Dear Mr. Berko: In March 2013, I bought 500 shares of Nektar Therapeutics at $12. In March of this year, it traded at $24, but now it trades around $19. Should I sell this stock or continue to hold and see whether it will go higher? In June 2013, I invested $100,000 in 10 different no-load mutual funds (list enclosed), which are now worth $166,000. My stockbroker wants me to sell those funds and put the money into a “structured investment option” with AXA Equitable Life Insurance Co. He says the yearly gains (based upon the Standard & Poor’s 500 index) would be capped at 10 percent but I wouldn’t suffer any losses unless the index were to fall by more than 10 percent, at which time I’d lose only that portion of the loss that exceeds 10 percent. And none of the gains or dividend income would be taxable. I think he’s being honest with me. What do you think about this?
— P.L., Wilmington, N.C.
Dear P.L.: What a deal. Participate in the market’s upside and avoid the downside. That’s an enormous lie. What fabulous prizes are you helping him win? “Structured investment option” is a disingenuous name for an annuity. In this instance, it’s an index annuity. This cad is not being honest with you. In my opinion, honesty requires full disclosure.
Did this fellow tell you what the costs of commissions would be? You should know that he would earn a sweet 6 percent, or almost $10,000, selling you this annuity. That’s a lot of commission.
Did he tell you that the annual annuity costs, including mortality fees, probably would exceed 3.5 percent? Did he tell you that if the index in the annuity account increased in value by 10 percent every year, the annual 3.5 percent fees would reduce your net gains to 6.5 percent? By the way, the S&P 500 has never increased by 10 percent for 10 consecutive years.
