The Investment Scientist

Archive for October 2016

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This is, unfortunately, an all-too-common story I have heard. A new client of mine told me that his father bought a $500k variable universal life insurance policy for him 26 years ago, hoping that when he died he would leave half a million dollars to his children. (26 years ago, that was a lot of money.)

The premium for the insurance policy is $9000 a year. At some point, his dad asked him to take over the premium payments.. Between the two of them, they have already paid in a total of $234,000, but the cash value of the insurance is only $103,000.

Next year, his dad will turn 80 and here is the in-force illustration the insurance company gave him. Basically, even if he continues  paying the premium, his insurance will lapse when his dad turns 83, a mere four  years from now. If that happens, they will have paid $270,000 to the insurance company,  all for nothing. To avoid that outcome, his dad literally has to die in within the next four  years.

When his dad turns 80, the mortality expense of the life insurance escalates to $40k – $50k per year, far more than the annual premium. The shortfall has to be drawn from the cash value. That’s why the cash value will dwindle fast. When there is no cash value left, Read the rest of this entry »

Hedgefund.jpgI took the sensationalist title from a CNBC article I read yesterday. The articles talks about, and I quote, ” … hedge funds, as a category, is experiencing the worst quarter of outflows since the bottom of the financial crisis … there were an avalanche of stories about the industry’s nearly systematic underperforming.”

Readers of my newsletter and blog, The Investment Scientist,  can thank me later for warning them years ago.

On April 28, 2011, I published “A Balanced Portfolio to Avoid (II): Hedge Funds Don’t Deliver Outstanding Returns.” Let me quote my former self: “Hedge funds are often peddled as an unique asset class that are uncorrelated with the market. In reality, hedge funds are as much an asset class as Las Vegas is.” The unspoken message is: you should expect to lose money.

On August 15, 2012, I published “Why You should Avoid Hedge Funds.” I wrote that article after I read the book by former hedge fund industry insider Simon Lack, “The Hedge Fund Mirage.”  I summarized the book in one sentence for my readers: “Between 1998 and 2010, hedge fund fees totaled $440 billion vs. $9 billion profits for investors. Read the rest of this entry »


Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC.


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