Get gains in up markets but lose in down markets.
In this episode, I'm going to address the question, "How can I protect my money from
a stock market crash?"
I'll share with you the most dynamic strategy that is so powerful, so simple and yet you're
going to asking yourself, "How come I've never heard about this before?"
It is so sad that most financial advisors, CPAs and tax attorneys that I have mentored
were sitting there with their mouths open when I taught them this.
My name is Doug Andrew and I've helped people optimize their financial assets and minimize
unnecessary taxes for more than 4 and a half decades.
Now, let me give you a little bit of my background and story so that you'll understand where
I'm coming from.
I actually started as a financial strategist hoping people optimize financial assets in
1974.
And from 1974 until 1980, in just 6 shorts years, I was responsible for more than 3,000
clients in 13 western states.
And I was trying to do my best.
I was helping them put money in a diversified portfolio of mutual funds.
And it was sort of like helping them make sure that we can get an average return of
hopefully 12%.
Now, actually, we did a pretty good job of that.
But it was like playing red light-green light if you ever did that as a kid.
Sometimes, we were progressing as much as 20%.
But then we had to take several steps and back and forward and back.
I often describe the stock market as like a person with a yoyo.
Hopefully walking some stairs that is going to grow overtime.
But I'm going to use some examples of where we've had 10-year periods where that person
with the yoyo was walking across the flat surface.
The Dow Jones, the Russel 2000, the S&P 500 was exactly where it was 10 years earlier.
And how are clients have doubled or even tripled their money during periods like that.
But see I started out as a traditional financial planner trying to help people in the market.
I also realized that even if I could earn for my clients an average of 12%, that's not
what they were netting to buy gas and groceries at the end of the day because let's say you
have a million-dollar nest egg and it's earning 12%.
That would be 120,000 a year.
If you pull out 120,000 of interest or gain as income, you're going to pay tax on that.
Between federal and state tax, most people with that kind of money will pay at least
a third.
So, if you pull out 120,000, you pay 40,000 in tax, you're only netting 80,000 to buy
gas and groceries.
A lot of asset managers charge at least 1% in asset management fees.
So, that's another 10,000.
So, if you earn 12%, you're only netting 7% or 70,000.
That all changed in 1980.
And my clients were never happier than when I got them out of a volatile market.
And I had them earn rates of return more predictable in the 8 to 10 percent range totally tax-free.
I was trying really hard to earn my clients an average of 12%.
But like I said, it's like red light, green light.
Sometimes they earn more than that.
Sometimes, they would take steps backward because their money was in a volatile market.
Well, Dalbar who studies investor behavior in stock market actual performance has said
that over any 20-year period in American history since the great depression, if you just leave
your money put, okay?
You don't buy and sell with the wrong times.
If you just let it put, you would probably average around 9.14%.
It's a little over 9%.
That's before tax.
So, if your money is in a tax-deferred IRA or 401(k) and you're earning 9%, you're only
netting (in a 33% tax bracket) 6%.
Let's say you have a million-dollar nest egg, it's earning 9%.
Theoretically, you could pull out 90,000 without depleting your principal.
But you have to pay tax on 90,000 between federal and state tax a third.
Many Californians even pay more than that.
So, you pay 30,000 in tax, you'll only netting 60,000 to buy gas and groceries.
Well, the big problem is maybe you think you can get by on 60,000 a year in retirement
or 5,000 a month.
With a real rate of inflation which is normally between 7 to 10 percent with prescription
cost, medical cost and so forth, the cost of living doubles every 7 to 10 years.
The purchasing power of the dollar in other words is cut in half.
So, if you could get by on 5,000 a month now, probably in 7 to 10 years, you're going to
need 10,000 a month to buy the same gallons of gas and loaves of bread that 5,000 a month
used to buy.
And this is what causes people to outlive their money when they don't take into consideration
taxes and inflation.
So, it's the market volatility that sometimes causes people to earn less than even 6% net
rates of return.
Dalbar said, "The average investor in the market only really earns about 3.5%."
3.49 to be precise.
Why?
Because they're buying and selling at the wrong times.
Emotion comes into play.
People see their money in the market and then we have a serious nose dive like happened
in February, March of 2020 because of covid-19.
The market went down 33%.
When people see their money dwindle in value to 30, 35, 40 percent, they panic and they
go, "Enough already" and the sell low.
And then they wait until the market comes back, back, back, back and then they buy high.
Now, you have institutional investors that play off of that.
They know that's what the public is going to do.
So, Dalbar says the average retiree because of having money in the market and they get
emotionally involved, only really earn 3.5%.
So, this is what precipitated the 4% rule in the financial service industry.
Do you know that most financial advisors if you have money in the market in your IRAs,
401(k)s, they only want you to take out 4% a year in a pay out because they don't want
to be sued for you outliving your money.
You have to sign a waiver if you pull out more than 4%.
That's pretty pathetic.
4% means on a million-dollar nest egg, you're only going to pull out 40,000 a year?
You have to pay tax on that.
Even on a 25% bracket, you're netting 30,000.
A lot of these money managers charges 1% in fees.
On the entire million, that's another 10 grand.
If you subtract taxes and fees, you pull out 40,000 and you're netting 20,000 to buy gas
and groceries, 2%.
How pathetic is that?
I'm going to show you how you could have 8%, 80,000 tax-free.
How much more is 80,000 than 40,000?
It's double.
How much more is it than 20,000 net?
It's 4 times as much retirement income.
The best way to protect your money especially from crash in the market is by not having
your money in the market.
You want to link your returns to what happens in the market.
But you don't want to have any of the risk that actually people incur by having money
directly in the market.
People go, "So, how do you do that?"
It's called indexing.
And I will explain how indexing works here in just a moment.
But a lot of people don't realize that when you experience a 25% loss, okay?
Let's use a million-dollar nest egg because that's a round number.
If a million dollars suffers a 25% loss, you're down to 750,000.
Now, to make up for a 25% loss, you have to have a 33% gain.
People go, "Huh?"
No.
See, what is 750,000 have to grow by?
33%.
33% of 750,000 is 250 grand.
A 25% loss has to be followed by a 33% gain to get back your money.
Well, a lot of people in February, March of the year 2020 because covid-19 saw their nest
egg dwindle in value 33% in like 30 days.
Now, I've seen people lose 40% in a year in 2008.
And it took 4 years to make that back.
Because if you lose 33%, you have to have a 50% gain.
If a million goes down to 667,000, that has to have a 50% increase to come back to break
even.
You wouldn't believe how many people in 2008 lost 50%.
A million-dollar nest egg goes out 500,000.
If you have a 50% loss, it has to be followed by 100% gain to get back to break even.
Just eliminate the losses in the first place.
How do you do that?
Let me share with you how this is done.
Now, Warren Buffet has 2 rules of investing.
Rule number 1, don't lose money.
Rule number 2, don't forget rule number 1.
Now, easier said than done.
But one of my favorite strategies to protect my money from market crashes is indexing.
So, in my various books, I talked about indexing.
It's a complicated topic.
But I'm going to simplify it right now because I accumulate my money in a diversified portfolio
of Laser Funds.
Now I'm just going to use one laser fund to show you how this works.
And whether you are socking away 500 bucks a month and you do it for 30 years, it will
probably grow to over a million dollars.
Or whether you started out with a half a million.
And in 7 years, it doubled to a million.
I've had many clients using laser funds that started out with 500,000.
And it doubled to a million in 7 to 10 years.
The million doubled to 2 million.
The 2 million doubled to 4 million.
And the 4 million doubled to 8 million in 30 years.
Every 7 and a half years, it doubled.
Because they were earning average rates of return as high as 10%.
it's just math.
Now, they have 8 million and it's totally tax-free.
They can pull out 600,000; 800,000 a year and never deplete their principal> Most of
them could never spend that much money in a year the rest of their life.
So, you don't want to outlive your money.
Sadly, most people have their hard-earned money at risk in the market.
Wallstreet was never built to give you a predictable income.
If you ask an advisor with your money on Wallstreet, "When is the best time to sell?"
Their answers are always "never."
They cannot show you predictable cashflow.
In other words, what you may be did for your retirement savings is not necessarily what
you should do at retirement.
For retirement strategies are totally different from what you do at retirement for your planning.
Okay?
So, you want to get out of the market.
You want to use indexing.
Indexing is where you have your money in a very safe institution.
An institution that have weathered the Great Depression with flying colors.
You have your money in their general account portfolio.
I'm talking about the multi-trillion dollar insurance industry.
This is where banks put 30 to 40 percent of your money when you deposit it in the bank.
The bank pays you 1% interest.
They turn around and make 4 or 5 percent by putting it into insurance companies.
You can bypass the middleman, okay?
So, if I have a million dollars in my laser fund with these highly-rated insurance companies,
I can settle for 5%, let's say.
Their general account portfolio rate, that's 50,000 anytime I want.
Or...
And if I take it out by the way, it's tax-free.
Or anytime I feel bullish about America, I can link what they're paying me to an index
that they offer.
Now, many insurance companies offer indices like S&P 500, the Dow Jones, the Russel 2000.
I can diversify and link to several.
I could have 20% of my money linked to the Dow Jones.
20% to the S&P.
20% to the Russel 2000.
But let's just be simple here.
If I have my million linked to the S&P and it goes up 10%, they'll pay me 10%.
If it goes up 15, they'll pay me 15 up to a cap.
They'll cap me because they cannot use my million dollars in the market.
So, how can they afford to pay me that?
I'm relinquishing the interest on my million.
In this case, I'm talking about 5%.
That's 50,000.
You can do whatever you need to do with my 50,000 of interest you're earning on my million.
And so, they buy upside options in that index.
That gives them the wherewithal that if the market goes up, they can pay you 10 or 15
percent because the option is doubling or tripling in value.
If the economy tanks, if there's a crash, if there's a terrorist attack, I don't lose
my million.
The options expire worthless.
Now, if this is arousing curiosity, I've only scratched the surface.
So, I want you to learn more.
I have several educational videos on this topic.
But I want you to read my book The Laser Fund and you'll understand how indexing can protect
you from market crashes.
But you get to participate when the market goes up without the risk.
So, as I summarize in this episode how you can protect your money from a stock market
crash, I want you to learn about indexing.
It's amazing how many financial advisors don't have a clue what I'm talking about.
They think I'm talking about indexed mutual funds.
No.
I can easily stump most traditional advisors by talking about making money when the market
goes up but not losing a dime when the market goes down.
You're linking your returns.
And when I say linking, they're going, "What are you talking about?
What do you mean linking?"
My money is not invested in the market.
"Well then how is the insurance company able to afford to pay you when the market does?"
Because I am indexing.
I am giving up the interest on my nest egg for them to buy upside options where they
have the wherewithal to pay me 10%, 15%.
Maybe with multipliers as much as 25, 50 percent when the market goes up.
But if the market goes down, I don't lose a dime with the principal I started with that
year.
Simply the options expire worthless.
It is so simple but so many advisors are never taught this because frankly, they make money
by turning your money in the market by buying and selling.
So, most broker-dealers, most of these financial firms don't want their advisors to know about
this because it's management unintensee.
They want to charge you management fees.
Folks, this is the most inexpensive way and most powerful way to protect yourself.
So, if you want to learn more of the nitty-gritty about indexing and how it works, I would strongly
recommend you read and study this book.
Subscribe to this channel.
Search other videos because I teach a lot of different ways about indexing.
But if you want to claim your free copy of this 300-page book that has all kinds of charts
and graphs and stories, it's actually, 2 books in 1.
This is the right-brain side.
This is the left-brain side, okay?
Simply go to laserfund.com.
LASERfund.com.
You contribute a nominal amount towards the shipping and handling and I will cover the
rest of that cost.
And I will pay for the book and fire you out a free copy.
And there's also options in there if you like to listen and learn and watch and learn also.
But this is the beginning of your brigther future when you can take advantage of gains
when the market is up but not lose when the market goes down.