Never Buy A Time Share

timeshare_bullshitOh time share, time share!

How do I hate thee? Let me count the ways.

I hate the way you are sold. I hate they way timeshares give the appearance of an ‘investment,’ when they are in fact the opposite of an investment. I hate the way financially distressed people buy you.

I’ve previously urged readers to never buy a variable annuity. Last fall I broke my self-imposed rule to never even mention the word bitcoin. Some day soon I’ll write about never buying gold. Taken together, time shares, variable annuities, bitcoin and gold are the Four Horsemen of your Personal Financial Apocalypse.

All four share the common characteristic of being packaged and sold as sound investments, when really they’re expensive, money-soaking, tricks.

For your benefit, I signed up for a timeshare pitch last week. I sacrificed an otherwise pleasant afternoon to multiple aggressive and manipulative sales techniques packed into 90 minutes. You’re welcome. I deserve a medal for bravery.

Roberto, my personally assigned salesman at Wyndham Resorts, asked me for fifteen minutes what kind of vacations I usually take, what place I like to go, and what people I go with. As I warmed up to describing past skiing and camping trips with my daughters, he asked me to share what kind of “feelings” I experienced with my daughters while on vacation. Oh, Roberto, thank you for asking.

always_be_closingPlunging deep into the hazy mist of emotions and family, I learned that timeshares are a legacy to pass on to my daughters. They promise “ownership” in perpetuity, yet every month charge “maintenance fees” which never go away. My editor at the newspaper is an heiress who “inherited” a Hilton Disney World timeshare from Dad. Hey, thanks Dad! It costs her $1,500 a year to maintain. With a handsome legacy like this, she may never be able to retire.

Once made dizzy by this emotional journey, Roberto began to bludgeon me with the fuzzy logic of timeshares. Since I already spend a certain amount of vacation money per year on my family – as he scribbled some numbers on a page – wouldn’t I like to “own” rights to vacation spots rather than “rent” as I have been doing up to now through traditional hotels? What if I could do that at less cost? More number scribbling followed, plus I would gain “Deed and Title” to vacation ownership. Roberto wrote “D & T” on the page and underlined it twice, so I’d really grasp the solidity of this type of ownership.

“Deed and Title?” That is such garbage. Ask anyone who has ever had tried to book timeshare vacations with points and you will quickly enter a world of “exchange fees,” added fees for “guest certificates,” fees for membership in the points exchange company, and heavy restrictions on usage. Can’t book your vacation with one and half years’ lead time? Sorry, all the places you want to go, at the listed “points” price, are blocked.

Have you ever noticed that carnivals and video game centers always work on a tokens or tickets system, rather than money? Timeshare venders use points for the same reason.

But back to my afternoon with Roberto:

wyndham_resorts_fraudHe repeatedly used the classic “anchoring” sales technique of saying the full price of their vacation point package would be $100,000, only to eventually offer a very similar package for around $27,000. Wow, I should have been thinking, what a huge discount. All just for me?

Actually, he made two offers, a bigger price and a smaller price. Given those two, he asked, which one seemed more attractive to me? This is the sales technique of making me feel like I’m cleverly in charge and actively choosing a smart, low-cost, option.

Were the offers made affordable? Well of course they were, because I can make a low down payment and borrow the rest. Wyndham offered to “finance” part of my purchase of the “Deed and Title” to their vacation points, at 13.99% interest. So that was really nice of them, assuming I don’t mind paying sub-prime mortgage interest rates.

When he heard I was in finance, my salesman focused on the clever “inflation hedge” aspect of these timeshares. Since the cost of hotels would be increasing by 10-14% in coming years (an #AlternateFact, but whatever) I should know that my points would always be worth the same amount forever, so I’d be better off buying today rather than waiting for another day.

Speaking of today, in a classic red-flag sales technique, Roberto would not allow me to take any of their marketing materials or specific offers home to “think about it.” The offer, of course, was “this day only,” with assurances that on any subsequent day I came back the offer would likely be worse.

four_horsemen_personal_financial_apocalypse
The Four Horsemen of your personal financial apocalypse: Time Share, Variable Annuity, Bitcoin, Gold

After I had declined to purchase the package, I was sent to an exit interview with a new person. Following a few cursory “how was your experience today” questions, she hit me up once again with an offer to purchase a smaller package, at an even lower price. Today only, of course.

In an earlier professional life, I networked with bankruptcy trustees, the people who sell off valuable assets of the estate of a person who goes bankrupt. You’re not going to believe this but trustees always, always, always had timeshares to offer.

The simple problem for bankruptcy trustees is that timeshares are worth nothing. No, that’s not quite right. Timeshares are worth less than nothing. They have negative value, because they cost money every year to maintain.

This is why Ebay is full of offers for timeshare vacation weeks, and hundreds of thousands of “points,” for $20, or $1. Or even $0.01. Check it out.

Caveat Emptor, or buyer beware, on any particular offering on eBay, obviously, but a scan of timeshare message board confirms that paying full price for a timeshare is a complete mug’s game.

timeshare_bankruptcyAll bankruptcy trustees become inadvertent experts in timeshares, and not just because they can never seem to sell these so-called “assets.” There’s clearly a positive correlation between people who go bankrupt and people who are tricked into believing timeshares are a good investment. Bankruptcy trustees tell a quiet joke amongst themselves that, by law in the United States, nobody is allowed to go bankrupt unless they have first purchased a timeshare.

The slogan of the entire industry should be: “Timeshares: All the costs of renting, none of the benefits of owning.” Catchy, no?

See, that’s why I don’t work in marketing.

 

A version of this post ran in the San Antonio Express News and Houston Chronicle.

 

Please see related posts:

Never Buy a Boat

Variable Annuities: Shit Sandwich

Bitcoins and Bullocks

Vacation camping with my daughter

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Shit Sandwich – Variable Annuities

In my favorite movie of all time, Rob Reiner recalls the two-word alliterative review of Spinal Tap’s unsuccessful second album “Shark Sandwich,” as simply “Shit Sandwich.’

The band members react to this shocking review with resentment, but also with a sense for what newspapers are allowed to actually say.

David St. Hubbins: “Where’d they print that?”

Nigel Tufnel: “That’s not real!”

Derek Smalls: “You can’t print that!”

Which bring me to my two-word review of an extremely popular ‘investment’ product known as the variable annuity. For variable annuities, I’ve got the same two-word review: “Shit Sandwich.”

variable_annuity_shit_sandwich
Variable annuities deserve the same two word review: “Shit Sandwich”

They Can’t Print That

As I wrote this, I knew the newspaper I write a column for wouldn’t carry my real review of variable annuities.1

Of course they won’t let me print a traditional four-letter word. But, for the record, I really don’t think scatology is why most media “can’t print that’ when it comes to my review.

No, they really ‘can’t print that’ because insurance companies are really important media advertisers and variable annuities are really profitable for insurance companies. Hence, you will rarely see an honest review of variable annuities in traditional media.

I’ve been a faithful reader of the Wall Street Journal for nearly twenty years. They are the best daily newspaper when it comes to finance. Just about every three months or so the ‘Retirement’ or ‘Investments’ section of the Journal has a special on annuities, including ‘variable annuities.’ Alongside these sections of course are a slew of brokerage and insurance company advertisements. (If you didn’t already know, that’s the point of these special sections. This is the nature of the Financial Infotainment Industrial Complex.)

That’s where the fun begins. The writers of the Wall Street Journal are smart, and they are also commercially sensible, by which I mean they know where their bread is buttered. So they do this funny tortured-writer’s dance when describing variable annuities. “New annuity guarantees raise questions,” mumbles one ambiguous headline, or “They’re changing our annuity!” writes another, in which, buried in the heart of the article, we learn of many things that can go wrong with these things, without the writer coming out and saying the one thing he or she clearly knows, which is “stay away from variable annuities if you plan on having enough money in retirement.”

Up until this point I haven’t really explained: What is a variable annuity? Also: why should you care?

I’ll start with the second question first. You should care because an overwhelmingly large number of people who don’t know any better have followed their investment advisor/insurance broker/retirement specialist’s advice and bought this shit sandwich, to the tune of approximately $660 Billion. And this overwhelmingly large number of people plan to use it as a main vehicle for their retirement. Don’t know if you have one? Check your retirement plan. Do you use an insurance company for your investments? If yes, chances are, sadly, you bought one of these.

But back to the first question:

What is a variable annuity?

The insurance companies claim that a variable annuity is an investment product that offers both things that every investor wants, namely ‘safety’ plus ‘good returns.’ The variable annuity appears to offer ‘safety’ via a guaranteed income in retirement. The variable annuity also appears to offer ‘good returns’ by adjusting the guaranteed income upward if stock markets do well during the investment period of the variable annuity.

Ok, so…safety and good returns sounds pretty nice…What’s the problem? The biggest problem is extraordinary fees. Like, probably, all-in fees of 3.5 percent per year on your portfolio, which is a serious drag on your money (but great for the insurance company!)

All appearances to the contrary, insurance companies are really not magical wand-wavers that offer the mythical unique combination of safety and good returns. They pretty much just invest your money in stock and bond markets (plus real estate and some derivatives I guess) just like you can directly, except instead of offering you the actual returns of the blended portfolio you bought, they offer you the returns of a blended portfolio minus decades of huge fees. A really dumb combination of stocks and bonds invested over decades will beat a similarly-invested variable annuity every single time. Because of the fees.

variable_annuity_fees

Other problems

There are some other problems with variable annuities which I’ll list here for completeness’-sake.

  1. Once in a while, but more often than we’d like, insurance companies totally miscalculate variable annuity payouts and throw themselves into receivership (a kind of bankruptcy for insurance companies.)
  2. State insurance regulators know this, so they really like to see heavy fees to accompany these products, to keep up the capital base of insurance companies, to avoid receivership. That’s not good for you.
  3. The other way insurance companies avoid receivership is to change the rules governing payouts after you’ve already bought in to the variable annuity. Yes, they do this, and that’s not good for you either.
  4. States typically charge a special tax on payouts from variable annuities, possibly to compensate states for that future receivership problem. Also not good.
  5. You owe ordinary income tax (meaning, top tax rates) on variable annuity income. Regular investments in taxable accounts, held for over a year, offer better tax treatment than this.
  6. Variable annuities are roach-motel investments. You can get in easily, but it’s hard to get out, typically unless you pay hefty “surrender charges” if you try to get out within a 5 or 10 year “surrender period.” This is, basically, unconscionable. My advice: Just make like the French army,2 take the pain, and move on to a better investment.
  7. Variable annuities come to you accompanied by unreadable documentation, incalculable payouts, and small-print ‘disclosures.’ Nobody buying into these things can actually explain to themselves how they work.3
  8. That lack of understanding includes your insurance broker. Ask him some time to explain, in plain language, why this is a better deal than a simple blended portfolio of stocks and bonds. Whatever his moving lips appear to say, the real answer is “my fat commission,” which runs about 5 percent of the amount you invested.

As I’ve written here before, I don’t sell any investment product for a living, and no investment company or insurance company is paying me, so I don’t benefit whether you follow my advice or not.

Variable annuities are good for the insurance company because they make excessive fees from them. They are good for your insurance broker/retirement specialist because of the commission.

variable_annuity_two_out_of_three
Good for the insurance company and great for your broker. Not good for you. But hey…

They are not good for you. But hey, as Meatloaf sang, “Two out of three ain’t bad.”

Newspapers of the world: I challenge you to print honest reviews of variable annuities.

But as Derek Smalls said, “They can’t print that.”

 

 

A version of this post, without the scatological reference, and with a toned-down version of my critique of how the Financial Infotainment Industrial Complex really operates, ran in the San Antonio Express News.

 

Please see related posts:

Very simple, final word, on how to invest

Stupid Smart People

Guest Post: The Simplest Investing Approach Ever

Insurance Part 2 – The Good The Optional The Bad

Insurance Part 1 – Risk Transfer Only

 

 

 

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  1.  I’m not so much concerned with the vulgarity. (Although my editor was!) After all, let’s talk truth for a moment: you can’t read the national or international news section of any ‘respectable’ daily paper without worrying that your curious ten year-old will glance over your shoulder and ask you for definitions of ‘beheadings,’ or ‘pedophile,’ or ‘systematic rape.’ I mean, we’ve got worse problems than a little scatology.
  2. Surrender immediately, obviously
  3.  Except apparently this guy at www.annuityreview.com who offers, for an initial $150 fee, (and who knows after that, maybe more?) to analyze your variable annuity and give you a ten page report on all of its features, pluses and minuses. I don’t have any ties to the service myself, I only saw it referred to in the WSJ, but it strikes me as a good idea for people already stuck with these roach motels. Also, note the fact that if you need a ten-page report to describe your investment product then that investment has violated the “Keep It Simple, Smarty” rule of investing.