- Put your eggs in superior indexing strategies
for the ultimate diversification.
In this episode, I'm going to address the question
how to diversify using different IUL indices
to earn safer and higher returns.
Get ready.
By the end of this episode
you're going to understand the difference between
just a one-year point-to-point,
maybe a 0% floor and a cap,
maybe a 2% floor and a little bit lower cap,
and the difference in participation rates.
It's gonna blow you away.
I'm gonna show you how I've earned average returns
of 9.6% tax free since 1997.
(upbeat music)
So I'm Doug Andrew.
I've been helping people optimize
their financial assets for long term goals,
such as retirement now, for nearly five decades.
I started in 1974.
Way back then, I was a big proponent
of buy term and invest the difference.
And then in 1980, when EF Hutton came out
with the idea of universal life,
it was like buy term, invest the difference on steroids,
because it was tax free.
Well, back then interest rates were high.
And so they came up with the idea
of using a maximum-funded life insurance policy
for living benefits primarily, instead of death benefit.
This is where you took the least amount
of insurance the IRS would let you get away with
and you put in the most money, the most premium,
the IRS would allow as fast as they allow,
and it would turn into a tax-free cash cow
and way back in 1980, all the way up until the mid 1990s
I was credited between 11 3/4 percent
up to 15 1/2 percent tax free.
It was like a no-brainer.
If I earned 11, I netted 10.
I had many people put in $500,000 at retirement
and they would immediately start generating 50,000 a year
of tax-free income.
And frankly, many of them have still been experiencing
that to this day.
Now, in the mid 1990s interest rates started to come down
and so they introduced indexed universal life in 1997.
This is where you can still earn a higher rate
of return by linking to an index.
So let me explain, because on this channel
I have a lot of educational YouTube videos
that talk about indexing strategies.
I'm going to simplify it in this episode
and help you understand how it works.
Let's say that you have a certain amount
of cash value accumulated in your
IUL policy at a given point in time.
And it could be 100,000, 500,000, a million.
Let's use a million, 'cause it's easy to extrapolate
from that if you have more or less than a million.
So if you have a million dollars in your policy
in a year, you can just say, "You know what?
I feel nervous about the economy.
Just pay me the general account portfolio rate."
Now, a lot of insurance companies back
in the 1980s were earning 11 to 15%.
That was great, but inflation was high.
Now most of the insurance companies on their AAA
and AA bonds and their mortgages on shopping malls
and skyscrapers, they're only averaging maybe 5%.
So they need about one of those percentage points
for themselves.
They're in business to make a profit.
And so the net would be 4%.
Anytime you want, you can just settle for that 4%,
but if you feel bullish about America
you can link your returns
to an index or indices
of your choice and diversify.
So if you just link to the S&P 500,
let's say in the year 2000,
which was the beginning of the great recession
and you left your money there and you fell asleep
like Rip Van Winkle and you linked to the S&P 500.
Now, with the standard one year point-to-point
what you're doing is you're saying, "You know what?
Don't put my million dollars at risk, but link to an index."
So what you're relinquishing is the 4% interest,
in this example, on the million.
Instead of taking the 40,000, you're letting them
use that 40,000 to fund an options budget,
to buy upside options in the index or indices
that you chose.
So if that was the S&P 500,
they're gonna buy upside options in this.
These insurance companies are the number one purchaser
of options in the world.
They buy them hourly.
So that means that if the S&P goes up 8%
they'll pay you 8% on your million, 80,000,
because the 40,000 of options doubled to 80,000, okay?
If it earned maybe 12%, then they would pay you 120,000,
because options allow them to do that.
But if you guessed wrong and the market crashed,
the options expire, worthless,
but you didn't lose your million.
So it's a way to to participate when the market goes up,
but not lose a dime if the market goes down.
You simply gave up the interest on your money that year.
Now, this is smart because in most 10 year periods
you'll have seven up years compared to three down years.
I like to use the worst decade
since the great depression, 2000 to 2010,
'cause there were five down years and five up years.
That means you would've earned a zero.
If you have a 0% floor,
that means your options expire worthless.
You didn't earn anything,
but you didn't lose any of your principle.
And that's why zero can be your hero.
So that means in that decade, if all you did was link
to the S&P and you fell asleep for 10 years and you woke up,
"What happened to my money?"
And people say, "What, you missed 9/11,
the terrorist attacks?
The market dropped 40% from 2001 to 2003.
It took four years until 2007 to make back what you lost."
And then people lost 40% again,
for the second time in that decade in 2008.
It took actually four years until 2012
to make back what they lost.
So I'm talking about the end of 2010.
Most people in America were still down 38%.
On the million they started with 10 years earlier,
they only had 620,000
to show for it after 10 years.
They weren't even back to break even.
People who had their money in the S&P 500 linked
to an index, they earned 7.23%.
Rule of 72, you divide that into 72,
your money would've doubled in 10 years.
So if you started out with a million without adding a dime
you would've had 2 million in your IUL policy
when most Americans didn't even have
their original million back.
This is incredible, but there are other choices.
So that is called a one year point-to-point,
and so this is where the floor is zero
and then maybe you have a cap of 15 or 16%.
Many of them were doing that back there,
but instead of a 15% cap
sometimes people opt to take a lower cap, maybe 13%.
That was a popular choice then.
Well, why would you do that?
Because the floor is no longer zero. It's two.
So that if the market crashes you don't earn zero.
You earn 2% on your million. You still made 20,000 tax free.
But if the market goes up 15, 20%,
they only pay you 13, not 15, okay.
Now here's another choice.
You can use a participation rate,
so you can keep the cap at 13,
but you take the floor back down to zero.
Why would you do that?
Because they will pay you a participation rate.
Back then the participation rates were about 140%.
What does that mean?
Whatever the S&P does, they will pay you 1.4 times the S&P,
140% of what the S&P does.
And so people did that and they were able to earn
a really nice rate of return because they got credited 140%
of whatever the S&P did, but the floor was zero.
So guess what the most popular question was back then?
"Doug, which one do you use?"
My answer was, "All of them."
Hello? I can take 30%.
Okay, 300,000 of my million and link it to the one year
point-to-point with a 15% cap, 0% floor.
Another 300,000 I could put into the 13% cap
with a 2% floor and another 300,000
in the 13% cap at 140% participation rate.
And the last a hundred thousand stays
in the insurance company, earning 4 or 5%.
Back then it was 5%. And guess what?
By diversifying, I actually earned 9.62%.
So I went from 7.23 up to 9.6.
Now, if you divide 9.6 into the number 72
your money doubles in seven and a half years.
So at the end of 10 years I had more than doubled my money,
because I had another two and a half years.
And by the year 2012 I had doubled my money
and even tripled it in 2012 by diversifying.
Now, if this is arousing curiosity
I want you to subscribe to this channel
and when you do click on that little bell,
because then you'll be notified every time
I post a new educational video,
which I almost do on a daily basis,
but hold on, I want to gift you a copy
of my most recent best selling book.
It's called "The Laser Fund"
and this will teach you how to not only diversify,
but the basics of indexing, if I went a little bit fast,
or you can search on this channel,
but this is actually two books in one, 300 pages.
200 pages has charts and graphs and explanations.
That's this side.
If you learn by stories, you flip it over and read this one,
100 pages, 12 chapters with 62 actual client stories.
This is right brain left, left brain learning.
If you want to use your whole brain, read both of these.
Here's how you can claim your free copy.
Go to laserfund.com, L-A-S-E-R fund.com,
click on the link below.
You contribute a nominal amount
towards the shipping and handling.
I cover the rest of that. I will pay for the book.
I'll fire out a hard copy to you,
but there's options in there.
If you like to listen and learn, watch and learn.
There's even an 18 hour masterclass where we do a deep dive,
far deeper than the book, but also check out
some of the educational platforms,
such as our virtual Retire By Design events and webinars,
because this is about your brighter future.
(bright music)