- Do you really understand the parable
of the talents in the New Testament, in the Bible?
"'To the wicked and slothful servant,' the master said,
'you should have put your talent or talent,'" your money,
"into a bank and with usury at least earned some interest."
Well, what is arbitrage?
This is where we create a win-win,
where somebody is paying interest,
willing to pay interest in order to make more interest.
It is what makes the world go round.
Get ready.
I'm going to give you some insights
into a deeper understanding of this parable
and how it can apply to you and your brighter future.
(upbeat music)
So I'm Doug Andrew.
I've been a financial strategist
and retirement planning specialist now,
for nearly five decades.
I've been helping thousands of people optimize assets,
minimize taxes and empower
what I call their authentic wealth.
I've been very blessed in my 50 years
to have authored thus far, 12 bestselling books.
And in all of my financial books,
I talk about the concept of how money works.
And sometimes when I use the term arbitrage,
people go, ooh that sounds scary.
What is that?
Well, it is really described in the parable
of the talents if you dissect it and understand it.
This is where oftentimes,
it may be wise or prudent to pay interest
in order to make more interest.
And so, sometimes people quip,
there's two kinds of people in the world,
those who pay interest and those who earn interest.
And I sort of chuckle and smile and I say no,
there's actually a third kind of person,
those who learn when it's wise to pay interest
in order to make more interest.
And that was typified in the parable
when the master said that wicked and slothful servant
you buried your talent so to speak, your money.
You should have at least put it in the bank with usury.
Now what's usury?
It's usually charging interest or making interest.
So, when you put your money in a banker credit union,
are they just a benevolent institution paying you interest?
Well, why are they doing that?
Because they understand how money works.
They are good stewards so to speak.
They are borrowing your money,
they're paying you interest why?
So that they can turn around and loan it out and invest it
and make a higher interest than they're paying you.
Because if they pay you 1, 2 or 3% interest,
they turn around and loan it out or invest it at 6, 7 or 8%.
If they pay you 3 and they earn 6
they're making twice as much as they're paying you.
That's called 100% rate of return.
But it's more than that
because they're doing it not even with their own money.
They're doing it with your money.
So, it's called an infinite rate of return.
But arbitrage means paying a lower interest rate
in order to put the money to work
to earn a higher rate of return.
And this is actually been going on for centuries.
It's what makes the world go round.
So I want to explain this
by using some slides that I haven't used for quite a while
to teach you sort of some marvels of wealth accumulation
because there are three miracles or marvels
of wealth accumulation.
The first one is compound interest.
And sometimes financial advisors that I mentor
think they understand compound interest
until I pass out an 8 1/2 by 11 sheet of copy paper
and I go, "Let's see."
And I have them fold the sheet of paper in half
and then I have them fold it in half one more time.
And then I tell them, "You know what?
You can't fold the sheet of paper in half
more than about eight times."
But imagine if you could fold this
8 1/2 by 11 sheet of copy paper in half 48 more times,
a total of 50 times.
I want you to write down on the sheet of paper
how thick you think this sheet of paper would be.
And these financial advisors, often CPAs,
tax attorneys who say they understand compound interest
write down 3/8ths of an inch, an inch, 6 inches.
Sometimes those who really do understand
compound interest better than others say,
it'll be at least a mile high.
And they get laughed out of the room.
And then I go,
oh, I thought you understood compound interest.
What is this sheet of paper doing every time
you fold it in half?
It's doubling.
A sheet of copy paper, 26 pound copy paper
is 5/1000ths of an inch thick.
If you folded that sheet of paper over 20 times
it would be 1,048,000 times thicker.
What am I talking about? Compound interest.
A dollar doubling to 2, 4, 8, okay, 16, 32, 64,
a dollar doubling 20 times will grow to 1,048,000.
That's compound interest.
Albert Einstein said
it's the eighth wonder of the world, okay.
Well, Rothschild said,
no, compound interest tax free is the eighth wonder
because if that dollar doubles and every time it doubles,
you pay 25% in tax which most Americans,
they put their money in banks and credit unions
and mutual funds and they pay taxes
on the interest in dividends every year on their tax return.
The dollar doubles to $2.
You pay tax of 25 cents. You only got a buck 75.
That doubles to 3.50. You pay tax on that.
Guess how much you'll have Instead of 1,048,000
at the end of 20 doublings you'll only have $72,000,
7.2% of what you could have had.
In a 33% tax bracket, you'll only have 27000, 2.7%.
That's why Rothschild said, no,
the eighth wonder of the world
is compounding tax free 'cause then you'll have a million.
Did you notice Rothschild did not say tax deferred
because if you do it in a tax deferred IRA or 401k,
that million is not your money when you pull it out.
If you pulled out the entire million
you would pay a third of that back in taxes.
You're only netting 650,000.
If you're pulling out, you know, 100,000 a year,
you're only netting 65,000 after tax
to buy gas and groceries.
If you use my favorite vehicle,
which is a Max-Funded Indexed
Universal Life insurance Contract
where I have averaged nearly 10% rates of return
ever since 1997, on a million I pull out 100,000.
I net 100,000 'cause it's tax free.
So you want to have tax free accumulation.
But the third marvel or miracle is safe positive leverage.
And people go, what's that?
It's the ability to own and control assets
with very little or none of your money tied up
or at risk in that asset, okay.
It's what makes the world go round.
So let me explain this because savvy smart people
understand how to leverage.
But you want to leverage and maintain full liquidity
because leverage without liquidity is stupidity.
This is where people get into trouble
and they have their homes foreclosed on, okay.
Now you are going to incur a cost,
let's say on a piece of real estate
and let's say it's a rental home, maybe even your own home.
And if you pay cash for that, that's okay.
But you have your money in there
and you're giving up the opportunity
to earn a rate of return on that
because the house is going to appreciate,
go up in value or down in value regardless
of whether it's mortgage to the hilt or free and clear.
So, if you tie up your money in a piece of real estate,
you are incurring a cost, it's called an opportunity cost
where you could be putting that to work
at a higher rate of return,
then the net cost to have a mortgage on that property, okay.
Now, when people say, well yeah,
but if I were to keep my money separated,
if I borrowed it out and kept it separated,
I'm going to incur a cost.
I have to pay interest.
And so, I'm employing the money.
It's an employment cost because I often say,
well, would you hire an employee
and pay that employee 30,000 bucks
if that employee made you an extra 90,000?
Well yeah, you're getting a 300% return on employment cost.
It's worth paying 30,000 for an employee
if that employee makes you an extra 90,000.
Well, I borrow money on real estate
at 4 1/2% tax deductible interest.
And so, it's a net cost of three
or 30,000 for every million.
And that million that I borrow
and I put into my favorite portfolio
of indexed universal life policies,
Laser Funds, I'm earning 9%.
I'm making 90,000 and it only cost me 30,000.
I'm making three times or 300%
more than the cost of the funds.
Does that really make a difference?
I just used the first year.
If you keep doing that,
you're going to be earning 9% compound interest
on a bigger balance every year
than you're paying simple interest on.
Does that make a difference? Yes.
This is how you can become your own banker
but you're going to incur one of these costs or another.
But if this one is deductible and this one's not deductible,
which one would you rather incur?
I'd rather incur deductible employment cost, okay.
So this is why for years,
I would help a lot of people
develop equity and get out of debt, the smartest way.
But it's not any way, shape or form
sending extra principal payments to the mortgage company.
If you accumulate,
the money that you would be tempted
to send against your mortgage
into a compounding account tax free,
you'll actually pay off your mortgage
two and a half years faster if you want.
But if you keep it separated,
you'll end up with far more money
about a million dollars more at the end of 30 years
than paying off your house by physically taking the money
that's earning three times more than it cost you
and paying off the property, okay.
And I can prove that mathematically.
So, this is the good way to go.
Equity management is keeping like I do,
I keep all of my money liquid and safe
because I learned the hard way that money
in my real estate is not liquid, safe,
nor does it earn a rate of return, okay.
Whereas in my universal life policies,
it is liquid safe, earning a predictable rate of return
averaging at least three times
more than the net cost of the funds.
So, that's why I've always managed my real estate
by keeping that equity separated.
And I've never paid a down payment.
I've satisfied down payments
but I've never paid a down payment
for any piece of real estate that I've acquired
because I keep it separated earning a rate of return
at least three times greater
than the net cost of borrowing the money, okay.
So, this is better.
Best is equity conversion.
And this is where,
I'm 70 years old, and so I have always had my house
mortgaged to the hilt.
And when I qualified, I took out a reverse mortgage
because it doesn't matter
because the money is separated from the property.
And now I don't have to even make a mortgage payment
because my house will continue to appreciate
and my cash will continue to grow
faster than the reverse mortgage
because houses were made to house families
not to store cash.
And my children don't care.
They'd rather have the cash.
And if they want when I die, they can sell the property
if it's worth more
than what is owed on the reverse mortgage.
But I already have the equity separated
'cause it's always been separated.
Is this making sense?
So, that's why I think it's the best way to go.
So, I have taught for years that managing things
like your real estate equity is the key
to enhancing your net worth.
And if you separate your real estate equity
and you keep it separated like I have,
this is an amortized loan or you can do interest only loans,
which I've done many times,
but you're paying simple interest tax deductible
on a declining balance
and you're earning compound interest tax free.
So, you're earning more and more every year
at 9% on a bigger balance as this is growing
than you're paying interest on.
What's the math?
Well, if you had separated 100,000
of equity that you would've been tempted
to pay in a big down payment or whatever
and you borrowed on that real estate at 9%
and you were only earning 7 1/2.
Most people would say you're not getting anywhere,
you're going backwards.
No, if 9% interest you're is tax deductible
it's only a net cost of 6% in a 33% bracket.
You are making a spread of 1 1/2%
borrowing at 9 and only earning 7 1/2 compound interest.
And pretty soon you're earning 7 1/2 compound interest
on a bigger sum of money
than you're paying a net cost of 6 on.
So in the very first year, you're coming out 1,500 bucks,
but you keep that going and at the end of 30 years,
you made an extra 3/4 of a million dollars
by paying 9% tax deductible interest
while only earning 7 1/2 compound interest.
Hello?
Well what if you kept 150,000 of equity separated
and you borrowed at 7 1/2 and and you only earned 6?
Same thing.
You'll end up in 30 years with $761,000
that you otherwise wouldn't have if you didn't do this.
Well, what have I been doing?
I can borrow at 6 1/2% and earn 8 1/2.
And people say you'll do all that for 2%.
Yep.
I borrow at 6 1/2 and I earn 8 1/2, is it really 2%?
Not if 6 1/2 is tax deductible.
Over a 30 year period on 100,000 of equity,
we're talking a million dollars.
Well what if you did that with 200,000?
It's 2 million.
What if you did that with 400,000?
Okay, it's 4 million.
What if you did that with a million dollars?
It's an extra 10 million bucks.
Math doesn't lie.
So, this is really how money works.
This is arbitrage, this is putting your money to work
and learning how to become your own banker.
I call it a laser bank because I put my money over here
compounding tax free using a Laser Fund.
Wanna know more about what a Laser Fund can do for you.
I want to gift you a copy of this 300 page book
which is actually two books in one.
This side is about 200 pages
14 chapters with all the charts and graphs,
if you're a left brain learner.
If you're a right brain learner,
you flip it over to this side.
This is 100 pages, 12 chapters with 62 actual client stories
of how people have used The Laser Fund
for all kinds of financial goals.
If you want to use both your left brain
and your right brain, you can read both of these
but these retail on Amazon for 20 bucks.
I will gift you a copy free.
To claim your free copy, simply go to laserfund.com
or click on the link below you contribute a nominal amount
towards the shipping and handling,
have some skin in the game.
I will cover the rest of that cost
and I will pay for the book.
I'll fire out a hard copy to you, priority mail.
And there's also options when you're in there,
if you'd like to listen and learn or watch and learn,
you can check out some of the educational webinars
that we teach on a regular basis.
You can even schedule an appointment
with an IUL specialist at no charge, no obligation
to see how these strategies can apply
in your particular set of circumstances.
But this is about you and your brighter future.
I want you to learn how money works
and what makes the world go round
so you can capitalize on this
and learn how to become your own family bank.
(cheerful music)