Get it out of there. In this episode, I'm going to address the question,
"What to do with extra money in the bank?" And you won't believe the stories I'm
going to tell you. And you're going to gain insights into some opportunities that maybe
you didn't know existed to increase the safety and your rate of return.
So, I'm Doug Andrew and I've been a financial strategist for more than 4 and a half decades.And
I've noticed a lot of people especially in America have a lot of money parked in a
bank or credit union with a drive-up window. And I remember one time meeting with this elderly woman
and she had like a half a million bucks sitting in the bank and I said, "Golly, what's this earmarked
for?" She says, "Oh, I just like to have money on hand. I was thinking about taking a trip." And I
said, "Where? To the moon? I mean, hello? A half a million dollars sitting in the bank? You know
how much opportunity cost you are incurring?" She didn't even know what I was talking about.
In other words, she was giving up the opportunity to earn higher rates of return and she had never
calculated what that was costing her to have her money in the bank. So, when we talk about
where you should have serious cash, I recommend that you have a little bit of money in a bank or
credit union for immediate access, convenience. Maybe up to 6 months of emergency funds. But
frankly, that's not where I have my money for emergency funds because banks are short-term
investments, okay? A lot of people make mistakes choosing short-term investments for long-range
goals. Or a lot of people choose long-term investments like it's a put and take account
for short-term goals. So, I'm going to address the difference between a put-and-take account
and a put-and-keep account. So, when you deposit money into a financial institution,
you want to make sure it's safe that maybe they're federally insured which banks are with FDIC.
But banks and credit unions really are short-term repositories for money. Maybe for a short-term
goal, saving 6 months for a piano. Maybe saving 9 months for uh the baby that's coming. These are
short-term goals. But I'm always shocked about how much people put tons of money in a bank or credit
union hundreds of thousands of dollars. And I go, "What's this earmarked for?" And they go, "Well,
you know, probably retirement." And I go, "You're rowing upstream at the rate of 1 mile an hour 1%
interest or less when the current of inflation coming down at 2, 3, 4, 5. You're going backwards.
You're losing money. You're giving up the opportunity to earn a predictable rate of return."
See, banks and credit unions are put and take accounts. You put money in, you take it out. You
put it in a checking account, you write out checks for bills and groceries and everything like that.
That's a put-and-take account. Banks are good for that. What you want to do with money that
is earmarked for long-term goals, I would say a year especially 5 years and longer down the road
that would be a put-and-keep account where you intend on putting money aside, keeping it put
aside and then put it to work for you. But you want to make sure it's still liquid in case you
need to access the money. See, a lot of people think, "Well, I want my money in a bank so that
I can go get it when I need it." That's called liquidity. Oh, heavens. You can have your money
earning rates of return of 6, 7, 8, 9, 10 percent and have it so liquid. Actually more liquid
than a drive up window at a bank. And I'll explain that next. But first of all, let me explain
historically why I do not put very much money in a bank. Only enough money to maybe last at most
6 months in the event of an emergency just for the basics. See, in the Great Depression, we had
banks close. Now, some real estate dropped 80% in value. And of course, the stock market went crazy
and dipped and everything. But see, banks closed their doors because of the run on the banks. 40%
of those banks never reopened again. And so, since then, they've tried to prevent the run on the bank
scare by having FDIC insurance which is okay. But see, it's federally insured. What it really does
is it allows the government to collect a premium from the banks, sort of like an insurance policy.
And then if there's a run on the bank or a bank goes under, the federal government swoops in until
another bank takes over that bank. And they insure the deposits. Now, there's been times where FDIC
has technically sort of gone broke. They did that when they bailed out the savings and loans because
FSLIC ran out of money when the savings and loan debacle happened years ago. And FDIC had to come
in and it nearly wiped out all of their reserves. But see, the federal government has the ability to
tax us and print money. So, a lot of people say, "Well, I feel really secure because the government
is backing. They are ensuring this." But it's really just insurance. Where I put my serious cash
for liquidity safety and earning predictable rates of return is where a lot of banks put your money.
When you deposit your money in the bank, where do they put your money? Sure, they loan it back
out again and so forth. That's called the velocity of money. But they have to keep reserves on hand.
And so, they take some of the money you deposit in their institutions and they have tier 1 and tier 2
assets that they put into places that are ranked sometimes 5 and 6 notches higher in
safety than they are and they earn rates of return 5 times what they're paying you.
So, I'm going to share with you how you can sort of bypass that middleman, the bank. And you can
earn rates of return of 5, 6, 7, 8, 9, 10 percent like the banks earn on your money by bypassing.
But you can increase the safety dramatically with the legal reserve insurance industry which is the
backbone of America, it's the backbone of the world. This is where banks put a lot of your
money to earn rates of return much higher and also safer. So, let's go to 2008 for an example.
A lot of Americans don't realize how close we were in America to a total financial collapse during
that mortgage meltdown. And so, there were about 400 banks that went under in 2008. There were 900
more that were on the brink. They were on the watch list. And so, the federal government
back then asked the 5 major banks in America to disclose where they had their tier-one assets for
liquidity and safety in case there was a run on the banks. Do you know where the 5 major banks had
30 to 40 of their tier 1 assets? In insurance companies. See, the legal reserve insurance
industry as I mentioned is not only the backbone of America but the backbone of the world.
Why? Because one insurance company... There's several thousand. But one insurance company where
I have some of my money manages about 3.5 trillion dollars. Now, do you know how much money that is
that's as much as the IRS collects in income taxes in an entire year in America? One
insurance company, okay? They're huge. And so, what do those legal reserve insurance companies
do? They're called legal reserve because they have to have reserves on hand liquid and safe
in case of a run on the financial institutions. So, banks are borrowing your money so to speak
at 1%. And they're turning around and putting it into insurance companies and they're earning 4, 5,
and 6 percent. Now, how much more is 5% than 1%? Don't say 4. It's 5 times. Every million dollars
that banks borrow from us when we put it in checking and savings and so forth, every
million they pay out 10,000 a year in interest at 1%, they turn around and put 30 to 40 percent of
their tier-one assets into insurance companies and they earned 4 or 5 percent. They earned 50 grand
on money they only had to pay 10,000 for. That's a 500% increase. That's 5 times. I mean,
would you hire an employee for 10,000 bucks that made you an extra 50,000? Would you buy a widget
machine for 10,000 that made you an extra 50,000? This is what banks do. Now, I know banks loan
money back and this is called the velocity of money where if you want to build a house
for example and you go take out a construction loan, you borrow let's say a half a million or
a million dollars to build a home. And so, you do that and what do you do with that money? You take
that money and you pay the general contractor. And the general contractor pays the subcontractors and
the suppliers. And what do they all do with that money? They deposit it back into banks. They loan
it back to banks again at 1. And the banks loan it back again at 5. And they do this 17 times a
year on the same money. That's called the velocity of money. But in order to protect themselves in
case there's a run on the bank, banks take 30 to 40 percent of their tier 1 assets and they
just settle for a 5 times multiplier. They pay us 1% for example and they turn around and make 5%
Well, you can put your money in the same insurance companies the banks are putting your money into
and you can earn that 5%. And your safety will usually be 5 notches higher. In other words,
a lot of banks will have a triple B rating from S&P. A lot of insurance companies where I have
my money are rated triple-A or double-A. With all the ratings, that's 6 notches higher in safety.
And I'm earning 5 times the rate of return and it's just as liquid. I can access my money
with an electronic funds transfer or a phone call. It's actually more liquid than banks because if
banks really get into trouble, do you know they can stall you for 6 months when you ask for your
money out of the bank if push came to shove? Now, if you're already getting some epiphanies here,
share this episode. At the end, I'm going to show you how you can learn more about how to
make better returns on your money and increase the safety dramatically. But let me sort of summarize
what I'm talking about here. If you have very much money just sitting in a bank or credit union,
I don't want to scare you. I mean, it's relatively safe. But you can increase the safety and the rate
of return. And you could accumulate your money totally tax-free. And at the end of this episode,
I'm going to show you how you can learn how to do that. But let's just say the bank is paying 1%.
Now, as I've already said, inflation might be 3 or 4, you're going backwards. Now, at 1% interest, it
will take 72 years for you to double your money. If you put a hundred thousand bucks in the bank
and they're paying you 1%, 72 years down the road, the 100,000 will finally be worth 200,000.
It takes 72 years to double your money. This is called the rule of 72. You take whatever interest
rate you're earning, you divide that into the number 72 and that tells you how many years it
will take to double your money. So, let's say we'll put in 100,000. What if we could earn
more like 5%. 5 into 72 is like 14.4. So, your money would double in 15 years, every 15 years
instead of every 72 years at 5%. So, why not do that? But I've earned 7, 7.2 percent. 7.2
divided into 72 means your money will double every 10 years. I've done that. Most of my life
earned at least 7.2% even in the worst 10-year period since the Great Depression --2000 to
2010. By using indexing and rebalancing which is explained in my book I want to give to you,
you could earn easily 10%. 10%... 10 into 72 means your money will double every 7.2 years.
Let's just say 7.5. This is what I'm sharing. If you had 100,000 or there's many people that came
to me years ago with 500,000, you can extrapolate from this. 500,000 every 7 and a half years
doubles. iI doubles to a million then it doubles to 2 million and then to 4
million then to 8 million. How long has that been? 30 years. In 30 years, I have clients
that started out with a half a million, never added a dime and they now have 8 million dollars
but it's totally tax-free. 8 million for them is generating between 600 to 800 thousand a year
of tax-free cash flow without depleting principle. If they had their money in the bank,
they wouldn't have even had doubled it to a million yet. They'd have another 30 years to go.
Folks, this is extremely important for you to understand. So, I'm going to show you how you can
learn more about the dynamics of money. So, I'm going to show you how you can learn how to become
your own banker. Back in 2008, when the banks disclosed that they had 30 to 40 percent of their
tier 1 assets in insurance companies, in what? In bank-owned life insurance. It's called BOLI,
(b-o-l-i) bank owned life insurance. Insurance on who? On people. They own insurance policies,
life insurance policies on people. It's the owner of the contract that gets all the tax-free growth.
My indexed universal life insurance policies for the last 4 and a half decades, I've averaged 8.2%.
By using rebalancing, 10.17%. Now, folks, you can do this. This is why I authored this most recent
number 11 book. This is The LASER Fund. So, you can go to laserfund.com (LASERFUND.com) and you
can claim your free copy of this 300-page book. This is actually 2 books in 1. This side is about
200 pages, 14 chapters with all kinds of charts and graphs. If you learn more right brain, by
stories, you flip it over. And you read this one. This is 100 pages, 12 chapters with 62 chicken
soup for the financial soul stories. And you will learn how you can become your own banker. You
contribute a nominal amount towards the shipping and handling. I'll fire out a copy of this to you.
You don't need to spend 20 bucks on Amazon to get this book. But this is to your brighter future.