[quote=babbling looney]

When you are in a college class if the professor asks you to explain something do you assume he doesn't know?

Yes. If, during the lectures, he is using examples that clearly indicate that he really doesn't understand the function or rational behind the topic in which he is trying to present himself as an expert.

[/quote]

Who presented themselves as an expert.  Certainly not me.  I tossed up an illustration and invited people to point out where I was wrong.

Somebody did that in a civil manner, and they get a grade of A+.  You did it in a less civil manner and you get a B -.

The resident genius--"Earnings always go up"--gets an F.  Not only did he not explain it, he has never explained anything.

And then there's Philo--so consumed with envy that he cannot see straight.  He gets a "Withdrew Failing."

[quote=babbling looney]

Or would you think of it as a way to get the student to discuss it so that the discussion can be disected into right and wrong components?

I would if the professor would actually shut up once in a while and listen with an open mind.    No offense.  We can all learn from each other here.  I really appreciate the threads on the option strategies

[/quote]

I am all ears when it comes to this annuity stuff.  I have never claimed to be an expert at it and it's all been introduced since my days when it would have been important to know.

Now tell me again why I would want an investment that I have to hold for ten years, that invovles a 10% chop, that is probably going to underperform just about everything that is available.

Oh, because it's guaranteed.  I get it--just like if I keep my checkbook in my pocket and walk out of your office.

Do you people really consider yourselves to be worth your fees when all you do is fixate on guarantees that are so low that your clients will never be able to retire?

"Earnings always go up" said last night that he is going to not get an account because the guy realizes that he needs to compound at a better than 8% clip.

That is not available now--but it might be in a year or two.  Meanwhile in a frenzy to screw your clients you shove them into annuities of various sizes and shapes by focusing on two things--a pathetic guarantee and the biggest juice available to you.

If you lock my money up for ten years, and I"m 55 years old now how in the hell am I going to be able to take advantage of greater opportunities later.

Why not save the annuities until they are really too good to turn down, instead of being the only thing you can sell sombody that promises to give them their money back?

If you were your client would you buy your line of bullschidt?

I don't sell EIAs. I said that in my previouse snarky post. They suck. I have a couple of clients who own them from previous brokers, and they are a pain in the butt to explain every year when they get their statements.  You don't want to own one.

I've already told you there isn't a commission deduction. No chop. At least in the ones that I know about. Your illustration is so incorrect and your assumptions obvious that you do not understand this product at all. 

Understanding it doesn't mean I like it either, however. In fact by understanding it correctly and being able to explain how it works, I am better able to talk someone out of buying an EIA that was presented by Joe Plaid the insurance salesman.

You will forgive me if I conclude that if the salesman makes 10% of my investment I am going to be paying it in a lower rate of return.

Something to do with no free lunch.

NASD



When you consider the insurance company is going to have your money for 10-20 years it’s really not that much.



If you look at a 5 year EIA the commissions are 4-5%

[quote=NASD Newbie]

You will forgive me if I conclude that if the salesman makes 10% of my investment I am going to be paying it in a lower rate of return.

Something to do with no free lunch.

[/quote]

Well... of course.  But that isn't the same thing as a sales charge up front, or a chop in value of your initial investment.  I explain that the reason you are not getting the full market performance in an EIA is that the insurance company is buying puts and calls on the index.  They really aren't investing the the actual index underlying securities.  All this trading is costly and that is why you don't get the actual performance.  If the index earns 15% you don't get that. You get whatever the negotiated spread or participation is.     The insurance companies make out like bandits when the market is good and when the market is bad they don't do as well. 

Who really makes the big  money in an EIA......doh....the insurance company of course.  Why else did they manufacture such an animal.

You also get a lower rate of return than the actual performance of the securities in a mutual fund too.  Somebody has to get paid for all of the management etc.  No free lunch anywhere!

Newbie,

It is very obvious you don't know anything about indexed annuities or our business. Why don't you get off this board? You don't belong here. Go some place else. You're not wanted here. You're an A$$. That's the bottom line.

I second that

[quote=babbling looney]

You also get a lower rate of return than the actual performance of the securities in a mutual fund too.  Somebody has to get paid for all of the management etc.  No free lunch anywhere!

[/quote]

Buy 500 Google at 403.50                  - 201,750
Write 5 Jan 08 460 calls at 62         &nbs p; +  31,000
Buy 5 Jan 08 400 puts at 56         &nbs p;   -   28,000
Commissions        & nbsp;         & nbsp;         & nbsp;      -      &nbsp ;100
Net Investment        &n bsp;         &n bsp;         &n bsp;-  198,850

The cost per share is $397.70

The worst case scenario is you sell the 500 shares for 200,000 by exercising the puts, minus a $40 commission--so there is no possible loss and the minium gain is $1,110.

The maximum profit occurs if the stock is higher than 460 and you sell it for $460--or 230,000 minus a commission of $40--so the maximum gain is 31,110.

How much would $198,000 be worth in a variable annuity if the client wants to get out after 17 months?

But what about percentages?

OK, $31,110 is only 15% of the initial investment of 198,850 and it will take roughly 17 months to realize it--so on an annual basis the maximum gain is approximately 11%

What is the maximum annual percentage gain in an EIA?

How about this line of thinking.

Since there is no risk why not use margin?  If you do the cash required drops to only $97,875--but you will have to pay about 8,000 in margin interest over the next 17 months.

So your 1,110 minimum profit becomes a maximum loss of about $7,000 or roughly 7% over the 17 months or 5% per year.  Not as good as no risk, but not the end of the world either.  This trade will return a minimum of about $91,000 at the 17th month.  What would be the guaranteed value of $97,000 stuck in a VA at the 17th month?

On the positive side the $31,110 maximum gain is reduced to about $23,000 by the margin interest.  That is roughly 23% over 17 months or about 16.5% annualized.

What is the maximum one can realistically expect from a mutual fund, much less an annuity with all the penalties, in only 17 months?

Why in the world would you allow a client to tie up $100,000 for 17 months for a $50 commission and no trails?  You won't.

How would you like to have a plaintiff's attorney take you through a series of questions designed to ask why you did not have your client's best interest at heart?

"Why did you choose to lock Mr. Johnson's money into a product that had massive surrender charges rather than invest in such a way that a worst case would be that he would recoup about 93% of his investment in only 17 months?

"When rates of return are low, as they were in the summer of 2006 did it not make sense to avoid at all cost investing in such a way that Mr. Johnson could not gain access to his money for years without signficant penalties?

"Is it not true that the reason you made the recommendations that you did to Mr. Johnson is because your earnings on what you did sell him was in the thousands of dollars, while if you had made the recommendation Mr. NASD Newbie has shown you would have resulted in no more than $50 in commissions.

"Is that not the real truth to this whole sordid affair?  You put your greed ahead of my client's best interest?  Is that not true????

"Gentlemen of the panel.  I respectfully request that you award my client return of their principal, plus 10% interest, plus $25,000,000 for mental anguish and as a way of sending a message to securities sales people everywhere than they must focus on their clients instead of themselves.

"Thank you.  We rest."

whats hapeens if GOOG gaps down to $300 share after missing earnings..?

"offer market returns with no market risk"

I can't believe that nobody beat up on Lakers for the above quote. 

The quote is patently false and he won't stay in business if he ever puts that in writing.  

EIAs are a fixed annuity and there is no reason to expect one to perform better than a traditional fixed annuity.  They are only appropriate for the client who wants a fixed annuity, but would like the chance to possibly earn more than a traditional fixed annuity.  However, there is no reason to expect an EIA to outperform any other fixed annuity.  An EIA can't legally be talk about as an investment.  One cannot invest in an EIA.  An EIA can be used as a savings vehicle.

NASD, you seem to know a lot about many subjects, but not annuities.  ( FYI from a different thread:  VAs with living benefits can be invested 100% in equities and still have the guarantee.)

[quote=Rugby]

whats hapeens if GOOG gaps down to $300 share after missing earnings..?

[/quote]

You sell it for $400 per share because you own a put option.  If you have not studied for Series 7 that is a fair question--if you have you should be so ashamed that you go sit in the garage with the car running but the garage door closed.

Stock goes to $300 scenario is:



500 shares of google at $300 = 150,000      -51,750

Premium collected for writing call         &n bsp;+31,000

Cost of Puts & Commissions        & nbsp;         & nbsp;         & nbsp;    -28,100



Value of put option                           +50,000



Net result                                      +1,150



NASD,



Option strategies such as this do offer low risk opportunities, however, the chance it will be worth 2,000 or the minimum is pretty good.



$2000 is a 1% gain over 17 months. Why did you not just buy a CD & use the interest to purchase calls (your own EIA), you would probably make more money than you would with the above strategy.

Good question, bankrep.

The answer, of course, is that when all you have is a hammer, everything looks like a nail.

Put has made some money on GOOG over the last months, so he is now the world's leading authority on options.

Pathetic, actually.  But not uncommon for someone with his nature to resent his betters.

[quote=bankrep1]
Why did you not just buy a CD & use the interest to purchase calls (your own EIA), you would probably make more money than you would with the above strategy.

[/quote]

Because there is no larger sucker bet than buying both puts and calls--straddles.

Because 80% of options buyers lose at least some money.

The reason to buy the stock is because if it doesn't move you still have the stock and can do the strategy again.  Adjust the parameters and hit the max gain the next time.

I ask again. How much would $100,000 put into a Variable Annuity be worth if I wanted to take it out at the 17th month?

What penalties would I suffer?

Is the point of being a finanical advisor to recommend the most suitable investment choice for the client, or to maxmize the fees and commissisons?

I didn’t say straddles I said buy calls with the interest again and again and again. You cannot lose money my strategy. It is exactly the same thing the insurance company does.



As far as the VA goes that depends on if you do an A share, B share, C share etc. It also depends on the performance of the investment you selected. If you might touch the money within a year or two, I would put you in a C share annuity (No CDSC), does that answer your question.