Keep lump sums liquid safe and earning tax-free returns.In this episode, I'm going to address the
question "What should I invest lump sum money?" Now, a lot of people have asked me this question
and they're blown away when I share with them how to keep it very liquid, safe, and earn tax-free
rates of return to preserve principle. Most people do not understand this and they blow
these lump sums they get. So, get ready. I'm going to share some insights with you. I'm going to tell
you a few stories. And especially if you know of a widow who receives a lump sum or a widower
from life insurance or from a lawsuit or from the sell of a business, I don't care
where the money is coming from, don't make the following mistakes that I'm going to explain.
I'm Doug Andrew. I've been a financial strategist and a retirement planning specialist for more than
4 and a half decades and I've helped many, many people who came across a lump sum of money avoid
making serious mistakes that a lot of people make when they get a windfall or a lawsuit settlement
or they've been in an accident and they get 200 thousand, 500 thousand, a million dollars, they
sell a business. Widows who when their husband pass away, they get a half a million or a million
dollars of life insurance proceeds or more. And I'm going to tell you the advice that I give
them because so many people make huge mistakes that later they regret and they kick themselves.
I've always recommended that if you get a lump sum from wherever you got it that you keep it
liquid. You don't tie it up into investments or vehicles that you can't access the money with
an electronic funds transfer or phone call. You wouldn't believe how many widows I've seen that
have taken a million-dollar death benefit and all of a sudden the kids come around, "Hey, mom.
I've got this wonderful business opportunity. I want to start a restaurant, I want to do this."
And I have seen widows have nothing to show for a million dollars 5 years later because it's all
gone. You need to make sure you preserve that. That you only (if you're going to help your kids)
use the interest on the million if you want to help them out. But don't give them
the corpus, the principle. So, make sure you keep it liquid and you preserve the principle.
I've always believed that you should put money where you have safety of principal. When people
talk about safety, sometimes they think I'm talking about safety of the institutions. Yeah,
I like to have my money in safe institutions and I'm talking about more safe than banks and credit
unions. People say, "What? Aren't they insured by FDIC?" Well, yeah. But they almost went under. In
other words, FDIC ran out of money when they bailed out the savings and loans. But see, the
government can help out the banks. They can print money, they can raise taxes. So, I don't want to
scare you. But actually do you know where banks and credit unions put their money for liquidity
and safety? Into the multi-trillion dollar insurance industry because the multi-trillion
dollar insurance industry is not only the backbone of America but the backbone of the world. This is
where governments go to for help. Why? One insurance company where I have a lot of my
money manages about 3 trillion dollars. Do you know how much money that is? That's as much as
the IRS collects in taxes in an entire year. One insurance company, when you put money in a bank,
they will take 30 to 40 percent of their tier-one assets and put it into insurance companies.
They borrow our money. There's 4 things you can do with money. You can spend it, you can lend it,
you can own with it or you can give it away. When you put your money in a bank or a credit union or
an insurance company, it's in a lended position. Are they just a benevolent institution paying you
interest? They put your money in some vault? No. A bank borrows your money, it's in a lended position
and they've been paying a pretty pathetically low rate 1% let's say. Every million they borrow of
OPM --other people's money when we deposit it in the bank, they pay out 10,000 in interest
annually. They turn around and they put a lot of that tier-one asset money in case of an emergency
into insurance companies rated 6 notches higher in safety than they are. A lot of banks are only
rated triple B, a lot of insurance companies are rated triple A. They increase the safety
by 6 notches and they earn 500% more. They earn 5% tax-free. So, that means on a million, they put in
insurance companies, they earn 50 grand a year, they only have to pay you 10 grand.
Hello? People say, "Well, that's only 4 %more." No, it's 500% more. Would you hire an employee
for $10,000 that made you an extra 50,000. That's called a 500% return on employment cost. You're
making 5 times what you paid for the employee. Now, you can do this with your own money. So,
let's go back to the lump sum concept. If you have a lump sum come into you, this is the problem:
A lot of people think, "Oh! I'm going to hurry and pay off my house." Widows are told, "Oh,
pay off your house. Pay this off. Get rid of all that." And then what happens? 2, 3 years later,
all of a sudden, they go, "Golly, you know what? I want to start a business. I need some money." So,
they go to a mortgage company and they go, "I want to borrow on my house." And they go, "Well, show
us your income." See, lending institutions don't care that much about your assets. They care about
your ability to repay. If you lack the ability to repay, they're going to say, "Fat chance". So,
when widows pay off a house and 2 or 3 years later they want to go refinance or mortgage it,
they can't. They don't have any credit history. They go, "Well, I should have excellent credit?
I've never borrowed for 4 or 5 years." Hello? You have to borrow and prove you have good credit.
And so they're sort of left high and dry. The widows that come to me I say,
"Don't pay off your house. This is your best opportunity to keep the money over here earning 6,
7, 8, 9 percent tax-free. The mortgage is only costing you 4.5% but it's tax-deductible." In
your tax bracket that's a net cost of 3. On a million-dollar mortgage, you're paying 30,000
a year and you're earning 90,000 just like banks do with your money. You're making 3 times the cost
of the mortgage and your credit is established easy because when you go to refinance your house,
they go, "Yeah, you've been making timely mortgage payments ever since your husband passed away.
You have good credit." See, you destroy that liquidity and that ability when you pay off
everything and then you need to establish that later. So, don't do that. Keep lump sums
over in a very safe repository liquid earning predictable rates of return. And when you do that,
then you'll have capital to use. Only loan your kids a portion of interest that you're earning.
Don't sit there and give them all that money. As well intending as they may be, I have seen
parents who loan lump sums to their kids that are going through hard times, divorces,
layoffs or whatever and then the kids can't pay it back. And then you not only lost your money
but you lost your kids because they're too embarrassed to come around anymore.
I've seen this thousands of times. If you get a lump, sum make sure you reposition it into
something that passes what I call the laser test. What's that? If you know anybody, maybe a widow or
somebody who is going to get a lump sum or just got a lump sum and you're going, "Oh, my heck!
They need to hear this." Share this video with them. Subscribe. I have several other educational
videos on this channel that talk about this very topic. When I had my own sister-in-law, when my
brother was killed in an accident, she got a lump sum of money and she was able to live with dignity
by not paying off her house. She was able to pay her mortgage for 20 years out of a portion of the
tax-free interest she was earning. If she had paid off the house, she would be destitute right now.
She was able to get an income for years. I have another widow, Beverly. She put in 200,000 from
a lump sum, a windfall from her business. And she says, "I'm not going to touch this for 20 years."
Do you know that less than 90 days later, I got a phone call from Beverly and she said, "Doug, I'm
in California. I was just in a horrible accident. "I'm in the hospital. I need 120,000 of that back.
I was able to do that." She called 2 days later, "How long is this going to take?"
I said, "Well, it's so liquid. Have you checked them? Oh, you're in the hospital still." -"Oh,
my son's at home." He went and looked at the mailbox and there was the 120,000 check. She was
so grateful because it was liquid. If she had paid off all of her stuff, there's no way she could
have qualified for a loan. Is this making sense? I have another widow, 2 that I can think of. One
lost her husband in a drowning accident, the other one in an automobile accident. They came to me.
Everybody was telling them, "Oh, pay off this, pay off that. Pay off that." And I said, "No, no.
You'll earn interest greater than the cost of that and you'll maintain your credit."
Both of those widows to this day, one still has her 2 million, the other one has her 1.2
million. And it's been 20 years. They would have never had that had they been following everybody
else's advice, "Oh, pay all that stuff off." Because you lack liquidity. So, what's LASER? I've
written a book about it. This is my 11th book. So, LASER is an acronym that stands for liquid
asset safely earning returns. My favorite vehicle passes the liquidity test. See, these are bars.
Liquidity, safety, rate of return, and tax benefits. In here, I have what is called
the laser test. And I can score any investment, any place you tell me where you can put money.
I can score it on a scale of 1 to 10, 10 being the best for liquidity.
Most investments do not pass liquidity very well. Safety, rate of return and tax benefits. Usually,
there's trade-offs. Money in a bank with a drive up window may be liquid to you. It's actually
convenience, not liquidity so much. It may be safe but the rate of return at 1% is pathetic.
You're rolling upstream at the rate of one mile an hour while the current of inflation is coming down
3, 4, 5, and 6. You're going backwards. So, rate of return stinks. It's not tax-free. People say,
"Well, my IRA, 401(k) is tax-deferred." Well, it's not tax-free. There's a big difference. And so,
you might score only 6 or 7. But over here on rate of return, it can be pretty pathetic if your
money's in the market. It's not liquid because if you access money out of an IRA or 401(k),
you get penalized 10%. That's not very liquid. You don't want penalties. So, when you read this book,
you can put any investment through that test. Most will only score 18, 20, or 22 out of
a possible 40. My favorite vehicle, The Laser Fund is my favorite because it scores 34 to 36.
If you want to learn why, claim your free copy. I'll pay for the book. See, this isn't about me.
This is about you and your brighter future. So, I'll gift you a copy of this book. It retails
for 20 bucks. If you'll go to laserfund.com, contribute uh a nominal amount towards the
shipping and handling. I'll cover the rest of that cost and I'll pay for the book.
It's actually 300 pages of charge graphs and explanations but it's 2 books in 1.
This side contains 62 actual client stories of how the laser fund is a superior vehicle not only for
retirement, college funding... But if you get a lump sum, it is a Godsend. It is the best place
to keep lump-sum money safe, liquid earning predictable rates of return totally tax-free.