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Old May 13, 2015, 06:53 PM
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Default Re: Defining "Invest the difference"

Originally Posted by Rob Yaggie View Post

Thanks for your reply and I'm not arguing here either. There are many financial products out there and several (not all.... lol) have a valid use and audience. Maybe my issue with you classifying this as the worst advice could be differing definitions of "invest the difference". In my definition, anything not spent on the term insurance become available to the use in the rest of the plan (which could include an annuity or anything else you might be recommending). I just mentioned a few of my other choices (like company matched 401k) but not my entire financial plan (which I'm sure has some gaps as well).

So, how does term help me if I survive a heart attack? It doesn't because it is not designed to help in the least for that scenario and wasn't purchased to fill that gap. However, in an equally undesirable event (my death during a critical 20 year period of my income contribution to my dependents) it is an excellent affordable tool. This is just one of the many tools I use and doesn't mean I ignore the others.

Rob Yaggie

I absolutely understand you do not ignore the others. That is completely in the realm of a sound investment strategy. My remarks are general in nature so I probably should have made that clear.

The invest the difference is almost always meant to put that money in mutual funds. I won't go into the disadvantages this mode carries as baggage. When I was a stock broker I was a hustling fool. I interviewed, eyeball to eyeball, about 2000 people. Of those 2K only 20 had an actual personal financial management program.

We were expected, if the client wanted life insurance, to sell them term and take the difference between a whole life (this was in the 80's) premium and their term premium and put it into company owned mutual funds. Today that mantra is used to put investors into the mutual funds that pay the advisor the highest commission.

I can also prove that by the way. This means the poor sap who followed this erroneous advice was screwed. Here's the problem with the supposed investing of that difference. People don't do it or they do it for a very short period of time.

That defeats the purpose. Soooo, since there exists a product that relieves them of rationalizing away their difference investing, I say it is best they use that.

Here's a real life example. $400 per month for a person age 34 would produce a tax free annual amount of a little over 40K for the rest of their life. They would be insured, enjoy tax deferred growth and tax free income.

Plus if they had that heart attack they would have approximately 400K tax free cash they could use to pay their bills, chase women or men and pay for their health care. All the while their money pot continues to grow.

Let's say they took my advice and started the program. Anything over that $400 is available for stock, bond, mutual fund, ETF, REIT, etc. investing. They've eliminated almost all market risk plus insured themselves against any catastrophic health occurrence.

I will say it again so I am not taken as a my way or the highway bloviator. Do what you believe is right for you and your family. Period. The only one responsible for you is you. Anything I have to say should be considered in the context of what you think is best.

And, because I'm that kind of guy, I will say buy term invest the difference is the worst advice I've ever heard .

Have a great day.

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