Student Comment: Can I Buy Insurance That Invests in Index Funds, Grows, and Does Not Lose Principal?
The reply warns against insurance products that promise index-linked growth with principal protection, arguing that low long-term returns are the real risk.
[Student comment] Can I buy insurance that invests in index funds, grows, and does not lose principal? Easy Investment Chat CLEC Investment Channel. Post date: May 24, 2020
Reply:
Do not buy the insurance product you mentioned. Indexes rise over the long term, so why rely on them to guarantee the bottom? Your upside is capped. This kind of financial product has a very low investment return: low risk, low return. In fact, low long-term return is high risk.
If this product were so good, why would other investment banks, hedge funds, and fund companies not buy it?
Do not talk about returns for any insurance product. Low long-term return is the biggest risk.
Do not buy insurance. Do not buy insurance. Do not buy insurance. Otherwise, over the long term, you will definitely regret it.
This is the painful lesson I have seen from everyone who bought insurance in the past. Whether it is the insurance you described or any other dazzling insurance product, the return is low and the risk is extremely high. No return is the highest risk. You pay for a lifetime, and they do not even give you interest, let alone principal. Do not repeat the mistakes others made in the past.
The devil is in the details. You cannot fully understand the real substance of this product, and they will not let you understand its risks. When you begin to receive payments, you may discover it is completely different from what you imagined. By then, your whole life is finished.
Even if you bought at the 2000 peak and went through the 2000 and 2008 bubbles, it has still grown 1.55 times so far. You can refer to the image in the 05/19/2020 post. $3 million would have grown to $4.65 million. Annualized return is 4.8%, plus 1% dividends, so annualized return is 5.8%.
So even with the worst buying timing and the worst 20-year market, you would still make a lot of money.
So do not keep thinking about other very stable investments. This is the pure market return that gives you the safest and highest return.
Do not think too much about taxes before investing. If you have $1 million and invest in an index with 10% annualized return, after 20 years you will have $6.72 million. Even after deducting 40% tax, you still have $4.03 million. If you try to avoid tax and your return is only 5%, after 20 years your assets will be only $2.65 million. Think about one being more than $4 million and the other being more than $2 million. Which is more worthwhile?
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