Hi, I’m Steve Bailey and today we’re going to have a special episode of Financial Freedom Radio. We’ve been getting a lot of questions from people responding to issues with the economic issues with Covid-19 and how it’s affecting the financial markets. So I’m hijacking the episode today and we’re gonna take Ray and we’re going to treat him like a puppet and we’re gonna have him answer some questions and try to sway some fears of what’s going on in the market so stay tuned.
From Philadelphia, the home of the Liberty Bell, Financial Freedom Radio starts now. Here’s your host, Raymond Jewell.
Well, it’s not really Ray, it’s me again. My name is Steve Bailey. I’m the guy behind the scenes and I thought we would hijack today’s episode and talk about some things that are happening in the world today, in the economy today. So I think what I’m gonna do is I’m just gonna three-wheel this. This is unscripted. We had a planned show today, but I think today we’re going to go off script and we’re just gonna have a dialogue. So with that, I’m gonna bring Ray in. Hey Ray.
What do you mean by hijacking my show?
Well, we’ve been getting a lot of questions. We’ve been getting a lot of people who are concerned about the stock market took a big tumble last week and I just thought this could be a good platform for us to address some questions. You’ve got countless years of experience in economics, in the finance world, and I just thought it would be a good opportunity.
You saying I’m old?
No, what I’m saying is you’re smart, you’re seasoned, you’re wise. Okay, smarty-pants. I just thought it’d be a good opportunity for you to address some of the things that are going on and give us your spin on what’s going on and see if we can help people feel a little bit calmer about some of the things. For example, the stock market. Talk to me. Should I be concerned?
It’s too late. You know what’s interesting is when you look at the stock market, we had a crash back in 2008. How soon we forget and it devastated people financially and they lost huge amounts of money and then all of a sudden they had to work really hard just to get back to Ground Zero, to start building again. Every time the market drops and people lose money, they lose value. You know the favorite saying that people say, “well you know I got my money back.” Yeah, but you should have more because when you work really hard to get back to zero, you’ve recovered what you’ve lost and you’ve lost ground in total. People just don’t seem to get that. We’re just getting back to the things that we did wrong before. How many times do people have to have a kick in the head? It’s like that old mule, and no disparaging remarks to mules, but you have to slam that mule with a two-by-four side it’s head before you get its attention. So when you look at the markets, the markets are not and should not be the sole place you have your money. But what do they do? They put it all in the market, 401ks, IRAs, and when it goes down, people panic and they either sell. I know people that have sold and I said don’t sell. Keep your money. Keep your money. It’s gonna come back. If you sell, you’ve admitted defeat first of all. You shouldn’t have your money there, all of it.
I think one of the things that you always told me over the years is that it’s okay to have some money in the stock market, but if that’s your only place where you’ve got money, it’s like all your eggs in one basket, right. This is what gets me is it dovetails into what you said.
Well, you should never do it in a financial setting. Andrew Carnegie said, in business, put all your eggs in one basket and watched a basket. When it comes to financing, you’ve got it all in one area. When it drops, it drops. It drops fast as we saw.
The only time you really lose money in the stock market is when you sell.
No, I’ve heard that before.
You don’t think so?
Tell that to your banker. If you’ve got stocks and you’ve got $10,000 worth of stocks and now it’s worth 5,000 and you put that on your balance sheet is that real loss? Of course, it is.
Yeah, I guess you’re right.
You’ve got to earn more to get back to the 10. When in reality you should have stayed at the 10 and gone up even higher.
Yeah and you’ve lost time and that’s the one thing that people don’t get. Yes, you’re back to Ground Zero, but all that time, you know time is the one commodity that we have a finite amount of that. You never get that back and that’s one of the things that’s important and that’s one of the reasons that we do this show. We try to help people understand how to maximize their finances and maximize their financial freedom so that they can really leverage the time because, really at the end of the day, time is what we all have and what we’re all running out of every single day.
Can you put this with a crawler to subscribe, like, and share?
Yes, get the shameless plug in.
Tell people who I am. One of the things that are important, and financial planners hate me for saying it and they will defend their actions a hundred percent. First of all, let me paint a picture here. People give money to other people who they don’t really know well. They put their whole financial life trust in these people’s hands and these people are managing their money and they’re called financial planners. They put money where they make money because they’re in business to make money for themselves. All the way down the chain, you’ve got people making money off of your money. So we give money to people we don’t know, we get them to invest our money in places we don’t fully understand, and we bank our whole life’s financial future based on these people assuming, and I’m getting my plug in for next week’s show, financial, political, and life ASSumptions. So we assume they know what they’re doing, when in fact, we have no way to verify whether what they’re doing is right or wrong. So we put our life savings into the market and we gamble. It’s pure gambling.
That’s what it is.
All of a sudden, overnight it seems the market tanks and the feds start doing all sorts of crazy stuff. Had the Federal Reserve, and you know that I’m a fiscal conservative, so I don’t answer to any 1 party. In this case, it’s the Republicans because they’re more fiscally conservative than the Democrats who are loony as far as what they’re talking about. Where’d you go?
You wanted your crawl, I had to put your crawl up.
Oh, so you have to only have one screen for that? Oh, nice. So what happens is we can’t verify whether what they’re doing is right or wrong and, all of a sudden overnight, boom. Everything collapses and what occurs is financial devastation. Now if you’re a retiree and you’re living on that, all of a sudden your lifestyle is dropped. If you’re young and you’ve got all your eggs in that stock market basket, you are going to end up in financial trouble as we outlined earlier. I only have a small percentage of money in the market. I have it in whole life insurance and annuities and financial people laugh at what I tell them, but you know what? When the markets go down, I haven’t lost a dime. My money is still where it was the day before the markets went down. I haven’t lost a dime. Indexed annuities you could get them where they’re indexed on funds, but the downside is protected. You always want to protect your downside, but the financial people don’t do that. They go, “oh index annuities are very expensive.” Well so are mutual funds, so are stocks because you got to pay money to get them. When you lose money, what’s the lost opportunity cost of losing it? A lost opportunity cost is when you lose money. What could you have used those dollars for somewhere else and at what rate of return could you have gotten it from? So you’ve got a lost opportunity to spend those dollars that have evaporated. People just don’t get it. The financial people, they’re getting bolder. When we started pulling out of what happened in 2008, they were a little timid and they were still touting annuities and whole life insurance and all that. Let me clarify something. When you put your money in these places, you’ve got to do it right. You got to know what you’re doing.
There’s a group of practitioners called leap practitioners and you could google it. Lifetime economic acceleration process. They build economic models to verify whether what they’re doing is right or wrong. They’ll actually show a client where they can lose money and how they can correct against it out into the future. So if you’re looking for a place to go, google it. If you want help in finding these people, just let me know and I can point you in the right direction.
That was how you and I met.
That’s right. Because I build economic models. I show people whether what they’re doing is right or wrong and where they’re gonna lose if they’d continue the course. Again, that’s some drifting over into next week’s show.
For the record, next week’s show was supposed to be this week’s show until I took control.
Yeah, right. So when you have an annuity, don’t listen to the people saying it’s very expensive because there are hidden fees and mutual funds, there are hidden fees and all sorts of stuff. The bottom line is you’re not going to lose any money when the market goes down because wherever it is, that becomes your new baseline and it just builds from there. Same with a good dividend driven whole life insurance policy. There are several companies out there that I know of. Guardian, Northwestern Mutual, Mass Mutual, there are some good companies that are mutual companies that have dividend driven life insurance. Now a lot of people will say, “what’s the difference between a mutual company and stock company?” Well, a mutual company pays dividends to a policyholder because it’s owned by the policyholder. The stock companies pay dividends to stockholders because the stockholders own it. So if you have insurance with a mutual company, then you get dividends because you’re part of the people that own the company. They go right in to build your cash value even more.
So, I want to stop you for a second because I want to ask you a couple of questions. One of the things you always talk to me about is that dividend insurance policy thing. Why do you think that the financial planners are the people, I drive down the road and see advertisements on Billboards for financial planners all over the place. Why do you think they’re not telling people to do this?
It’s a great question. They’re not doing it because they don’t have a good understanding of macroeconomics. They don’t understand where the inefficiencies are and how to fix them. They don’t understand how to explain it to people so that they understand it. So they go to where they can make the most money and the easiest money that’s in the stock market. Everybody knows the stock market. People feel that there’s an allure of the stock market. Oh, I’m invested in the stock market. You go to parties. I got my Microsoft stocks or my Apple stocks. They may have 10 cents in the market, but they’re talking like Jake Paul Getty. So the allure is there and it’s easier for a financial person to sell that because remember they’re in business to make money and they get paid commissions. If they call you up and sell your stock and say, “I think we ought to sell and buy X.” They’ll get another commission. They get a sell commission and a buy commission. So the government has laws against that. It’s called churning. The same in insurance. If you talk to somebody and they’re selling insurance, they want to replace what you currently have with what they have because they want to get a new commission. I would never ever in my wildest dreams replace a whole life policy. I don’t care what company it’s with because any policy is good if it’s seasoned. It will build, it will beat markets because of the fact that markets go down and severely impact your growth.
So, what is it again that you call it?
Dividend driven whole life policy. Now you want to get it from the right company, but you never want to let your financial guy come in and replace it. The only time you should fool around with life insurance is if you’re trying to get a lower term cost.
So hang on a second. Do me a favor and in five seconds or less at your best third-grade level because I’m ignorant in some of this stuff. Tell us what a dividend driven whole life policy is. What’s the purpose? Does it pass your youth growth test? What’s the benefit, not just from a financial, but I hear insurance so I’m assuming there’s some kind of a death benefit involved. So bring us up to speed on what that is.
Okay, you’ve got three components in a whole life policy. You’ve got guaranteed cash value which is guaranteed contractually. Most policies have a 4% guaranteed cash value growth. Which is far better than you can get in any savings account. You’ve got dividends which are paid by the company based on the efficiency of the company. If the company runs a really efficient operation and they have money left over at the end of the year than they end up paying that back to the policyholders because they own the company. That’s mutual companies and then you’ve got death benefit. The death benefit is when you take out a million-dollar policy, the company has the risk upfront. They take 100% of the risk, but they know that at whatever age you’re doing it, they have an actuarial table that tells them what’s the percent of you dying? So they take the risk upfront, but over time, as you get closer to dying, their risk diminishes and your cash value and dividend values start to grow. So your death benefits become your cash value, your total cash value, with the dividends guaranteed cash value and whatever risks they’re willing to share totaling the full amount of the death benefit.
So let me just play this back to make sure I understand it. So, what you’re saying is at the beginning, you take out a million-dollar policy and they assume all the risk and then over time, you’re paying premiums, but those premiums are actually going into the cash value. So the amount of money that they’re committing to pay you on your death, the amount that they’re gonna take out of your pocket is getting less and less because you’re putting more premium into it. Is that right?
Well what happens the first year, you probably have very little cash value because they take out their charges and everything, it’s all front-loaded. Then the second year, you probably have maybe 50 or 60 percent of what you’ve paid in over the two years. Your break-even point should be, at the end of five years, you should have what you’ve paid in maybe 80 or 90 percent. At the end of ten years, you should be whole and then some. People that invest, wealthy people will look at the growth on an annual basis. What am I getting in X account on an annual basis and do I want to continue doing this or do I want to look at something else over here? So if you look at your growth on a yearly annual basis, when you get to about the, I think it could be dependent on the insurance company, it could be around eight or seven-year. The amount of money you’ve put in has to be greater. Your cash value will exceed what you’ve put in. You’re starting to get growth. You get through those rough years and then that thing’s taken off. So, you asked me about using growth simultaneously. So, if you’ve got cash value, when you create a loan from an insurance company and it uses your cash value as collateral, you borrow that money out. If you take that money and you go over and you buy a piece of real estate, they don’t take the money out of your insurance policy, they create a loan from the general fund of the insurance policy or insurance company with your policy as collateral. So when you take your money out and you go and you buy a rental property, you end up having that rental property grow faster than what they’re charging to an interest. So you’re using the money while it’s still growing over here in the insurance policy. It’s hard for people to conceptualize that, the financial people just don’t get this. But what occurs is when you see it on paper, light bulbs start going off. So in the insurance policy, you end up getting use and growth simultaneously. You can’t do it in annuities because they have what they call first-in-first-out. So the money that you put in, I think it’s first in. It used to be first-in-last-out. So the money coming out, if you were to take it, they’re gonna charge you taxes on it, but again, I’ve been away from it for a long time. I haven’t built the models. You need somebody that’s current with it. I built my business and sold it. So I haven’t actually worked the models, but when I did do it, we could show all that and it was phenomenal, but back to our original topic. I’m not here to sell life insurance or annuities, but my point is that people need to know that there are places that they can put their money and whenever the markets go down, they could still benefit from the market growth, but whenever they go down, it doesn’t go below a bottom-line point.
I’m glad you did that because I was about to bring it home. You’re right, we were going way down into the water, but I think it was important because one of the things that attracted me to you as an economic coach was the idea of diversification, and not only diversification but into areas that regular financial planners aren’t telling you. They’re telling you get into mutual funds, they’re telling you get into the stock, they’re telling you to get into all the stuff they know how to sell, that maximizes their commissions, that makes the most money for the company and not necessarily the best idea for you in a long term position. That’s what I wanted you to kind of touch on was the people who were panicking, who are knee-jerk reacting to sell sell sell because the markets tanking. If you’re divested properly if you’ve got your money into all the right vehicles, you’re not losing your shirt when the market does this and you can ride this out. Because we all know that at some point, the market’s going to bounce back.
One of the things that the financial people don’t understand, when you put your money into a whole life policy, you’re purchasing the death benefit upfront. You’re not paying the commissions, the commissions are paid out of their front-loaded out of the coffers of the insurance company because if they were paying the commission’s upfront, then for the first five years or four years or maybe three years, you would end up not getting any cash value. But a good dividend driven whole life policy from a mutual company will give you cash value in the first year. So, in the second year, it’ll just start to take off, but make no mistake, their insurance guys make a lot of money, they get commissions and they get renewals every year. So they have a vested interest in keeping you going on returning from one company to another. You want to look out for that because that makes no sense and there are laws against it, but they can’t police it. They try to have forms to fill out a replacement form and all that kind of stuff. So the only thing that should be replacing an annual, not annual, but every so often, take a look at your term insurance because the rates do change on that. They go down because mortality keeps getting longer and longer. I’m 75 years old and my mortality, who knows, they’re telling me it’s 86, but I’m planning on going to 100.
75 years young, thank you.
There you go.
Alright so, we’re getting close to time.
How long have we been going?
We’re at 25 minutes right now. What would you want to say to wrap this up and tell people, you know this is your platform.Don’t get political, but just get financial and tell them, give them a nickel’s worth of free advice to ride this storm out.
Well, use this as a teachable moment. I thought 2008 would have been a teachable moment, but I guess not because people forget. They think they’re financially immortal. They think they’re indestructible financially and of course, all people are out there hawking all these programs and all of these products that, you know, the allure of them, but don’t be lured into that kind of stuff. Get something that protects your bottom-line even though it may not be the 10 or 20 percent growth. If you systematically get six to eight percent and whenever the markets go down, you don’t lose anything. You’re really beating the markets with the places I have my money. My insurance policy beats the markets because these downturns are severe and it’s got nothing to do with the overall economy. The stock markets are only a small piece of the economy. The economy is still moving and shaking even though we’ve got this coronavirus. The markets have gone down and we’re talking about this as a 16th of March in 2020. So, we’ll be able to look at this and see the difference a year from now and see where the markets are. The point I’m making is protect your bottom-line. You work hard for this money. Get use and growth simultaneously in everything you do. Go back and listen to other shows that we’ve done. It’ll give you a good grounding into what to expect. So I want to thank you all for coming and tuning in to FinancialFreedomRadio.com. Have a great week and we’ll be back here next week. Take care. God bless.
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