What are some common indices or indexes linking methods
caps and multipliers? By the end of this video episode, you will understand what an index is or
indices. The different methods to link to an index and why there are caps and
how to multiply your returns and have caps on your losses. This will blow you away. Get ready.
So, I'm Doug Andrew, I've been a financial strategist and retirement planning specialist
now for more than 48 years and I'm very passionate about helping people like you optimize your
assets and minimize taxes. One of my favorite vehicles to accomplish this goal is max funded
IUL indexed universal life because it allows you to accumulate your money totally tax-free
and then when you start accessing money and you don't have to wait till you retire to do this.
You can access it tax-free including all the gains and then at the end of the day when you
finally die anything you leave behind blossoms or increases in value and transfers income tax-free.
Make sure you watch other episodes to understand how that is provided or why the IRS allows that
under three sections of the internal revenue code in adherence to three tax citations
TEFRA, DEFRA, and TAMRA. In this episode, I'm going to talk about indexes or indices. So, my
favorite vehicle is indexed universal life. When you watch some of the other educational videos
universal life was the brainchild of EF Hutton clear back in 1980. When they said, "Hey, why don't
we just tell a lot of people to put their money into the multi-trillion dollar insurance industry".
This is the backbone of America. The backbone of the world and the insurance industry has
weathered the great depression with flying colors. Not one single legal reserve insurance company
went under in the great depression same is true in 2008. When sometimes in the great depression
40% of banks never reopened and in 2008 400 banks went under 900 more were on the brink of going under.
Not one single legal reserve insurance company went under. But see, when interest rates started
to come down after universal life was introduced in 1980. Because from 1980 to 1990, I never got
credited less than eleven and three quarters percent some years as high as fifteen and a half.
But when interstate started coming down they introduced index universal life in 1997. Now,
the episodes on this channel that talk about indexing. If you watch those you'll understand that
my money in the insurance policy let's say it's a million dollars. I can just accept the general
account portfolio rate let's say of four percent if I want. But if I feel bullish about America
I say, "You know what, take the interest on my million but don't risk my million
keep it safe. Take the interest and buy some upside options in the S&P 500 or the Dow",
and so people go, "Well. So, what are some of the common indices to do that?", because they will
buy upside options so that if the S&P or the stock market let's say goes up 8%
they'll pay you you know 8% on your 1,080,000 or twelve percent 120,000
or like some years from 2020 to 2021 March to March many of our clients got credited 61%.
How can they do that? So, let's talk about these four different things that you have
the opportunity to choose from with indexed universal life. So, the first one are common indices.
An index is like a measuring tape, okay. This is simply a method to measure did the economy grow
in the last one year or if you have a two-year point-to-point two-year
or five-year and so we have these indexes. We have the standard and poor's 500. Those are the top 500
companies in America and there are some mutual funds that say ooh ours is the S&P indexed fund.
No, indexed universal life is not an indexed fund. If you have money in an index fund
your money is at risk in the market and if the S&P drops 40 percent like it did twice.
In the decade from 2000 to 2012, you would have lost 40 percent in an indexed S&P 500 fund.
We're not talking about that we're talking about a strategy. But you can choose an index like the
S&P and that's a measurement of the top 500 companies. Did they grow? On the average or
go down, okay. Were their stocks worth more or less. You've heard of the Dow Jones
the top 30. There's one called the Russell 2000 that's the top two thousand. Sometimes
you have what is called the Barclays u.s dynamic balance index. That's abbreviated as the BUDBI.
Sometimes you have low volatility indexes, okay. Now, indexes and indices okay indices
they're sort of synonymous. I guess both are proper forms of grammar, I found out uh years ago. I'm
going to say indices. But see, I can diversify my money. If I have a million dollars I can allocate
you know 300,000 to the S&P 500 index, 300,000 to the Dow, 300,000 to the BUDBI
and the last hundred thousand it could be in a low volatility. It could be just left in the
insurance company earning four percent the general account portfolio rate. So, I can diversify big time.
But see, an index is simply what you're linking to. Your money is not invested in that. My million is
safe in the insurance company. The interest on my million if I relinquish the interest the insurance
company doesn't have to keep it around. They can use it in an options budget to buy upside options
so they will have the wherewithal if the S&P goes up. The Dow Jones goes up. Russell
2000 goes up. If any of those indices are higher one year or two years later whatever you chose
they have to pay you whatever that did and they can pay you because they took the money
and bought upside options in the S&P 500, the Dow Jones, the Russell 2000, the BUDBI, or whatever. Does
that make sense? So, don't worry about how can they afford to do this they're big boys and girls they
know what they're doing. They wouldn't offer it if they didn't know they could afford it because
they will have the money the wherewithal to do it. So, an index or indices, those are simply measuring
tapes did the economy grow or not. Because whatever it grew by the insurance company is
required they're obligated to pay you that amount that's called an index, okay. So, I've talked about
some of the common indices. Let's talk about some of the common linking methods. So, when you link
with an IUL policy, you may link one year point to point and so that means you may link October
15th of this year to October 15th of the next year. They will measure the difference in the S&P or the
Dow Jones one year point to point and if it's higher whatever that percentage is they must pay
you on the money that you linked. So, that would be a one year point to point and sometimes there
might be a cap of 12% or 16% some years sometimes 25. Sometimes we tell our clients to choose the no cap
which we did from March of 2020 to March of 2021 and because the market had dropped 30 percent we
said linked to a one-year no cap and the market was up 66.33 percent a year later. Wow. Now, they
charge you five percentage points to do that but our clients netted 61 percent. Was that a deal or
what? So, that was a one-year point to point but you can choose a two-year. So, you wait two years
and they may raise the cap from maybe 11% up to you know 19% because you're waiting two years.
That's called a two-year point to point. Many times if the market is down you might want to choose
a five-year point-to-point. So, that means you don't know what you're gonna make until the end of five
years but they will pay you whatever it increased over five years the S&P, the Dow Jones, or whatever
with no cap. There is no cap. They'll pay you that and they buy options appropriately or accordingly.
Does that make sense? So, we've covered indices. We've covered linking methods some of the
common ones. An IUL specialist will help you understand other options that you might have.
Let's go into the caps. Why do they put a cap? Well, because they can purchase options
under certain scenarios. Sometimes more optimally if they know that if the S&P goes up you know 12%
to have the wherewithal to pay you that. They buy options at certain arrangements and prices
so that they have the wherewithal on your million where they took maybe four percent interest
40,000 and you got that 40,000 of options that then allowed them to pay triple that let's say up to 12%
But they maybe cap you. Even if the S&P went up 16 or 20 they will not pay you higher because
they have to cap it and maybe the trade-off is because zero's your hero. That if you
guess wrong and the market loses you don't lose your million. The options just expired worthless.
But in the example, I gave you of no cap they're buying options in a different way because they
know they're going to make money on the back end by subtracting five percentage points and so there
is no cap and people say, "Well, which ones are best?", it all depends on the situation of the time. That's
why it behooves you to go to an IUL specialist who meets with you at least annually to reassess or
what we call rebalance your portfolio even if you only have one IUL. You can diversify and you can
change and link to this one or this method to your point to point five-year point to point with forty
percent of your money and you do it with this in this or that one S&P or the Dow Jones or the
BUDBI. You diversify you talk about diversification. Yeah, I don't define diversification as putting my
eggs in a bunch of baskets that are going to break as soon as the economy you know drops.
No, or you put it in a bank that pays you a measly one percent. That's not diversification. That's not
smart. You diversify into superior indices, linking methods, caps no caps, and what was the last issue?
Okay, what is a multiplier? This is like capping your losses. So, if you really want to go for it
and this isn't for everybody. But let's say you have a million dollars and you feel like, "Oh,
I think the chance the economy is going to go up is really really good". Now, under a normal situation
if you were earning let's say four percent on your general account portfolio that's 40,000 that funds
an options budget and that's the interest on your million. So, if the market crashes you simply
gave up four percent interest that year but you didn't lose your million. If you want, you can say,
"You know what? I'll give you another seven and a half percent", that's 75,000 more dollars out
of my million but what's the trade-off? If you guess wrong and the market crashes 40 percent
you now only have 925,000. You act but you capped your loss at seven and a half. You will not lose 40
you'll only lose seven and a half. But what's the trade-off? If you give them another seven
and a half percent or seventy-five thousand to buy options and the market goes up they will pay
you 2.7 times whatever the S&P or whatever index you were linked to does, 2.7 times. If it went up to
10 they would pay you 27 percent minus the 7.5 you'd net 19 and a half. But there were people
in 2020 to 2021 that earned 61. they got 2.7 times that. We had many people that got credited over 153%.
Their million was worth two and a half million one year later. But if the market would have gone down
they wouldn't have lost 40 if it crashed that much. They would have only given up seven and a
half percent. It's like having a cap on your loss. That's called a multiplier. Am I blowing you away?
The point is this when you meet with an IUL professional and if they do their job structuring
your IUL policy correctly and you fund it properly and you meet at least once a year
to rebalance by doing what by diversifying between different indices that you're linking to.
By choosing different linking methods one year, two year, five-year point to point. By choosing caps or
no caps and by maybe using multipliers. This is where people if they had never done anything in
the worst decade 2000-2010 they would have earned 7.23% a million would have doubled to 2 million
where most Americans didn't even have their their money back yet it took till 2012. But by
rebalancing by doing what I'm talking about here in this episode, many of them went from 7.23% up to
10.07%. So, when people say is it really necessary to sort of redo this every year?
Yeah, you don't have to read the wall street journal every day. It's not that kind of management
intensive process. But once a year meet with an advisor who understands this and you could tweak
your return from 7.2 up to 10 percent. 7.2 your money doubles every 10 years. But at 10 percent
your money doubles every 7.2 years. It does make a difference. So, use this as your textbook the
laser fund. If you have not claimed your free copy do it simply go to laserfund.com, laserfund.com.
Click on the link below. You contribute a nominal amount towards the shipping and handling.
I'll pay for the book and fire that out to you. There's also options there to listen and learn watch and
learn. There's also a choice in there where you can schedule an appointment with an IUL professional
to see how these concepts apply in your particular set of circumstances based on actual
history not just hypothetical average rates of return. That's what I would want to see, okay. But
don't take up an IUL professional's time unless you've taken the time to invest in getting some
basic understanding. So, my hat's off to you you're watching this episode. Watch other episodes so that
you can start out the conversation at this level instead of this level. But make sure that you share
this with others that you want to have them get enlightened. Post a comment so that we can be aware
of some of the questions that you have that maybe weren't covered in this episode. But this is about
you and your brighter future. So, study learn and begin to optimize your assets and minimize taxes.