Page 25 - ARUBA TODAY

BUSINESS Tuesday 18 February 2020
A25

Liz Weston: Beware of these overhyped financial strategies

By LIZ WESTON of NerdWal- checks or a line of credit. life and variable life policies
let Borrowers don't have to are all types of cash-value
A good rule of thumb when make payments on the life insurance.) Sometimes
you're trying to eat healthy loan, which doesn't have the policies are promoted
is to beware of any food to be paid back until they as a tax-efficient way to
you see advertised. The die, sell or move. invest for high earners who
most beneficial fare — But borrowers don't always have maxed out their other
whole grains, fruits, vegeta- realize that their debt is retirement savings options,
bles — tends not to have a accruing monthly interest. says CFP Alex Caswell of
marketing budget. The amount they owe may San Francisco.
Similarly, investments that grow so high they no lon- But the premiums aren't de-
are enthusiastically pushed ger have any equity in their ductible, and the policies
by commission-earning homes, says Barbara Jones, tend to have high costs,
salespeople may not be an attorney with the AARP Caswell says. Many inves-
the best for your financial Foundation. tors have better alterna-
health. Before you buy any Reverse mortgages typical- tives, such as using a tax-ef-
of the following, you'd be ly aren't a good fit for peo- ficient investment strategy
smart to investigate low- ple who may need to rely in a regular brokerage ac-
er-cost alternatives and on their equity for future count, he says.
to consult an objective, expenses, such as medical Also, premiums for cash-
knowledgeable third party, bills or nursing home care. value policies tend to be
such as a fee-only financial Reverse mortgages could much higher than premi-
planner. be a way to avoid foreclo- ums for the same amount
EQUITY-INDEXED ANNUITIES sure if a homeowner can't of term insurance, which
Equity-indexed annuities afford to make payments has a death benefit but no
are insurance products on a regular mortgage, investment component.
that base their returns on Jones says. There may be The higher premiums can
stock market benchmarks. no equity left for their heirs, lead buyers to skimp on
They're often promoted as "but at least the person coverage or to drop the
a way to benefit from stock gets to age in place," Jones policy because it's too ex-
market gains while being says. pensive. And sometimes This undated file photo provided by NerdWallet shows Liz Weston,
protected from losses. NON-TRADED REAL ESTATE policies are sold to people a columnist for personal finance website NerdWallet.com.
But the contracts typically INVESTMENT TRUSTS who don't need life insur- Associated Press
limit how much investors Real estate investment ance at all, such as single
get when the stock market trusts allow people to invest people with no financial missions paid by cash-value better alternatives.
rises, says certified financial in commercial real estate dependents, says CFP Tess policies can lead insurance "If all you have is a ham-
planner Anthony Jones of without having to buy and Zigo of Lisle, Illinois. agents to recommend mer, everything looks like a
Groveport, Ohio. Two cli- manage the properties Zigo says the higher com- them even when there are nail," Zigo says.q
ents, who had purchased themselves. Most REITs are
equity-indexed annuities publicly traded so it's easy
before joining his firm, re- to buy and sell them.
ceived only a fraction of Non-traded REITs also invest
last year's 30% increase (as in real estate but are de-
measured by the Standard signed to reduce or elimi-
& Poor's 500 benchmark). nate taxes. The trade-off is
"They expected bigger re- that your money could be
turns in 2019 and were very locked up for years. Also,
disappointed," Jones says. non-traded REITS tend to
"They each had less than a have high upfront fees that
3% return." reduce the return on your
Equity-indexed annuities investment. "Non-traded
typically come with high REITs make my heart sink
commissions and surrender when I see them in a new
charges that can make client's portfolio," says CFP
it expensive to get your Jonathan P. Bednar of
money out, says CFP Scott Knoxville, Tennessee. "These
A. Bishop of Houston. The are very complex products,
contracts can be extreme- with high fees, and often-
ly complex, and many buy- times not the greatest-
ers don't understand what quality underlying holding."
they're getting, he says. Bednar prefers that clients
"They are not necessarily own investments they can
bad products, but they are easily sell if needed, such
really more like bond alter- as an exchange-traded
natives than stock alterna- fund that invests in real es-
tives," Bishop says. tate.
REVERSE MORTGAGES CASH-VALUE LIFE INSUR-
Reverse mortgages allow ANCE
homeowners 62 and older Cash-value life insurance
to convert some of their combines a death benefit
home equity into a lump with an investment compo-
sum, a series of monthly nent. (Whole life, universal