Use indexing strategies to not lose your money. In this episode, we are going to
dive deep into the question "How can I make money and then not lose it when the
market crashes?"
My name is Doug Andrew and I've been doing this for 45 years. What's THIS?
Helping people optimize their financial assets and minimize unnecessary tax and
protect their hard-earned money from loss especially during market crashes.
It's actually easier than you think. But you wouldn't believe how many
financial advisors and asset managers in America have no clue about what I'm
going to share with you right now. It's going to blow you away. We're going to talk
about indexing as a strategy. Most advisors go, "Oh, I know what an indexed
mutual fund is." I'm not talking about an index fund.
What's an index fund? That would be a mutual fund where you are diversified
into an index like the Standard & Poor's 500 of the Dow Jones or the Russell 2000.
I'm not talking about that. Do you know that back in 1974, I got my Series one
securities license. They don't even offer that anymore, by the way. It's like the
equivalent of a Series 6's, series 7, 63, 24, all of them combined. See, I could sell
any stock bond or mutual fund out there. But I realized that when people had
their money in the market, you had up times, you had down times. It was like a
person with a yo-yo hopefully walking up some stairs. But
there are periods of time where that person with a yo-yo is walking across
the flat surface. Meaning the year 2000 to 2012. And that 12-year period, the
market went up in 2000. And 2001 after the terrorist attacks, it went down, down,
down 40%. Then it came up back to the break-even point again in 2007. Then it
went down again in one single year, 2008, 40%. And by 2012, it was barely back up
again. So, see it was going up and down. The yo-yo was going up and down but they
were walking across the flat surface. They
weren't walking up stairs because the S&P, the Dow Jones was basically in 12
years where it was 12 years earlier in the year 2000. We call it the Lost Decade
because people didn't really make anything. In fact, because of inflation,
even an inflation rate of 3%, they were losing purchasing power even though they
got back to the million dollar amount. That million dollars could not buy the
same gallons of gas and loaves of bread that the million dollars could in the
year 2000. Does that make sense? And so, what I began to learn clear back then in
1980, E.F Hutton who was a major brokerage firm in America. And they came up with
the idea of getting rid of the market volatility. But see a lot of broker
dealers they make their money by your money being churned in the market. And
frankly, they make fees every time they can turn and do that. I would rather have
a very inexpensive approach where I can make sure that I make money when the
market is doing well but I do not lose when it goes down. And I'm going to share
how to do that. So, my favorite vehicle for serious cash is what I call the
Laser Fund. Because it allows me in the Internal Revenue Code to accumulate my
money tax-free and then be able to access my money tax-free. And I don't
have to wait till I'm 59 ½ to do that. I can do that anytime. I could
do it a few days after I put the money in there. Then I can transfer it to my
spouse. Ultimately when I pass away, it increases in value and transfers
tax-free. And so, there's nothing else in the Internal Revenue Code that actually
does that. But my favorite feature in my Laser Fund is indexing. That did not even
come around until 1997. I jumped on it immediately.
My clients were so happy when I got their money out of the market clear back
in 1980 when EF Hutton came up with the idea, "Hey, why don't we get rid of the
volatility and the market risk of going down and put
the money into a multitrillion-dollar insurance institution." Some companies are
only multibillion-dollar. Too bad. And this is the backbone of America and frankly
the backbone of the world. This is where banks and credit unions put 30 to 40
percent of their tier 1 assets for liquidity and safety. Hutton was saying
let's bypass the middleman. Why put your money in a bank where they pay you 1 or
2 percent? And they turn around and make 5, 6, 7, 8, 9 percent in the insurance company and
increase the safety by like 6 notches. A lot of banks are only rated triple B.
Most insurance companies where I put my serious cash are rated Triple A. So, you
can increase the safety but also the rate of return substantially. So, this was
the idea that EF Hutton had. Now, when I put my money in there back in the 1980s,
I had clients transfer money into these. And they were earning 11% and netting
10%. They were in 15% and netting 14% because interest rates were high back
then. Well, the last couple of decades interest rates have been low. So, indexing
came out in 1997. Here's how it works: So, when you apply indexing to your account,
your Laser Fund, what you're doing is you're telling the insurance company,
"Listen, I feel a little bit bullish about America this year. Just pay me the
interest on your general account portfolio." Now, the general account
portfolio is where these insurance companies put their money for liquidity
and safety. And they put the vast majority into triple-A and double-A
bonds for safety. And they might loan out some money on mortgages, on skyscrapers
and shopping malls. But they only loan out about 40-50 percent loan to value.
They don't loan out 80 to 90 percent loan to value. They're protected if we
have a recession because they're in control and they have a huge cushion.
They put very little into stocks. And so, the general account portfolio rate back
in the 80's was between 10 to 15 percent. The last 20 years
has been down around 4, 5, 6 percent. So, here's what it means: Let's
say I had a million dollars in my Laser Fund and it doesn't matter if you have a
million, 10 million or 100,000. It all relates. So, you can
extrapolate from my example here. Any year that I feel bearish about America, I
can say, "Just pay me the general account portfolio rate." Let's say that's
5%. That's 50,000 bucks of interest on my million. And I can leave
it there to compound tax-free. If I take it out, it's tax-free.
You can learn about that by reading one of my books. But anytime I feel bullish
about America, I say, "You know what? You don't have to keep that 50,000
of interest on hand. I want to link my return to an index of my choice." And they
offer indices. So, one of my favorite might be the S&P 500.
So, what the insurance company does is they keep my million bucks safe in the
insurance company earning 5. What I'm giving up is the 5%? They take that
$50,000, 5% of a million and they buy up site options in the S&P,
let's say. And so, if the S&P, if the market goes up, they have the wherewithal
because 50,000 of options might double to 100,000 or triple
150,000. So, if the S&P goes up 10%, they'll pay me
100 grand on my million or 150,000. And people say, "How
can they afford that?" They're smart. The options mature to that. Now, if the market
goes down, what happens? The options expire worthless but I didn't lose my
million. My million was safe. I only relinquished the 5%. Why do I choose
indexing? Because historically, if you choose indexing, you will average
2% higher than the general account portfolio rate. So, before when I was
averaging 8.2% for 45 years, I was able to nudge that up to
10.07% percent by implementing indexing where when the market goes up, I
benefit. But when the market goes down, I don't lose. And when you do that, do you
know that Cresmont research says you take any 20-year period in American
history and if you bought and held, you'd probably average 9%. But in an
IRA or 401K, a third of that belongs to Uncle Sam. If you were 9, you're only
netting 6%. Because the other 3% belongs to the government in tax. So, a
million-dollar nest egg earning 9% would be 90,000. But
you're only netting 60,000 to buy gas and groceries. You know what most
IRAs and 401Ks actually earn in retirement for people? 3.49.
About 3.5%. Because people are buying and selling of
the wrong times. They panic when the market goes down and they sell low. And
then they wait, wait, wait and they buy in high. So, the average is only
3.5%. This is why most firms only recommend retirees take out 4%
a year. This is called the four-percent rule. So, let's do the math. You have
million bucks. You only take out 4%. That's
40,000. Now, you pay tax of even 25%, that's 10,000. I only have
30. Most money managers charge 1% on the million. So, that's another
10 grand. You pull out 40,000, you're only netting 20,000 to
live on. How pathetic is that. That's a net return of 2%. In the Laser
Fund, by using indexing, I have average 10%. Let's just say 8%.
If I earn 8 on a million bucks, I can pull out 80,000 tax-free. How much
more is 80,000 than 40(thousand) it's double. But you're not netting 40 in a tax
deferred IRA. You have to pay tax and fees. You're only netting 20. I'm netting
8% out of my Laser Fund even after all fees. So, why would I ever leave
my money to the market volatility when I can
participate in the up swings but prevent the losses on the down. Because Cresmont
research says if you eliminate... For the last 50 years, if you eliminate the lost
years... You don't make anything. You just eliminate those and you only got
25% of the up years, you would outperform the market. Well, you can even
do better than that by participating when the market goes up. aAnd they may
even cap you at 11% or 15%. But when the market goes down, you don't lose and you
will come out way ahead. The most important part about indexing is the
lock-in and reset. You lock in your gains every year. So, for example in 2017, many
clients following this strategy made 16%, 25%. On a million bucks, that's 250,000.
The next year if the market douve 25, 30, 40 percent they did not lose that 250
grand, the 25% they made the year before. Because every year using indexing,
you make money, you lock in the gain and it resets. So, if the market goes down, you
never lose the money you made in previous years. How incredible is that?
So, please watch this episode and you'll learn how the Laser Fund using indexing
can protect you from the negative impact of taxes because it's tax-free. Inflation,
because inflation works for you instead of against you. But most importantly, you
eliminate the danger of market volatility.