A random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing

Deferred Variable Annuities
I would avoid buying variable annuity products, especially
the high-cost products offered by insurance salespeople. A
deferred variable annuity is essentially an investment product
(typically a mutual fund) with an insurance feature. The
insurance feature stipulates that if you die and the value of
the investment fund has fallen below the amount you put in,
the insurance company will pay back your full investment.
These policies are very expensive because you typically pay
high sales commissions and a premium for the insurance
feature. Unless your mutual fund declines sharply with a fall
in the stock market and you drop dead soon after purchasing
a variable annuity, the value of this insurance is likely to be
small. Remember the overarching rule for achieving financial

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security: keep it simple. Avoid any complex financial
products as well as the hungry agents who try to sell them to
you. The only reason you should even consider a variable
annuity is if you are super wealthy and have maxed out on all
the other tax-deferred savings alternatives. And even then you
should purchase such an annuity directly from one of the
low-cost providers such as the Vanguard Group.
EXERCISE 3: BE COMPETITIVE—
LET THE YIELD ON YOUR CASH
RESERVE KEEP PACE WITH
INFLATION
As I’ve already pointed out, some ready assets are necessary
for pending expenses, such as college tuition, possible
emergencies, or even psychological support. Thus, you have
a real dilemma. You know that if you keep your money in a
savings bank and get, say, 2 percent interest in a year in
which the inflation rate exceeds 2 percent, you will lose real
purchasing power. In fact, the situation is even worse because
the interest you get is subject to regular income taxes. So
what’s a small saver to do? There are several short-term

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investments that are likely to provide a rate of return that
protects you against inflation.