SUMMARY OF THE POSTING
: I've taken a first stab at creating a general purpose Monte Carlo modeler for comparing Fixed Index Annuities to combinations of stock and bond mutual funds.WHAT I'M SEEKING
A few folks willing to Beta test the program. Must be knowledgeable with Excel programming.
A few folks willing to improve the approach I've taken to to generate random monthly returns on the S&P 500 and the Dow Jones Industrials price indices.
A few folks willing to check to see if there are Fixed Index Annuity schemes that I haven't yet incorporated in the modeler.IF THESE DON'T DESCRIBE YOU?
Nothing more to read here. Move along to the next posting!
As Bogleheads we take great pride in being "data driven" in our analysis of financial investments. Reading this forum over the last several years I have been exposed to numerous excellent studies substantiating the long term superiority of low-cost index mutual funds. This has supplied me with great "ammunition" for discussions with brokerage sales agents.
As many of you are aware, the primary financial product being sold today by Insurance Producers is the Fixed Index Annuity
(aka Equity Indexed Annuity
). It has always struck me, though, that whenever posting streams on Fixed Index Annuities appear here, the argument comes down to something like, "smart people have analyzed them, they're complicated, and they're a bad investment
." But can't we do something more
What if we could produce a program that would allow a Boglehead with reasonable financial and Excel skills to quickly analyse an arbitrary Fixed Index Annuity, quantitatively compare it to a combination of stock and bond index mutual funds, and allow them to show friends the financial drawbacks of the index annuity? We should have done this years ago
(And maybe someone has! Please let me know, if so!
)So I've taken a stab at this problem
. After my most recent request to consider purchasing a fixed index annuity (the Bonus Gold from American Equity Investment Life Insurance Company), I created a general purpose Monte Carlo modeling program (in Excel) for index annuites. It has these features:
- Handles the S&P 500 and the Dow Jones Industrial price indices
-Contract terms from 5 to 20 years
-Can incorporate "premium bonuses"
-Can simulate "Annual Monthly Average", "Anual Point to Point" and "Monthly Point to Point" crediting schemes
-Can handle either cap rate or participation rate limits on the price index increases
-Can apply additional Asset Rate Fees either before or after the cap/participation rate limits
For investment comparisons, it allows a combination of stock and bond mutual funds:
-Percentages of funds in stocks from 100% to 0%
-Set your preferred dividend yield and expense ratio for the stock fund
-Set your preferred bond yield and expense ratio for the bond fund
-Or model a single fund investment with both stocks and bonds
-Annual rebalancing is allowed, but can be turned off
For comparison in taxable brokerage account, you can enter your marginal tax rate, qualified dividend rate, and long term capital gains rate. Or you can ignore taxes.
If you've read this far, you already know what I want: VOLUNTEERS
(But not too many.) You can either PM me to get a copy of the program (Excel 2003 with VBA macros), or add to this posting stream with questions, comments or suggestions.
Investment skill is often just luck in sheep's clothing.