Ed Hart faced a tricky situation…
He had to convince a man he just met to stop making a big mistake with his money.
In 2013, Hart worked as a financial adviser in San Antonio, Texas. His new client was a rancher in his mid-80s. The man had struck it rich after finding oil on his property.
For a couple of years before meeting Hart, the rancher received a $100,000 royalty check every month. But like a lot of folks, the rancher didn’t know much about investing.
When Hart saw the man’s portfolio, his heart sank…
It was nearly 100% invested in annuities.
You’re probably familiar with annuities. They’re one of the most conservative investment vehicles you can buy.
In its simplest form, an annuity is just a monthly payment that will continue for as long as you live.
Hart knew he had to be tactful. He had seen plenty of ugly portfolios from new clients over the years. And no one likes to be told they’re making a mistake with their money.
Plus, Hart could empathize with the rancher…
The man had spent a lifetime working hard and living frugally. He had seen plenty of ups and downs in the economy and the local oil industry. He didn’t trust the stock market.
Now, for the first time in his life, the rancher was a millionaire. And yet, he still had no interest in taking any extra risk.
Still, Hart knew that no one should invest just about everything they owned in annuities.
He had to try to get his new client to take some risk.
Hart started by explaining the benefits of diversification. He also pointed out that annuities aren’t a good choice for someone in their mid-80s. After all, the payments stop when the owner passes away.
The rancher listened. But he still wasn’t convinced.
So Hart then pointed out the low-single-digit returns of the annuities. Over time, that doesn’t compete with the 7%-plus annual return generated by a mix of stocks and bonds.
It was a solid argument. But once again, it still wasn’t good enough for the rancher.
Finally, Hart went through the fees and withdrawal penalties of the annuities. He pointed out that these expenses would eat up a big chunk of the rancher’s already-low returns.
That caught the rancher’s attention. The man had spent his entire life avoiding excess costs.
Hart continued breaking down some numbers. He showed how investing in stocks would almost certainly leave the man with more money to pass along to his heirs.
That was another critical point.
The rancher personally didn’t mind underperforming the market. But he hated the idea of missing out on gains that would otherwise go to his family.
In the end, Hart convinced the rancher to sell the annuities that were old enough to avoid termination fees. He also agreed to start investing his royalty income into a broad portfolio of stocks and tax-free bonds.
As a Chaikin PowerFeed reader, you surely know that stocks are the best vehicle for creating wealth. We’ve discussed this concept many times in the PowerFeed and in our paid publications here at Chaikin Analytics.
But millions of people in the world don’t know that. And many of them are just like the rancher from this story…
They’re not comfortable taking control of their financial future.
To these folks, investing is complex and intimidating. As such, they’re more comfortable holding just cash. Or maybe they’re keeping all their money tied up in annuities.
But folks, we’re in an incredible bull market. Stocks are soaring. Since the 2022 bottom, the S&P 500 Index is up an incredible 56%.
Make sure you don’t end up like the rancher – sitting out the market on the sidelines and thinking you’re making a “safe” bet.
Now is the time to build wealth. And in a market like this, that means putting money to work in U.S. stocks.
Good investing,
Marc Chaikin
