- Aug 24, 2007
The first thing I noticed here is that the 7-8% is pre-tax gains versus the 3-5% (which [and again I'm no expert] whole life return which is tax free?). Post-tax it would seem that the returns are very similar in nature.
Except for two VERY BIG things:
1. It's unlikely that long-term returns on whole life policies are anywhere near 3-5%. These policies only guarantee about 1.5%, and the 3-5% returns are based on recent asset performances, not long-term averages. I would model the guaranteed rate when doing the math, not the best-case number that isn't unlikely to hold long-term.
2. These are annual returns, and not compounded returns. Whole life policies charge exorbitant fees upfront, which reduces the compounded returns considerably. You can run the IRR scenarios yourself, but suffice it to say, any time a chunk of the investment is pulled out on day one, the compounded returns are going to suffer.
To set the stage here, I am about one thing and one thing only...finding the most efficient way for me to earn the highest risk-adjusted return on my capital possible.
This says nothing about passivity. Assuming that's the case, the best risk-adjusted returns will likely be generated through active income strategies, like starting your own business. If you're shooting for more passive (but not completely passive), that's when you should consider real estate strategies such as buy-and-hold (triple-net probably has the best risk-adjusted returns) or lending.
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