Query on Variable Annuities?

Posted on May 12, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

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Point-Counter Point Debates

Question:

Annuities are a controversial product in the financial services industry today; especially variable equity annuities. They are often touted as a solution to the retirement income question for medical professionals. Many sales consultants and financial advisors advocate their use; while others absolutely detest and abhor them. And, it has been said that annuities are often sold, but rarely purchased.

For example, insurance fee components are high, sales-loads are great, and most annuities are deferred, but few are annuitized. Some are even sold within qualified retirement plans by fear mongering salesmen/women.

And so, what is your opinion on this controversial subject and ever-evolving contentious financial product? Please omit the default “it depends on the client and situation” answer-of-choice; and clearly opine pro or con; and why.

Assessment

Parsing aside; will annuities remain a bane, or finally morph into a more transparent and efficient product in the future? And, what are some alternatives for physician investors and healthcare executives? Cogent, thoughtful and experienced repliers are appreciated; sales slogans and aphorisms are not. Please opine?

Conclusion

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High-Yield [Junk] Bonds

Posted on May 12, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

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Understanding Junk Bonds

[By Staff Writers]

High Yield Bonds [HYBs] are debt issued by U.S. corporations that carry less than investment-grade ratings. They are also referred to as “junk bonds.” For the purpose of high-yield bonds; below investment grade means Ba or lower; as ranked by Moody’s, and BB or lower by Standard & Poor’s.

The Market

The market for high-yield bonds is large. A high-yield security compensates the physician-investor for the added risk by offering a higher coupon [interest rate] than could be obtained from investment-grade corporate bonds.

Many Types

Several types of bonds fall within the high-yield sector, including zero coupons, split coupon, increasing rate, floating rate, pay-in-kind, first mortgage, and equipment trust certificates.

These are structured just like other bonds bearing the same name; the only difference is the investment quality of the corporation issuing the debt. Because of the higher coupon [interest rate], there is a potential for higher total returns to the bondholder or physician-investor.

Risk

Because of their inherent risk, these bonds are an alternative for more aggressive physicians and fixed-income investors. They may also be attractive to equity physician-investors who are willing to assume the risk of the lower investment quality. These investors recognize that as the underlying credit quality of the issuer improves, the value of its bonds should increase as well.

Conclusion

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