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WE BUY ALL KINDS of investments and financial products. But what is it that you haven’t bought, do you have a good reason for not buying—or is there a gaping hole in your finances?
Below are some of the investments and financial products I’ve chosen not to own. The list, of course, isn’t comprehensive—and I didn’t bother to touch on financial products that are beyond the pale. Equity-indexed annuities, anyone? How about leveraged exchange-traded funds? Yeah, I didn’t think so.
Savings bonds. I’ve never bought a savings bond—though I once won a $75 EE bond, since cashed in, for finishing second in a local 5K. Series I bonds have enjoyed a heap of buzz over the past year or so. But I haven’t joined the buying stampede. Simply matching inflation or earning slightly more doesn’t strike me as terribly compelling, especially given the restrictions on buying and selling savings bonds, as well as the need to set up a TreasuryDirect account.
Longer-term bonds. When I covered mutual funds for Forbes magazine, I remember a Neuberger Berman bond manager telling me that, with five-year bonds, you get most of the yield of longer-term bonds with a fraction of the risk. That insight has always stayed with me, and it’s one reason I keep almost all my bond-market money in short-term government bond funds.
High-yield “junk” bonds. At various times, I’ve owned junk-bond funds, but I’ve come to view them as an unhappy compromise between stocks and bonds. When junk bonds are on sale—meaning they offer a hefty yield premium over Treasury bonds—stocks are typically also in the tank, and the latter should deliver much better performance when there are glimmers of economic improvement and markets come roaring back.
Municipal bonds. A dozen years ago, I owned a muni fund, which I sold to buy an apartment. I never repurchased the fund. Why not? Instead of owning munis in a taxable account, it strikes me as smarter to buy higher-yielding taxable bonds in my IRA, while using my taxable account to own stock-index funds. What if I suddenly need cash and it’s a bad time to sell stocks? It’s easy enough to sidestep that problem, as you can learn here.
Foreign bonds. I’ve never liked the idea of owning foreign bonds because you introduce currency fluctuations into the conservative part of a portfolio. What if the bonds are currency hedged? The folks at Vanguard Group believe hedged foreign bonds add portfolio diversification and, indeed, such bonds make up a small but significant part of the firm’s target-date funds. I’m not inclined to argue with Vanguard. Still, in the name of simplicity, I don’t own an international bond fund—hedged or unhedged—and I’m not sure I’m missing much.
Individual stocks. Over my lifetime, I’ve owned a dozen individual stocks, but only two in the past two decades—both were shares of my employer—and I haven’t owned any individual stocks since 2014. Those dozen stocks were enough to teach me I have no ability to pick market winners. That’s why all my stock-market money is in index funds. Indeed, I think my only investment superpower—other than a willingness to buy fearlessly when the stock market plunges—is my enduring humility about my own investment abilities.
Immediate fixed annuities. I intend to delay claiming Social Security until age 70, so I get the largest possible monthly check. But I’d like some additional guaranteed lifetime income on top of that, which is why I plan to sink some money into immediate fixed annuities. But I don’t need that income right now—I still earn enough to cover my living expenses—so I’ve held off buying. That means I should get more income when I do finally pull the trigger.
Deferred income annuities. Also known as longevity insurance, I think deferred income annuities are an intriguing idea. The notion: You pony up money at, say, age 65 to lock in a stream of income that starts at perhaps age 85. This can be a relatively low-cost way to hedge against the risk of a surprisingly long life. Still, I prefer the idea of getting income from the get-go, which would then allow me to keep less money in bonds and more in stocks, and that’s why I favor immediate-fixed annuities.
Gold. I think gold stocks have the potential to be a good diversifier for the broad stock market, with the chance to earn a performance bonus by rebalancing between the two. That’s why I owned Vanguard’s precious metals fund for a few years. But Vanguard kept changing the fund’s investment objective, so I dumped the fund and no longer bother with precious metals. Among folks I admire who still like gold stocks, their favored fund is VanEck Gold Miners ETF (symbol: GDX).
Commodities. Two decades ago, there was much buzz about commodity futures, which had delivered long-run returns that rivaled stocks but whose performance was uncorrelated with either the stock or bond market. I briefly owned a commodity fund in my 401(k), but quickly concluded that past performance was a rotten guide to the future and I dumped the fund—which was just as well. The iShares S&P GSCI Commodity-Indexed Trust (GSG) sports a -5.1% average annual return since its 2006 launch.
Real estate investment trusts. I owned a U.S. and an international REIT fund for many years, but I ditched both funds in 2020. Interest rates had reached rock-bottom levels and I figured any rise in rates would hurt REITs, which many folks buy for their yield. On top of that, I was on a campaign to simplify my portfolio, and I figured my total U.S. and international stock market index funds already gave me some REIT exposure.
Rental properties. Like many folks, I’ve toyed with buying rental properties. Who doesn’t like the idea of owning an asset that seems to scream stability and permanence? But I’ve never followed through—because I didn’t want to take on extra debt, deal with the hassles of another home and face the possibility that tenants might trash the place.
Long-term-care insurance. At age 60, if I were to buy LTC insurance, now is the time. But I’m confident I have enough saved to pay LTC costs out of pocket. On top of that, I hear too many horror stories about insurers both jacking up premiums and denying claims. As I mentioned in an earlier article, I have no desire to end up in any form of senior housing, let alone a nursing home. But if my thinking changes as I grow older, I’d lean toward a continuing care retirement community, a form of risk-pooling that strikes me as preferable to LTC insurance.
Life insurance. When my youngest child was perhaps seven or eight years old, I realized I had enough socked away to cover both kids’ expenses through college graduation. That’s when I dropped my term-life insurance. What about cash-value life insurance instead? Despite the praise heaped on these policies by self-interested insurance salespeople, I see scant reason to buy a cash-value policy. If you need life-insurance coverage, you’ll likely fare far better if you buy a term policy and then stash the premium savings, relative to cash-value insurance, in a retirement account.
Disability insurance. When I left my last fulltime job nine years ago, I lost my employer-provided disability coverage and didn’t bother replacing it with an individual policy. As with dropping my life insurance and avoiding LTC coverage, it all came down to my nest egg’s size: I figured that, if I never earned another dime, I’d have enough to cover my living costs for the rest of my life.
Flood insurance. In 2021, a year after I moved to Philadelphia, the Schuylkill River overflowed its banks and flooded some nearby homes. My nonagenarian neighbor, who has lived in the area her entire life, said the river had also badly flooded in the 1970s but, on that occasion, the water also didn’t reach our street. Still, in this era of climate change and extreme weather, I’m a tad concerned—and my to-do list includes calling Travelers to find out what it would cost to add flood insurance to my homeowner’s policy.
Powers of attorney. Okay, this doesn’t really count as a financial product. But I’m embarrassed to say I haven’t drawn up either a health-care or a financial power of attorney. With this admission, I’m hoping to shame myself into action. I do have an up-to-date will, the correct beneficiary designations on all retirement accounts and a letter of last instruction. But the powers of attorney are missing. Feel free to throw rotten tomatoes.
Jonathan Clements is the founder and editor of HumbleDollar. Follow him on Twitter @ClementsMoney and on Facebook, and check out his earlier articles.
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In my opinion, the way to buy annuities is not to buy immediate annuities or the extreme where the deferred annuities payout is delayed to something like age 85(unless someone has a life situation that deems this option to be appropriate). For someone who is going to wait for SS until age 70, the idea should be to possibly buy the annuity at an age 3 to 5 years prior to proposed payout period rather than an immediate annuity. Prior to buying either, it is best to analyze the payout of buying the immediate vs deferred option to see which gives larger payout. Remember, that in a situation like yours, it is not likely that the funds paid out to insurance co will likely not be needed during the deferred period(3-5 yrs). Balance the lost earnings of the premium $ paid out of your retirement savings balance vs the possible additional $ that could possibly be earned on a monthly basis from a deferred annuity rather than an immediate annuity.
It is best to buy a LTC insurance from a state LTC partnership program. Since I bought mine, the increase in cost over a 15 yr plus period has increased at less than 3% average rate per year plus I get a 20% state tax credit on premiums paid. To date my policy is currently worth $.5M.
So, what do you invest in? Do you keep 10 to 15 investments that provide alternative income streams, different investment classes?
You can read a description of my portfolio here:
https://humbledollar.com/money-guide/my-story-how-i-position-my-portfolio/
Perhaps there could be a followup article someday on tackling POA or related tasks for those not fortunate enough to have responsible, caring adult children or close family/friends they feel will act in the person’s best interests?
Many face this dilemma. Do they resign themselves to no solution and just hope they pass away quickly – or are there any viable options to protect themselves?
A CCRC can offer daily custodial and medical care, but there’s still the question of financial management + regular welfare visits/checking on CCRC to ensure no abuse, etc.
Let me add my two cents worth about flood insurance. Everybody knows about a black swan event. I lived in Houston for 25 years and always carried flood insurance. My house was above, not the 100 year flood plain, but above the 500 year flood plain. So many times, although the insurance was cheap, I felt rather silly keeping the policy. Until Harvey visited the town. Actually, Harvey didn’t flood me, the Army Corps of Engineers did. They released water in stages from a reservoir about 6 miles away. The fourth of six releases put 6 inches of water in my home. So my $300 policy finally paid off to the tune of about $250,000. Just saying
’!
I can’t tell you how grateful I am to my mom for getting her POAs done (I’m near certain your family will feel the same).
Of course it worked out to avoid long term bonds last year, but you missed out on 40 years of capital gains from 1981 to last year.