The Sterlings (Part 6): One Investment or Many?

Read the different chapters of this story: 1234, 567, 89, 10)

Amy and Travis Sterling have actively curbed their spending habits and taken the effort to learn about smart financial planning. But when Travis’s purchase of a hot stock turned out stone cold returns, Amy decided it was time to start shopping around for a supplement for her own nest egg.


Amy thumbed the worn edges of the business card in her hand as she glanced around the reception area. The walls of the insurance office were adorned with an odd mash of framed posters that seemed better suited to a kindergarten classroom. Amy thought the posters were thinly veiled pandering, and she bobbed her foot, impatient to start her appointment that should have started 10 minutes ago.

The representative, Jon Clayton, had come to Amy’s school several weeks ago. That had been before Travis had banked on a tech stock that went sour. While she was grateful Travis’s poor choice hadn’t affected their nest egg, Amy figured it was time to seek a professional opinion when it came to creating an investment plan for her 403(b).

Right before Amy could start to dwell on Travis’s loss, Jon’s door opened and the same shiny suit jacket she’d remembered him wearing before caught the light as he waved at her.

“Hello Mrs. Sterling, sorry to keep you waiting. Would you care to come in and get started?” Amy said hello and followed Jon’s direction and sat opposite his chair, across a large desk piled with papers.

“Well, so glad that you called. I’ve gotten to meet a few teachers from your school and already have a great idea for some possible investments,” Jon said.

“Oh! Alright, but wouldn’t you like to hear a little about our current finances and what we’re looking to achieve?”

“Absolutely. But before I ask you any questions, I’d like to share a couple of optimum approaches for your 403(b) plan, so you can narrow down what you think is important to share.

“First, there’s a particular investment that is looking like a great one to buy right now. So before we delve into other options, I’d like to talk to you about a mutual fund that has already found its bottom. Not to brag, but I’ve developed a great reputation for strategic investing and I can’t tell you how excited I am about this investment’s potential. I wouldn’t hesitate putting a lot of your money into this fund.”

“Jon, I should stop you right there. I appreciate your gusto, and perhaps it is a great opportunity. However, I’ve recently had some bad experiences with cherry-picking and trying to time investments. How about we discuss some safer options?”

“Sure, sure. Well, are you familiar with an ‘annuity’?”

Amy shook her head and Jon continued. “An annuity is an insurance product, in that it comes with some guarantees. It can be structured in a variety of ways, fixed or variable. However, the benefit is a stable, guaranteed retirement income for a set number of years. The more money you put in this product, the larger the income you’ll receive in retirement.”

Amy considered the list of questions she’d written down and asked the first that caught her attention. “What are the fees that I’d pay for an annuity? Are they annual or is there a fee upfront?”

“There’s both an initial fee and annual fees. However, life expectancies are getting longer. With that comes an increased risk of outliving one’s retirement savings. Annuities can help to prevent that from happening by providing guaranteed lifetime income for retirees. So while there are fees of about 3% per year, what you’re also getting is great peace of mind.”

“So,” Amy considered, “an annuity is basically like an insurance contract?”

“Yes, and because there’s a minimum guarantee, I recommend paying into this before maxing out your IRA.”

Amy started getting concerned with word “guarantee” being in every answer Jon gave, but she pressed on, “I have to say, that advice sounds at odds with what I’ve read. Can I tell you a little more about our current situation to get your feelings as to whether the annuity option you’d mentioned is a good fit?”

“Let me shoot you straight, Amy. There’re a lot of armchair investors who have read some popular financial advice books before talking about their plan and they don’t feel comfortable considering options that appear less tailored. However, both the mutual fund and annuity plan I’ve mentioned are really strong options, no matter if you want to retire in five years or twenty.”

Amy knew she wasn’t particularly well-versed in finance, but her gut still felt uneasy at the thought of investing in a single product without hearing alternatives that could yield a similar result. She suddenly felt like running for the nearest exit and scooted back her chair as she stood, surprising Jon mid-pitch.



See how Amy reacts to this 403(b) rep. Does she stay or run out the door? Find out in the book “The Sterlings”.