The Island Investing Blog

  • Build Your Own Annuity. Please.

    Annuities seem to be enjoying a resurgence lately, thanks to the bear market. That’s a shame. Many companies sell annuity products that are so costly in terms of fees and penalties that they seem better suited for funding the salesperson’s retirement than the investor’s. Amazingly, some agents even recommend buying annuities inside an IRA, meaning investors are paying extra to defer taxes…on an account that is already tax-deferred.

    I can certainly understand the appeal of secure returns these days, but buying an annuity too often means being locked in to high fees and low returns. You can get the same security and pay zero fees by building your own annuity. Here’s how:

    Let’s say you have $50,000 to invest for five years. You don’t want to lose any money under any circumstances, but you’d also like to make some money if stocks go up.

    First, find a high yielding five year CD that is insured by the FDIC. Currently, you can find some on that yield 3.50%. (Rates will likely be higher in the coming months.) If you buy the CD in your IRA, then you’ll create the same tax break found in an equity-indexed annuity.

    At a yield of 3.50% you’ll need to invest $42,099 today to have $50,000 in 5 years. (Here’s a calculator.) Take what’s left and invest it in a low-cost index fund like the Vanguard 500.

    In five years, you’ll get $50,000 back, guaranteed. If the market goes nowhere, you’ll still end up with $57,901. If stocks earn 7% per year, you’ll have $61,082.

    You get the idea. Creating recurring payouts means splitting up the initial sum and investing in CDs with staggered terms. Email me for help plugging in real numbers. And please think hard before buying an annuity.

    Additional articles:

    The Downside of Market-Proof Annuities.
    Consider Annuities – But as a Last Resort.
    Retirement Plan Ripoffs.
    Added Value – and Anxiety – For Variable-Annuity Owners.
    Not So Easy Riders.

    Posted by: Cale Smith , For Investors
  • Geek versus Tarpon

    From a trip yesterday afternoon with good friend Captain Ted Wilson. Fantastic time, as usual. ‘Tis the time of year for tarpon in the Keys.

    Captain Ted Wilson and geek Cale Smith.

    Captain Ted Wilson and geek Cale Smith.

    Here’s a video of the above, another of the tarpon leaping, and Ted where he’s most at home. Also, from the bow of Ted’s skiff, running through the mangroves.

    Ted’s site is, and you can read more about the silver king here.

    And, yep, he swam away just fine.

    Posted by: Cale Smith , Islamorada, The Good Life
  • Signs of Life in Keys’ Real Estate?

    From the front lines of the housing bubble, and direct from the father of Cale in the Keys, here is an update on the Key West real estate market. Dad doesn’t know I posted this, but he’s been putting these reports out every month for ten years and he’s got quite a following among the more analytical real estate folks down there. ROIs are starting to look attractive for some multi-unit properties in Key West.

    On real estate in Key West:

    The local real estate market has been active…lots of showings, and lots of properties on the market. Even with historically low interest rates, many buyers are using cash. There have even been lots of closings, mostly distressed properties and mostly lower-priced. But occasionally, there is the $2+ million transaction, too. I would have to say, in spite of much heartbreak out there, that properties are moving. Bittersweet…great for buyers, not so much for sellers.

    In Old Town Key West:

    1214 Catherine Street was reduced again! Combined with 1212 Catherine St, the 6-8 units generate about $120,000 annually, and you can buy the complex for under a million. Pay cash and that’s 12+% on your money to take over ownership, same tenants, no changes. Finance 75% and still clear $5,000 per month! What am I missing?

    Spoken like a value investor. Must be something in our genes.

    Posted by: Cale Smith , For Investors, Islamorada