Bob Brinker MoneyTalk Commentary 3/22/08-3/23/08

Bill Flanagan took over this week. It was amazing to see the types of calls coming in these days and shows a lot about investor confidence. An inordinate amount of people are worried about CDs and brokerages. Even those with insured CDs are getting skittish. At the same time, the fixed income crowd is getting worried about their return dropping, due to the lowering of interest rates, and wondering how to get a better return "safely". Obviously there is no real way to remain at the same level of risk and get a better return, unless you were in some really bad investments.

I think the rest of the show was about his dislike of annuities, which I can't disagree with, but he never really gives the callers a chance to explain the specific terms and quickly shoots it down. I think it would be more effective to spend more time and go through the specifics to show why these are not as good as they seem. The subject probably deserves a series of posts, but the short of why annuities are no good:

• high expenses
• low returns
• fixed returns, rarely stay fixed
• high surrender charges
• main purpose is to provide tax advantages, which is of no use if bought within a 401k or IRA
• surrender charges on early withdrawals
• usually combines life insurance with investing, which is not synergistic
• pushed very hard by sales to the uninformed looking for safe investments because of the high commissions

One interesting call was for someone looking to transfer his 8,000 shares up AT&T into a more diversified mutual fund that had similar dividend payouts. Presumably this was because it made up a very large protion of his portfolio. This touches on a common misconception that you need income producing stocks to use the proceeds for expenses or to live off of in retirement. Bob Brinker tries to correct this point quite often, but Bill didn't mention it at all during this call. There really is no reason to limit yourself to dividend funds. You can just as easily sell positions periodically to generate the same income. So you can invest in growth stocks or index funds, both of which have low distributions (which makes them tax efficient), and still get the income you need by selling that 4% per year or withdrawing monthly. I think it must be more of a psychological issue to sell the stocks because it feels like you are losing something forever, but actually it doesn't matter how you pull the money out of your account, whether it is from dividends or capital gains.