Tweak your returns, rebalance often. In this episode, we're going to address the
question, "What does it mean to rebalance your
IUL portfolio. This is episode 10 in a series of 21 titled Secrets To A
Tax-Free Retirement." I implore you to invest in this free
course that will empower you to accumulate an extra million bucks that
can generate $100,000 a year tax-free income for as long as
you live.
So, I'm Doug Andrew and I've helped people optimize their financial assets,
minimize taxes and not outlive their money in retirement now, for more than 45
years. My favorite vehicle is what I affectionately call the Laser Fund. Laser
is an acronym that stands for Liquid Asset Safely Earning Returns. What is a
Laser Fund? It is a max-funded, tax-advantaged indexed universal life
insurance contract. It's where I would recommend retirees have 40 to 60
percent of their retirement assets so that they can have tax-free income that
doesn't even show up on their tax return. I mean the IRS knows they receive it but
they know it's tax-free. It's not even worth auditing because it's been
grandfathered in the Internal Revenue Code for over 100 years. If you've
already watched that episode, you know the history. So, let's talk about how you
can tweak your rate of returns by rebalancing your portfolio. I want to
illustrate this point by using the worst decade since the Great Depression.
It is the decade from 2000 to 2010. First time in American history since the Great
Depression, we had two 40% losses in that decade.
Generally in a 10-year period, you slice out of American history, you'll have a
7 up years compared to three down years. That
decade, there were 5 lost years, only 5 gained years. So, let's see how
indexed universal life performed without rebalancing as if in the year 2000, I had
accumulated a million dollars up to that point in my life and it was in my
universal life insurance contract. So, I'm going to have a million bucks in there. And
it's the year 2000. And I'm thinking, "Okay, I've got to make sure that I can
preserve this money." Because most people in America they have their money in an IRA
or 401Ks in the market. And they felt like they lost their future twice in
that decade. So, what happened in 2001. 2 planes flew into two skyscrapers in New
York, okay? And all of a sudden, people stopped going out to dinner, they stopped
flying and everything else. I mean, more people in the previous quarter of a
century had died in bathtub accidents than in hijacked airplanes. But in 2001,
after September 11th did we stop taking baths? No. But the terrorists accomplished
what they wanted to. And they sent the American economy into a tailspin. And so,
we saw the market dropped 40% from 2001 to 2003. People who had a
million bucks in the year 2000 saw it go down, down, down to 600,000 by the end of
2003. It took 4 years to make back the 40% loss. Because a 40% loss has to be
followed by a 67 percent gain to get back to break-even. If you had a million
and drops down 400,000 through 600,000, 600,000 has to make four hundred
thousand which is 67% to make up for the 40% loss. So, people felt like
they had lost their future. They had to put off retirement 7 years. in 2007,
they're ready to go, "Okay, now we can finally retire." And what happened in 2008?
As Warren Buffett put it, he said, "When the tide went out, it revealed who was
swimming naked." Yeah, there were a lot of Americans that lost 40%
again in one single year in 2008. And it took actually until 2012 to get back
what they lost. I'm going to chop off in 2010. With an indexed universal life
insurance policy, if I fell asleep in the year 2000, I was like Rip Van Winkle. I
didn't wake up for 10 years. And all of a sudden in 2010 I wake up and I go, "What
happened in America while I was out?" So, when I wake up, I look and say, "What
happened?" "You didn't hear about 9/11 the terrorist attacks? You didn't I go
through 2008? You were asleep?" "Yeah." And so I go and I look at my index universal
life policy that had a million dollars in it 10 years earlier. And it's got 2
million in it tax-free. I'm going, "It was bad? I doubled my money." "You did?
Most Americans are still down 38%." Do you know most Americans that started out
with a million in 2000 in 2010 only had 620, 630
thousand to show for it? It took until 2012 to get back to break-even at
a million. My indexed universal life had doubled in that 10-year period because
during the 5 years where the market was down, I didn't make anything but I
didn't lose. Zero was my hero. So, I didn't lose but I didn't make anything. I only
made money the other 5 years. Now, only 2 of those 5 years did I actually
earn the actual cap. But do you know that the average of those 10 years where I
only made money 5 years but I didn't lose the other 5, (didn't make anything
but I didn't lose) the average was 7.23% tax-free. Now, if
you know the rule of 72, my million doubled to 2 million tax-free. In the
worst decade since the Great Depression. If I had fallen asleep I woke up and
doubled my money, most Americans were still down more than the
370-380 thousand dollars on that same million. So,
rebalancing means once a year. Did you hear that? You don't
have to read The Wall Street Journal every day.
No life's not that complicated. It's not buy, sell, buy, sell daily. Once a year, I
assess, "Okay. What do I think is going to happen in the next year?" So, for example, I
did not earn zero 5 lost years in that decade. I only earned zero 2 of
those 5 years. 2001, 2008. The other 3 years I just said, "You know what? I
think we're going to be in a recession for another year or 2.
So, just switch me back over and pay me the general account portfolio rate of 5%."
That's what it was back then. During the 3 years instead of earning zero, I
rebalance and I said, "Until I get signs that the economy is going to start
heading back up again, I just want to switch over and settle
for the 5%." Now, I'm earning 5 for 3 years instead of zero. And then
when I see signals that the market is going to come around and head back up
again, I go, "link." And I linked and I was able to earn up to the caps. 2 of those
10 years. The other 3 I earned higher than the general account
portfolio rate. But here's the message, I went from a 7.23%
rate of return following the sleep waking up just never touching it
to 10.07% rate of return because I rebalanced. I was able
to tweak my rate of return from 7.2 up to over 10% by simply saying, "You
know what? Link this year." Or "Let's back off and just settle for the general
account portfolio rate." Now, I'm simplifying rebalancing in this episode.
But you can rebalance by linking to this index and this index and this method and
this linking method. For example, when we have a huge
crash, that's when you want to turn around and link with maybe a 2-year or a
5-year strategy. There are all kinds of different situations where a trained
licensed advisor with an annual appointment an annual review can say, "You
know what? You may want to diversify 30% here 40% here
and so forth within your universal life insurance policy with this strategy, this
strategy, with this strategy." That's called rebalancing your portfolio. And if things
are really bad, you just say, "You know what? I want to take half of my money or
maybe all my money and just settle for the general account portfolio rate until
we pull out of this recession and I get signs that we're headed back up again."
That's the magic behind the flexibility of maxed- funded indexed universal life.
And generally speaking, you can tweak your rate of return probably about 2
to 3 percent on the average higher by rebalancing instead of just following
asleep and doubling your money. You could triple your money. So, that's why I like
to extend the Lost Decade is what it's called in the financial services
industry from 2000 to 2010 and add 2 more years to 2012. Because it took until
2012 for people to make up for the losses they incurred twice during that
12-year period. So, if they started out with a million in the year 2000, it took
until 2012 to get back to break-even at a million again. Because of indexing and
rebalancing, a million triple to 3 million for thousands of people using
this strategy. What would you rather have? A million over 12 years just your money
back? Or would you rather have 3 million? The ability to generate 300,000 a
year of tax-free income thereafter. If this is resonating and you want to learn
more, get a free copy of this book The Laser Fund. It's my 11th book. 300 pages. I
want to empower you. I will pay for the book. You simply go to laserfund.com
pay $5.95 shipping and handling and i'll fire out a book for
you. But I also implore you to watch the rest
of the episodes in this series secret to a tax-free retirement. This is the next
one up and this is to your better future.