You don’t want to forget your sunglasses. I made that mistake before going in to a Best Buy recently. Blinded by the bright lights, I felt like I was in an airplane hangar with a wall of TV echoes to match. It’s no surprise to me the stock is off by 50% in five years. The same HD marketing blitz reminds me of the sales tactics used for annuities.
A major provider of annuities is using HD in its ads to lure investors—“HD” in this case meaning highest daily value. It’s a flashy-red sales gimmick that takes your eye off of the costs you’ll incur or the time you’ll waste trying to understand it. It’s no surprise to me that the stock prices of some of these annuity-providing insurers are off anywhere from 40% to 98% in the last five years. Maybe insurers can pull a rabbit out of a hat and meet their annuity promises. But the promises they’ve made still depend on the market.
In November, German bunds, the benchmark of euro-zone bonds, had their worst 10-year auction in history and lost 4% on the month. You don’t need a calculator to see how ugly a year of that might look. China’s economy is on pace to grow 9% this year. Yet its stock market is off 22%. Sometimes the sure bet isn’t the best investment.
In his Wall Street Journal article “Price Charts Can Mislead,” Simon Constable points out that in the decade ending November 30, the increase in price of small stocks outpaced utilities. The iShares Russell 2000 Index was up 61% compared to 29% for the Utilities Select Sector SPDR. But, once dividends are included, the utilities ETF returned 84% compared to 81% for the small-stock ETF. Put another way, 55% of the utilities’ gain came from dividends—a message that is counter to HD or highest daily pricing.
A nation of spenders has taken too many expensive trips to Best Buy, Europe, Disney, you name it. They’re up against it like never before and invest in products they don’t know much about. The USA Today article “Many Have Little to No Savings as Retirement Looms” points out that more than half or 54% of retirees have less than $25,000 saved. Best Buy and annuities would love to have that money.
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