The Financial Planning Fiasco - Infinite Banking Simplified · If you're tired of crossing your...
Transcript of The Financial Planning Fiasco - Infinite Banking Simplified · If you're tired of crossing your...
Regrets of Two Former Financial Planners
The Financial Planning
You Need a Major Paradigm Shift to
Create Sustainable WealthIsis B. Palicio, LUTCF, MBA
Pedro A. Palicio, MBA, Ph.D.
Fiasco!
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CONTENTS INTRODUCTION: Regrets of Two Former Financial Planners 2 CHAPTER 1: “Typical” Financial Planning Just Doesn’t Work ! 6 CHAPTER 2: Financial Insanity 10 CHAPTER 3: How Did We Get Here? 19 CHAPTER 4: The Infinite Banking Alternative 29 CHAPTER 5: Infinite Banking in ACTION! 33 CHAPTER 6: So, What’s Next? 46 About the Authors 48
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INTRODUCTION:
Regrets of Two Former Financial Planners
Tenyearsago,welefttypicalfinancialplanning.Wehadcomeintoitwithhighexpectations.Wehadahighdegreeofsuccessinashortperiodoftime.Andweleftbecausewewerehavingacrisisofconscience.
Wehadpreparedlongandhard,earningourSeries7,Series24andSeries65licenses.Wehadbuiltaclientbasedoingallofthethingswelearnedfromotherfinancialplannersinouroffice.
Andthen,weabandonedthetypicalfinancialadvicewehadbeendolingout,evencallingclientstoletthemknowtheadvicewehadgiventhemwasmistaken.
Why?Becausewenolongerfeltthat"typical"financialplanningadviceallowedustodowhatwasbestforourclients.
Wehadcometobelievethatwhatweweretellingclientswasmisleadingatbest,andatworse,flat-outWRONG.
Togiveyouapeekbehindthecurtain,letustellyouwhatit'slikeinatypicalfinancialplanningoffice.
Clientswouldcomeinwithquestions."HowmuchdoIneedtosave?""WhereshouldIinvest?""WillIhaveenoughmoneytolastinretirement?"
Inturn,weaskedTHEMquestions."Whendoyouwanttoretire?""Whatkindofincomeandlifestyledoyouwant?""What'syourrisktolerance?"Andthirtymorequestionstheclientsoftenhadnowayofaccuratelyansweringfromwheretheysat.
(However,wedidn'taskthemtoanticipatehugestockmarketcrashes,divorce,orspellsofunwantedunemployment.)
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First,theclientwouldguesswhentheymightwanttoretire,howmuchtheycouldsave,andsoon.Then,asadvisors,wewouldmakeguessesandassumptionsabouthowmuchtheirinvestmentsmightearnandwhatfuturecosts,taxes,andinflationmightbe.
Next,we'dplugallofourguesstimatesintoacomputer.Usingourcompany’simpressivenumber-crunching,graph-generatingsoftware,we'dcreateimpressivefull-colorillustrations,anddelivertheir"financialplan"totheminabeautifulbinder.
Thepeoplewhoreceivedthemfeltreassuredthattheywere"ontrack."They'dthankus.They'dstartwritingchecks.Andthebosswouldcongratulateus.
Butitwaspureguesswork.(Theirsandours.)
Itwasaninsanesystem,allbasedonenormousassumptions.Thequestionsandanswershelpedusbuildarelationshipandcreatetrustwiththeclient,butdidwedeservetheirtrust?It'sabsurdtoimaginewecouldactuallypredicttheirfutureincome,alongwithtaxes,inflation,theirchildren'scollegeplans,andthemarket!
Whendoassumptionsholdtruefor25,30,40+years?Whohasn'thadtheir"best-laidplans"disruptedbyrealitiestheydidn'tseecoming?
Oftenabitnervousaboutthefuture,mostclientswererelievedtogetadviceandfollowedrecommendationswillingly...eveniftherecommendationsmostlyconsistedofputtingmoneyinthestockmarketeverymonthandhopingitallworksout.
Butinside,weknewwecouldn'tguaranteetheirfinancialsuccessanymorethanwecouldguaranteetheweather.
Weknewweweregivingpeoplefalsehopes,andtellingthemthingsthatwehadnobusinesstellingthem.
Andwejustcouldn'tdoitanymore.
***
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Thisisourstoryofwhyweturnedourbusinessmodelupsidedown,abandonedourSeries7andSeries24licenseswehadworkedsohardtoearn,andwhywestruckoutonourownandnolongermanageassetsorsellmutualfunds.
ThiseBookisalsoanintroductiontotheInfiniteBankingConcept,whichisatruealternativetoFinancialPlanning.InfiniteBankingisasetofconcepts,philosophies,andstrategiesthatWORK;theonesusedbymanywealthypeoplewehaveknownandobserved.
Yourbankerandyourfinancialplannerwillnevertellyoutheinformationweareabouttosharewithyou.
Theyprobablydon'tevenKNOWit-orunderstandit-tobeginwith.(Andlet'sbehonest-mostofthepeopledoing"financialplanning"areessentiallysalespeople.)
Financialplannersmaybewell-educatedandtheymayhavemanylettersaftertheirnames.(Weknowwewereandwedid.)Theymayevenchargeafeefortheiradvice.Butthey'reoperatingfromaskewed,limitedperspective,whichiswhatwehadtocometotermswith.
Wecametorealizethatperhapswewerejustwell-taughttobelievein(andnotquestion)theproductsandstrategieswewereselling...andwewerenottaughtthattherewereotheroptions.Betteroptions.
Wehadtogosearching,butwhenwedid,wediscoveredthosebetteroptions.Theyweretheconceptsandstrategiesthathavehelpedpeoplebuildsustainablewealthformanydecades,evencenturies...longbefore"FinancialPlanning"evenexisted.
We'llsharemoreaboutthatalternativeandwhywefounditnecessaryinthefirstplace,butfirst...Letussayhowgratefulwearethatyou'vefoundyourwaytothiseBook!Wetrulyhopethislittlebookandtheresourcesthatfollowwillallowyoutoseethingsalittle(orperhapsalot)differently.
Andbeforewegoontothenextchapter,wehaveafewsimplerequeststomake.
First,weencourageyoutoreadthisentireeBook,rightnow,oratleastwithinthenext24hours.Whetherthisperspectiveisnewtoyouorwhetherit'sjustareminderofwhatyoualreadyknow,weencourageyoutonotletthepriceofthisinformation(free)diluteitsvalue.
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Secondly,weaskthatyoukeepanopenmindif(orwhen)theinformationwepresentcontradictswithwhatyoualreadybelieveorknow.Tryontheideas,doyourownresearch,andconsideriftheremightnotbeotheralternativesworthtryingthan"typical"financialstrategiesandadvice.
Lastly,please,don't"just"readthiseBook.Takeaction.Yourmoneyandyourfuturedependonit.Whetheryoudecidetoworkwithusorsomeoneelse,weaskthatyoudosomethingtoimproveyourfinancialsituation.It'sajourneyworthtaking.
AndifyoureadthiseBookanddecidethatInfiniteBankingmakesmoresensethantypicalfinancialplanning,you'llwanttocontactustofindouthowyoucanalignyourfinancesforgreatersuccess.
Ifyou'retiredofcrossingyourfingersandhopingthatthestockmarketdoesn'tcrash,butdon'tknowwhatelsetodo,wejustmayhavetheanswersyou'relookingfor.
We'retakingbackourthinkingandourmoneyfromtheinstitutionsandcorporationsthattoooftenputtheirownbestinterestsfirst.
Werepresentadifferentpathtofinancialindependence...aless-traveledyetprovenpaththatwillhelpyoubuildwealthwithgreaterconfidence,morecertainty,andlessworry.Weadvocatethisalternativepathbecausethetruthofthematteristhis:
Typicalfinancialplanningandadvicehasfailedus.
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CHAPTER 1:
“Typical” Financial Planning Just Doesn't Work!
Weenteredthefieldoffinancialplanningwithgusto,optimism,andtheenthusiasmoftruebelievers.Atfirst,financialplanningwasexactlywhatwehadhopedfor-achancetobesuccessfulthroughhelpingpeoplefinancially.Butovertime,disillusionmentsetin. Financialplanningsoundedlikeagoodidea,andit'scertainlymuchbetterthandoingnothing!Butaswelearned,itwasallbasedonbestguesses,assumptions,unfoundedoptimismandmathematicalhalf-truths.
Peopleareledtobelievetheycanexpecttoearncertainreturnsinthestockmarket.(Somefinancialgurusevenassurepeoplethey'llearnanaveragereturnof12%overtimeinthestockmarket,anumberthatisNOTbasedinhistoricalfacts!)
Clientsaretoldaboutthewondersofcompoundinginterest,butlikelynotabout
• howfeesalsocompoundovertime,• how"average"ratesofreturndon'tequal"actual"ratesofreturn,• thefactthattarget-datefundsdon'tprotectpeoplefromriskasassumed,or• whyspeedtradinghasmadetoday'smarketmorevolatilethanthestock
marketourparentsinvestedin.
Furthermore,investorsareencouragedtodefertaxeswithoutseriouslyconsideringthepotentialimpactthedeferralswillhavewhentheyactuallyspend"their"money.
Orworse,investorsareassured"yourtaxratewillbelowerwhenyouretire,"whentheoppositemightbetrue!(Whothinkstaxesaregoingdown,orthatthey'llbesomehoweasiertopayafteryoustopworking?)
Thenthereisthemath.It'sacruellietoletmostpeoplebelievethattheycanworkfor40years,saveasmallpercentageoftheirincome,thenquitworkingand"retire"fordecadesofhighinflationtocome.Yetthisistheculturalexpectation,whatwethinkis"supposed"tohappen.
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Behindthescenes,thoseofuswhowerepayingattentionbegantorealizethattherealnumbersrarelyaddeduptotheprojections.
Formostpeople,thenumbersflatoutjustdon'twork.Peopledon'tsaveenough.Manypeopleonlysave2%oftheirincome,thinkingtheycan"makeitup"withmiraculousratesofreturninthestockmarket.(Buttheycan't.)
Theyfindtheirinvestmentsdon'tearnenough.Marketsriseandfall.Inflationisunderestimated,asistheenormoustollthattaxesandthose"tinylittlefees"willtake(which,formanyinvestors,canbeHALFoftheirretirementaccount...orMORE!)
Whathappenswhenthenumbers"don'twork"?Whatdoplannerssaytoaclientwhojustdoesn'tearnenoughorcan'tsaveenoughtoEVERreachtheirretirementdesires?Thetruthisadirtylittlesecret:
Inmanyfinancialplanningenvironments,plannersaretaughthowtotweakthenumberstomakefinancialplans"work."
Typicalplannersandbrokersmightuseaverageratesofreturnofthestockmarketbecausetheactualratesofreturn(whicharelowerthantheaverages)don'tlookasimpressive.
Thetimeframesusedtocalculatepastmarketaveragesarecarefullyselectedtoshowthestockmarketinthebestlightpossible.
Illustrationsarerunthatdon'taccountforallofthefees.Ortaxes.Orrealisticratesofinflation.Orinvestorbehavior.Ortheclient'struepotentiallongevity.
Astheexpressionsays,"Thedevilisinthedetails."Thatiscertainlytruewithtypicalfinancialplanningandadvice.Thefancygraphsandchartsgiveth,andthefineprinttakethaway.
It'stimetotelltheTRUTHaboutfinancialplanning,retirement,andthemarketsthatwethinkwillsaveus.
TheTRUTHisthatthesuppositionsoffinancialplanningarebasedonacombinationofguesswork,mathematicalprojections,andwishfulthinking.
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TheTRUTHisthatevenwhenpeoplebelievetheyare"ontrack,"theyaregenerallyundersaving.
TheTRUTHisthatevenmillionaireswhohavefollowedtypicalfinancialadvicearenowafraidtospendtheirprincipalforfeartheywilloutlivetheirsavings.
TheTRUTHisthatmostpeopleonlyhaveenoughinsavingstolivethelifestylethey'vegrownaccustomedtoforadecadeatmostbeforetheybecomedependentonthegovernmentortheirfamily.
TheTRUTHisthatmost"typical"plannersandbrokerscrosstheirfingersandpraythatthestockmarketdoesn'tcrash,becausetheydon'tknowwhatelsetodo.
ButtheproblemsgoevenDEEPERthanunrealisticexpectationsandoptimisticmath!
TheTRUTHisalsothatfinancialplannersandadvisorsarefinanciallyREWARDEDwhentheyconvinceclientstoputandkeeptheirmoneyatrisk!
(It'sjusthowthesystemworks...advisorsaretypicallypaidfor"assetsundermanagement,"andthoseassetsaretypicallyatriskinthestockmarket.)
Thenthereareallthe"half-truths."(Andun-truths.)
Conventionalwisdomsays,"Getagoodjobandmaxoutyour401(k),"butthatisrarelyhowwealthisbuilt.
Thefocusisputonaccumulation,eventhoughpeoplemustLIVEoncashflow.
Peoplearetoldtopaycashfortheircarsandprepaytheirmortgagesearly,insteadofputtingthatextracashtoworkforthemtobuildcash-flowingassets.
Financialguruspreach"Buytermandinvestthedifference,"eventhoughmanyrichandsuccessfulpeoplethroughouthistoryhavedone-andstilldo-theopposite.(Sometimes,theappropriateanswertothewholelifevs.termdebateis"both.")
Retirementisassumed,insteadofthepossibilitythatpeoplemightbepassionatelyproductiveatanyage.
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Peopleareprogrammedtobelievethatsomehow,they'llspendlessinretirement,inspiteofinflationandlifestyledesires.
Financialprojectionsassumethatretireeswillbeina"lowertaxbracket"inspiteoflogicthatsaysotherwise.(Thismythandtheoneabovepersistsbecausetheyarenecessarytomakefinancialplans"work"-atleastonpaper.)
Thenthere's"PlanB"-whenunexpectedlifeeventsderaileventhebestofplans.
Whenthejob,orthestockmarket,orthemarriage,ortherentalhousedon'tgoaccordingtoplans,peopleneedmoney.Andwhenpeopleneedmoney,theytypicallyraidtheir401(k)sorIRAs,incurringpenalties,incometaxesataninopportunetime,andevenbackendsalesfees.
Andretirementaccountsmakepoor,inefficientemergencyfunds.
Ironically,thebest-laidfinancialplanssometimesmakepeopleLESSpreparedtoweatherafinancialstorm!AccordingtoBloomberg.com,nearly10%ofAmericanswithretirementaccountsarefindingitnecessarytocashpartoralloftheiraccountsoutearly,tothetuneof$57billionin2011alone.
Thefactis,"Planning"ofanykindcanbeajoke,becausewhendoeseverythinggoasplanned?What'sthesaying-"Manmakeshisplans,andGodlaughs."Sotrue!
Afewyearsintoourcareersasfinancialplanners,wecametoahardrealization:
Financialplanningjustdoesn'twork!
Whileitmaybebetterthannothing(thoughyoucouldarguethatfalsesecurityisworsethaninsecurity),thefactisthatit'sabrokensystem.
Andtokeepfollowingthesameadviceanddoingthesamethingsandexpectingadifferentresultissimply...insane.
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CHAPTER 2:
Financial Insanity
What'ssowrongwithtypicalfinancialadviceanyway?Let'sexploresomeofthecommonproblemswithtypicalfinancialplanningandhowtheInfiniteBankingConceptoffersanalternativepath.
MoreRisk,LessControl.
Typicalfinancialplanningassumesthatyouarewillingtolosemoney,andthatthemoreyou'rewillingtolose,thefasteryourportfolioislikelytogrow.Butisthistrue?
Wehavebeenconditionedbyriskassessmentprofilestothinkthat"safe"or"predictable"equalsalowreturnoninvestment,andhighriskequalshighreward.Butperhaps...themorewe'rewillingtotoleratelosing,thegreaterchancewehaveofloss!
We'reconditionedtobelievewemusttakebiggerrisksifwewantachancetoearnhigherreturns,butagain,isthistrue?Or,aretherealternativestostockmarketrisksorcashequivalentsthatgrowatasnail'space?
Typicalfinancialadvicepresentslimitedoptions.Essentially,thequestionsontherisktoleranceformsareaskedtodeterminetheappropriateratioofstocksvs.bonds,asifstocksandbondsarethebest,oronly,validinvestments.
Ourownpersonalrisktoleranceiszero,wehavenotoleranceforlosingmoney;ourorourclients.
Buttypicaladviceispredictable:unlessyou'reveryclosetoretirementorextremelyriskaverse,you'retoldyoubetterbemostlyinstocksorstockmutualfundsratherthanbonds.(Notthatwe'readvocatingstocksasthe"solution.")
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Unlessyouhavetheabilitytoearnandsave(orperhapsinherit)verylargesumsofmoney,typicalfinancialplanningoffersyounooptionstogrowyourmoneyotherthantoplaceitintheWallStreetCasinoandrollthedice.
Whenitcomestoyourfutureandyourhard-earnedmoney,doyoureallywanttorelyonspeculation,hopingthatshareholderpricesriseinsteadoffall?
Or...wouldyoupreferalternativeswithpredictablegainssecuredbyrealassets?
InfiniteBankingdemonstratesthatinvestmentssecuredbyassetssuchaslifeinsurancepoliciescanprovideatruealternative-ordiversification-tothestockmarket.Ulcersnotrequired.
TheMoneyManagersvs.theMonkeys.
Ofcourse,you'renotliterallygamblinginthestockmarket,right?You'replacingyourmoneywithestablishedfirmsthatemployprofessionalmoneymanagers...surely,theyknowathingortwo.(Right?)
Actually,manystock-pickingcontestshavedemonstratedthatportfolioschosenbymonkeys,cats,randomdarts,orfourth-gradersoftenoutperformprofessionally-managedfunds.
Thetruthisthatnobodyhasacrystalball,andthemarketisunpredictable.(Themonkeysmayalsohaveanadvantagebecausetheydon'tchargehighfeesorcollectbigbonuses.)
Thegreatmajorityofstockbrokers,moneymanagers,andfinancialanalystsalikewereSURPRISEDbythestockmarketcrashof2008,thebiggestdeclineinmanydecades.
Thisfactoughttoraiseseriousquestionsaboutwhatinvestorsarepayingfeesforinthefirstplace!
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Furthermore,theambushofthe2008stockmarketcrashshouldcallintoquestionwhattheroleofafinancialadvisorshouldbe.Sincefewplannersareeffectivefinancialpsychics(norshouldweexpectthemtobe),perhapstheyoughttobedirectingustoinvestmentsthataren'tsovolatileinthefirstplace!
Whileitmayseemlogicalforthefinancialexpertsamongustoprotectourmoney,weshouldn'texpectthefinancialcorporationsthatmakebillionsfromAmericansriskingtheirmoneywillleadthatchange.
InfiniteBankingdoesnotrelyonspeculationandguesswork,butonaprovenvehiclethatmakessense.Returnsarepredictable,atleastwithinarange.
"ButEverybody'sDoingit!"
You'remadetofeellikeyou'redoingsomething"risky"orevenfoolishifyouinsistoncontrollingyourownmoney!Butisitreallyriskytoinsistonprovidingyourownfinancing,startingabusinesstobuildyourownincome,orbuyingassetsyoucanseeandunderstand?
Nevermindthatyoucanreceivehealthyreturnsandevensteadypaymentswiththeselesser-knownstrategies...
NevermindthatthehistoricalsafetyandperformanceismostofthetimeBETTERforInfiniteBankingstrategiesthantheinvestmentsthefinancialcorporationsaretryingtosellyou...Afterall,yourinnerskepticmayask,ifthesealternateinvestmentsactuallyworked,wouldn'teverybodybeusingthem?
We'vebeenconditionedtobeskepticaltowardsthefinancialchoicesthatactuallymakeMOREsense,butnottoquestiontheoptionsthatofferinvestorspoororunpredictableresults.
Whenyou'refacedwithadecisiontosinkyourhard-earneddollarsintostocksyoucan'tcontrolandfundsstuffedwithfinancialinstrumentssocomplexittakesmultiplePh.D.'stocomprehend,rememberyourmother'squestion:
"Ifeveryoneelsejumpedoffacliff,doesthatmeanyoushould,too?"
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InfiniteBankingisastrategythatWORKS.Infact,sometimeswehavetoworkHARDERtoselltheBESTstrategy,becausethefinancialmediaworksover-timetoconvinceyouthatit'sNORMALandNECESSARYtokeepyourmoneyatrisk!
TheQualifiedPlanQuandary.
Ifyoufollowtheadmonitionsto"maxoutyour401(k)"orothergovernment-approvedqualifiedplan,you'reactuallylosingcontrolofyourassetstothegovernment,thestockmarket,andtherulesofyouremployer.
Youdeferincometaxesuntilretirement(whenyoucanafforditleast),giveupwhatcouldhavebeenlessercapitalgainstaxes,andpaylayeredandoverblownmanagementfeeswhichdrainenormousamountsofmoneyfromyourretirementplan.
Justhowmuchwillyoupayinfeesandtaxes?Youwilllikelypaymoreinincometaxesthanyourtotalcontributionstoyourretirementplan!
Thisisbecausedeferringtaxesinaqualifiedplanmeansthatyou'llpaytaxesontheharvestratherthanjusttheseed.
Itistruethatbyputtingpre-taxdollarsintoaqualifiedplan,you'llhavemoremoneygrowingforyou(andtheplannersandmanagerswhoskimfeesfromiteachyear,alongwiththegovernmentthatwaitsforitsshare),butyou'rerunningtheunnecessary-andlikely-riskofhighertaxesinthefuture.
Italsomeansthatyou'llgethitthehardestifyouhavetowithdrawmoneyinadownmarket.
Thistypicalstrategyalsopsychologically"fools"investorsintothinkingtheyhavemorethantheyreallydo...becauseagoodportionofthemoneyin"your"retirementaccountwillgotopayfuturetaxesandfees.Itgivespeopleafalsesenseofsecurity.
YoucanenduppayingoutTWICEinmanagementfeesandcommissionsthantheamountyou'reputtingintotheplan!(Yes,inadditiontotheinflatedtaxbill!)
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Thenumbersareshocking.Retirementcontributionstotaling$400kcangenerate$575kinmanagementfees,assuminganaverageinvestmentrateofreturnof6%.Atanaveragerateofreturnof8%,thequalifiedplangivesupawhopping$834kinfees!
Howisthispossible?Howcanyoucontribute$400kandpay$834kinFEES!?(Theexampleassumed30yearsaccumulation,20yearswithdrawals,andtotalplanmanagement,administrationandfundfeesof2.5%.Mostinvestorsthinkthey'repayingless,butthat'sfairlyaveragewhenallofthe"hidden"feesarefound.)
Payingsuchbloatedfeesisacommonoccurrencebecausecompoundinterestdoesn'tjustgrowyourmoney-italsogrowsCOSTSaswell.
JohnBogle,founderofVanguard,calledthisthe"tyrannyofcompoundingcosts,"andtheresultsarestaggeringtocomprehend.It'snowonderWallStreetspendsbillionslobbyingtheDepartmentofLabortoauthorizeautomatic401(k)contributions!
Worstyet,eventhoughit's"YOUR"money,youcan'tactuallyUSEitwhileothersareprofitingfromit!Youhavetofollowyouremployer'sandthegovernment'srulesonwhatyoucan(andcan't)dowithyourmoney.
Forinstance,youcan'tleverageorborrowagainstyourmoneyinaretirementaccounttouseascollateralformajorpurchasesorasseedmoneytostartabusiness.
True,youcansometimesborrowmoneyforcertainlimitedpurposes,aslongasyoupayitbackaccordingto"therules."Youcanalsooftenwithdrawfundsandpaythepenaltiesaswellastaxesintheprocess,butindoingso,you'llalsobegivingupthegainsthatmoneycouldhaveearned.(Theinterestyourmoneycouldhaveearnedisyour"opportunitycost.")
InfiniteBankingtakesopportunitycostsintoaccount.ItalsoencouragespeopletotakecontroloftheirOWNmoneysothatitbenefitsTHEMfirstandforemost,notthefinancialcorporationsorthegovernment!
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TheTarget-DateDisaster.
Themostpopularvehiclefor401(k)sandotherqualifiedplanshasbecometarget-datefunds.Overwhelmedwithoptionsofendlessmutualfunds,investorsandemployersalikelovetheset-it-and-forget-itsimplicity."Justpicktheyearyouwanttoretire,andsitbackandrelax!"
Itsoundssosimple...aprofessionallymanagedfundthatautomaticallyreallocatesmoneyperiodicallytoassureinvestmentrisklowersasretirementapproaches.Insteadofhavingtomanuallymakecontinuedadjustmentsinyourportfoliotosecureyourretirementfundsfromstockmarketriskastheyearsprogress,atarget-datefundpurportstodothatforyou.
Whatcouldpossiblygowrong?
Thenthemarketcrashedin2008.Participantsinthe2010retirementfunds-peoplewhointendedtoretireinthenextyearortwo-lostsubstantially.
Insomecases,target-datefundsdroppedevenMOREthantheS&P500!
Oops.
Target-datefundsweresupposedtoglideinforasafeandsecureretirementlanding,butmostofthetarget-dateparachutesfailedtoopen.Thebulkofmanytarget-datefundswereSTILLinthestockmarketevenasretirementdatesapproached-orpassed,thusfailingtoprotectinvestor'sretirementfunds.(Andunfortunately,strategieshavenotchangedandtheresultwillbethesamethenexttimethestockmarketdrops.)
Therearemanyotherissueswiththefundsaswell.Performancehasbeenlacklusteratbest,disastrousatworst.Theirpredetermined,formulaicdesigndoesn'tallowfordrasticreallocationsinresponsetomarketconditions.Andfeesarehigh:as"fundswithinafund,"manyhave"feesuponfees."
And,ironically,althoughtarget-datefundsaimtosimplifyinvestmentdecisions,they'retremendouslyconfusing!
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Withoutanalyzingthepagesoffineprintthattheauto-investingtargetmarketwashopingtoavoidinthefirstplace,there'snowaytoknowwhatafundiscomprisedof.Target-datefundswiththesametargetyearbutfromdifferentcompaniescanvarywildly,creatinga"buyerbeware"situationforaproductthat,unfortunately,continuestosellitself.
Weagreethatinvestingshouldn'thavetobehard,buttarget-datefundsarenotthesolution.InfiniteBankingutilizesafinancialvehiclethatactuallyisset-it-and-forget-itsimple.
WhateverHappenedtoSaving?
Typicalfinancialplanningdownplayssavinginfavorofinvesting,i.e.,"assetsundermanagement."Whilesavingmoneymaybetalkedaboutfondly,actuallyestablishingatrulyadequateemergencyfund,andbuildingliquidityinone'spersonaleconomygetslittlemorethanlipservice.
ManyAmericansthinktheyare"saving"intheir401(k),butasaresult,theydon'tactuallyhavemoneywhentheyneedit.In2011,astherecessioncontinued,over$57billiondollarswascashedoutfrom401(k)plansearly,costingplanparticipantspenaltyfeesaswellastaxesandopportunitycosts.OnestudyreportedasmanyasoneinfourAmericansareborrowingfromretirementaccountstopaybills,suchastheirmortgage,collegetuition,evencreditcardpayments.
SavingsandinvestingareBOTHimportant,anditisactuallySAVING,notinvesting,thatbuildsourfinancialfoundationandflexibility.
Savingappropriatelywillenableustolaterinvestwithoutresortingtoliquidatingourinvestmentseverytimewehaveafinancialemergency.Butsavingisn'tjustforthosewhoarestartingoutandestablishingemergencyfunds.Savingisanessentiallife-longhabitthatprovidesliquiditytoone'slifeandbusiness.
InfiniteBankingencouragespeopletosavebefore(andduring)investing,tosavefor"opportunities"aswellasemergencies,andtomeasureopportunitycostsbeforepayingcashformajorpurchases.
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Butwherecanyousafelysavewhereyourmoneycanoutpaceinflation?Thelow-interestrateenvironmenthasturnedaccumulatedwealthintomeretricklesofincome.Thesedays,evenmulti-millionairesarechallengedbylivingoffinterestifitisheldinbanksavingsaccountsandcertificatesofdeposit!
InfiniteBankingutilizesasafe,reliable,tax-advantagedcashalternativewithmultiplebenefitsandtremendousflexibilitythatgeneratesstrongerreturnsthanbankaccounts,CDs,moneymarketfunds,annuitiesortreasurybills.
BankINsecurity.
Speakingofsavingmoney...everyoneassumesthatthesafestplaceforyourmoneyisinanFDIC-insuredaccount;meanwhile,theFederalReserveonlyhastheequivalentofabout2%ofthenation'sbankdepositsintheirreserves!Thismeansthatiftherewaseverarunonthebanks,itwouldsoonbecomeevidentthatourbankingsystemisjustoneenormousfractional-reserve-bankingPonzischeme.
Butthefinancialsystemdoesn'thavetocollapseforyoutolosesavings.Cyber-crimesandfraudstripmoneyfrombankaccountseachyear,andgovernmentagenciessuchastheIRSandlocallawenforcementhavebeenknowntoconfiscatefundsfrombankaccountsinaprocessknownascivilassetforfeiture.Shockingly,wrong-doingmerelyneedstobe"suspected,"notproven.
However,themostlikelythieftostealmoneyfromyourbankaccountisinflation.Atcurrentbankrates,having"moneyinthebank"isaguaranteethatyourwealthisbeingeroded.
That'swhyInfiniteBankingutilizesanalternativetotheBigBanksforstoringcashsafely,andacashflowalternativetoCD'sthatgeneratessubstantialcashflowforthosewhoneedtheirinvestmentstoearnincome.
ThesadtruthisthatAmericansarebeingsoldapathwaytowealthbythefinancialindustrythatisactuallyleadingusinthewrongdirection.
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Ourprimary"investments"havebroughtusgreatinsecurityandtheinabilitytotrulyplanonorcountonanything!Theinducementstostopworkingatage65havealsobetrayedus.Wehavelessstability,lesscontrol,lessrealprosperitythaneverbefore.
EarningInterest-orConflictsofInterest?
Tocomplicatemattersfurther,manyAmericansaregetting"financialadvice"fromthosewhoarenotevenobligedtoadviseinvestorsaccordingtotheinvestors'bestinterests!
Brokeragehousesandfinancialrepresentativesgenerallyoperatefroma"suitability"standard,whichmeanstheymustsellproductsthatare"suitable"foryoursituation(i.e.,yourrisk-averseretiredgrandmothercan'thavehernesteggplacedinaggressivestocks),buttheycanrecommendfundsorproductsthatpaythemthehighestcommission,evenifit'snottheBESToptionforyou!
Advisorsandplannersthatoperatefromafiduciarystandardorplatformcommittoservingthebestinterestsoftheirclients...evenifthatmeansNOTsellingaproductatall!
However,eventhefiduciarystandarddoesnotguaranteethatyou'llreceiverecommendationsfortheBESToption.
That'sbecausemostfinancialadvisorsoperatefromalimitedperspectiveandwithlittleawarenessofalternativeproductsandstrategiesthatmightbeBETTERchoices.
Andthat'swhyweassert...
"Typical"financialplanningandadviceisinsane.
So,wherediditallgowrong?
HowdidwegetINTOthismess?Andmoreimportantly...
WhatcanweDOtoprotectourselvesandescapetheinsanity?
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CHAPTER 3:
How Did We Get Here?
WealthypeoplehavealwayspracticedwhatwecallInfiniteBanking.Therefore,itishelpfultolookathowpeoplebuiltwealthpriortotheexistenceofthefinancialplanningindustrytoseewhatwentwrong. Priortotheriseofthefinancialplanningindustryinthe1970's,themost-usedstrategieswere"savingsaccounts,wholelifeinsurance,andthehomemortgage,"accordingtoSteveUtkus,directoroftheVanguardCenterforRetirementResearch,asquotedinthebookPoundFoolish.
WereAmericansmorefinancialsavvythen?Theydidn'tneedtobe,becausethetypicalfamily'sfinances-andfinancialproducts-werelesscomplicated.
Nobodyneededtoknowthedifferencebetweenindexfundsandexchange-tradedfunds,hedgefundsandtarget-datefunds.Andnobodyneededtounderstandthedangersofderivatives,credit-defaultswapsandcollateralizeddebtobligations.
Stockbrokerageaccountswereprimarilyfortheupper-middleclassandthewealthy-thosewhocouldaffordtotakesomeriskswiththeirmoney.Thecostofentrytothestockmarketwashigher,andtheaveragepersondidnotyethavethesortof"easyandautomatic"accesstostockmarketandmutualfundinvestingthatexiststoday.
Peopletrackedtheirsavingsinsteadoftheircreditcarddebt.Overtime,homesturnedintofree-and-clearassets,ratherthanusedascollateraltorefinancecreditcards.
Thenumberonefearwaspublicspeakinginsteadofrunningoutofmoney.
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Lifeinsuranceprovidedforwidows,widowers,andotherheirsleftbehind,andthegreatmajorityofpoliciesprovidedlifelongsavingsinadditiontoprotection.In1976thegreatmajorityofpoliciesissuedwerewholelifepolicies.
Today,typicalfinancialadvicesaystopurchaselifeinsurancejustuntilourkidsgrowup,thengetridofitbeforeweneeditthemost.
Muchmorethansimplyashiftfrom"permanent"to"temporary"terminsurance(whichdefinitelyhasitsplaceandfillsagenuineneedforaffordableprotection),thisshiftispartofalargershiftinsavingspatternsandliquidityofU.S.households.
Personalsavingsratessoaredtoapeakof14%in1975andbottomedoutpost-2000atlessthan1%.Evenatmorerecentsavingsrateshoveringaround4-5%,Americansarestillspendingsignificantlymoreoftheirincomeandsavinglessofitcomparedtoearliergenerations.
Thedeclineinsavingsisamajorfactorinthefinancialchallengesthatweface.Fortunately,savingmoneyissomethingthatwecancontrol.Itmaynotbeeasy,andittakesbudgeting,discipline,achangeofprioritiesandachangeofhabits.Butsavingmoneyispossible.
Longevityisalsoakeyeconomictrend.Again-there'sGOODnewshere,consideringthealternative!Whencombinedwiththetrendofretirementat65,longevityturnsinto(inthelanguageofmutualfundmanagers)a"risk."
Typicalfinancialadvicetellsusthatthesolutiontolowsavingsratesandlongevityistochasehigherratesofreturninthestockmarket.Butthisadvicehasonlyservedtocreatemuchfinancialinsecurity.WerecommendthatyoufindworkyouLOVEtodosothattotal"retirement"becomesunthinkable.Asabonus,theworldgetstobenefitfromyourcontributions!
TwootherfactorsthathavechangedthefaceoftheAmericaneconomy,perhapsmorethananyother,aretheadventofSocialSecurity,andtherise-andsubsequentfall-ofpensionplans.
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PriortothedepressionandtheSocialSecurityActof1935,therewasnosuchthingas"retirement."However,theGreatDepression(triggeredbyastockmarketcrashalongwithashrinkingmoneysupply,complimentsoftheFederalReserve)broughtsky-highunemployment.Asyoungerworkerswithfamiliestosupportstruggledtofindwork,itwasdeterminedthatforcingolderworkersoutoftheirjobswasthesolution.
PresidentFranklinD.RooseveltproposedtheSocialSecurityActtosolvetheproblemofunemployment,essentially"bribing"workersintheir60'storetirebyofferingthemasafetynet.Itworked,andcompaniesfollowedsuitbyencouragingandevenmandatingretirementatvariousages.
Thus,beganthe"safetynet"andasetofculturalexpectationsthat,alongwithincreasedlifeexpectancies,hasevolvedintoanunsustainablesituation.
Between1945and1965,thedeclineinworker-to-beneficiaryratioswentfrom41workersperSocialSecuritybeneficiarytoonly4workersperbeneficiary.AccordingtoMercatus.org,todaytherearejust2.9workersperretiree—andtheratioisexpectedtodroptotwoworkersperbeneficiaryby2030.
Simultaneously,defined-benefitpensionplanshavealsobecomeunsustainabletothecorporationsthatonceembracedthem.PensionplansgrewinpopularityafterWorldWarIIand,untilacoupleofdecadesago,wereoftenconsiderednecessarytoattractqualityemployees.However,asretireeslivedlongerandascorporationsfoughttocontrolcosts,defined-benefitpensionfundsbegantobereplacedwithdefined-contributionplanssuchasthe401(k).
Onceagain,increasedlifeexpectancieshadaprofoundimpact.Eachyearofadditionallifeexpectancywouldcostcorporatepensionplanshundredsofbillionsofdollars.
Realizingtheycouldnotsupportseniorswhoquitat65andliveduntil90andbeyond,manycompaniesabandonedpensionplansorcombinedthemwithdefined-contributionplans,shiftingmostoralloftheresponsibilityofretirementsavingsontoemployees.
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Today'spensionplansoftensufferfromthesame"typicalfinancialplanning"problemsthataffectindividuals.Theyaretoooftenunderfunded,relyingonmarketmagictoturntoo-smallcontributionsintodecadesofincomeinaninflationaryenvironment.Whethertheinvestorsareindividualsorcorporations,themathjustdoesn'twork.
Evenin2014,afteroneofthebiggestbullrunsthestockmarkethasseen,thegapbetweenprivatepensionliabilitiesandassetswasestimatedbyMoody'stobenearlytwotrilliondollars.
Whetherthemechanismissocialsecurity,pensionplans,orindividualretirementaccounts,oureconomysuffersfromtheassumptionthatpeoplecanretireat65,andsomehowthenumberswillallworkout.
Ofcourse,somepeopleCANaffordtoretireat65,oryounger,withplentytoliveon.Butisthatthebestthing?WearguethatwearebetteroffaspeoplewhenwediscoverwhatitiswelovetodoandfindawaytodoTHATforalivingforaslongaswecan!
Butthestoryof"whatwentwrong"goesbeyondastrainedsocialsecuritysystemandthefallofpensions.Whiletherehavebeenmanyeventsthathasimpactedourfinancialsystem,let'sbrieflylookatafewofthehighlightsandlowlightsofoureconomichistorytimelineintheUnitedStates.
SignsofaFinancialDisaster:
#1.1913:TheFederalReservewascreated,puttingourcountry'smonetarypolicyinthehandsofprivatebankers.
#2.September3,1929markedthestockmarket'shighbeforethelongslideintotheGreatDepression.
#3.1935:TheSocialSecurityActispassedinordertogetolderworkerstoleavetheirjobstoyoungerworkers.
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#4.November23,1954:TheDowfinallyregainsitsSeptember3,1929high.
#5.The1950's:"financialplanning"consistsofasavingsaccount,awholelifeinsurancepolicy,andhomeownership.Americaenjoysaperiodofprosperity.
#6.1958:TheAmericanExpresscardandBankAmericard(whichbecameVisain1976)areintroduced,butnotwidelyusedoraccepteduntilthe1980's.
#7.Late1960's-early1980's:Personalsavingsratesaveragebetween8-12%peryear.
#8.In1971,underRichardNixon,thegovernmentdecidesitistimetomoveawayfrombackingthedollarwithgold,whichopensthedoorstotheFedbeingabletoprintmoneyatamorerapidpace.
#9.1970's:Themoneysupplymorethandoublesinthenextdecade,causinghighinflationasmoredollarschasethesamegoodsandservices.Inflationbecomesespeciallyapparentinimportpricesofgoodssuchasoil.TheWallStreetJournalreflectsinJanuary1986,andsaid,"OPECgotallthecreditforwhattheU.S.hadmainlydonetoitself."
#10.1972:IAFPenrollsitsveryfirstgroupofstudentsfortheCertifiedFinancialPlanners(CFP)courseattheCollegeforFinancialPlanning.
#11.1978:ThesectionoftheInternalRevenueCodethatmade401(k)planspossibleisenactedintolaw.Itisintendedtoallowtaxpayersabreakontaxesondeferredincome.However,in1980,benefitsconsultant,TedBenna,takesnoteofthepreviouslyobscureprovisionandfiguresouthowitcouldbeusedtosaveforretirement.
#12.By1980,pensionplanscovernearly36millionprivate-sectorworkers,bothunionandnonunion.
#13.1980's:Fueledbydemandcreatedbytheriseofqualifiedplans,themutualfundindustryexplodes,loweringthebarrierofentrytothestockmarket.
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#14.1980's-early1990's:DeregulationopensthedoortothemassiveSavings&LoanCrisis,whichcoststaxpayersupwardsof$124billion.
#15.1980's-1990's:As401(k)sandqualifiedplansriseinpopularity,themassesbegintoinvestinthestockmarket."Financialeducation"programsbegintoteachandencourageemployeeshowto"invest"-orspeculate-inthestockmarket.
#16.Late1980'sandbeyond:Manydefined-benefitpensionplansbecomedefined-contributionplans.Theriskandresponsibilityforretirementsavinggraduallyshiftsfromemployerstoemployees.
#17.Late1980'sandbeyond:Savinglessandless,Americansshiftfrombeing"savers"to"investors,"seekingtoearnhigherandhigherratesofreturnontheirinvestments.
#18.1980's:A.L.Williamspopularizestheconcept,"buytermandinvestthedifference."Williamsfoundsacompanythatrakesinbillionssellingpriceyterminsuranceandhigh-feemutualfunds.
#19.1980'sandbeyond:Mutualfundfeesand"assetsundermanagement"createmassive,unprecedentedprofitsforfinancialcorporationsandamassivedrainonretirementfunds.Americansbegintoshifttheirsavingsfrombankaccounts,CDsandinsurancepolicycashvalueaccountsto"securities."
#20.Until1986,creditcardinterestistax-deductible,fuelingtherapidriseofthecreditindustryandfurtherloweringthesavingsrate.
#21.1980'sandbeyond:Chasinghigherreturns,moreandmoreAmericanscashintheirlifeinsurancepoliciesandgointooldagewithnolifeinsurance.Themiddleclasslosesaprimarymechanismfortransferringwealthtoheirs.TheMonopolyboardcardthatsays,"Collect$100,yourlifeinsuranceendows"becomesnonsensicaltoyoungerAmericans.
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#22.1990'sandbeyond:CreditcardcompanieschangethewayAmericansspend.Nowamiddleorworking-classAmericancould"haveitall!"Savingsratesplummettoamere2%-orless.PeoplespendmoreandsavelessinattemptstohaveitallNOW.
#23.Late1990'sandbeyond:Target-datefundsgainpopularitywithincreasingspeedasmoreAmericanshandtheresponsibilityfortheirfinancialfuturesintothehandsofWallStreetcorporations.
#24.Early2000's:Deregulation,speculation,newaccountingpractices,executivespendingandcompanycrimescreatemassivecorporatemeltdowns,suchasEnron(2001)andWorldCom(2002).Thestockmarketstraysfurtherfrombeingavehicleforinvestingincompanieslookingforcapital,andmoreaboutgamingasystemwherethebigwinnersarefew.Marketinvestorsgetskimmedonagooddayandoutrightswindledonabadone.
#25.December2007:After14monthsofheavylobbyingofCongress,thePensionProtectionActauthorizesemployerstoplaceemployeesqualifiedplansavingsintarget-datefundsasa"default"optionifanemployeedoesnotchooseotherwise.Target-datefunds,usuallycomprisedmostlyofstocks,replacestable-valuefunds(generallyregardedasasafe,conservativetypeoffunddesignedtoprotectprincipal)asadefaultoption.
#26.ThesamePensionProtectionActalsoestablishesa"safeharbor"foremployerswhoautomaticallyenrollemployeesinto401(k)plans,ensuringthattheycannotbeheldliableforinvestmentlossesaslongastheyplacetheiremployees'moneyintoeithertarget-datefunds,managedfunds,orbalancedfunds(alltypicallystockmarketsecurities.)
Canwepauseheretopondertheabsurdityofthislegislation?Employerscannotbeheldliableiftheyplaceanemployee'smoneyinaninvestmentthatlosesmoney.Andnow,employersonlyenjoythissafeharborprotectionIFtheyplacetheiremployees'moneyininvestmentsthatAREriskyandthatDOlosemoneyinstockmarketdeclines.AndTHISiscalledthe"PensionProtectionAct"?Itsoundsmorelikethe"WallStreetCommissionandBonusProtectionAct"!
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#27.2008-2009:Oneyearafterthosechangestookplace,AmericaninvestorssustaintremendouslossesinthebiggeststockmarketcrashsincetheGreatDepression.Neitherthelawmakers,brokers,moneymanagers,theDepartmentofLabor,ortheemployerscouldbeheldliableforthelossofretirementfunds.
#28.2007-2010:Thesub-primemortgagecrisisalsocausesdeephomeownerandinvestorlossesinrealestate,whiledevaluinghomesandcreatinganationalwaveofforeclosures.
#29.2007-2008:TwoGoldmanSachstradersinitiallyturnthecrisisintolargeprofitsforthefirm,earning$4billionby"betting"onthecollapseinthesub-primemarketwhileshort-sellingmortgage-backedsecurities.GoldmanCEOandChairmanLloydBlankfeinoverseesGoldman'sriskybetsonthehousingbubble,thenturnstheinvestmentfirmintoabanksoitcouldgetTARPmoney.
#30.2008:WallStreetexecutivesreceivegoldenparachutesforluxuriouslivingwhilelosingMainStreetsavingsandinvestments.TheBigBankstake$175billionintaxpayerbailoutswhilepayingout$32.6billioninbonusesalonetoCEOsandkeyemployees.Notwantingtoappeargreedy,Blankfeinforgoeshis2008bonus,butstillrakesin$42.9millioninsalary,stockoptions,andothercompensation.
#31.December2008:Interestrateshitanall-timelowandstaythere,turningaccumulatednesteggsintomeretricklesofincome.
#32.March5,2009:TheDowJonesfallstoitslowof6,594.44,lessthan50%ofitsall-timehighlessthan18monthsearlier.
#33.2009andbeyond:Asunemploymentremainshigh,recordnumbersofpeoplebegincollectingSocialSecurityat62becausetheycannotfindworktomeettheirexpenses.
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#34.2000totoday:Seeminglyunawareofrisksandrecentfailures(andnotknowingwhatelsetodo),workingAmericanscontinuetobuytarget-datefundsinincreasingamounts.(It'sworthnotingthatmanyinthefinancialplanningarenaareNOTfansofthesefunds,butfornewbieinvestors,target-datefundsbegintoreplaceprofessionaladvice.)
#35.2011:Newcensusnumbersthattakeintoaccountrisinghealthcarecostsrevealthat1in6Americans65andolderarenowlivinginpovertyintheU.S.Seniorshavelostmoreeconomicgroundthananyotheragegroup.Medicaidcostsincreasinglystrainstateandfederalbudgets.
#36.By2011,97%ofprivatesectorcompanieshaveeitherdiscontinueddefined-benefitpensionsorwateredthemdownseverely,combiningthemwithdefined-contributionplans.
#37.April2012:ThefirstUSPublicPensionplandeclaresbankruptcy.Underfundedpensions,privateaswellaspublic,becomeincreasinglyinvestedinthestockmarketandbegintofailwithgreaterfrequencyandwithgreaterimpact.
#38.2012:TheRetirementSavingsDrainReportdiscoversthatmanagementfeesdrain31%ormoreoftheaverageretirementfund,whichoftenleakssixfigurestofeesbythetimeatypicalinvestorentersretirement.(Fundswilldrainfurtherprofitsduringretirement.)
#39.2011-2014:Americanscontinuetoinvestinthefinancialindustrythatcrashedonlyafewyearsbefore,evenasthestockmarketbecomesmoreunstablethaneverwithspeedtradingandothertechnologies.Target-datefundscontinuetogrowinpopularity,especiallywithnewerinvestors,inspiteoftheirrisksand(often)hiddenandlayeredfees.
#40.2013:Americanswatchtheirmutualfundsbouncebacktopre-recessionlevels.Theystartusingcreditagain,andspendingincreases.Itisdeclareda"recovery."
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#41.2012-today:Whilethestockmarketrebounds,rumorsbegintocirculateofthe"educationbubble,"the"bondbubble,"thenext"stockmarketbubble"andotherfinancialaccidents-waiting-to-happen.Thosewhopredictedthe2008crashpredictthatanotherperhapsworsefinancialmeltdownisonthehorizon.
Intypicalfashion,thefinancialmediaignoresthewarningsigns,censorsthesolutions,andanalystscontinuetheirnever-endinggameofspeculatingwhatthenexthotstockswillbe.OnlyfinancialexpertsNOTsponsoredbyfinancialcorporationsdaretosuggestthatstockscannotcontinuetoriseforever.
Isthisa"recovery"orthecalmbeforethenextstorm?
WebelievethatanyobjectiveobserverwholooksattheeconomichistoryoftheUnitedStateswillagreethatcontinuingtotrustWallStreetcorporations,BigBanksand"typical"financialadviceisNOTthepathtoasustainablefinancialfuture!
Itisclearthatmassiveconflictsofinteresthaveshapedtheinstitutions,productsandfinancialeducationthatinfluencehowAmericansinvest.
Typicalfinancialadviceisnottheanswer.
Regardlessofwhatregulationsarepassedorrepealed,ampleevidencesuggeststhatthebigfinancialcorporationswillcontinuetolookforopportunitiestomakemoneyFROMtheircustomersandinvestors,whetherornottheymakemoneyFORtheircustomersandinvestors.
Meanwhile,typicalfinancialplanningandadvicecontinuestoutilizeabrokensystemfullofhalf-truthsandmathematicalshortcomingstohelpAmericanscreate"financialsecurity."
Peoplecontinuetoaimforretirementat65-orevenearlier-inspiteoftheeconomicrisksofdoingso.Manycompaniesandindustriescontinuetoencourageorevenmandateretirement,inspiteoftheexperienceandwisdomthatseniorshavetocontribute.
Andstill,thenumbersjustdon'tquite"work."
Isn'tittimetochangecourseandtrysomethingDIFFERENT?
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CHAPTER 4:
The Infinite Banking Alternative
Iftypicalfinancialplanningdoesn'twork,whatdoes?
Whenwebecameawarethatthereweresomebigproblemswithtypicalfinancialadviceandstrategies,westartedobservingwhatwealthypeopledid.Welookedforthepositivepatterns,andnoticedwhathabits,beliefs,strategiesandphilosophiesthetrulywealthyhadincommon.Andwenoticedthatthoseontheirwaytofinancialfreedomdidthingsdifferently.
Wealthypeopleweren'tfollowing"conventionalfinancialwisdom"ortheplanthatWallStreethadforthem.Oftentimes,thesuccessfulbusinessownersandentrepreneurswemetwereNOT:
• Investinginthestockmarket;
• Maxingouttheir401(k)s;
• Prepayingtheirmortgages;
• Savinginsavingsaccountspaying1%interestorless;
• Workingtraditionaljobsuntil"retirementage";
• Deferringtheirincometaxesuntilretirement,or
• Puttingtheirincomeandtheirfutureinsomeoneelse'scontrol.
Wealthypeopledon'tfollow"typical"financialplans.Theydon'tmaxouttheir401(k)s,crosstheirfingersandwait.Andtheydon'tputtheirdollarsandtrustunderthecontrolofthebigfinancialcorporationsandthegovernment.
Mostwealthypeoplepracticewhatwecall"InfiniteBanking."
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InfiniteBankingisathoughtprocessthatrepresentsamajorparadigmshift.ItwasdiscoveredanddevelopedbyNelsonNash,authorofBecomingYourOwnBanker,anditusesasitsplatformaproperly-designeddividend-payingwholelifeinsurancepolicyfromamutuallifeinsurancecompany.Thispolicyisdesigned–withtheassistanceofriders-toemphasizethecashvalueaccumulationratherthantheearlydeathbenefit.
InfiniteBankingseekstoprotecttheprincipalasitgrows,ratherthanchaseunreliablereturns.Itprovidesguaranteedaccesstocredit,andremember,whencashisavailable,opportunitieswillseekyouout.(AndsomeopportunitiesproduceVERYstrongreturnsaswell.)
Theopportunities/strategieswetypicallyencouragedonotrelyonguessesandassumptions,thepoliticalclimate,themoodofthemarket,orgovernmentpolicy.
Wewantourclientstofocusoncreatingcashflowthatwilleventuallyfundtheirfinancialfreedom.Therearemanywaystodothis,suchas:
• rentalproperties;
• traditionaloronlinebusinesses;
• intellectualpropertypublishing,licensing,androyalties;
• networkmarketingorreferralmarketing;
• providingfinancingforothersthroughpeer-to-peerloans;
• commercialmortgagebridgeloaninvestments.
Toooften,weforgetthatsuccessfulwealth-buildingisnotaboutamassingthebiggestpileofmoneywecan,butit’saboutusingourwealth(dollars,skills,knowledge,etc.)tocreateasustainablelifethatinspiresus,empowersus,andenablesustoofferourdeepestgifts.
Whileunderstandingthatdifferentinvestmentvehiclesdohaverulesthatmustbefollowed,weteachourclientstokeeptheirdollarsundertheircontrolsothattheycanmakechoicesabouttheirmoneyinsteadofhavingsomeoneelse-oranunpredictablemarket-makechoicesforthem.
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Waystocontrolyourwealthinclude:
• Avoidingspeculationandtryingto"timethemarkets."
• Beinganactiveinvestorwhounderstandswhatyou'reinvestinginanddoesnotdelegateyourmoneyanddecisionstoothers.
• Limiting401(k)orotherqualifiedplancontributionstoamountrequiredfortheemployermatch,andinvestingadditionallyoutsideofqualifiedplans.
• UsingRothratherthantraditionalIRAsand401(k)s.
• Notreinvestingdividendsintaxableinvestmentaccounts(wheredividendsearnedbecomesubjectedtofurtherfeesandtaxes),butinsteadinvestthedividendselsewhere.
• Utilizinghighcashvaluewholelifeinsurancetobuildliquidity,growthandprotectionoflong-termsavings.
InfiniteBankingrecognizesthat"planning"isoflimiteduse,becausewhendoeslifeevergoasplanned?
InfiniteBankingputsYOUbackincontrolofyourmoney,usingtried-and-truestrategiesthatdonotrelyonluck,speculation,constanttime-consuminganalysis,orabullmarket.
InfiniteBankingallowsourclientstogetresultswhileprotectingthemselvesfromanunstablestockmarketandbankingsystem.
InfiniteBankingisanalternativetotypicalfinancialplanningandadvice,anditworks.It'sadifferentwayofdoingthings.
InfiniteBankingstartswithwhereveryouarerightnow.Whetheryoufeellikeyou're"behind"onyourfinancesorhaveexperiencedgreatprosperity,itdealswithmoneyyouhavenow.
Ratherthantryingtopredictthefuture,thefocusisonOPTIMIZINGyourdollars,makingthemmoreefficient,andputtingwhatyouhavetothebestusepossible!
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InfiniteBankingencouragespeopletoremainactiveandproductive,contributingtheirgiftsforaslongaspossible.Ratherthanretireatsomearbitraryage,weadvocatethatseniorscontinuetowork,startbusinesses,orvolunteeraroundtheirpassions.
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CHAPTER 5:
Infinite Banking In ACTION!
InfiniteBankingguidesusinourfinancialdecision-makingandleadsusawayfromtypicalfinancialstrategiesandadvice.
Let'slookatfourspecificexamplesofInfiniteBankinginactionandseehowitleadsustonewthinkingandgreatercontrolanduseofourassets.
Example1:CollegeEducation
Typicalfinancialadvicetellsparentstostartsavingina529planorCoverdellaccount.Manyparentsstartwhentheirchildrenareborn.
Suchcollegesavingsplansandaccountsactually:
• Assistyourchildindisqualifyingforfinancialaid(bysavinginvehiclesthatmustbeclaimedonaFAFSA)shouldtheyhaveotherwisebeenqualified.
• Sufferthesameproblemsasother“typical”investments,intermsofhighrisk,lowreward,lowcontrol,andlimitedinvestmentoptions,oftenwithhighorunnecessarymanagementfees.
• Trapdollarsinaccountsthatcanonlybeusedforlimitedreasonswithstrictrules.(Whatiftheydecidenottogotocollege?InaCoverdell,thechildwillpaytaxesplusa10%penaltyonearningsiffundsarenotusedwithin30daysoftheir30thbirthdayforcollegeexpenses.)
• Drainmoneyawayfromtheparents'financialfreedom.(Rememberopportunitycosts?Yourchild'scollegeeducationwillendupcostingyoumuchmorethanyouthinkifyousaveforitthetypicalway!)
• Ugh–nowthere’reeven“age-basedplansforaggressiveinvestors”thatshareallthesameissuesandpotentialinstabilitiesastarget-datefunds!
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SomeofpossibleInfiniteBankingsolutionsforfinancingacollegeeducationmightinclude:
OPTIONA:
• Savinginyourownoryourchild’swholelifepolicy(oftenatinternalratesofreturnofabout5%),
• Policycashvaluedoesnotcount"against"thechildwhenfinancialaidisdetermined.
• Fundscanbeborrowedtax-free,orwithdrawnandusedfortuition,housing,orothercosts(includingmentorships,apprenticeships,alternativeorinternationalprogramsthatmaynotqualifyfortypicaleducationloans).
• Whenfundsareusedascollateralforcollegecosts,theunderlyingsavingskeepgrowinginthecashvalueaccount.Thisgrowthhelpsoffsetthecostofthepolicyloans.
• Fundscanberepaidbyparentsand/orthecollegegraduateonascheduleofpolicyholder'schoice.
• Whiledollarsarebeingsavedforcollege,theyarealsodoingotherjobs,suchasprovidingprotection,emergencyfunds,andmore.
OPTIONB:
Amoreleveragedwaytousecashvaluesavingsfortheentrepreneurially-mindedmightbeto:
• Saveinyourownoryourchild’swholelifepolicy.
• Borrowagainstpolicyfundsforadownpaymentonatriplexorfourplexnearthechild’scollegeofchoice.
• Thechildlivesinoneunitwhilefindingroommatesandotherrenterstoturnwhatwouldhavebeenacollegeexpense–housing–intoaleveragedassetwithcash-flowandbuilt-inlessonsinbusiness,realestate,andresponsibility!
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• Ratherthancomingawayfromcollegewithadiplomaanddrainedaccounts,thefamilynowhasanassetthatcancontinuetoproducecashflowandgainequity.
• Cashflowfromthepropertypaysbackthepropertydownpayment,and,eventually,themortgageandotherexpenses.
• Nowyouhaveacollegegraduateandanadditionalasset!
ADDITIONALOPTIONS:Withalittlecreativity,manyotherInfiniteBankingscenarioscanbeimagined,suchashelpingachildcreateabusinesstopayforcollege,orhiringachildinanexistingbusinesstohelpthemfundtheirowncollegeeducation,whileproducingatax-deductionforthebusiness!
Whateveroptionsyouchoose,werecommendchoicesthatwillallowthestudenttoparticipateintheirowncollegefundinginsomeway,perhapsthroughwork,repayment,decision-making,etc.Thisfostersindependenceandconfidenceratherthandependenceandentitlement.
Wealsoinviteparentstotakeanhonest,open-eyedlookattheopportunitycostsinvolvedincollege.Yes,youmaychoosetopayforcollege,evenprivatecollegeandadvanceddegrees,butyoushouldmakethosechoicesonlyafterunderstandingthewholetruthaboutwhatthosedegreeswillcostyou!
Example2:InvestingforIncome
Typicalfinancialadvicefollowsthe"accumulatenow,withdrawlater"plan.Theproblemwiththisis,asmentionedearlier,peopleliveoncashflow,notonnetworth.Andtypicalfinancialstrategiesforincomemaynotevenkeepupwithinflation!
Typicalfinancialadvicesaysto:
• Accumulateasmuchmoneyasyoucaninyour401(k)andotherinvestmentaccountsuntilretirement(orwhatevertimeyouwanttostarttakingdistributions.)
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• Atthispoint,transitionmostorallofyourmoney(possiblyafterpayingthetaxman)into"income"investmentssuchasdividendstocks,higher-yieldbondsandannuities.
• Whiletheseinvestmentsaregenerallythoughtofas"secure,"dividendstockstookabigdiveintheGreatRecession,andthebondsthatpaymoreaggressivelyareoftennotqualityinvestments.
• Typically,you'readvisedtokeepaportionofassetsincashequivalentssuchascertificatesofdeposit,thoughrock-bottomratesareencouragingseniorstotakemorerisk.
• Drawdownassetsatarateof3-4%ofprincipal.(Yes,theformer"4%rule"isdown-sizingduetolowinterestrates.)Withdrawfaster,andyoucouldrunoutofincomeinretirement.
• Fundsintaxableretirementaccountsremainsubjecttofuturetaxesatanunknownrate,aswellasvariousqualifiedplanrules.Fundsoutsideofqualifiedplansareoftentaxedascapitalgains.
Theproblemswithtypicalincomestrategiesaremultiple:
• Incomemaynegativelyaffectsocialsecurityincome.
• Assetsmaynotholdvalue.
• Earningsarelow.
• Oftentimes,continuedtaxationandfeescontinuetochipawayatyourinvestmentsandyourcashflow.
However,perhapsthebiggestproblemwithtypicalfinancialstrategiesisthatthere'sno"fallback"planfordecreasingrates,risinginflation,ormajoremergenciesthatmightconsumesignificantassets.
It'snowonderseniorssaytheirgreatestfearisrunningoutofmoney!
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That'sbecausethe"accumulatenow,drawdownlater"strategyisapoorplanwithnoemergencyexits.
Whenclientscometouswithtypicalinvestmentsandtaxableretirementaccountsintheirportfolios,wehelpthemstrategizehowtosequencetheirconsumptionofassetstominimizetaxationandputmoremoneyintheirpockets.
Peopletendtowithdraw"alittleatatime"fromallavailableassets,butthatisrarelyefficient.Byconsumingthetaxableaccountsfirstand/ormovingfundsoutoftaxableaccountsintotax-advantagedaccounts,investorscankeepmoreoftheirownmoney.
However,wedon'tsuggestusing"typicalinvestments"whenyourgoalissustainableincome.
Instead,werecommendinvestmentsandsavingsvehiclesthatoffersecurityofprincipal,healthyreturns,andflexibility.
Participatingmutualwholelifeinsurancefundedwithmaximumpaid-upadditionridersisnotonlyagreatwaytosavelong-term,butitisaproductthatcanofferadditionalbenefitstothosedesiringfutureincomeandadditionalassurance.
• Cashvaluedividendsofparticipatingmutualinsurancecompanieshavehistoricallyproducedhealthy,reliableincomeinretirement.Thisstrategycanprovideyouwithgreatersafety,stability,taxsavingsandflexibilitycomparedwithtraditionalincomestrategies,includingannuities.
• Dividendsarenottaxedasincome,theyareconsideredareturnofpremiumwhenwithdrawnuptobasis,andgrowthcanbeborrowedagainst.
• WiththeproperriderssuchasaWaiverofPremium,andaLong-TermCarerider,awholelifepolicycanalsoprovidedisabilityincomeorevenaccelerationofthedeathbenefitincasesofchronicorterminalillness.
• Becausetruemutualinsurancecompaniesareownedbythepolicyholders(asopposedtostockinsurancecompaniesownedbystockholders),theyplanandinvestforthelong-termratherthanjustthenextquarter.Thiscreatesstabilityandprofitabilityforpolicyholders.
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Withtypicalstrategies,peopleshouldbeafraidofrunningoutofmoney.WithInfiniteBanking,youhavegreaterflexibilityandcontrol.
Example3:SavingMoney
Whenpeoplestartoutsavingmoney,someusebankaccounts,whichcanbeagoodwaytobuildanemergencyfund.Othersstartputtingtheirmoneystraightinto401(k)plansandotherinvestmentsinsideofaqualifiedplan.Herearetheproblemsandpitfallswiththesetypicalstrategies:
• Bankscurrentlyearnmuchlessthan1%...andit'staxable!
• Bankaccountsarenotnecessarilyprivateorsecure.Fromcivilassetforfeituretocybercrimes,identitytheft,liens,lawsuitsandgarnishments,therearecountlessexamplesofhowsomeone'sbanksavingshaveendedupinsomeoneelse'shands.
• Qualifiedplansmakepoorvehiclesforsavings.Theysubjectmoneytorisk,putitbehindataxwall,andtiedollarsupwheretheycannotbeused.
• Moneycanbeborrowedfromabankonlyifyou"qualify"fortheloan,andrulesforborrowingfroma401(k)planarestrictandforlimitedreasons.
• Investmentoptionsarelimitedinqualifiedplans.Typically,yourchoicesaretotakeriskswithsecuritiesorparkyourmoneyinacashequivalentearningnext-to-nothing.
• Regardlessofwhetherapersonsavesinaqualifiedplanorasavingsaccount,iftheydesirelifeinsurance,theywillhavetopayadditionallyforterminsurancethatwillexpireafteracertainperiodoftime.
• Terminsurancepremiumsmustbecountedasanopportunitycost,asthatmoneycannotbesavedorinvestedelsewhere.(Norisyourfamilylikelytoeverreceivethedeathbenefit.)
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TheInfiniteBankingsolutionistosaveinahighcashvalue,dividend-payingwholelifepolicystructuredwiththemaximumpaid-upadditions.Wesay"save,"not"invest,"becauseinsuranceisnotclassifiedasaninvestment.Itismoreappropriatetocomparecashvaluetosafe,liquidinvestmentsthatcannotlosevalue.However,there'sreallynocomparison!
Usingthisstrategy:
• Whenheldlong-term,internalratesofreturnarecurrentlybetween3-5%(dependingonageandhealth).You'llhavegreaterreturnsandalsomoreprivacyandsecuritythanbanksprovide,withnodownsiderisk.
• Cashvalueisliquidandyoucanborrowagainstitanytimeforanyreason.(Itcanalsobewithdrawn,butwedon'trecommendwithdrawalsinmostsituations.)
• Cashvaluebecomes"all-purpose"savingsthat,likeaSwiss-armyknife,canbeusedformultiplepurposes...homerepairs,collegetuition,arentalpropertydownpayment,healthcarecosts,businessexpenses,anewcar,etc.
• Bybeingabletosaveinonelargeaccount(insteadofmanyothersmaller,single-purposeaccounts),youcanbuildliquidityandfinancialflexibility.
• Policyloanscanberepaidontheborrower'sschedulewhilethecashvalueusedascollateralkeepsgrowing,unaffectedbytheloan.
• Permanentinsuranceincreasesthepolicyholder'sestatevalueandcreateslegaciesforheirsandcharities.Thedeathbenefitgrowswithawholelifepolicyandprovidesadditionalvaluetotheestate.
• Incertainsituations,deathbenefitscanbeutilizedbythepolicyholderwhilestillliving,aspoliciescanbesoldonthesecondaryinsurancemarketordeathbenefitscanbeacceleratedaccordingtoridersincasesofterminalillness.
• Anadequately-fundedpermanentinsurancepolicywithaWaiverofPremiumridercanpotentiallyeliminatetheneedfordisabilityinsuranceortermlifeinsurance.
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• Inmanystates,wholelifepolicycashvalueaccountsareprotectedfromliens,lawsuits,and(inallstates)fromthepryingeyesoftheIRS.
• Lifeinsurancepolicycashvalueisnotcountedasanassetforcollege,noraredividendsconsideredincomebytheIRS.
• Dividendscancreatereliablepermanentretirementincomeatratesofreturnfarbeyondbankproducts,withgreaterprotectionandprivacyofprincipal.(Althoughnotguaranteed,dividendshavebeenpaidbymutualinsurancecompaniesforover150yearsthrougheveryeconomicchallengeimaginable.)
TheBIGBonusofSaving:
Typicalfinancialadvicespeaksofsavingsintermsof"emergencyfunds,"andyes,emergencyfundsareVERYimportant!(TheyaresoimportantthatifyoudoNOThaveliquidfundstosustainyouforanumberofmonths,youshouldsavethatfirstandobtainterminsuranceasneededordesiredbeforeyoustartawholelifepolicy.)
Butthe"goal"ofInfiniteBankingisNOTtosimplyearn3-5%onyoursavings.
Savingmoneyisjustthefoundation...thefirststeptoputtingyourselfinapositionwhereyoucanputthatmoneytoworkthrough"real"investmentsorotherstrategies.
Savingisn'tjustforemergencies...it'salsoforOPPORTUNITIES!
Whenyouconsiderthevelocityofmoney...oneofthesecretsthatmakesInfiniteBankingsoeffectiveisthattheseopportunitiesarewherewealth-buildingcanstarttoreallyACCELERATE!
Toooften,peoplehavetheirsavingsandinvestmentstiedupin15differentplaceswheremoneyisinaccessible.(AnIRAortwo,a401(k),a529foreachchild,etc.)
Theydon'teven"see"opportunities,becausetheyhavenoliquiditytotakeadvantageofthem.
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Whenpeoplebuilduptheirsavingsandliquidityandhavetheabilitytoinvestsignificantsumsofmoney,newopportunitieswillsuddenlystartcomingtheirway!Withouttheliquidity,theywouldhaveeithernotnoticedornotbeenabletotakeadvantageofopportunitiestoreliablyearnasmuchasdoubledigitreturns.
CASESTUDYA:NelsonNash,authorofBecomingYourOwnBanker,wasintheforestrybusinessbeforehewentintotheinsurancebusiness.Onedayhewasabletousehispoliciestotemporarilyborrowmoneyforthepurchaseoflandwithtimberatanexcellent,below-marketprice.Thetimberwascutandsold,andNelsonmadeanextremelyhealthyprofitoffofhisinvestment,ofmanytimestheinterestratethathispolicyalonewaspaying.Theopportunitywasmadepossiblebecausehehadaccesstothecapital!
CASESTUDYB:Aclientofourscametousforhelpwithanalyzingacommercialrealestatedeal.Itlookedlikeaverysoliddeal,asthepropertywasproducingalmost18%cash-on-cashreturn!However,usinghiswholelifepolicyforleverage,hewasabletopurchasethepropertywithmuchlessmoneyoutofpocket,therebyincreasinghiseffectiverateofreturnto111%!
Hisactualcashflowwasless,buttherateofreturnrosebecausehewasnowusingthelifeinsurancecompany'smoneyinsteadofhisown.(A"zero-down"dealwouldhaveaninfiniterateofreturn.)Thus,hewouldalsohavethecapacitytodomoredealsandearnmorereturnsatahigherrateofreturnthanusingonlyhisowncash.
CASESTUDYC:Wehaveseencashvaluepolicyloansusedforinvestmentsprovidingsteadyreturnsof12-14%.Now,12%isanexcellentrateofreturn,butwhenyoucanborrowagainstyourowncashat5%andearn12%,youareearninga140%rateofreturnonthemoneyyouareborrowingagainst.
Mostpeoplethinkthatborrowingat5%andearning12%wouldequala7%gain,butthatisnottrue!Youhavetothinkofitintermsofdollars(orwidgetsmayhelp.)Ifyouborrow5dollarsandtradeyour$5forsomeoneelse's$12,your5dollarshasearnedbackanamountequalto2-2/5timesitself-ahundredandfortypercentgainfromwhereyoustarted.
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Ifyouareastoreownerwhocanbuyahammerfor$5andsellitfor$12retail,youhavemarkedupyourproductby140%ofitsoriginalprice.Whenwecanborrowmoneyatonepriceandearnitatanother,wearesimplymarkingupdollars.Thisishowbanksmakemoney...aLOTofmoney!
Anddon'tforget...whenyouusewholelifeinsuranceasalong-termsavingsvehicle,youalsoputadeathbenefitinplace.Notonlydoyoursavingsoutpaceinflationwhenheldlong-term,butanadditionalassetisalsoaddedtoyourestatethatcanbeused,forinstance,togiveasurvivingspouseadditionalincomeorassets.
Perhapsnowyouunderstandwhythewealthystillutilizewholelifeinsurancetobuildandkeepwealth,evenwhilemostinvestorsaretoldto"buytermandinvestthedifference."
Example4:RealEstate
Typicalfinancialadvice(fromSuzeOrmanorDaveRamsey)saysto:
• Savea20%downpayment
• Purchaseahome,witha15-yearmortgage,ifyoucanaffordtodoso.
• Orgeta30-yearmortgageandpayextraagainsttheprincipalsothatyoucanpayoffyourhomeearlyandsaveoninterest.
• In15-25years,youhaveafreeandclearhome.(Unlessyourefinance,asmanypeopledo....)
Onthesurface,thismakessense.
Butconsiderthealternative.Weencourageownershipofassetsasthesteppingstonefrombeing"comfortable"tobeingtrulyfinanciallyfree.
Seehowtypicalfinancialadviceactuallypreventspeoplefromexpandingtheirassetbase,comparedtoourstrategies.
Wesuggest:
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• There'snoneedtowaittosavethe20%whilethrowingyearsofextrarentpaymentsdownthedrain.Purchaseahomewhenyoucanaffordtodoso,evenutilizinglow-down-paymentprograms.
• Geta30-yearmortgagewithlowerpayments.
• Ratherthanpayingextraagainstyourmortgageasyoucanaffordtodoso,SAVEmoremoneyinOTHERASSETS.Someoptionsmightbe:
• Ahighcashvaluewholelifepolicytostart(tobuildliquidity),or,whenyouhavesufficientfunds,investmentssuchascommercialmortgages,orrentalrealestate.
• In30years,youwillhaveafreeandclearhomePLUSadditionalhomesorothercash-flowinginvestments.
• Inthemeantime,youwillhavegreaterfinancialsecurityandcontrolofyourmoneybybuildingliquidityoradditionalassets.Payingdownprincipalputsmoneyoutofyourreachandcontrolwhileaddingnothingtothevalueofahome.
• Bysavingandinvestingonthesideratherthanstrivingtopayoffamortgageearly,youincreasebothyourassetbaseandyourfuturecashflow.
Theresultofutilizingsuchstrategies?Oneofourclientspurchasedherfirsthome-"Property1"-for$110kusinga3.5%downFHAloan.
Afewyearslater,shesavedmoneyforadownpaymentonhersecondhome,Property2,andturnedProperty1intoarentalproperty.
Alittleovertwoyearslater,Property1hadgainedfurtherappreciationandshewasabletosellitforaprofitofabout$95k.Withthetax-freeproceeds,shepurchasedanotherrentalproperty-Property3-aswellaspaidoffherconsumerdebt,boughtacar,andtookavacationtoEurope.
Twoyearslater,sherefinancedhersecondhome,Property2,andusedtheproceedsasadownpaymentonanewhome-Property4,turningProperty2intoasecondrentalproperty.
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Lessthanthreeyearslater,shesoldthetworentalhomes-Property2and3-foragainofover$200k.Overhalfofthatmoneywasnotsubjectedtotaxesofanykind,asshehadlivedthehomefortwoofthelast5years.(Andshestillownedahome-Property4-thatshecouldeitherliveinorrentforpositivecashflow,ifshedesired.)
In12years,shehadcreatedwindfallstotalingabout$300k.
(Andwedidn'tevenmentionProperty5,anotherrentalthatshepurchasedwithapartnerwhileshestillownedProperty4.Thoughitlostequityinthedownturn,itcontinuedtoproducecashflow,andeventuallyitsvaluereboundedandevenrose.Shejustsoldthatfora$33kprofit.)
Andatthetime,shewasasinglemotherearningabout$55kperyearinher"dayjob."
Couldshehavesaved$300kfromhersalaryinthesameamountoftimefollowingtypicalfinancialadvice?Absolutelynot!Butbyutilizingmanycommon-senseprinciples(withtheassistanceofahealthyrealestatemarket),shewasableto
• Thinkprosperously,
• Seethebigpicture,
• Controlhermoneyandinvestments,
• Movemoneythroughassets,notjusttoassets,and
• Multiplydollarsandthejobsthattheydid.
Ifshewouldhavejuststayedinherfirsthomeandacceleratedmortgagepayments,shewouldSTILLbepayingoffherhome,andwouldnothaveenjoyedthosewindfallscreatedthroughownershipofadditionalproperties.
Asyoucansee,consistentuseofInfiniteBankingprinciplesisapowerfulwayofoptimizingyourdollars!
Whenwestopfocusingon"ratesofreturn"andfocusmoreonInfiniteBankingprinciples,wecanincreasetheVELOCITY-ormovement-ofourmoney.
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YoucanseenowhowInfiniteBankingchangestheconversationandchallengesthequestionsthattypicalfinancialplanningandbigfinancialcorporationsareasking-andtryingtogetyoutoask:
"What'stherightratioofstockstobonds?"
"HowmuchdoIneedtosavetoretireat65?"
"WhatrateofreturnshouldIbeprojectingmyinvestmentstoearn?"
"HowcanImaximizemytaxdeferralsthroughqualifiedplans?"
"What'sthequickestwaytopayoffamortgage?"
InfiniteBankingturns"conventionalwisdom"onitshead.
InfiniteBankingdoesn'tjustfocusonhowmuchmoneyyouhave,butonhowmuchFREEDOMyouhavewithyourmoney.Canyouuseitifyouwish?Canyouborrowagainstit?Isittax-advantaged-nottax-deferred?Canyoupassitontoaspouseorchildreneasilyandwithminimalcosts?
Ratherthanencouragingyoutohandcontrolofyourdollarstoanadvisor,aninstitution,orthegovernment,wewantyoutohaveControl,Liquidity,UseandEquity.
NowthatyouarefamiliarwithInfiniteBanking,whatwillyouDOwiththisinformation?
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CHAPTER 6:
So, What’s Next?
OncewewokeupfromourFinancialPlanningdream,weembracedanewdream:
TotelleveryonewhowilllistentheWHOLETruthabouthowmoneyreallyworks.
OnceyouunderstandtheTruthaboutoureconomicsystem,there'snogoingback.We’recommittedtohelpingpeopleavoidtheriggedsystemandbadadvicethatKEEPSusfromtruewealth.
Wecanandwemustlearntobuildbullet-proof,life-longwealth-inanyeconomy-withoutWallStreetinstitutionsandBigBanks.
Mostpeoplewouldratherdowhateverybodyelseisdoing-ordowhatthey'retoldtodo-thanresearchalternativewaysofthinkinganddoingthings.Butnotyou.
Ifyouarereadingthis,youareobviouslyanexception,andwe'dliketoTHANKYOU.
Thank-youforreadingthiseBook.Thank-youfortakingthetimeandefforttoexploreadifferentwayofthinkinganddoingthings.
Andnow,wehaveanimportantquestion....
WhatwillyouDOwiththisinformation?AreyouusingInfiniteBankingprinciplesandstrategiesnow(intentionallyornot)?InwhatwayscanyoualignyourfinancesmorecloselywiththeInfiniteBankingconcept?
Perhapsit'stimeforyoutoinvestigatefurther.Perhapsit'stimetotakeACTIONonwhatyoualreadyknowtobetrue.Whateverthecase,weencourageyounottoreadthiseBookanddonothing.Decidewhatyournextstepsare,andmaketimetodothem.
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ThestabilityofourfamiliesandthehealthofoureconomyREQUIREthisinformationtocometolight.
IfyouwouldliketolearnhowyoucanimplementanInfiniteBankingsystemthatwouldgrowasubstantialamountofcashthatyouhaveaccesstoatanytimewithoutpenalties,isunrelatedtothestockmarket,andwillgenerateincomethatisnotincludedinyourtaxreturn,visitourwebsiteathttp://InfiniteBankingSimplified.comorfeelfreetoemailusyourquestionsatContactUs@InfiniteBankingSimplified.comorcallustoll-freeat1-844-443-8422.
IsisB.Palicio,LUTCF,MBA
PedroA.Palicio,MBA,Ph.D.
InfiniteBankingConcepts®AuthorizedPractitioners
Weareexpertsindesigninghighcashvaluedividend-payingwholelifepolicies.
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About the Authors
IsisB.Palicio,LUTCF,MBAExecutiveVicePresident&COOUniversalWealthManagersLLCInfiniteBankingConcepts®AuthorizedPractitioner
IsishasbeenaFinancialProfessionalsince1996.
In2005,IsisandherhusbandPedroestablishedUniversalWealthManagersintheCityofCoralGables,asuburbofMiami,Florida.Itsmissionistoprovideitsclientsinsurancebrokerage
andfinancialadvisoryservicesofthehighestquality,basedonitstenetsofexperience,trust,integrityandobjectivity.
ShortlyafterPedrobecameinterestedintheInfiniteBankingConcept,Isisstartedworkingcloselywithhimtoeducate,coachandserveadiverseclientelethatincludesfamilies,businessowners,professionalsandhigh-net-worthindividualsthroughouttheUnitedStatesinthislife-changingconcept.ShegenuinelycaresabouteveryoneofourclientsandhasbecomeverypassionateabouttheInfiniteBankingConcept.
IsisholdsaMastersofBusinessAdministration(MBA)degreewithemphasisinFinancialPlanning.SheisfullybilingualinEnglishandSpanish.IsisandPedrohavetwodaughtersandsheenjoysworkingwithpeople,arts,crafts,travel,andreadingmysterynovels.BothPedroandIsisareveryactiveintheirbusinesscommunity.
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PedroA.Palicio,MBA,Ph.D.President&CEOUniversalWealthManagersLLCInfiniteBankingConcepts®AuthorizedPractitioner
Pedrostartedinthefinancialservicesindustryin1994.
In2005,heandhiswifeIsisestablishedtheirowncompany,UniversalWealthManagersLLCintheCityofCoralGables,asuburbofMiami,Florida.Itsmissionistoprovideitsclients
insurancebrokerageandfinancialadvisoryservicesofthehighestquality,basedonitstenetsofexperience,trust,integrityandobjectivity.
Duringthe2008financialcrisis,Pedrocametotheconclusionthat“conventionalfinancialwisdom”wasbasedonfaultypremisesandtoproperlyservehisclientsandprotectthemfromthegreed,corruption,andirresponsibilityofWallStreetbanksandfinancialinstitutions,aparadigmshiftwasinorder.AfterstudyingindepththeInfiniteBankingConcept,herealizedthattheonlywaytocontrolyourfinancialfuturewastocontrolthebankingfunctionyourself.Sincethen,hehasbecomeanevangelistforthisconcept.
PedroisverywellversedintheInfiniteBankingConceptandpracticeswhathepreachesasheandhisfamilyownsseveralofthesepolicies.Hisexceptionalabilitytoexplaincomplexconceptsinsimpletermsallowshimtoeducate,coachandserveadiverseclientelethatincludesfamilies,businessowners,professionalsandhigh-net-worthindividualsthroughouttheUnitedStates.
PedrograduatedfromprestigiousColumbiaUniversity,inNewYorkCity,withBachelor’s,Master’sandDoctoraldegreesinEngineeringandAppliedMathematics,andwithanMBAwithemphasisinStrategicandFinancialPlanning,obtainingallhisdegreeswiththehighesthonors.HeisfullybilingualinEnglishandSpanish.
PedroandIsisareveryactiveinthebusinesscommunityandtheyhavetwodaughters.PedroenjoysprofessionalbaseballandbasketballandfollowscloselytheMiamiMarlinsandtheMiamiHeat.