Less than 4% which is unacceptable to me. In this episode, I'm going to address the
question "What is the average return on money in the stock market?" You're going to be shocked
when I tell you the real answer and how you can do far better. Hi, my name is Doug Andrew
and I've been helping people earn better rates of return than the stock market now for more
than 4 ½ decades. Do you know that when I started in the financial services industry
back in 1974, I had a seriesOne securities license? They don't even offer that anymore.
That allowed me to sell any stock, bond, mutual fund out there. Now, you have to have series
6, a series 7, a series 63, a series 24. All of these to equal that one license that I
have. From 1974 until 1980, I ended up being responsible for over 3,000 clients in 13 western
states. And we were trying our darndest to earn an average return of 12%. Now, actually,
we were doing a pretty good job trying to time the market. But timing the market usually
doesn't work. But I realize it was like playing Red light, Green light when I was a kid. There's
some periods where when you play that game, for example, you take 20 steps forward but
other times you take 10 steps back. And so you go back and forth. The stock market is
like that. Sometimes, you'll make 20%, sometimes you'll lose 10-15, even 40% like 2018. Well,
it was EF Hutton, they were not an insurance company. They were brokerage firm that realized
"Why are we doing this? Why are we trying to earn 12% when people aren't netting 12%
at the end of the day?" In tax-deferred IRAs and 401(k)s for example, if you're earning
12% which most people aren't, the average person in the market is only earning between
6 to 9 percent. But actually, they're buying and selling at the wrong time. And they're
only earning 3.5% as I'm going to share with you. But if you could earn 12, if on a million
dollars in an account you were earning 12%, that's 120,000. Let's say you were pulling
out what you're earning. Now, 120,000. If that's an IRA or 401(k) or it's a tax as earned
mutual fund, you have to pay tax on that. So, in a 33% combined federal and state income
tax bracket, you're going to have to pay 40,000 in tax. You're only netting 80,000 to buy
gas and groceries. Now, a lot of asset managers charge 1% assest management fee on that million
bucks. That's another 10 grand. If you subtract taxes and fees, you're only netting 7%. You're
netting 12 and only netting 70,000. Hello? That's when EF Hutton came out and said, "Hmmm,
there's got to be a better way." And there is. They realized that the multi-trillion-dollar
insurance industry are some of the best money managers in the world. And back then in 1980,
they were earning on their general account portfolio is made up with triple-A and double-A
bonds and mortgages and so forth. They were earning between 11 and 15 percent. So, they
simply said, "Why don't we just have people earn 11 and net 10 because those are tax-free?"
And you have less volatility. Well, what's that 1%? It's not tax. It's the cost of the
insurance that has to be in the contract in order for it to be qualified as a tax-free
accumulation vehicle. But I would rather 11 more safely and net 10 than try to earn 12
and only net 7. I have to try to earn 16 to net 10 if I had my money in the market. And
if you try to earn 16, you're putting your money in a lot of volatile investments in
order to try to earn 16. So, this is why people begin to ask "Well, what is the actual average
rate of return in the stock market?" I'll tell you next. So, when you look at the S&P
500, it's a good indicator, it's the top 500 corporations in America that's usually a pretty
good indicator of what the stock market is returning. The last 24 years, the S&P has
actually only averaged just slightly less than 16%. Did you hear that? You don't hear
that from the investment managers. They're always touting the gain years and so forth.
But if you buy and hold, most people have only averaged 6%. Dalbar who measures investor
behavior says that during the best 20-year periods, you might earn as high as 9.14% but
you're not netting 9, you're only netting 6. But in actuality, if you bought and held
the last 24 years, you would earn 6%. That means a million bucks is earning 60,000. Now,
you're only going to net maybe 40,000 after tax. Dalbar also says this: "There's a difference
between investment returns and investor returns." What are investors actually experiencing?
Because retirees have their money in the market and their retirement income is depending upon
what the market does, they let emotions get involved and so when the market starts to
drop like 2001 and '02 like 2008, like March of 2020 due to the Corona Virus pandemic.
And they see the market drop 20, 25, 30 percent, they go, "Enough already. I got to get out
of there." So, they sell.... low.
And the institutional investors know this and they are there to buy low. See, most people
are doing the opposite of what they should be doing. They sell low and they wait, wait,
wait until the market rebounds really good. And then they buy back in high. That's when
the institutional investors are selling high. Now, folks, Dalbar realizes the average retiree,
therefore, is not earning 6 or 9. They're earning 3.49%. This is what precipitated the
4% rule in the financial services industry. In a nutshell, what is the 4% rule? So, the
4% rule came out because the financial services industry when they realized that most retirees
who had their money in yet-to-be-taxed IRAs and 401(k)s in the market were only really
averaging 3.5%, they did not want to be sued as a fiduciary for people outliving their
money. So, when they learn that the average person only earns 3%, they said to their advisors,
"Don't you dare illustrate or let a retiree take out more than 4% a year because it will
slowly deplete their nest egg but not before their L/E." L/E means life expectancy. They
don't want to be sued for you outliving your money. So, they came up the 4% rule. So, that
means, they only want you to pull out 4%. If you take out more than that, they want
you to sign a whole-harmless... a waiver that you will not sue them for outliving your money.
So, that's pretty pathetic. It means that a million-dollar nest egg should only generate
40,000 a year of retirement income. Hello? You have to pay tax on that. In a 25% bracket,
you're going to pay 10,000 of the 40,000 in tax. You're only netting 30,000. What about
the 1% asset management fee? If you deduct that off of what you're earning, that's another
10 grand because that's 1% on a full million. You're getting 40,000 and technically only
netting 20,000. That's ridiculous. So, if I could show you a way where you could earn
6% instead 2%, how much better is 6 than 2? Don't say 4. It's 3 times as much money. It's
60,000 of tax-free income versus 20,000 of after-tax and fee income. But do you know
that in my favorite vehicle which I call the Laser Fund, I've actually averaged more like
8% payouts? And even 10 payouts. How much better is 80,000 of income off of a million-dollar
nest egg instead of a net of 20,000? Even before tax, 80,000 is twice as much, 100%
more than 40,000. But remember, you have to pay tax on the 40,000. That's why the vehicles
that I use for retirees are there to generate predictable income where you can get more
like an 8% payout even a 10% payout by using indexing and rebalancing. Meaning, a million-dollar
nest egg many times has generated $100,000 a year of tax-free income where they used
to have their money sitting in the market and they were only taking out 4% but they
weren't netting 4%. This is huge. We have doubled and even tripled people's net spendable
retirement income by having them reposition their money. To be able to get it out of the
stock market, I would recommend that no more than 30% of your money should be invested
in the market when you retire. We've helped many, many people who were fed up with their
money in the market. Because the stock market was really designed for you to try to grow
money. It was never created to create predictable income. If you ask a stockbroker any advisor
on Wallstreet, "When is the best time to liquidate or sell my mutual fund portfolio?" And the
will say "Never". It was never designed to provide income or be liquidated. They want
you to keep that money forever. And so, you need to do a strategic rollout. You need to
get money out of the market get it repositioned in something that's going to be more predictable
and be able to earn you rates of return predictably more safely than money in the market. That's
why I like to use indexing. Indexing is a strategy. I get to participate when the market
does well. But my money is not at risk in the market. My return is linked to what the
market does. But when the market takes a nosedive, I can sleep at night.
Because I don't lose a dime due to market volatility. Is this intriguing you? I wish
I could explain more but there's other episodes on this very channel that talk about indexing
which is a strategy. I'm not talking about indexed mutual funds. So, look at these episodes.
But I'm going to share with you how you can learn more by reading my most recent bestselling
book The Laser Fund. So, in this book, you will see examples and charts of how I've been
able to generate payouts of 6% conservitably. 8%, even 10%. That a million-dollar nest egg
that may be was repositioned out of IRAs and 401(k)s can generate 80 to 100 thousand dollars
a year of tax-free income for as long as you live, if you live to be 120. And your money
gets to participate when the economy and the market does well. But when it nosedives, when
it crashes, you do not lose a dime. This is indexing, not an index mutual fund. Totally
different. An index fund is a commodity. Indexing is a strategy. So, if you want to learn more,
this is my 11th bok. It's been flying out of our warehouse. I will gift you a free copy
of this book. How do you claim yours? Simply go to LASERFUND, LASERfund.com. And you contribute
a nominal amount towards the shipping and handling. I'll pay for the book and send it
out to you. This is actually 2 books in one. This one is about 200 pages with all the charts
and graphs and explanations if you like the detail. If you like to learn by stories, you
flip it over and read this one. This has 12 chapters with 62 actual client stories and
examples of how the laser fund is a superior dream solution for all kinds of financial
goals. Not just retirement. Maybe college funding for your kids and grandkids. Emergency
funds. For real estate management, for business working capital. It's like a financial swiss
army knife. And you'll understand why it's my favorite vehicle and why I would recommend
that at least 40, maybe up to 60 percent of your retirement income not even show up in
your 1040 tax return. The IRS will know you're receiving the money but they're going to know
it's totally tax-free because it's been grandfathered as a sacred tax-free cash cow for over a century.
So, read, learn, claim your free copy of the book now.