Not too long ago, I was on an investment panel at the Bogleheads conference where another panelist implied I am motivated by hate mail from the insurance industry. I don’t enjoy receiving hate mail, but I do view it as a sign that my columns in the media are opening a dialogue, albeit at times insulting and hostile.
But there’s no amount of trolling that will cause me to shy away from my positions.
Here’s a sampling of those unflattering comments:
- Even a baboon knows better than you
- You’re a loser too
- You’re uneducable
- Remove this article now or I’ll sue you!
The cause of my hate mail can be divided into two categories – I’m harming a planner’s ability to make money (the first two examples); or I’m pointing out a hole in a “can’t miss/get rich” scheme for the investor (the other two). Those topics are the four biggest hate mail generators.
Insurance investments (a.k.a. “permanent” insurance)
Easily in first place is mixing insurance with investing. That includes fixed-indexed annuities (rebranded from equity-indexed annuities), various universal-life policies, whole-life and even some fixed annuities like SPIAs. I’ve even had a regulatory complaint brought against me by an agent who didn’t like one of my articles. It was dismissed.
Insurance companies can invest in the same types of investments as other institutions and individuals, which is why I consistently advise using insurance companies to buy insurance and separating insurance from investing. That’s so consumers don’t have to pay for the unnecessary intermediaries, also known as the insurance companies and agents (a.k.a. brokers).
I point out flaws and misleading statements from the insurance industry to try and help consumers, though I also understand I’m hurting agents’ ability to make more commissions and I understand they have families to support as well. It isn’t my purpose to hurt the agents but rather a consequence. In fact, I even had a very large insurance company send three executives to my home town to educate me. When I asked six questions about their fixed-indexed annuities, things went south fast and their responses weren’t that much different than my hate mail from insurance agents.
Paying off the mortgage
A mortgage is the opposite of a bond. When you buy a bond, you are lending money and getting interest and hopefully your principal back. The mortgagor is paying interest and the principal back and that happens irrespective of whether the house value increases or declines, making paying it down risk-free. It makes no sense to borrow money at a higher rate than can be earned through other, risk-free investments. That’s why, for many years, I’ve been telling advisors to tell clients to pay down the mortgage, assuming they have enough liquidity.
The new tax law makes this even more compelling. State and local tax deductions (SALT) are now capped at $10,000 a year and the standard deduction is now at $24,000 for married filing jointly. Thus the next $14,000 of interest deductions above that may be providing no tax benefit, depending upon other deductions such as charitable contributions. Yet the client is paying income taxes on their interest from taxable bonds and perhaps even the 3.8% investment income tax as well.
But advisors lose out with this advice since they have fewer assets to charge on, whether it be a fee-only, AUM or commission-based model. I’ve had conversations with brilliant advisors who didn’t accept the simple logic that, after taxes, you don’t want to borrow money at higher rate than your ultra-low risk bonds. Why didn’t they grasp this simple logic? Perhaps Upton Sinclair explained it best when he famously said “It is difficult to get a man to understand something when his salary depends on his not understanding it.”
Gold
Gold will soon hit $3,500 an ounce. With discredited fiat currencies, fiscal irresponsibility and imminent hyperinflation, gold is a sure thing.
That was the argument in article in 1980 and is the same argument I hear every time gold has a short-term surge. I was foolishly persuaded by that argument in 1980 and learned a $373,000 investment lesson. Yet some people continue to put most of their net worth in gold. Every time it surges, I write a warning reminding others that though gold historically only keeps up with inflation and its gains are taxed at a higher rate than other investments, which qualify for the long-term capital gains tax.
I chalk up the hate mail for this investment to confirmation bias. When someone has made a large bet on a can’t-miss investment that will make them rich, they react angrily when the flaw in their so-called logic is pointed out. It’s not enough to avoid reading the article; many need to take the time to tell me what an idiot they think I am.
Bitcoin
Bitcoin and other crypto-currencies may be the new gold. I was asked about it enough that I finally did some research for an article about whether bitcoin belongs in your portfolio. Because I knew so little about it, I felt like I needed to buy a little, just to factcheck how it is bought.
In the article, I noted I had a bit more respect for bitcoin than before since it really does disintermediate the bank and there is a limit on the amount of bitcoin that will ever be in circulation, unlike fiat currencies. For example, even when I buy something from the nation’s largest retailer, Amazon, I get 2% cash back from my credit card, so I know they are charging Amazon more than that. With bitcoin, the transaction fee could be a dime, making transactions far more efficient.
Well, within a few months after buying a measly $200 of bitcoin, I saw my tiny investment go up four-fold and my brain on bitcoin wanted me to buy more. Had I instead invested $200,000 in 2010, I’d be worth $56 billion, I calculated. But I warned that bitcoin would likely be worth nothing in a decade as, even though cryptocurrencies solve problems, who knew which of the more than a thousand cryptocurrencies, if any, would prevail. Would bitcoin be the next Facebook or Myspace. Should I launch Rothcoin?
Though bitcoin eventually came back to Earth, while it was still surging I was told that I was stuck in the old economy and myopic. Curiously, I was also chastised by others for even forking over $200 for bitcoin in what they knew was a bubble.
Lessons from hate mail
I understand the sentiments behind my hate mail. Sure, I might feel differently about these investments if it was the only way to provide for my family. Though I don’t feel good about the possibility that I may be negatively impacting someone’s income, it is an unfortunate consequence of trying to help consumers.
When it comes to investing, consumers are at the mercy of their emotional responses. Jason Zweig’s book, Your Money and Your Brain, points out that our brain fires the same neurons when we think we are going to make a fortune as when a cocaine addict is about to get his next fix. When I take away that promised fix I expect to get the nastiest hate mail.
Allan Roth is the founder of Wealth Logic, LLC, a Colorado-based fee-only registered investment advisor. He has been working in the investment world with 25 years of corporate finance. Allan has served as corporate finance officer of two multi-billion dollar companies, and consulted with many others while at McKinsey & Company.
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