From the category archives:

Foundational Articles

Economic Stimulus that Won’t Cost Tax Payers $3.6 Trillion–$36K Each

May 19, 2009

In my last blog article I talked about the magnitude of the national debt and the $100 trillion of unfunded liability the government has incurred with the Social Security system.

The government is short on meeting its current bills and will be significantly short on future promises. The USA is living beyond its means.

budget no money Economic Stimulus that Won’t Cost Tax Payers $3.6 Trillion $36K Each My opinion is that Congress is uselessly rearranging the deck chairs on a ship that is slowly sinking with too much debt.

Over the past several decades, the U.S. economy has become increasingly intertwined with the global economy.

From foreign investments in U.S. companies, to overseas outsourcing, to giant multinational corporations doing business around the globe, we are inextricably connected to the world market.

The current administration and Congress are making a futile attempt to regain choice and control over what has become a world economy, assuming their course of action will somehow mend the U.S. economy.

This approach will only lead our country to retrogress rather than progress. These are misguided efforts. The federal government is essentially investing in the wrong places with just more inefficient government programs.

We need to place choice and control in better hands-our hands.

If the $3.6 trillion this administration plans on spending to stimulate the economy were placed in the hands of the average American entrepreneur, I’m convinced the economy would be turned around within a year.

If the $3.6 trillion were credited to American tax payers in less withholding tax for several months, I’m sure people wouldn’t be investing the money in GM (Government Motors) stock!

My ideas for an Economic Stimulus Package that won’t cost tax payers $3.6 trillion would include:

  1. Educating people on how to raise their credit score by 30 points or more, which would put $700 a month back into the average American’s monthly income.
  2. Teaching people how to take ownership of their future rather than rely on the government to take care of them.
  3. Rewarding people for saving and investing rather than taxing them for doing so.
  4. Instituting a flat income tax of 15 – 20 percent for everyone, along with a national consumption tax.
  5. Privatizing Social Security.

Since there is little chance of government giving economic choice and control back to the people, what we can do is empower ourselves. Sound financial education is the key.

Doug Andrew

Photo Credit Jeff Keen

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An Unnecessary Tidal Wave of Investment Wreckage

April 17, 2009

The economic crisis around us has created a massive tidal wave of wreckage.  Among those that have been impacted, the wallets and retirement plans of the American public has been some of the hardest hit.

While the major discussion among those following “conservative” advice is “How much have you lost?” or “Should I pull my money out of the market or leave it”, our conservative advice is the same as it has always been: Put your savings away in a specifically designed account, a maximum-funded, properly-structured insurance contract.

This type of policy can be one of the best ways to save for retirement and rainy days, as evidenced by how these policies have performed during this down economy.  There is no 40-60% loss!

target An Unnecessary Tidal Wave of Investment WreckageCan you miss and hit a target at the exact same time?  Yes, if we’re talking about a recent article called “It Doesn’t Have to Hurt“, published in Newsweek.

The author, Richard Thaler, hits the mark about consumer spending habits but misses the mark regarding cash accumulation vehicles for retirement.

With easy access to credit and undisciplined habits, the savings rate of the American public has dropped like a ton of bricks.  Consumer debt is at a 50 year all time high and savings accounts are at a 50 year all time low.

“It wasn’t so long ago that Americans were good savers.  From 1950 to the early 1980s the saving rate was a satisfactory 8 to 10 percent.  But even then, Americans never showed much willpower to stashing away cash.  The most important ways households saved were in pensions, cash-value life insurance, and by paying off their home mortgage.  What these have in common is that the saving occurs automatically and effortlessly.”

For years we’ve experienced these benefits with our clients.  Once an insurance policy is in place, a simple automatic draft can be set up to transfer funds from checking or savings accounts directly to your insurance account.

This savings habit becomes out of sight and out of mind as money each month is allocated toward cash accumulation and retirement savings.

Richard Thaler’s article goes wrong as he begins to focus on retirement investment vehicles.  As he gives his opinion how American’s can get back on track, he gives the following advice.

“In getting us back on the savings track there are two basic principles of behavioral economics to remember.  First, make savings automatic.  Second, put savings away in a specially designed account, such as an IRA or 401(k).”

To his first point, we agree whole heartily.  Creating budgets and a habit of saving is monumental to long-term financial success.  His second point however, does not ring true, and we’re not the only ones.

Just take a quick look at the comments that have been left on the Newsweek website about this article.

Many American’s who have followed the typical investment advice have lost anywhere from 40-60% of their savings.  Maybe all these big rich executives and investment companies don’t get it.

YOUR CLIENTS LOST 40-60%!

As we said in Missed Fortune 101 before these economic downturns ever reared their ugly face, “all the dogs are barking up the wrong tree doesn’t make it the right one!”

The advice in this article and promoted by so many other “experts” is to “save more so you can invest more, so you can have more.”  Instead of a formula for success it has really been a recipe for disaster.

It could be written “save more so you can invest more, so you can lose a lot.”

The tragedy is that if the vehicle for cash accumulation would have been a properly structured maximum funded insurance contract, the many that have had their retirement savings cut in half, would still have their retirement monies.

Our advice is the same as it has always been.  Put your serious cash away in a specifically designed account, a maximum funded insurance contract that is properly structured.  This type of policy can be one of the best ways to save for retirement and rainy days.

Oh, and by the way, our clients, who have followed these strategies, haven’t lost one dime in their insurance contracts due to this economic crisis.  Stop rolling the dice with your retirement funds and instead put a solution in place, a conservative one.

Photo by kokuziu

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“Sound” Retirement Guidance

April 2, 2009

A popular investment company recently sent out a newsletter claiming good and sound retirement guidance.  They asked a good basic question.  “Has the economy changed your retirement plans?”

They ask this question because they want to get you to come in to get your retirement goals back on track.  This company is not alone.  Many of popular investment companies are advertising for new clients right now.

The sad part about these efforts is that the vehicles they will suggest you use in your “planning” are traditional tools.  Savings accounts for minimal risk and short range goals, for longer time periods, diversify your portfolio among various stocks and mutual funds within your 401(k) and IRA.

financial advice Sound Retirement GuidanceHasn’t everyone woke up to the fact that these products have failed.  Saving accounts have trouble competing with inflation, especially with fears about inflation due to devaluing of the dollar.

Many economists are screaming that you can’t print a trillion dollars and infuse it into the economy without consequences, one of which is inflation.

401(k)s and IRAs have also failed miserably because of lack of safety.  It’s not uncommon to speak with clients who have lost 40%, 50% or even 60% of their retirement savings.

The sad part is that they did exactly what so many “experts” said to do.  Save, save, save, and put your money into specific products that would give great returns and be there for your “rainy days” of retirement.

Well folks, the rain has come, and the money was washed away.  I don’t know about you, but I’m thinking, this didn’t work out so well.

The Missed Fortune strategies were created on this premise.  Rains come!  And when they come you need safety of principal.

In other words, your serious money needs to be put in safe places, but also have a potential of a good return when the market is up.

This is exactly why we like Equity Indexed Universal Life, when structured the right way.  When the market is good, you can participate.  When the market is bad, you don’t participate (at least not at the level as everyone else).

I like having my cake and eating it too – good returns potential, much more than CDs or savings accounts, and lower risk, much less than the popular investments.

Right now, those who had baked a cake based on traditional advice have found it was cooked with rotten eggs.

Photo by laughlin

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The Negative Experience Transformer – Step 5 of 7

February 6, 2009

A 7-Step Unique Process to Transform Disappointing Experiences into New Opportunities

Step 5: See the opportunity in the challenge or threat.

Several years ago I read a study on more than 1,000 self-made millionaires. Their education and backgrounds varied — some had no more than a high school education, whereas another possessed three Ph.Ds.

There was only one common denominator: they were all “good-finders.” What most people viewed as challenges or threats, these people had the unique ability to see as opportunities. They were optimists.

The key is to take the world’s bad news and turn it into your good news. Below are a few examples of how this approach can work:

•    The Malibu Rock: My favorite example of someone possessing this trait is Brett-Livingstone Strong and the story of the Malibu Rock.

In 1977, Strong was a young Australian artist living in Los Angeles when a well-publicized drama erupted over a 116-ton rock embedded in the cliffs above Malibu Beach.

The affluent homeowners who lived below the rock understandably saw it as a threat. When an attempt was made to remove it, the rock broke loose and landed smack dab in the middle of the Pacific Coast Highway.

Strong purchased the rock from Caltran for $100 and had it moved by helicopter to a location where he could work on it in public view. He sculpted the image of the head of John Wayne into the rock and finally sold the finished work for a reported $1.1 million.

What everyone else had viewed as a threat, Brett-Livingstone Strong saw as an opportunity. He got in motion, added value, and turned a $100-dollar investment into more than $1 million, which helped launch his successful painting and sculpting career, spurred by the huge media attention he received.

•    The Credit Crunch: My friend, Phil Tirone, a successful mortgage loan originator, witnessed many of his clients’ confusion over credit scores.

To help his clients who were being turned down or charged higher fees on loans, he wrote a simple book titled, 7 Steps to a 720 Credit Score. He now has a complete kit that sells on national infomercials.

•    The Moral Dilemma: An acquaintance of mine watched professional athletes make costly mistakes in their private lives that affected their careers with lost endorsements.

He developed “The Self-Gratification Cost-Factor Formula” and has been paid handsomely to speak to professional athletic teams about the importance of living better lives as role models.

•    Shelter from Economic Storms: Due to the recent economic storms we are experiencing, I have written several articles and helped many people learn how to recession-proof their retirement.

I’ve also been able to help people understand how to get top dollar when they sell their home in a soft market, and how to buy real estate in a soft market with no money down and no credit checks.

How can you turn bad news into your good news?

•    Start by writing down the situation, problem or challenge.

•    Then list all of the obstacles that need to be overcome to correct or alleviate a bad outcome.

•    Next identify a specific strategy using available resources that will help overcome each obstacle.

•    Finally, write down a clear vision of how the negative situation can be transformed into a positive outcome, lesson or experience. Determine how it will help yourself and others under similar circumstances.

It’s my sincere hope that we will be able to adopt an optimistic outlook and learn to see the opportunity in every challenge we face in life.

Doug Andrew

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Will I be in a lower tax bracket when I retire?

February 5, 2009

This is a common Baby Boomer Blunder.  There’s a nasty surprise awaiting those who think this way.

If you are expecting a pension, and you add Social Security and a piece of a qualified plan such as an IRA or 401(k) to it, your taxable income as a retiree probably will be as high as it was before you retired.

But you will have fewer tax deductions to offset that income, because you will no longer be putting money into those tax-deferred IRAs or 401(k)s.

In addition, you may no longer have dependents at home, for whom you were entitled to a tax deduction. If you insisted on paying off your mortgage, you no longer can deduct its interest payments either.

Add it all up. If your income stays the same, or even if it drops from $75,000 to $60,000, you don’t have the $15,000 in deductions that you used to get.

So you remain in the same tax bracket you were in before retiring — but because you must pay the extra tax, you wind up with fewer dollars to spend.

If you think this sounds wrong, go ask your retired mom, dad or friend whether their taxes dropped once they left their jobs.

A business acquaintance did this, and his mother, a former teacher, replied, “Son, I am paying taxes up the wazoo.  I pay more in taxes now than I ever did, and my income is less.”

Doug Andrew

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What People Don’t Know About the Power of Wealth Preservation continued…

October 26, 2008

What if there were a better way?

What if rather than being left to panic when the market goes south, you could know that you are earning at least a 1, 2, or 3 percent guaranteed rate on your money when the market goes down — this way you don’t lose? And then when the market rebounds, you can immediately make money on the upside?

Let me share a personal story to show you how this is possible.

A couple of years ago, I separated an additional $200,000 of equity from my home through a mortgage. Even though market conditions have caused my house to go down in value by about $200,000 in the last year or so, I feel calm and in control.

Why? Because my equity is not trapped in my house. The $200,000 that I separated is safely earning an average return of about 8 percent, while the mortgage is only costing me 6 percent, and because the mortgage interest is tax-deductible, my net cost is only 4 percent in my tax bracket.

Hence, I am making twice as much in interest (8 percent) as the net interest I’m paying (4 percent) on $200,000 that would no longer be represented as equity if it still were trapped in my house (because of the market downturn).

I place my serious cash (home equity, retirement savings, children’s college funds, etc.) in maximum-funded tax-advantaged insurance contracts in order to maintain liquidity, safety of principal and earn a tax-favored rate of return.

I link the return (that the insurance company is contractually obligated to pay me) to an index, such as the S&P 500 index.

When the S&P goes up, I make money and lock in the gain. Then when the market goes down, I don’t lose — I still receive a 1, 2 or 3 percent guaranteed return.

Then after the market bottoms out and starts to go up again, my beginning point has been reset, so I can start making money again as the market starts to recover.

I don’t have to wait to arrive at a break even point.

To learn how this works and how to choose the safest place for your money, check my blog next week, and I’ll explain this incredible system of indexing in more detail.

Once you learn this, I assure you — you will sleep better at night, even during turbulent times.

Doug Andrew

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What People Don’t Know about the Power of Wealth Preservation

October 19, 2008

Having trouble sleeping these days? You’re not alone.

The week of October 6 – 10 proved to be one of the worst downturns in the stock market in American history. The following Monday, October 13, the market bounced back, realizing a more than 11 percent increase in one single day!

What volatile times we live in, and everyone is talking about it!

During the last few weeks of market turmoil, I was speaking to audiences in Chicago, Illinois; and Miami, Florida; and the Los Angeles, California, area.

I could see it for myself: People across America were feeling confused, isolated and powerless about their finances — especially if they had money invested in the market.

I heard many people exclaim they and/or their friends had panicked during the horrible downturn and had sold their stocks and mutual fund shares — thus locking in their losses.

When the market rebounded on Monday, they were left out and missed an 11 percent one-day upsurge. When things like this happen, remember two things: 1) Don’t follow the herd, and 2) Don’t pay attention to media reports on the herd, because the media is part of the herd.

I am grateful to feel calm during turbulent times. How can anyone feel calm at a time like this, you might ask?! Because of what I know, and what I can share, which gives others:

  1. Direction, so they don’t have to feel confused
  2. Confidence, so they don’t have to feel isolated in their circumstances
  3. Capability, so they don’t have to feel so powerless

Most people don’t know that investing directly in the market isn’t necessarily the best way to create and preserve wealth.

Many people don’t understand that when you have money in the market, a 25 percent loss needs to be followed by a 33 percent gain to come back to a break-even point ($100,000 dropping by 25 percent to $75,000 needs to then experience a 33 percent gain on $75,000 to come back to $100,000).

Likewise, a 50 percent loss needs to be followed by a 100 percent gain to come back to a break-even point.

Both the real estate and stock market are like a person with a yo-yo walking up stairs—the overall market will generally go up over the long-run, but it will experience many ups and downs in the short-run.

What if there were a better way? Please check in next week for the final piece of this blog.

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Shift your Focus during Troubling Times

October 6, 2008

While observing the recent turmoil in the financial markets, watching the political debates, and seeing unrest around the world, it has been interesting to see how Americans — and the entire world community — react.

I have had several radio interviews during the past few weeks in which the interviewers always wanted to know my advice for dealing with the current troubling state of affairs.

My best and simplest advice applies to life in general, and it might surprise some people. I would urge everyone to stop worrying specific events, losses and difficulties. Rather, focus on being grateful.

Whenever there is “bad news,” I try to focus on the positive. It doesn’t do any good to complain. Complaining attracts negative thoughts and people.

Gratitude allows your confidence, faith and hope to be nurtured and grow. When you exercise faith and hope, you’ll discover that new opportunities will emerge, and you will open yourself to the best possible consequences.

It is impossible for faith and fear to occupy the human heart simultaneously. Whenever I am feeling fearful about anything, I take it as a signal that I need to exercise more faith. Sure enough, when I do so, fear is dispelled.

We are constantly being bombarded with bad news through the media. I have worked to train myself to see bad circumstances differently — when something arises that most of the world would view as a threat, I see it as an opportunity.

Try doing this whenever a crisis happens in your life. Ask yourself, “What do I know from experience that will help me, and others, deal with this crisis?”

You will be energized. You will see yourself focusing on what matters most — on your relationships, on creating value, on new opportunities, on progress, on who you can be, and on what you can do for others. You will forget about what’s missing and begin focusing on what’s available.

As a result, you will find out that the world rewards usefulness, and people will compensate you in some form for your wisdom and advice.

For example, as a result of coming through my own financial crisis in my early years, for more than three decades I have advised people to separate the equity from their home to maintain liquidity, safety of principle, and earn a rate of return.

I have also recommended that people avoid putting put their serious cash — home equity, IRAs, 401(k)s and other retirement funds — into variable investments like the stock market, but rather in maximum-funded, tax-advantaged equity-indexed life insurance contracts with highly-rated insurance companies.

Our clients who have done this have not lost any of the principal on their money during the recent severe downturn in the real estate or stock markets, because their money was not trapped in those places.

They continue to have liquid cash available for emergencies and can readily handle a higher mortgage payment, a temporary job loss or any other curve ball that this economy may throw at them.

Because of this, I continually receive comments and letters of gratitude for the advice given, and clients have been referring their friends and relatives to our firm.

Our business continues to thrive during these otherwise tenuous times.

Why? Because we have been able to create new opportunities to help people overcome their greatest fears, seize their greatest opportunities, and harness their greatest strengths. I am grateful for the trust and confidence that people have placed in us.

As Zig Ziglar has always said, “Help enough other people get what they want, and you will have everything in life that you want.”

I wish you all the best as you look for opportunities in difficult circumstances, dispel fear with faith, and maximize your financial potential through strategic planning.

Doug Andrew

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