Be able to access money when you need it. In this episode, I'm going to address the question.
What isliquidity and why is it important when investing serious cash? Get ready,
I'm going to give you insights into some opportunities on how to maintain liquidity
that you probably didn't know about before.
So, my name's Doug Andrew and I've been very blessed in my 48-year career thus far
to have authored 12 books. I've been very honored we've had some bestsellers New York Times, Wall
Street Journal number one bestsellers in 2007-2008. But in all of my financial books, I really focus a
lot on the key elements of a prudent investment and I give stories and examples of when people
did not adhere to these key elements. They ignored them and they got into trouble. People often get
these in reverse order. Now, the number one key element of a prudent investment is liquidity.
Many advisors put it second third or fourth down the list and unfortunately many investors do not
put it at the top of the list as far as importance. I'm going to tell you right now whenever you lack
liquidity something happens where you regret having the ability to access money when you really
need it in the event of an emergency. So let's go into an explanation of liquidity. How to maintain it?
Why it's so important and what investments pass the liquidity test with flying colors. So, simply
put again liquidity is the ability to access your money when you need it perhaps with an electronic
funds transfer or a phone call. Sometimes people get liquidity confused with convenience.
They think that because the bank or the credit union has been down on the corner now for 20 years
and it has a drive up window that that qualifies as being liquid. No, that's convenience. A lot of
people don't understand that money in a bank or a credit union even though it might be insured FDIC
and so forth that if push came to shove a bank or credit union if we had a run on the bank if
we had a collapse in this country could say, "Sorry, we don't need to give you your money on deposit in
this institution for six months", a lot of people don't realize that. Now, again, there's panics and
so forth and that's why FDIC was brought about after the great depression and what have you.
But folks, if you put your money in a bank or credit union that is a short-term vehicle. That's
why they only credit you at less than one percent during low-interest environments. Where does a bank
or credit union put the money you put in their institution? Have you ever thought about that?
Sometimes people go, "Well, they loan it back out again", well yeah, let me talk about
liquidity during very bad times in American history. Let's go back to the great depression.
In the great depression we had real estate that some of it dropped 80% in value. Now, you had to find
a buyer for your real estate and maybe you really took a hit because real estate dropped in value.
Banks closed during the great depression 40 percent never reopened again. Guess who
came through the great depression with flying colors? The legal reserve insurance industry.
They credited two, two and a half three, three and a half percent but they came through with flying
colors. There wasn't one single legal reserve insurance company that went under in the great
depression. What's legal reserve mean? They have to have reserves on hand that are liquid and safe
in the event of a financial collapse a run on the bank. In fact, in 2008 there were about 400
banks that went under about 900 more were on the brink of going under on the watch list. The federal
government asked the five major banks in America to disclose where they had their tier-one assets.
This is money the banks and credit unions have to have on hand liquid and safe in the event of
an emergency a run on the bank. Guess where they had 30 to 40 percent of their tier-one assets?
In insurance companies. Why? Because most insurance companies the ones that I put my money into are
rated you know double a and aaa. A lot of banks are only rated triple b. What's the difference?
About six notches higher in safety. So a bank is taking your money you deposit in the bank
and they're increasing the safety by many times six times higher, six notches higher in safety.
They're increasing the safety of the money and the rate of return. From 2000 to 2012 even 2020
a lot of banks were paying a pathetic one percent. They're borrowing your money at one percent.
They're paying you one percent interest because money is in a lended position. There's only four
things you can do with money spend it, lend it, own with it, or give it away. When you have your money
on deposit in a bank it's in a lended position. Are they just a benevolent institution paying
you interest? No, what are they doing with your money? Well, they're loaning it back out again at
five but they take some of it and they put it in it to insurance companies at five. How much more
is five percent than one percent? Don't say four it's five times, it's 500x more. Every million they
borrow from us and pay 10 grand a year in interest they can turn around and put it into an insurance
company and make 50,000 or five percent. 50,000 is five times 10,000. Would
you hire an employee for ten grand that made you an extra 50 grand? Would you buy a widget machine
for 10 grand that made you an extra 50 grand? I'll do that all day long that's called a 500x return
on employment costs or equipment costs. So, let me come full circle here. Why is liquidity so
important? Well, I want to have access to my money and I can get access with an electronic funds
transfer or phone call in an insurance company. They would be the last domino to fall so to speak
if we had a collapse in this country. I want access to my money when I need it and so I want to put my
money where many banks and credit unions put their money. Which is actually our money we deposit there
to increase the liquidity and the safety. So, you can bypass the middle man to have access
to money it's not the drive-up window. I can access money with an electronic funds transfer phone call
and I can do it the smart way which I discuss on this very channel. So let me show you why it's
important to subscribe to this channel and then I'm going to connect the dots here. So, before I
share with you an actual story of when I learned the lesson of how important liquidity is.
If this is inspiring you it's intriguing you or you can think of somebody who would benefit
from watching this episode be sure and share this video, post a comment, click like. But I want you to
subscribe, why? Because when you subscribe and you click that little bell you'll be notified every
time I post a video an educational session and I do that almost on a daily basis. I don't want you
to miss out and there's many opportunities there to be able to listen and learn watch and learn.
At the end of this episode, I want to gift you a copy of my most recent 300 page bestselling book
called the laser fun. Now, I learned this lesson the hard way that it's a lot better
to have access to money and not need it then need it and not be able to get it. It's a lot better to
have and not need than not have. That's true with maybe food storage. It's true with medical supplies
all kinds of things. But when it comes to money it's a lot better to have access or liquidity
on your money and not actually need it than to need it and not have liquidity not be able to
get it. I learned that lesson the hard way clear back in 1982 when I had three things happen to
us my wife and I. We were living in this beautiful dream home that we built a 6,400 square foot home
and we built it for 150,000 in 1978 and it was worth double that when we moved in 300,000.
But we had somebody who was dishonest above us in the firm's working for. He had been embezzling
money while they investigated him they froze three of supervisors income. I was one of them
and I went nine months without an income. I lacked liquidity because I didn't put a big down payment
into that house. I built it for 150,000. I've never paid a down payment for any piece of property I've
acquired. I explain why and how to do that in many of my books. I built it for 150 it was worth double
that when I moved in. I had 150 000 of equity but it meant nothing to me but a number on a sheet
of paper if I couldn't access it. I learned that lesson. I got behind on my mortgage. Fortunately
I had a duplex I sold and I took the equity from the duplex and brought the delinquent mortgage current.
Then I had a timeshare at a ski resort I sold that and brought the delinquent mortgage current.
But I didn't have any more assets or resources. I didn't have liquidity and so my wife and I decided
to put the house up for sale and build another one. When there's more supply then there is demand. This
was 1980, 81, 82, there was a recession the energy crisis. We had to lower the price of the house
from 295,000 to 285, 275, 265, 195, and we ended up losing that house in foreclosure because I lacked
liquidity. Now, I went out the next day and bought another home with no money down and no credit.
I've done that many times for many people. The point is this, I learned that lesson that liquidity
is the number one rule and my equity in my home and my real estate did not pass the liquidity
test. Now the next two tests are safety and rate of return I would encourage you to watch the episodes
where I talk about those other key elements but the number one is liquidity. A lot of people put
it third or fourth down the list. You want to have access to your money when you need it. So, choose
investments that pass the liquidity test first and so that's why my favorite vehicle is called the
laser fund and laser actually means liquid assets safely earning returns it spells that acronym.
Because it passes the liquidity test with flying colors. I can access money
out of a laser fund with a phone call. If I need it during the most crucial times and that's where
many institutions like banks and credit unions put your money to increase liquidity. Here's how you
can learn more. The point is you want to position yourself with liquidity so that you can act
and not have to react when we have things happen to us that are out of our control like 2001
the terrorist attacks when the market dropped 40 percent. In 2008, how about in March of 2020
during the Covid19 pandemic? Our clients who had liquidity they were able to link when the
market was down and many of them one year later locked in gains of 61.33 percent because they had
liquidity. They had that opportunity and if you do not have that ability you are missing out on
opportunities. So how can you learn more about this laser fund it's my favorite instrument. I would
recommend 40 to 60% of your income in retirement is tax-free but that it stays liquid. The laser fund
how to diversify and create the foundation for a tax-free retirement it's actually two books
in one. This side the white side is about 200 pages 14 chapters with all the charts and
graphs and explanations. But if you learn more by stories you flip it over you read this side.
This is about 100 pages 12 chapters with 62 actual client stories. You'll learn here about liquidity
safety and rate of return because that's what these pillars stand for liquidity safety rate of
return and tax benefits. But notice what's number one? To claim your free copy of this life-changing
book. Go to laserfund.com click on the link below contribute a nominal amount towards the shipping
and handling. I'll cover the rest of that. I'll fire out a copy to you and there's also options there
to listen and learn watch and learn. But as you begin to engage you will understand opportunities
that you probably never knew existed before and why I believe liquidity is number one then
safety then right of return instead of the reverse. So, here's to your brighter financial future.