FA Offering Financial Instrument--Turn $90K into $360K

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mikefixac
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FA Offering Financial Instrument--Turn $90K into $360K

Post by mikefixac » Tue Oct 03, 2017 12:38 pm

(I posted this also at the Early Retirement Forum. Would appreciate getting The Boglehead's Perspective)

A friend's financial adviser is offering a financial instrument--turning $90K into $360K in 14 years. Also with the deal, if any money is lost, 15% of losses will be refunded.

I asked my friend what company is offering this deal but haven't heard back on that.

My recommendation would be to ask how much does the FA get for selling this instrument. I believe $90K turning into $360K is 10%/year compounded annually.

Here's one more question concerning my friend:

He's a professional gambler who's amassed a nest egg of $400K. He's in his late 40s, to my knowledge never had a regular job. While he's a professional gambler, he doesn't know anything about saving money and investing.

Besides the typical LBYM, save and invest in index funds, my recommendation would be to get a regular job for 10 years to become eligible for social security and medicare.

Any advice is much appreciated. Please be gentle in your remarks, I'll be texting the link to him. Hopefully, if this post gets a few responses, he can come in and fill in some of your questions.

Rwsavory
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Re: FA Offering Financial Instrument--Turn $90K into $360K

Post by Rwsavory » Tue Oct 03, 2017 12:48 pm

"Besides the typical LBYM, save and invest in index funds, my recommendation would be to get a regular job for 10 years to become eligible for social security and medicare."

This.

The "Financial Instrument" you describe sounds like a dressed-up variable annuity whose main purpose is to generate a hefty commission to the FA.

magicrat
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Re: FA Offering Financial Instrument--Turn $90K into $360K

Post by magicrat » Tue Oct 03, 2017 12:51 pm

Why would there be any losses if it is going to grow 10% per year?

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Watty
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Re: FA Offering Financial Instrument--Turn $90K into $360K

Post by Watty » Tue Oct 03, 2017 1:05 pm

mikefixac wrote:
Tue Oct 03, 2017 12:38 pm
He's a professional gambler who's amassed a nest egg of $400K. He's in his late 40s, to my knowledge never had a regular job. While he's a professional gambler, he doesn't know anything about saving money and investing.
He should know this quote then.

“If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.”

A fundamental rule of investing is to never invest in anything you don't fully understand.

You said "he doesn't know anything about saving money and investing" but if you change that to "he doesn't know anything about poker" then it would be easy to see that he was like a lamb being lead to the slaughterhouse.

There is chance that this is an outright illegal scam, but if it is some type of annuity(usually a legal scam) then there is a good chance that the $360K projection is some sort of pie in the sky projection that is misleadingly used to sell the annuity but his actual returns will be terrible.

mikefixac wrote:
Tue Oct 03, 2017 12:38 pm
....my recommendation would be to get a regular job for 10 years to become eligible for social security and medicare.
If he has been paying his taxes correctly then he probably should have already been playing these as a self-employment tax. It would also be worth while to check to see if he could make IRA or Roth contributions with that income too.

https://www.irs.com/articles/reporting- ... losses-irs

ResearchMed
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Re: FA Offering Financial Instrument--Turn $90K into $360K

Post by ResearchMed » Tue Oct 03, 2017 1:10 pm

I'll offer you an "investment" that will double every month, for 2 years.

IF there is a "loss" (ahem), I will ever so gladly give you 15% of the "loss" back.

Please sign here: ______________________

RM
This signature is a placebo. You are in the control group.

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htdrag11
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Re: FA Offering Financial Instrument--Turn $90K into $360K

Post by htdrag11 » Tue Oct 03, 2017 7:04 pm

Walk away! Better yet - run.

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Raymond
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Re: FA Offering Financial Instrument--Turn $90K into $360K

Post by Raymond » Tue Oct 03, 2017 7:08 pm

For some reason, I read the title as "FA Offering Financial Instrument--Turn $360K into $90K" :P

More likely, turning it into zip, zilch, nada, bupkus.
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Nate79
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Re: FA Offering Financial Instrument--Turn $90K into $360K

Post by Nate79 » Tue Oct 03, 2017 7:09 pm

Sounds like a fixed or fixed indexed annuity. Or as they are commonly referred to as: crap.

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Re: FA Offering Financial Instrument--Turn $90K into $360K

Post by Sandtrap » Tue Oct 03, 2017 7:42 pm

If he is a professional gambler who does not want to gamble anymore and wants to work and invest wisely, run from the "offering".

If he is a professional gambler who wants to continue gambling then perhaps take the "offering" because he will be familiar with the gamble and all its risks and rewards. . . and losses.
Shared experiences to benefit all -- not an exspurt -- per forum guidelines :) Golf score allocation 50/50 swings vs putts.

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Toons
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Re: FA Offering Financial Instrument--Turn $90K into $360K

Post by Toons » Tue Oct 03, 2017 7:48 pm

10%?
I would take my chances and buy Mcdonalds,
Reinvesting the Dividends along the way. :happy :happy
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Jack FFR1846
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Re: FA Offering Financial Instrument--Turn $90K into $360K

Post by Jack FFR1846 » Tue Oct 03, 2017 8:11 pm

I'd sign up for this deal. But I'd want to place a lien on the house of the FA and for any year that falls short, I'm going to foreclose on the house and sell it. I'll send over the paper for the FA to sign and place the lien on the house.
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John Laurens
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Re: FA Offering Financial Instrument--Turn $90K into $360K

Post by John Laurens » Tue Oct 03, 2017 8:41 pm

He should keep doing exactly what he has been doing. Assuming he loves what he does, “gambling, not having a regular job”, he is far above the average American with a 400 thousand nest egg.

Regards,
John

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grabiner
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Re: FA Offering Financial Instrument--Turn $90K into $360K

Post by grabiner » Tue Oct 03, 2017 9:54 pm

mikefixac wrote:
Tue Oct 03, 2017 12:38 pm
(I posted this also at the Early Retirement Forum. Would appreciate getting The Boglehead's Perspective)

A friend's financial adviser is offering a financial instrument--turning $90K into $360K in 14 years. Also with the deal, if any money is lost, 15% of losses will be refunded.
It's easy to offer such an investment. Invest $10K in a 14-year Treasury bond which will be worth $13.5K in 14 years, and $80K in a single junk bond which will be worth $350K if it doesn't default.

As a gambler, your friend should know that you have to understand the odds. The example above is a bad deal if the $80K investment will probably default, and if default isn't probable, then the bond should be worth much more than $80K.
David Grabiner

sixty40
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Re: FA Offering Financial Instrument--Turn $90K into $360K

Post by sixty40 » Tue Oct 03, 2017 10:08 pm

One thing I would ask is that, at the end of the 14 yr term can I withdraw all the funds out w/o any penalty or fees? I am assuming the answer is NO. Whether you have actually quadrupled your money in 14 yrs is irrelevant if you cannot withdraw it, it may only look like it on paper. I would imagine the withdrawal rate or the amount you can withdraw would be extremely limited.

I am not familiar with all the nuances of annuities but this surely sounds like one type or another. If it sounds too good to be true ... it is probably an annuity. :-)

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Re: FA Offering Financial Instrument--Turn $90K into $360K

Post by LadyGeek » Tue Oct 03, 2017 10:10 pm

This thread is now in the Investing - Help with Personal Investments forum (portfolio help).
mikefixac wrote:
Tue Oct 03, 2017 12:38 pm
...I believe $90K turning into $360K is 10%/year compounded annually.
Close enough. It's actually 10.4%, See: Compound Annual Growth Rate - CAGR

10.4% = ( (360k/90k)^(1/14) - 1 ) * 100%
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Re: FA Offering Financial Instrument--Turn $90K into $360K

Post by pkcrafter » Tue Oct 03, 2017 10:46 pm

A friend's financial adviser is offering a financial instrument--turning $90K into $360K in 14 years. Also with the deal, if any money is lost, 15% of losses will be refunded.
Well, if you've got the offer correct, there doesn't appear to be a guarantee that your friend will earn 10% a year for 14 years. And if the money does not reach 360K, too bad.

The 15% money back if there is a loss sounds like it would have to apply to the original 90k. This guarantee probably means if the 90k ends up after 14 years with less than 90k there would be a 15% refund. Pretty safe bet. If the guarantee is on not making 360k, please let us know.

What are the advisor fees?


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

BV3273
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Re: FA Offering Financial Instrument--Turn $90K into $360K

Post by BV3273 » Wed Oct 04, 2017 6:47 am

It just doesn't make sense to me and because of that I'm out (Mr. Wonderful voice).

an_asker
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Re: FA Offering Financial Instrument--Turn $90K into $360K

Post by an_asker » Wed Oct 04, 2017 6:54 am

ResearchMed wrote:
Tue Oct 03, 2017 1:10 pm
I'll offer you an "investment" that will double every month, for 2 years.

IF there is a "loss" (ahem), I will ever so gladly give you 15% of the "loss" back.

Please sign here: ______________________

RM
If you repay 15% of the original amount, you've held up your end of the bargain, right? :oops:

an_asker
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Re: FA Offering Financial Instrument--Turn $90K into $360K

Post by an_asker » Wed Oct 04, 2017 6:55 am

pkcrafter wrote:
Tue Oct 03, 2017 10:46 pm
A friend's financial adviser is offering a financial instrument--turning $90K into $360K in 14 years. Also with the deal, if any money is lost, 15% of losses will be refunded.
Well, if you've got the offer correct, there doesn't appear to be a guarantee that your friend will earn 10% a year for 14 years. And if the money does not reach 360K, too bad.

The 15% money back if there is a loss sounds like it would have to apply to the original 90k. This guarantee probably means if the 90k ends up after 14 years with less than 90k there would be a 15% refund. Pretty safe bet. If the guarantee is on not making 360k, please let us know.

What are the advisor fees?


Paul
1.5% of the original investment a year - would add up to 15% in ten years. That'd make it pretty neat, won't it? :oops:

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