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Doctor Dividend

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  • Is Tax Deferral For Dividend Growth Stocks Really Worth It? [View article]
    And that is far and away the best thing you can do. Pay very little tax now and use the power of time to really build one heck of tax-free nest egg.

    Nov 11 09:30 PM | Likes Like |Link to Comment
  • Dividend Paying Whole Life Insurance - The Alternative Fixed Income Vehicle (Part 4) [View article]

    Thank you for your comments. You made a lot of great points and I hope to expand on some of them.

    Insurance policies are protected from creditors in all but 2 states, so an insurance salesman should be able to answer that simple question for whatever state you may live in.

    Second, I agree with you 1000% about plain vanilla WL policies. I think they stink and when I first heard about WL vs term, I thought WL was insane. But this is designed differently. Because of the overfunding capability, we were at 75% cash value after Year 1 in our graph in Article 3. And that was on the guaranteed side. When you have a significant amount of cash value built up in the policy, you can stop paying premiums and let the dividends plus surrender some of the cash value to pay the premiums and keep the policy in force. Of course, the death benefit will go down, but we are talking getting into a really bad situation where you could not add one more personal dollar to the policy.

    I'll disagree about the growth. It does grow tax-free. As long as the money stays in the policy, you are not paying taxes on the dividend each and every year like you do with dividends in a taxable account at the current 15% tax rate. I believe this to be the case because the dividend is more likely an excess return of premium that is called a "dividend" (My hypothesis only). So it can be done as put in after-tax money--> grows tax-free--> remove as loans (which is treated as tax-free money). In terms of surrendering, this is a get-rich-slow idea that if you plan on surrendering after 3, 5, 10 years, then this strategy is not for you. Much like the hardcore DGIers that peruse this area, the concept is you are building an income for later with a death benefit to boot in case you don't get to enjoy it.

    The loan which you mention is one of the negatives that will be addressed in the final article. I will expand with one thought: The loan you take out is simple interest while the cash value increases on compound interest. But you are absolutely correct that if you remove too much cash value and you don't pay it back (in the early years) or start living high on the hog in later years, the results can be a tax disaster.

    Finally, I would say people lose a lot on both whole life and term insurance. If only 1% of people die who have term insurance while their policy is active, that means 99% of people lost a lot of money. Of course, I mean this tongue in cheek because I think life insurance is VITAL for young families, but all insurance is paying for someone else to take the risk. I have not cashed in on my homeowner's policy, only once with my auto policy due to a really bad hail storm, and thankfully not with my malpractice insurance. And I hope I never have to. I asked my agent the specific question of how many of his clients have surrendered their policies and of the 250-300 policies he has written in this specific style I am talking about, only 2 were surrendered. I think the versatility and flexibility of this specific design is why more of these policies have stayed in force in his book of business compared to the averages.

    Thanks for the dialogue.

    Nov 11 09:27 PM | 1 Like Like |Link to Comment
  • Dividend Paying Whole Life Insurance - The Alternative Fixed Income Vehicle (Part 4) [View article]

    I think the most important question you asked is about the solvency of the insurers. The current company I have my policies with has been around since WWI. Some go back to the Civil War, and New York Life has been around for more than 200 years. I would not personally use a company that has been around less than I have. From what I know, those companies that do have trouble and get bought out are usually kept in full for goodwill for the existing policyholders.

    Your first question about returns: If you looked at article 3 and the simulation I added to the article, the left side was the guarantee. There is a guarantee in the increase in the cash value each and every year because the cash value and the death benefit have to match each other at age 121. The right side is all guesses. My cash value after year 1 was slightly less than their assumption by 0.2%. Someone else I am an acquaintance of had their cash value well above their assumptions 5 years into the policy. Once that dividend is paid at your anniversary date, your cash value can't go down. That is your new basis moving forward.

    Your last point about the business model is counterintuitive. The more people you have (life insurance premiums or car insurance or homeowners, it doesn't matter), the less risk to the company. If you have 100 people with life insurance, you expect maybe 1 to die in a 12 month time period. So year 1 and no one dies, the life insurance company wins. And this may go on for several years, and then 5 people die in the same year. By protocol, they have to have reserve funds to think of the inevitable and pay everyone out. You have to expect with all their calculations that the insurance company charged enough to the policyholders to pay expenses, have the reserves, and make a profit. Of course you really hope the insurance company was wise in thinking about a Hurricane Andrew, Katrina, Ike, Sandy and a 9/11 in their projections.

    Hope that helps and great questions.

    Nov 11 08:06 PM | Likes Like |Link to Comment
  • Dividend Paying Whole Life Insurance - The Alternative Fixed Income Vehicle (Part 2) [View article]

    Thank you for your input. As the series is trying to get through, there may be a useful benefit for all people, not just the high income earners and I am just trying to expand the knowledge of possible alternatives. It's not right for everyone, but to open the mind and dialogue.

    Nov 11 02:44 PM | 1 Like Like |Link to Comment
  • Dividend Paying Whole Life Insurance - The Alternative Fixed Income Vehicle (Part 4) [View article]

    Forgot one thing. The amount of money you will be able to take out as loans will depend upon something I spoke about in the article: Will your Cash Value compound via direct recognition or non-direct recognition? Think of direct recognition like your money market account. As you remove money from the account, you have less money available for compounding of interest. This will minimize how much money you can take out as loans. If your insurance company does non-direct recognition, then you will most certainly be able to take out more money because the insurance company separates (for compounding purposes) what the cash value is in your policy versus what loans (if any) you have taken out. Be sure to ask which way the insurance company handles the loans.

    Nov 11 10:27 AM | Likes Like |Link to Comment
  • Dividend Paying Whole Life Insurance - The Alternative Fixed Income Vehicle (Part 4) [View article]

    I'll say now that this is way beyond my knowledge of understanding the tax ramifications of not paying back loans. I am not understanding how you have a $22,000 loan balance on a $10,000 WL policy. Usually, the insurance company will only let it get to 93% of the cash value, or $9300 in our example, before really starting to make a stink about the potential tax problems you will face. I would take to the insurance company to find out what options you have before the IRS starts getting irritated.

    Nov 11 10:23 AM | 1 Like Like |Link to Comment
  • Dividend Paying Whole Life Insurance - The Alternative Fixed Income Vehicle (Part 4) [View article]
    Metal 27:

    I am glad you are enjoying the series. Your specific question is not addressed in my next article, so I will attempt to answer it now. Again, I am not a insurance salesman or advisor and my advice is equal to how much you paid for it, so here it goes:

    The policies I am talking about getting designed have a variable death benefit that gets larger as the cash value continues to compound. If you bought a traditional policy, like in my example the $14,000 of premium for $950,000, you only have the $950,000 and have less flexibility. Having said that, you should be able to talk to your insurance agent and run scenarios of using the cash value during your life and how much you can take out for the next 25 years as loans (so you use the money tax-free) safely without the policy collapsing. It will lower the death benefit for your heirs, but frankly, so what? You paid for it, so you get the first say in how the money is used. Also, the first money you take out is your return of premium so there are no loans and no interest accruing because you are taking out your initial cost.

    Hope that helps.

    Nov 11 10:17 AM | Likes Like |Link to Comment
  • Could Whole Life Insurance Be Your Fixed Income Allocation? [View article]
    Major mutuals are Mass Mutual, NW Mutual, New York Life, and then a slight step down is Guardian of Berkshire Hathaway fame. There are many more smaller ones after that. Even though they may be smaller, some have been paying dividends continuously since the Civil War.

    Nov 11 10:03 AM | Likes Like |Link to Comment
  • Dividend Paying Whole Life Insurance - The Alternative Fixed Income Vehicle (Part 3) [View article]

    Thanks for the comment. I will address in the final article what I think you should look for in an insurance company if you pursue this. I don't want to say, "This company X is the best" because I do not work in the insurance industry and I have nothing to sell. I am just trying to give information and don't want the company I personally have policies with to be any bias. It happened to be one of the better policies that I could have gotten at that time. Another company may be better now.

    If you want to chat offline, just send me a private message but I don't want the board to be inundated with commentaries of specific companies. That was not my goal with the series of articles.

    Nov 10 10:43 AM | 1 Like Like |Link to Comment
  • Dividend Paying Whole Life Insurance - The Alternative Fixed Income Vehicle (Part 3) [View article]

    Great question. Before 1986 (?), high net worth people were throwing cash into these like there was no tomorrow because the IRS allowed it. With the law change, there is a 7 pay test that is subject to interpretation. What one company thinks is the MEC limit is not the same as another.

    But back to your question: the reason we do not want to do single premium life policies as normal (not CEOs) people is that they act like annuities. If you MEC the policy, you lost ALL flexibility of what these policies could provide you and you are subject to all the withdrawal rules of annuities (59.5 years of age, 10% penalties, fully taxed withdrawals, etc). So, there are good reasons to toe the line but not to cross it.

    Nov 9 12:30 PM | Likes Like |Link to Comment
  • Look To Hi-Crush For A 9% Yield With Limited Downside [View article]
    Nicely written article. 3 things for clarification:
    1) Who are its direct competitiors? SLAC sounds like one, but who else?

    2) Is there a true GP like NGLS and TRGP or is the GP bought out like EPD that you don't have to worry like what kinder morgan has done recently?

    3) As mentioned above, due this long term contracts have either incentive clauses or inflation kickers in them?

    This is still a very young company. It only started in 2010 and is public less than 3 months. Not investing now, but definitely one to watch.

    Nov 8 01:30 PM | Likes Like |Link to Comment
  • Beware The False God Of The Dividend [View article]

    I think I understand your argument. Within the vaccuum of your example for the one day, the trader lost one cent per share or $1 dollar excluding commission costs.

    But I said this is a trader. As someone else mentioned, the people that are commmenting here are investors and are not looking to trade around one day and one event. Everyone is talking around the same circle. Those companies that are strong enough to provide dividends and raise them show their wide moat and the market will bid the price up, increasing the investor's net worth. So, if you want to be truly literal Greg, the dividend itself does not make you richer, but buying these companies that have the capacity to do so will. The dividend, the actual cash given back to you in your hand, is the PROOF they can versus those companies that keep all the profits within the company and we have to pray that they can prove their worth quarter after quarter.

    Nov 6 04:38 PM | 8 Likes Like |Link to Comment
  • Retirees: It's Time To Learn More About Dividend Growth Investing [View article]
    I asked this question before and the consensus was two percent of the stock value, not two percent of the dividend stream. With prices constantly moving, it will never be exact except in the first five minutes you purchase the stock.

    Nov 5 08:23 AM | 2 Likes Like |Link to Comment
  • Dividend Paying Whole Life Insurance - The Alternative Fixed Income Vehicle (Part 2) [View article]

    I had to give you a +1 for that response. Loved it completely.

    The controversy is the blending of mixing insurance with investing. I believe that to be the case more so with Universal Life, or Indexed Life policies. The way I view Dividend paying Whole Life policies will be seen at the end of the series, but I will state this: I am giving up some returns (from purely an investment perspective) for creditor protection and a death benefit kicker. I know William said if you are that rich you don't need life insurance. I can't completely agree. There will be (possible) estate taxes and estate planning issues that could wipe out an inherited IRA that a tax-free death benefit could handle and increase the longevity of other assets.

    Nov 4 03:59 PM | 1 Like Like |Link to Comment
  • Dividend Paying Whole Life Insurance - The Alternative Fixed Income Vehicle (Part 2) [View article]
    Thanks for all the comments. I knew this would be a controversial group of articles, but I do appreciate the discussion and I do understand all points of views that are being discussed.

    If EVERYONE acted logically about finances, then this discussion is moot. However, you can apply to the same idea to an automobile, which is certainly a depreciating asset. If you just need four wheels and an engine, everyone would drive a Honda Accord and BMW, Lexus, and Ferrari would not exist. That's obviously not the case.

    I think there is something to learn, at least that's my hope. Even if you don't agree, I hope you can say that although I do not agree with his conclusion, there were some interesting things I didn't know.

    Nov 4 11:46 AM | 1 Like Like |Link to Comment