The most dangerous books are those with a lot of truths mixed with a lot of falsehoods. The ironically named newly published “Debunkery” is one of those books. Let me focus on just Chapter 16 for which I have particular abhorrence because it contains so much false information that should have been easily researched. The chapter deals with Equity Indexed Annuities (EIAs) which I love.
1. Annuities are a tough sale “(that’s why they pay such big commissions to salespeople!)” he chortles. “Big” compared to what? Yes, EIAs are such a tough sale that Wall Street lost over $60 billion to them in the last two years. If Ken Fisher manages your money over a ten year period you will pay him far more in commissions. Far more. And you will pay it whether you gain or lose. And his commissions will come out of your money, not his company’s. This is not only a false argument, it is irrelevant. The key is, do EIAs deliver anything important? $60 billion dollars think so.
2. The account value of EIAs “fluctuates up and down with the market like any other investment, albeit with much higher fees”. TOTALLY FALSE! Your account value can never go backwards unless you make withdrawals. I’ll say it again: Your account value can never go backwards unless you make withdrawals. Which drives stock brokers like Ken Fisher crazy because they cannot make such a promise.
3. The best EIAs offer guaranteed lifetime income. This is true. But Fisher goes on to say, “The income base doesn’t really apply unless you decide to surrender ownership of the account in return for regular distributions . . .” Well actually it really does apply. And you DO NOT SURRENDER OWNERSHIP OF THE ACCOUNT! That was true maybe ten years ago Kenny.
4. “Participate in the stock market’s upside with no downside risk!” This is sort of true. But actually you participate in a market index such as the S&P 500 or Russell 2000. And yes, returns are “capped” or participation rates are limited. But this fact is never “hidden in the details”. Never. EIAs are not intended to compete with the gambler’s greed that drives the stock market, they are intended to protect people FROM the market.
5. Finally, Ken goes on to describe a “very wretched” tactic of EIAs: not including dividends in the S&P 500 index performance. Well don’t blame the annuity, blame the index which of course does not include dividends because it tracks only stock values. To get dividends you have to actually own the stocks in the index. EIAs don’t put your money in stocks. That’s why they are safe!
Well, it was fun to debunk at least this one chapter. But this is the most self-serving book of lies I’ve read in a long time.