Make yourself recession-proof. in this episode, I'm going to address the question.
How to make it through a recession unscathed? I'm going to enlighten you
this is very powerful and you need to know this because recessions happen about every 3 to 10 years.
So, my name's Doug Andrew and what do I know? Well, I've been helping people optimize their financial
assets and minimizing taxes for now more than 47 years. I actually started as a financial strategist
in 1974. Yeah, I'm pretty old I have an apple watch but my first watch was a sundial.
So, I've been around the block is what I'm saying and when I started in 1974 I ended
up from that year until 1980 being responsible for over 3,000 clients in 13 western states and
I was helping people save money safely for their retirement and I ended up having them put money
into a diversified portfolio of mutual funds which is where many financial advisors, asset managers.
They're trained by their broker-dealers. Sell people on putting money in the market the market
always comes back when it crashes and da... So, I did that and we were trying really hard
to try to achieve average rates of return for our clients of 12%. Now, in actuality you know that dal
bar who studies investor behavior says the average investor return especially for retirees is only
3.49 percent if their money's in the market. Why? If you bought and held they said in most 20-year
periods you would average 9.14% before tax. After you pay tax on an IRA 401k you're not earning
nine you're netting about six, okay. So, if you have a million-dollar nest egg and you're earning nine
percent you pull out ninety thousand you pay a third of that in taxes between federal state
you're only netting sixty thousand to buy gas and groceries. Does that make sense? Well, the average
retiree is buying and selling at the wrong times because when they see the economy start to go down
down down. This happened in 2001 to 2003 after the 911 terrorist attacks and when it goes down about
25-30 percent people get frustrated enough already and they sell low and then they wait
till the economy comes back and then they buy high in 2007. What happened to 2008? 40 percent
drop again in one single year. It happened during March 2020 with Covid19 pandemic the market
went down 30 percent people panicked and they sold. So, Dalbar says because of that emotion
buying and selling at the wrong time most retirees are only averaging just under three and a half
percent and this is what precipitated the four percent rule in the financial services industry.
If you're only averaging three and a half percent on your IRAs and 401ks in the market and you pull
out four percent you're going to slowly deplete your nest egg but not before you're expected to
die that's called life expectancy. That's called the four percent rule. Now I think that's pretty
pathetic here's why. If you had a million-dollar nest egg and you're pulling out four percent a
year that's 40 thousand and you have to pay tax on forty thousand even in a twenty-five percent
bracket you have to pay ten thousand of the forty thousand in tax you're only netting three percent.
I mean, do you save a million dollars to earn a measly three percent and that's not even before
subtracting fees. Many asset managers charge one percent fees on that million that's another ten
grand. So, you're really only netting two percent that's pretty pathetic i like to earn returns
in retirement between eight to ten percent tax-free. How much more is eight than four it's double.
But four is taxable eight is tax-free. How much better is eight than three or two, it's huge. When
I say you can increase your nespendable income by double or triple people go oh this is just hype.
No... this is the reality and you're actually increasing the liquidity safety and rate of return.
So, in order to come through a recession unscathed you need to understand a concept a strategy called
indexing. I'm not talking about index mutual funds there's a huge difference here. So, let's go back
to when I had 3,000 clients in 13 western states diversified in mutual funds. It was like playing
red light green light when you're a kid. There were some periods where we would make 20% you're taking
20 steps forward and then the next period the market would lose and you're taking 10 steps back
back and forth back and forth and hopefully you're trying to have a net gain of 12 steps, that's 12%.
But see the big epiphany I got was actually because EF Hutton who was not an insurance company.
They were a brokerage firm they went, wait a minute, even if we earn 12 on a million-dollar
nest egg our clients earning 12% if we can do that, that's 120,000. But they pull out 120,000
and they have to take four steps back in taxes. A third goes on taxes 40,000 another percent goes
out in fees. You're earning 12 to net seven you're earning a hundred and twenty thousand out of your
IRAs 401k to net seventy thousand to buy gas and groceries. They said, "We can actually do better
and be safer if we just earn eleven", you just take eleven steps forward and one step back and you're
netting ten percent tax-free by using tax-free insurance contracts and people go, "What are those?".
Those are actually life insurance policies and they came up with the term universal life
because this was not whole life it wasn't term. This was designed for living benefits.
They basically took an insurance contract and they structured it so you took the least amount
of insurance the irs would let you get away with and put in the most premium or money that the IRS
allows as fast as they allow and it turns into a tax-free cash cow. I had clients back in 1980
they were never happier than when I got them out of the market and they stopped losing during those
downturns. Especially retirees if they weren't retiring yet a half a million would double to a
million in about seven to ten years. Then it would double to two million in the next seven to ten
years. I had clients who put in a half-million and it's doubled to a million and then to two million
then to four million to eight million. We actually have clients now that have eight million dollars
tax-free that generates six hundred to eight hundred thousand a year of tax-free income.
It knocks the socks off of having their money in the market. So, how do you come through a recession
unscathed? You make yourself recession-proof. You take your money out of the market you put it into
these indexed universal life policies. Now, indexing means you link your returns to the market but your
money is not at risk in the market. Let me tell you how that works. Now, before I go any further if this
is resonating with you I have over 500 educational videos on this YouTube channel three-dimensional
wealth and you can search for the ones on indexing. But I'm going to give you a
50,000 foot level understanding of this. But subscribe, share, post a comment, engage with us and stay
with me to the end and I'll gift you a copy of our most recent 300-page best-selling book where
you can understand this concept called indexing. An index fund is not the same thing as indexing.
An index fund means you're investing your money in a mutual fund that is putting the money into
like the S&P 500 standard force 500 that's an index fund. Your money is exposed to the market
and you can lose 40 percent which many people did twice during the great recession 2000 to 2012.
Using indexing your money is safe in the insurance company. Now, let's say you have saved
a million dollars inside your insurance policy. We have many clients who have a half million
a million 10 million. Let's just say a million because it's an easy number and you're retired.
That million dollars is safe in the insurance company earning a general account portfolio
rate. Let's say four percent okay. Now, that's 40,000 a year. Now, you can just sit there if you feel
you know bearish about America and you think we're headed for another recession and
say just pay me the four percent that's better than banks are paying less than one.
Or anytime you feel bullish about America you can say, "Well, link my returns to an index", we'll
use the S&P here many companies have up to 10-15 indices you can choose from and you can diversify.
Let's keep it simple. So, I link my returns to the S&P. What's the insurance company doing?
They're not risking my money my million has to stay safe in the insurance company earning four.
You're giving up the for sure four. You're saying that the four percent interest of 40 grand this
year I'm gonna give that up you can use that to have the wherewithal to pay me whatever the
S&P does. Well, this is a no-brainer the insurance company takes that four percent they're earning on
your million and that's 40,000 and they buy upside options in the index the S&P. If the S&P goes up 10,
15, 20, okay those options then are able to double and triple and the insurance company can pay you
whatever the S&P did. 10-15% usually up to a cap sometimes there is no cap. So, watch other episodes
to understand the differences. The point is this, if the economy crashes like it did in 2008 our
clients were cheering. Go... because they weren't losing a dime everybody else their million would
have gone down to 600,000. No, our clients did not lose a penny they didn't make anything because the
forty thousand of options expired worthless. But the remaining nine hundred and sixty thousand
dollars at the beginning of the year grew back to a million at their general account portfolio. You
are simply telling the insurance company you do not have to credit me the interest and lock it in.
You can use that to buy options. If the options expire worthless because the economy crashes
your million is still safe in the insurance company. They are not putting your money at risk
in the market. You're relinquishing the interest on your million for them to be able to have the
wherewithal to pay you what the market does. Now, if you're going, "What? I've never heard of this before."
I understand, that's why I have a lot of other episodes on this channel that explain this.
So, that's indexing simplified you have all kinds of choices and as you watch different episodes
you'll understand that you can have 20% of your money in one 20 in another 20 in another. You can
have caps and no caps participation rates and this is where not only myself my sons but thousands of
our clients have earned average returns between seven to ten percent over a thirty year period
averaging nine point six two percent. This is actual historical achieved rates of return I don't
care what the naysayers say. We have thousands of statements that show clients that have earned this.
In some years clients have earned 60 and 70 other years zero but they don't lose when the market
goes down they are recession-proof. That's how you make yourself come through a recession and you're
unscathed from the market going down because you don't lose if your money is not in the market.
Your money is linked to an index but it's not at risk in the market that's the point. Now, as you
explore this concept get ready to be blown away. Because I compare it to like a ratchet wrench
you know when you tighten a bolt and you go and you go click click click click and run you're
not undoing it. See, the beauty of indexing is every year if you have a one-year point-to-point
strategy you lock in the gains. So for example in 2017 we had clients that locked in gains of 16%
25% the next year of the economy if the market would have crashed they would not have lost
one dime of the 25 percent they made the year before. I had a client with a million dollars he
made a quarter of a million of interest in 2017. The next year if the market would have crashed
he wouldn't have lost the 250,000 he made the year before. When your money is in the market you will
make money you will lose money it's like red light green light. Don't do that with your serious cash.
I want to gift you a copy of this 300-page book this is flying off of our warehouse shelves uh about a
thousand a week. Go to laserfund.com this teaches you how to diversify and create the foundation
for a tax-free retirement. Indexing is one of my favorite strategies it's explained in here
in detail especially chapter six. If you like to learn by stories you flip it over and you can
read 62 different stories of how people use the laser fund and indexing for all kinds of goals.
Not only retirement which knocks the socks off of IRAs and 401ks emergency funds, working capital
for business, real estate management, estate planning, on and on and on. It's like the a
financial swiss army knife the dream solution. So, I have ways to listen and learn watch and learn
but let me fire out a copy of this book to you and here's to your brighter future.