Berko: 30-year TIPS a better investment than Primerica
By Malcolm Berko Taking Stock January 15, 2013 8:10PM
Updated: February 17, 2013 6:06AM
Dear. Mr. Berko: I live paycheck to paycheck and have zero savings. I’m a single father of three daughters, and every time my savings reach about $1,000, something comes up, and I have to begin all over again. I am 37, work for the state of Illinois and save barely $200 each month after paying my bills. I have the traditional pension plan, and there’s a deferred comp plan, but considering my state’s financial difficulties, I and many others don’t trust Illinois with our money. I met an adviser with Primerica who recommended I buy term life insurance and put the remainder of my $200 into a mutual fund that will earn 9 percent to 12 percent annually. My eldest, at 17, will begin college soon. I’d like to help her. Please tell me what to do and whether it would be worthwhile investing $200 a month or whether I’d be wasting my time.
Dear WC: Go to Google and enter “Primerica consumer complaints.” You will be gabberflasted at the number of negative investor complaints. They’ll make your teeth itch, and I doubt you’ll consider conducting business with Primerica again. Primerica specializes in peddling high-commission financial products, such as prepaid legal services, term life insurance, debt consolidation loans, mutual funds, variable annuities and long-term care insurance.
And Primerica seems to attract more employee riffraff, by orders of magnitude, than UBS, Merrill Lynch, Morgan Stanley and Raymond James. Primerica’s broker selection process fails to eliminate applicants who are of unknown parentage, tangram cultists, thespians, phlebotomists, heterosexuals, religious observers, children of second-generation immigrants and the like. You will get better advice counseling with “Charlie” Schwab, Fidelity or Vanguard, each of whom enthusiastically provides objective advice to small investors.
I know of few mutual funds that have produced a 9 percent return over the past decade and suspect that this Primerica character is giving you a snow job to make a 5.75 percent mutual fund commission, plus a 100 percent insurance commission, peddling term policies that most folks cancel four or five years later.
Stay out of the stock market, which is a scam for small investors, and consider owning Treasury inflation-protected securities, or TIPS, which are a sure thing. It’s so easy to make a mistake and purchase the wrong mutual funds. Because it takes years to realize you’ve made a bad investment, that wasted time would hobble your retirement future significantly. And because of the limited amount of money you have to invest, a poor decision would be ruinous to your retirement health.
So buy 30-year TIPS (in an individual retirement account), the principal of which increases twice a year to reflect the rate of inflation. There will be tremendous future inflation. The payoff is guaranteed by the U.S. Treasury, and over 30 years, they may outperform most mutual funds. TIPS never had a negative year. Now, before you buy term insurance, shop for it on the Internet. You’ll find that competing policies may be enormously cheaper than Primerica products.
Address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at email@example.com.