This article serves as a brief review to compare the investment strategies my family is doing. It'll be updated constantly as the time runs by, so that a bigger picture of the comparison can be observed.
Currently, me and my wife are producers in life insurance representing the insurer called National Life Group. So, undoubtedly, we have life insurance policies for the whole family members (two adults and three children). Certainly, a life insurance policy serves as financial protection against the loss and/or the inability to work of a family member, especially the key bread earner of a family, as mentioned in one of our previous posts.
Beyond that, some life insurance policies (such as indexed universal life, variable universal life, and whole life, etc.) also offer investment options that the cash value in the account will grow. Those are called permanent life insurance policies.
After comparing most available permanent life insurance policies, we selected the indexed universal life (IUL), simply because the cash value growth is in accordance with the stock market (matching up to 9.75% and 0% lock down). The current macro-economic factor of the stock market is incubating great chances of a upcoming bull market with also some variabilities and uncertainties of market fluctuation. With the 0% lock down, in a monthly basis, we don't need to worry the shrink of our cash value when a bear market approaches. When the market turns from bear to bull, the growth can match the market growth up to 9.75%. You have the option to select which market index to match, out of S&P 500, Credit Suisse, and Hang Seng. We selected to match S&P 500.
Here is a brief chart of how the investment in our IUL are growing. The IUL product we bought is called the "Living Life By Design" which was released on 11/14/2019, which is the time when we enrolled in the policy.
In the chart, we set the initial contribution value as 1, began November 2019 till December 2020, the overall growth is 55.1%. While the return is 20.6%, provided the same contribution was put in the stock market and invest in S&P 500.
Well, admittedly, you don't necessary to invest S&P 500 in the stock market. Besides, there are administrative fees for both stock market investment and IUL policy (a relative higher fee in IUL since there're barely any fee for stock market trading nowadays). And in fact, people who invest in the stock market born much risk during the COVID-19 outbreak earlier this year that shakes the whole stock market around March 2020.
So, the above chart is just trying to give an idea how the matching strategy of the IUL Living Life By Design policy works in giving policy owner investment return, on top of the life event protection.
Other than IUL contribution, we did other investments since the November 2020.
One of the investment is putting our money in a managed brokerage account of a mainstream bank. In this brokerage account, we can only set the investment risk level (i.e., mild, moderate, aggressive), we have no control of how the money will be invested in specific funds and stocks. Fee for this managed brokerage account is 1.05% per year. Since the the beginning of November, the accumulated return so far is 2.53%. With that being said, the projected yearly return could be 38.5%.
Another investment is doing investment in the stock market. We bear ~100% gain profit (no transaction fee in market and ETF trading with very minimum charges) and 100% loss risk in this investment. We selected more bull stocks than bear stocks since November 2020, largely due to the great investment environment after the big drop in March 2020. So, the return excluding tax is close to 19.1%, which is not bad in just one month of market trading.
By the way, people shall never ignore tax issues. All the investment gains, either in stock market or doing bank managed brokerage account are subject to taxation, unless you are doing stock trading using tax free retirement account (Roth IRA). I believe all the investment gains from the bank brokerage account are considered as short-term capital gains and will be counted as your ordinary income. Gains from stocks that you hold more than 1 year will be considered as long-term capital gains with relative lower tax rate.
In contract, all the investment gains in your permanent life insurance are income tax free.
We'll discuss more about the taxation in another blog "It's All About Tax".
[last updated: 12/5/2020 at 16:00]
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