Manage episode 200480525 series 2124446
Between their less than inspiring 401k performance, and not knowing all of what’s on their ‘options’ menu, most folks are hungry to more clearly understand various investment vehicles.
Transcript: Today let’s talk about various investment vehicles. I want to talk about the difference between buying discounted notes or maybe an EIUL, Equity Index Universal Life. It’s an insurance policy that is geared towards income while you’re still alive in retirement instead of a death benefit once you’re gone. That’s the only difference. What’s the difference between betting on the stock market the next 30 years or betting on notes on an EIUL for the next 20, 30 years? It’s already been proven over the decades that if you get good advice, and of course, we see with 401Ks that apparently most Americans are not getting that good advice because they’re arriving at their 65th birthday with 100 thousand or less in their 401K, right? Of course, they all have matches so it’s even less impressive. If we’re told that you can make seven, eight percent over the really long haul, let’s call the long haul 15 to 30 years, in the stock market. Let’s assume that is the Lord’s truth for today’s discussion. What we both know is that when you buy a stock from a brokerage firm, they don’t give you any security for that stock. You’re just buying a slice of ownership of that company. When you buy a piece of real estate, that value can go down, but you’re always going to be able to rent that house out or those four units, whatever that is, for something. Where when things go really bad in the economy, it’s not just that dividends go down, generally speaking, they go down to the floor or disappear completely. Then you get to notes and you say, not only do I have security more than just buying real estate, I actually get a piece of free and clear real estate if I foreclose on a first position note. If I bought that note at the BawldGuy Note Fund, I not only don’t have to foreclose if I think it’s better not to, I can just invoke my warranty. Everybody, let’s stop right there. Let’s have a show of hands across America. When was the last time your stock broker offered you a warranty on your Apple stock? Yeah. I didn’t think so. Let’s get real about what’s going to happen and what’s not going to happen in the next 15 to 30 years with your investment dollar for retirement income. If you’re buying notes, you’re not only getting a security that’s tangible, a piece of freaking real estate that’s free and clear when you foreclose, but in my case, with my fund, you’re getting a warranty that’s going to keep you whole. If you put X amount into it and somehow it goes south on you- and they will occasionally, don’t let anybody tell you they won’t because they will. 38 years doing it myself, they go south at times. If a note in my fund goes bad and you’ve received 20,000 in payments and you put 60,000 in it, the fund’s going to make up that other 30. You put 60 in, you got 60 out. That’s the way it’s going to be. You don’t get that with the stock market. Let’s compare it to EIULs. You put a certain amount in just like you do in your 401K. You put a certain amount in every month, every quarter, every year, however it’s structured. It’s after tax money. You don’t get any tax break like you do on a 401K sponsored by your employer. Those are mostly not Roth, right? When you put this in, 250 a month, 500 a month, 1,000, 2,000, 3,000, whatever you can afford and you do it for 15 to 30 years, two things are going to happen. You’re never going to have a losing year. That’s part of the contract text. You will not have a losing year. How do they do that in an EIUL? How can anybody say that? That’s stupid on it’s face. I agree. Here’s how it’s done though. They look at each individual policy owner, they look at the actuarial tables. Are they 30 or are they 50? Are they male or female? Et cetera, et cetera, et cetera. Then they say, in order to make sure that they never lose money, or in some cases, that they never make less than one or two percent. Some policies actually say that. How do they do that? They buy things like government treasury bonds with part of each pay period’s premium so that they’ve got that covered. The bigger money, the six, seven, eight, nine percent money, is made with what’s left. That’s more or less depending on what the actuarial table said again. What happens is, and I’ll give you a perfect example. Imagine that you bought $1,000 worth of stocks every month for the next 30 years. You’re 30 today, today’s your birthday. Every year you review and you said, inflation was about two percent this year. I saw you snicker, I am too. Two percent, right? The next year you make $1,020 a month payment for that EIUL, that premium. You’re keeping up with inflation so you don’t fall behind. What if I told you that you’re going to be making, at the end of 30 years when you’re 60, somewhere between 100 and 200 thousand dollars a year, tax free, until you’re give or take, let’s call it 90, another 30 years. Tax free. Are you going to tell me that after tax the dividends on the stocks you invested in the exact same way with the exact same amount of dollars in your 401K is going to produce you, after tax, one to two hundred thousand dollars a year in retirement? I dare you to say it out loud without laughing or being laughed at. We all know that’s a crock. Not going to happen, 100,000 a year tax free? Most Americans don’t have 100,000 in their balance on the 401K when they’re 65. With an EIUL, they can and they can do it for three to $12,000 dollars a year instead of the 17,500 that still didn’t get in there with a 17,500 match. These matches, people, in a 401K, are just a sexy worm. Imagine we’re all trout in that lake. Jimmy sees a bunch of worms just sitting there looking pretty. Got that come on look on their faces. He goes to all of his buddies, says, guys over there about 20 yards from here, there’s all kinds of these worms just standing there daring us to have them. Yeah, well, now they’re dinner. That’s what a match is. All these people that have failed 401Ks, they all had matches of some sort. Where are they today? Can you say welcome to Walmart? They had to learn it, many of them, and I’m not joking. When you’re 65 and you have 20, $25,000 a year in Social Security before taxes and you have some little annuity for two or $300 a month, you’re not cutting it. They told you you would, but you’re not. Stop thinking of the stock market as a way that you’re going to ensure your retirement income after tax. It is not going to happen. As a final challenge, I ask you to do this. I issue this all the time. Spend the next few days, week or two, casually talking to everybody you know in your peripheral, at work, not at work, your neighbors. Ask them. Do they know of anybody who’s ever retired with enough income from their 401K to equal what the Social Security was before taxes? You will be asking a lot of people and most people don’t come up with one. Stop with the stock market. When it comes to retirement, it’s for the insiders and everybody else. I know some of them myself, they make a lot of money. They’re going to retire incredibly well. God bless them. That’s not you and me.
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