Choose liquid, safe, high returns and tax-free. In this episode, we're going to
dive deep answering the question "What are the key elements of a prudent
investment?" This is episode 15 of 21 in a series titled Secrets To A Tax-Free
Retirement. I would advise you watch the entire series, invest a few hours. It's a
free course. And it will empower you to accumulate an extra million dollars that
can generate $100,000 a year of tax-free income for as long as you live. What if
you accumulated 2 million? 3 million? 4 million like we have for many people. You
take 10% payouts, 4 million could generate 400 grand a year tax-free
income for as long as you live. Stay with me. You're going to be blown away.
So, my name is Doug Andrew and I've been helping people optimize their financial
assets, minimize taxes, empower their true authentic wealth for more than 45 years.
And I've taught people for a long time the lessons I've learned by making
mistakes. And most of the time, when I made a mistake financially, it's because
I did not adhere to the key elements of a prudent investment. I am going to give
these to you in order and they actually spill an acronym. Whenever I set aside
serious cash, I don't care if it's in real estate or if it's in insurance
companies and different products or if it's in the market, mutual funds, stocks
or what-have-you, I ask myself, "Okay. Does it pass the
liquidity, safety, rate of return test? And what about the tax benefits?" So, the
number one key element of a prudent investment is liquidity. The ability to
access your money when you need it. When people need money the worst is the
hardest to get sometimes. When it's in a tax-deferred IRA or 401K, there's a 10%
penalty, it's not liquid. If you get into trouble and your equity is tied up in
your real estate or your house when you need the money the worst is the hardest
to get. It does not pass the liquidity test. A lot of times people think
liquidity is down the list. No, it's number 1 reason why people get
into financial trouble. So, liquidity is number 1. Number 2 is
safety. Not only safety of the institution but safety of your principal
The reason why I like indexed universal life is because my principle is safe.
Whatever I set aside, I do not want to lose due to market volatility. And any
year that I make money, I want that money I made the previous year to be locked in,
to become newly protected principal. I don't want to ever lose
in future years the money I made in previous years.
That's called lock-in and reset. And make sure you watch that episode. So, safety of
the institution, insurance companies, the entire insurance industry in my opinion
is the safest repository for serious cash. And that's why many governments use
it. Many pensions use it for serious cash. Then you go to rate of return. A lot of
people put this up at the top. No. This is third down the list. To earn a
predictable rate of return that historically has beaten inflation. I mean,
you can't be rowing upstream at the rate of 1, 2 or 3 miles an hour in a
bank account when the current of inflation is coming down at 4, 5,
6 or 7. You're going backwards. So, you've got to have a rate of return
equal or greater than the inflation rate or the cost of the funds. Including
opportunity cost. Tax benefits are icing on the cake. Tax-deferred is okay. I
prefer tax-free. And I like to have my cake and eat it too.
So, I like all of the above but these are listed in order of importance. When you
do not do that, people get into trouble. This actually is the title of my book,
The Laser Fund. LASER is an acronym that I've used for years that stands for
Liquid Assets Safely Earning Returns. So, I'm going to share with you why and max-
funded indexed universal life insurance policy passes the liquidity, safety, rate
of return test and tax benefits with flying colors far above any other
investments that are out there that people are familiar with. So, let's apply
this laser test to different kinds of investment alternatives. Again, liquidity
is number one. It's the ability to access your money when you need it. And I would
prefer tax-free, without penalties. If we go to safety of principle, you want to
preserve what you set aside. And in any year you make money, you want that to
become newly protected principle. And the third strength is rate of return. Earning
a competitive rate of return that historically has beaten inflation. So,
many time in the various books that I've written, I
show this risk-return paradigm. Because generally, if you want a higher return,
you're going to incur higher risks. So, I list here 16 general categories of
investments from commodities all the way down to the equity in your house or real
estate from highest risk to lowest risk. Now, whenever I apply the liquidity test,
you don't have to actually study this in detail. They're in my books. This many fail
the liquidity test. You can't get your money quick enough in an emergency when
you need it. Now, if we add the safety test, how many of these will give you
safety a principle where you do not lose your principle? This many more do not
pass the safety test. Wow. Let's go to the rate of return test.
You've got to earn a rate of return equal or greater than the inflation rate
or the cost of the funds. This many more fell the rate of return test. My heavens,
out of 16 general categories of investments that Americans put their
money into, there's only 3 survivors, okay?
Number 10 might be a small handful of mutual funds. Not all mutual funds.
Sometimes your money in the market is subject to volatility and it's subject
to taxes and so forth. But generally speaking, a lot of financial advisors say,
"Oh, you'll be okay. If you earn 12%, you'll net
8% after tax and 7% after fees. And that's
still better than the inflation rate or whatever. Hello!
Well, that's why only some mutual funds. But these 2 are offered by the multi-
trillion dollar legal reserve insurance industry, the backbone of America and the
backbone of the world. And so, it passes the safety test with flying colors based
on upon all of the different rating agencies. Money inside of these
instruments generally is liquid unless you do not structure it correctly or if
you lock it up into an annuity. Because right here, number 12 is a maximum-funded
insurance contract, my favorite vehicle. But number 15 would
be an annuity. Now, I will probably never own an annuity. But there are a few
annuities that are indexed annuities that can give you a guaranteed income.
That if you ran out of money in the annuity at age 85 or age 87, you would
not run out of income if you live to be 120. So, some people like
that guaranteed income. But where I put my serious cash where 40 to 60
percent of my retirement income comes from is out of number 12. Why? Because
it passes the liquidity, safety and rate of return test with flying colors. But
it's the only one that allows me to accumulate my money totally tax-free. I
can access my money tax-free. I can't do that out of an annuity. And an annuity is
tax-deferred. And it blossoms and transfers tax-free. Annuities don't
increase in value. A few might have a little bit of a death benefit. But if I
died tomorrow in an accident, every million in my insurance contract would
blossom to two and a half million and transfer income tax-free. There's not an
annuity around a Roth IRA that will do that. And so, this is why it's my favorite
vehicle because it passes the liquidity, safety and rate of return tests and it's
tax-free to boot. So, let me show you a rating system you can use to rate any
investment based upon these key elements of a prudent investment. So, I call a max-
funded, tax-advantaged indexed universal life insurance policy a Laser fund.
Because laser stands for liquid assets safely earning returns. It's the acronym
of liquidity, safety, rate of return tax-free. And so, in my most recent
best-selling book, The Laser Fund, I have 4 pillars on the cover.
Liquidity, safety, return and tax benefits. Each of these pillars are under a
scoring system, a scorecard. This is explained at the front of the book. And
also as you go through and study the book. It rates other types of investments
based upon these same key elements of a prudent investment. Now,
why is a max-funded insurance contract my favorite vehicle? Because most places
where people put money --in the market, in mutual funds or even in an annuity, it
may pass the safety test in an annuity because it's in an insurance company. But
the rate of return may not be that great. Not near as great as the same money in
the same insurance company in an insurance policy. What? Most people say,
"Well, wait a minute. There's a cost with the life insurance and there isn't with
the annuity." No. Most people are shocked when I show them that an indexed
universal life insurance policy will outperform an indexed annuity with the
same insurance company almost all day long when you structure it correctly
and fund it properly. I can earn 11 a net 10 with an insurance contract with XYZ
insurance company and I may only a net 6 or 7 percent in the annuity in that same
insurance company. People don't understand that. It's because of the way
you're able to structure it. And so, maybe some investments may rank higher on
safety. Maybe some on liquidity. But sometimes you lock up your money in an
annuity for 10 or 15 years. Now, some people say, "Well, the insurance contract
is it liquid." Hmm, actually you have the ability to access money. I can throw in
$300,000 and if 4 days later I need to access 250,000 of the 300,000 I just
put in there, I can do that. You can't do that with a Roth. Okay? You can't do that
with an annuity. So, you do have liquidity based upon the money that is liquid and
accessible inside the insurance contract especially when you're max funding it. As
far as tax benefits, my heavens, in the insurance policy bar none blows the
others out of the water. It's the only vehicle in the Internal Revenue Code
that allows you to accumulate access and transferring your money totally income
tax-free. At best an annuity is only tax-deferred. An IRA or 401K is only tax-
deferred. You pre you fund it with pre-tax dollars but then you have to pay
tax on it when you take it out. A Roth only has two benefits. You take after-tax
contributions and it accumulates tax-free and you can access your money
tax-free. You can do that inside of an i UL policy. But you have four additional
benefits. I can throw in huge lump sums like 2 or 3 hundred thousand
dollars if I design it to accommodate that. You can't put that much into a Roth.
And not only that but I can pull out money without IRS penalties or needing
permission. And so, I can access the money. If I can put in 300,000
and I only put in thirty thousand, I can make up for the other
270,000 anytime I want. If you don't put in the amount your allotted
into a Roth, you can't make up for that in future years. But I can use indexing
with a laser fund and participate with the market when it goes up without my
money at risk in the market. And when I die, my laser fund... If I died right now,
every million would blossomed up 2.5 million. Nothing else does that. So,
it knocks the socks off of any other investment over here. As far as rate of
return, I have averaged 8 to 10 percent rates of return. Some years, I'd
made 25%. Sometimes with performance factors or multipliers as
high as 55%. But if I've averaged about 11.17
and netted 10.07 on a tax-free basis, that would be like
earning 15 or 16 percent in a tax deferred IRA or 401K. And then you
pull out the money and you have to pay a third of it back in taxes. You'd have to
earn 15 or 16 to net ten. I only have to earn 11 in the
insurance policy to net 10. So, the bottom line is this: Most investments that
people put their money into, when you go through and you put it in here, in the
book, we have the scoring system on a scale of one to 10. Most might score
high in 1 or 2 categories but not in all 4. Most investments only score out
of a possible 40. You have 10 possible in each of those 4 key element.
The reason why I like the laser fund is because it's the only one that scores
over 30. And most of the time it scores 35 out of 40 possible on the laser
scoring system. So, that's why it's my favorite vehicle for the key elements of
liquidity, safety, predictable rates of return. And it's totally tax-free. So, this
is episode 15 of 21, Secrets To a Tax-Free Retirement. I would advise that
you watch this next episode to understand more about how this can
empower you. But if you like to read and learn, I would love to gift you a free
copy of the Laser Fund Book over 300 pages of information. And a lot of
clients stories and examples in here. I'll pay for the book. Claim your free
book by going to laserfund.com. Laserfund.com. Just pay $5.95 shipping
and handling. I'll buy the book. You invest in your
brighter future by reading, learning, listening, watching and this is the way
that you can have a brighter future and not outlive your money.