Diversify with superior tax-free vehicles. In this episode, we are going to
answer the question " What linking methods are used with indexed universal life
insurance?" This is episode nine of a series of 21 titled Secrets To A
Tax-Free Retirement. If you invest a few hours learning from this series, I want
to empower you to accumulate an extra million bucks that will generate
$100,000 a year of tax-free income for as long as you live.
My name is Doug Andrew and I've been a financial strategist, retirement planning
specialist for more than 45 years. And my favorite financial vehicle for liquidity,
safety, predictable rates of return and of course I prefer tax-free is what I
call the Laser Fund because it spells that acronym. And so, my preference is an
indexed universal life insurance contract. And I have explained in
previous episodes what indexing is. So, the common question
I get asked next is "What are some of the linking methods used with indexed
universal life?" Now, a lot of times people will say, "Well, I want to diversify." And
I'll say, "Yeah. I believe in diversification. Well, you seem to put a
lot of your eggs in this basket." I say, "Well, maybe 60% of my eggs in this.." Is
that diversified? I go, "Oh, I am more diversified than 99% of financial
advisors in America ever diversify their clients money." But see I believe in
diversification into superior strategies and vehicles. Not by putting money over
here in a bank earning 1%. An inferior place to put my money for long-range
goals or out in the volatile market. That's not diversification. I want to
have liquidity, safety, predictable rates of
and tax-free advantages all with my portfolio. So, let me give you a glimpse
into how I diversify. I have maximum-funded universal life
insurance contracts on me. I have several on me. Some of my wife,
some of my kids. Now, my grandkids. I have some with this highly rated company, this
company, this company, this company. I've had 6 different companies that I love
as my favorites. They've all been around since the 1800s. They've weathered the
Great Depression with flying colors. And I'm very picky which companies I choose.
So, I diversify by putting them on several different insurance. I have them
with several different companies. And then I have them in different products
with those companies. And then I diversify by using different linking
methods. So, let me give you an example. If I want to put my money into an indexed
product and take a portion of my cash, let's say I have a million dollars of
cash value. And I want to assign 20% of that million, 200,000 to this index.
I can do that and it might be the Dow Jones. Another 200,000 over
here to the S&P. Another 200,000 to the Russell 2000. Another
200,000 over here to the Barclays, U.S. dynamic balance index. And
maybe the last 200,000 just sitting there in the insurance company
general account portfolio earning 5. Now, many, many, people do exactly what I
just explained at our advice. And at the end of the year, they get one statement
from that one company with all their diversified portfolio. And I remember
looking at one in particular and it said, "Well, you earned 10.5, in this
one, 16 in this one, 21 in this one, 9 n this one and 5% in
the general account portfolio. And then it averaged the rate of return on all of
those. That was extremely diversified in the various allocations and it gave them
an average return that exceeded 10%. So, you can diversify by using
the for indices, the S&P, the Dow Jones but you
can also use different linking methods. So, linking means I can choose to do a
one-year point-to-point. So, let me explain what that means and some of the
other linking methods that are popular. So, probably one of the most common
linking methods would be a one-year point-to-point. That means that I pick a
date. Sometimes insurance companies will only allow you to do it on the fifteenth
of the month. Other companies say, "Any day you want out of 365 days a year."
So, if I'm clicking along and it's April 15th and I go link, the money that I
allocate in my insurance contract, it can be some of that money or all of it. I say,
"I'm on a link 200,000 or link the whole million to the S&P one year
point-to-point." We wait one year and then we measure the difference in the S&P
over that one-year period. And then they credit me with whatever the increase was
over that 12-month period. That is a one-year point-to-point. Now, sometimes
people go, "Ugh! I'm just sort of banking on. What happened back in the year 2020 when
Covid-19 caused the market to to crash a 33% in 30 days?" Well, it depends on
when you linked. But if you want to avoid that kind of a problem, you can tell the
insurance company many offer this option to do dollar-cost averaging. So, if you
choose to link, they can take 1/12 of your money and link it in January.
January 15th to January 15th. They can take another 12th and Link it from
February to February. March to March, April to April. And now, you've got dollar
cost averaging 12 linking dates which smooth it out. Or you can tell the
insurance company to credit me or link me with a monthly sum. And this is where
they will average the difference throughout the year and they will credit
you the rate based upon the average on the monthly sum. Or sometimes some
insurance companies will have what is called a trigger index. That means if the
market comes up to a certain point, it triggers that rate. If they say, "You know
what? The trigger is 6.5% or 7%." If the market
ends up positive from that year, okay? If it's positive, they will just pay you the
trigger of 6.5 or 7 percent. If it's negative, then it's zero.
You don't lose. But if the market was down, it means you did not get the
trigger amount. So, there's all kinds of different indices you can link to. And
those linking methods and time frames. I could link to year point-to-point. So, I
wait two years before I can measure. Now, the question is, "Well, can I change in
between?" If you link one year point-to-point, you have to wait till the
end of that year to change your allocation or put it back and have the
general account portfolio rate or what-have-you. But if you choose 2 year, you
have to wait 2. Some people choose a 5-year. That means you wait five years and
there may be no cap or people have earned 60 and 70 percent if they
had a million. 5 years down the road, they were credited with 60% or
600 grand because they waited 5 years to see where the S&P was
compared to 5 years earlier which most of the time is going to be greater.
So, those are called the linking methods, linking dates. I can also diversify by
choosing some to have a 0% floor. In other words, if the market losses, I don't
make anything but I don't lose. Zero as my hero. And then I'm capped. Let's say it
11, 12, 16 percent. Some say, "Well, we'll give you a 2% floor
so that on a million bucks will still pay you 2%." If the market loses,
that's 20,000. But now the cap comes down from maybe 11 down to
9. Or from 16 down to 12. And the higher the floor that you want
absolutely for sure to be credited 2%, the lower the ceiling. Most of
the time we recommend people do the zero is the floor and then the cap is
whatever it stated at or maybe there is no cap. Let me give you one other
powerful strategy to think about. So, in this series, you may have watched the
episode that talks about if I had a million dollars of cash value and I say
link, they can only take the interest on my million. They can't put my million at
risk that has to stay safe. If it's 5%, let's say on the general account
portfolio, they can take 5% of my million, the interest, 50,000 and by upside
options. And that gives them the wherewithal to pay me 10%. Maybe 15%
based upon the price of options and where the caps are. You know that there
are sometimes opportunities where if you really fill bullish about America in a
given year. Maybe like an election year. You could instruct the insurance company
to say, "You know what? Don't just take the interest on my million. I don't want to
lose 40% if I guess wrong in the market crashes. But I'm willing to give up 7% of
my principal." So, on a million, not only do they have maybe 5% interest
they're earning on the million, 50,000 but you just gave them
authority to use another 70,000 of the principal. So, that if the market
loses, well maybe your million drops down to 930,000. But
you don't lose 40%. What do they do with that extra 70,000?
They do the same thing they did with the 50,000 or the 5% on your million.
They buy upside options. Do you know when people have done this, these are called
multipliers or performance factors. Sometimes people instead of earning
16% have earned 55% by doing that. Now, that is the
best way. If you want to go for it, make sure that you protect yourself so you
never lose give up more than you want. 5 or 7
percent at the worst. That's why I love indexed universal life because zero is
your hero. But if you really want to go for it, you can protect the downside and
not be subject to a 40% loss if the market crashes. But you can participate
on the upside even higher than a cap of 12%, 15 or 16 percent. If this is
blowing you away, you need to read and learn more. So, this is only episode 9 out
of 21 in this free course Secrets To A Tax-Free Retirement. Make sure you take
advantage and watch all of these episodes. And if you would like to read
my latest book called The Laser Fund, 300 pages of charts, graphs, explanations and
actual client stories, I'll tell you what. I'll pay for the book and I'll send it
out to you. You pay $5.95 shipping and handling. You go to Laser
Fund.com. Enter that information. You can also get
an audio version or a digital version. There's an 18 hour master class if you
want. But I want you to immerse in this learning and empower yourself how to
diversify it with superior tax_free vehicles.