Achieve 7 to 10 percent average rates of return. In this episode, we are
going to address the question, "What are the actual historical rates of return on
indexed universal life?" This is actually episode 16 out of 21. A series titled
secrets to a tax-free retirement. In this particular episode, I'm going to
enlighten you on the historical actual rates of return achieved because my
favorite vehicle is what I call a Laser Fund. And if you watch the entire series
which is a free course, you will be empowered to accumulate an extra million
bucks that can generate $100,000 a year of tax-free income for as long as you
live.
My name's Doug Andrew and I've been a financial strategist and retirement
planning specialist for more than 45 years. My favourite vehicle or repository
for my serious cash is what I call the Laser Fund which is actually a maximum-
funded, tax-advantaged indexed universal life insurance policy. But I call it the
Laser Fund because it passes the liquidity, safety, rate of return tests
with flying colors and it's tax-free to boot. But oft times people asked me, "Come
on, Doug. I have never seen an insurance policy yield 7, 8, 9, 10 percent like you tapped."
And I'm going, "Well, then you haven't seen the ones that we've created." We have
thousands of clients who have achieved average rates of return between 7 and 10
percent. If you haven't seen one do that, it doesn't mean it doesn't exist. That's
why it's so important for you to go through and learn from this mini-course.
It's free so that you could take advantage of this. I don't want you to
miss out. So, how do you do that? If you've been watching the other episodes in this
series, you understand that you're trying to take the least amount of insurance
the IRS will let you get away with to put in the most premium that the IRS
allows as fast as the IRS allows. And it turns into this sacred tax-free cash cow.
And you've heard me say for the last 25 years, I've averaged 11.17. I've
netted over 10% internal rate of return. Now, a lot of times people go, "What
do you mean by internal rate of return?" I can't believe some advisors I get this
deer-in-the-headlight look when I say, "What's the IRR? Internal rate of return
on your product?" Many times whole life insurance agents will say, "What do you
mean?" I'm saying, "Well, yeah. You're touting that the insurance company pays really
good dividends." I remember back in 2005, I had a lot of whole life insurance agents
come through my training. And they were like blown away because they were never
trained about universal life. And I said, "So, what your rate of return on your
whole life?" And they said, "8%." I said, "No. The internal
rate of return." They go, "8%." I said, "No, it isn't." Well, how do you calculate the
internal rate of return? See, they're never taught to calculate that because
the companies don't want them to know. What that means is is if you put
premiums into the insurance policy and it grows and cash value is equal to X
amount at age 65 or age 95 or age 100, you take whatever it grew to and it's
tax-free and you calculate the money that was deposited into it at the
timeframes that it went in. And you will calculate the internal rate of return. In
other words, what is the interest you would have to be earning to end up with
this much money? It's a complicated type of an equation many times. It shocked
them because even though they thought they were earning 8%, they weren't
netting 8% cash on cash. They were netting only about 5.9%.
Not by age 65, that took until age 95. When it came to illustrating predictable
income, if you had a million dollars of cash value, I said, "No. Let's look at
a payout now of 7 to 10 percent." A million bucks should be able to generate
70,000 a year of tax-free income without depleting principal. If you're earning a
net of 10% like I've been earning, a million dollars of cash value
should generate 100,000 a year of tax-free income for as long as
you live. They can't do that. They can't even begin to come close to illustrating
that with their whole life insurance policies. Same thing is true of advisers
who have your money in the market. See, money in the market will grow hopefully.
You have market volatility. But when it comes to show me a predictable income,
they can only show you about 4% payout. Hello! A million bucks
generating 40,000 a year. That's pretty pathetic. And then you have to pay
tax on the 40,000 if the money was in an IRA or 401K, you don't have to
be taxed. And so, in a 25-percent tax bracket, you pull out 40,000
you're only netting 30,000 because you have to pay 25% of
the 40,000 in tax. And then they charge you 1% to
manage the million. Asset managers usually charge at least 1%. That's
another 10 grand. You're pulling out 40,000 and really only netting 20,000 or
2%. Folks, would you rather earn 8% tax-free or a net of 2% after-tax? How
much more is 8 than 2? Don't say 6. It's 400% more money. But many times, I've
been able to earn 10% in an insurance company that is only earning maybe 8%. So,
let me pose a question to you that I can stump most people especially financial
advisors with. How can an insurance company that is earning a general
account portfolio rate of return this is on their billions of dollars of assets...
Let's say they're earning 5%, how can an insurance company that is
only earning 5% rate of return on their billions of dollars afford to pay you 8%?
And if you have a million dollars or every million you have in the insurance
policy, how can they give you 100,000 a year. In other words a 10%
payout without depleting the principal of a million. Did you
understand the question? How can an insurance company that's only earning
5 afford to pay you 8? but give you 10% a year and never deplete your
principal. You wouldn't believe how many advisors have no clue how to answer that
question. I'm about to answer it for you. So, if you've been watching this entire
series, maybe you've figured this out. But if not, let me connect a few dots thus
far. In an indexed universal life insurance policy, if the insurance
company is earning a general account portfolio rate of let's say 5% which is
about what they've been earning the last 10, 15 years. So, if you have a million
dollars in the policy, 5% would be 50 grand. So, you can choose to just
take the 50,00 of tax-free interest. Use it for income. You can let
it sit there and compound and grow. But you remember how to link to an index? So,
when you do that, your million dollars stays safe in the insurance company
earning 5. So, the answer is well how can they afford to pay you 8
or 10% or some years 15 or 20 percent if they're
only earning 5? Folks, it's because you are relinquishing the for sure 5
percent interest. You're telling the insurance company, "Do not put my million
dollars at risk in the market. It must stay safe in the insurance company
earning 5. But you can use the 5%. The 50,000 of interest
on my million this year, I'll let that go. But don't you mess around with my
million principal." Because if the economy tanks I don't want to lose my million
dollar principal. So, they take that $50,000 and they buy up side
options in the index or indices of your choice. If I chose the S&P 500, the Dow
Jones, The Russell 2000, The Barclays; they buy up side options with that 50,000.
So, if the market goes up 10%, 50,000 doubles to a
100,000 with those options. If it goes up 15%, 50,000
triples to 150,000. They wouldn't offer it if the
options did not allow them to have the wherewithal to pay you. So, even though
they're only earning 5, you let them off the hook to keep your for sure 5...
I'm willing to take zero, don't want to lose my million. I'm willing to take zero
if the market crashes. But I want you to let me participate if the market goes up.
And so, historically, I have earned a 7.5 to 8 percent if I
just chose that and never change that choice. In other words, by using indexed
universal life, I've tweaked my rate of return by at least 2.5
percentage points from the general account portfolio rate of 5. Which is
a fixed universal life. So, I went from 5 to 7.5 and a half or 8. So, do
you understand how an insurance company can afford to pay you 8 when they're
only earning 5? Because you allow them to take the 5%
interest --the money and buy upside options. And they're off the hook if the
market loses because the options expire worthless. And because most years in a
10 year period, 7 out of the 10 years generally the market will be up,
I will average normally around 7.5 to 8 percent rate of return
using indexing. By rebalancing, I can tweak that up to 10% because
during bad decades like 2002, 2010, instead of five lost years where I don't
lose but I don't make anything, zero was my hero. I only had 2 lost years as
I've explained in previous episodes. And I still earned the 5% general account
portfolio rate. So, by rebalancing, I'm able to tweak my return up to the 9
and 10 percent range. Our clients, thousands of them have annual statements.
And when you come through intensive training, the licensed advisors will show
you actual statements of people who have earned 15, 16 percent, 12%.
Those returns are real. And you will see that and the internal rate
of return is within one percent of the growth rate of return on all of these
policies. Historical rates of return have averaged between 7 to 10 percent.
But let me answer the final part of that question. So, in episode 12, I talked about
what millionaires and billionaires do. This is how money really works. So, when
you access your money the smart way, I taught you in previous episodes that if
I borrow out my money and I use index loans, they may charge me 5%
but I continue to earn 10 or some years, 15. Some years 25%
like in 2017. So, by using that arbitrage or that spread, generally speaking, you're
able to earn an extra 2% or more higher than the borrowing rate when
you're taking out your money. Because of all of these combined factors, an
insurance company that is only earning 5% on their general account
portfolio can afford to pay you 7, 8, 9
percent because you're linking to an index by allowing them to take the
interest on your money and buy upside options. But I'm able to tweak the rate
of return another 1 or 2 percent to where I can have a payout of 10%.
A million-dollar nest egg in my insurance contract can generate a
100,000 a year of tax-free income without depleting principal
because I'm taking it out the smart way. I'm earning a spread between the
borrowing rate and the earning rate. And we have had clients for years who with
an insurance company only earning 5% on the general account portfolio. They are
actually being credited 8% but they're actually able to pull out 10% a year
because of the arbitrage and not deplete their principal. This is so powerful and
most financial advisors sit there with a deer-in-the-headlight look when I
explained this to them because they've never been shown how money really works.
So, if you would like to study a lot of examples actual historical rates of
return for the last 10, 20, 30, 40 years back to the Great Depression,
I would advise you to study my most recent messily book The Laser Fund. It's
my 11th book. It's 300 pages containing charts graphs explanations. You can dive
deep. If you like to learn buy stories, you flip it over. You read these 12
chapters about 100 pages with 62 actual clients stories showing the
results. But folks, I want to gift you a copy of this book free. I'll pay for the
book. To claim your free gift, go to laserfund.com. LaserFund.com. You simply pay
$5.95 shipping and handling. I'll pay for the book, I'll send it out
to you and you can also look at the audio version, the digital version.
There's also an 18 hour masterclass. But for sure, watch this next episode, so that
you complete this free course on how to have a brighter future by accumulating
accessing and transferring your money tax-free.