Receive 125% to 190% of the index you're linked to. In this episode, I'm going to address the questio.
How to earn higher returns than the low volatility index you're linked to?
So, my name's Doug Andrew and I started as a financial strategist clear back in 1974.
So I've been doing this more than 47 years as of the recording of this episode and I've absolutely
loved helping people optimize their financial assets and minimize taxes and my favorite vehicle
to help them achieve success to arrive at the destination of financial independence. Whether
that's age 35, 65, age 70 but then to be able to never outlive their money if they live to be 120
and that vehicle that is my favorite is called the laser fund. I name it that because laser is
an acronym that stands for liquid assets safely earning returns. If you stay with me to the end of
this episode as a token of appreciation I want to gift you a copy of this 300 page book absolutely
free and so stay with me as I share with you this insight on how to safely earn rates of return
that are actually greater than an index you're linked to. Now, if you do not understand indexing
I have a whole bunch of videos and episodes on this three-dimensional wealth channel which I encourage
you to subscribe to where you can learn about indexing. So, I'm going to assume you understand
the basics of indexing where you have your money in an insurance contract, okay.
Indexed universal life and what you're doing is you're trying to structure it to perform best for
living benefits instead of death benefits okay and so you're putting in the most money the IRS allows
as fast as they allow to turn it into a tax-free cash cow. So, that many people who maybe put in
500, 000 they see that 500,000 growing at average rates of return between seven to ten percent.
Now, some years they earn much higher than that but at seven percent seven point two
percent your money doubles every 10 years at 10%. Because I've averaged about 10.07%
through the years. Your money doubles about every 7.2 years. So, a half a million can double to a
million and then double to 2 million and then double the 4 million then double to eight million
and yeah we've had many clients who have done that by maximum funding indexed universal life and
you have your money in there and you can anytime just settle for the general account portfolio rate
the insurance company is earning. Which might be you know four percent some years five percent.
Back in the 1980s I never earned less than 11 and three-quarters percent on the general
account portfolio rate. But that's when interest rates were high for borrowing mortgages on homes
cds at banks were paying 10 because inflation was high. See, interest rates are relative but
right now as of the recording of this episode we're in a 40-year low-interest environment. We're
borrowing money for mortgages down in the twos and threes. So that's why insurance companies on
aaa and double a bonds are usually only able to earn in the two three four percent range and
same thing with mortgages on shopping malls and skyscrapers and so forth and so, interest rates are
relative. But if you want to earn rates of return more like 7, 8, 9, 10, 11, percent you use indexing.
You link your returns to an index or indices of your choice and it could be the S&P 500. It could be the Nasdaq.
It could be the Russell 2000 the Dow Jones and and so we'll use the S&P 500 as an example here.
Now, a lot of times you have indices that are very volatile and so as you watch them. If the
economy goes up like from March of the year 2020 right after the Covid19 pandemic started and a
year later the economy went up 66% because it crashed and if you linked you would have made
a net of 61.33 percent. I explained that in another episode. But what if you're super conservative and
you just want to use a low volatility index. Now, these were first introduced around the year 2016.
and this is where the index is it doesn't go up and down so dramatically. I often have
described the stock market as like a person with a yo-yo. Hopefully walking up some stairs meaning
you go up and down up and down with your money but hopefully, it's going to grow over time like you're
walking up some stairs. Sometimes people don't like that up and down yo-yo where you can make money
one year and then lose a big portion like in 2001 to 2003 people lost 40 percent of what they had
saved up to in their lifetime up until 2001 and it took four years to get back to break even and in
2008 they lost 40 again in one single year during the mortgage meltdown and it took four years just
to make it back. People using indexing doubled and even tripled their money during that time period.
So that's the power of making money when the market goes up but not losing when it goes down.
Because your money is not at risk in the market. Your money is safely tucked in the insurance
company earning the general account portfolio rate right now around four percent. That's 40,000 on a
million. When you link to an index you're giving the insurance company authorization to use the
interest in this case four percent 40,000 on that million to buy upside options.
If the market goes up those options will help them pay you 10-15 or whatever up to maybe a cap.
But if the market crashes your options expire worthless but you didn't lose your million
and as Will Rogers once said, "People get more concerned about the return
of their money instead of return on their money." So, there's some factors here that I want to explain
next participation rates and also how caps are affected and how you use low volatility
indices to be able to make money because the insurance company will pay you more than what
the low volatility index actually performed at. So, first of all what's a participation rate?
Most of the time when you link an indexed universal life policy to an index or indices
of your choice the participation rate would be 100%. Meaning, if the S&P went from
a thousand and a year later if it was a one year point to point it went up to eleven hundred
that's a ten percent increase. So they pay you one hundred percent of that ten percent increase or
on a million dollars that pay you 10% or 100 grand. So most of the time the participation rate is 100%
but it doesn't have to be sometimes it can be lower but many times it's higher. I was talking
about low volatility indices. When you have a low volatility index the insurance company
is allowed or can actually work their options on a better performance to where they can pay you a
higher participation rate. You're participating maybe from 125 up to 190 percent. So, that
whatever the S&P does if it went up 10 percent they might pay you let's say at 130 participation
rate. They don't pay you 10% they pay you 13% because you times whatever the S&P did by 130%
or 1.3 times that. So you would actually be credited 13 percent if you were participating at
130 and the index went up 10%. Does that make sense? So let's say that the S&P went up 15%. If you were
getting 130% participation rate 130 percent times 15 would actually give you 19 and a half percent
is what you earned. So, on a million dollars you would get five 195 dollars credited at nineteen
and a half percent on your million dollars of cash value if you had a 130 participation rate. So, when
do you use this and when can it work to your advantage? As of the recording of this episode
I look back in the last decade and there's one year that sort of stands out that's the year 2017.
Now, we had many clients who in 2017 using various indexing strategies that
locked in their gain on one-year point-to-point with caps. One capped out at 16 percent so they
capped out at 16 on a million dollars they made 160,000. Others the cap was 25 and so they
locked in a quarter of a million. Now, the unique thing about indexing is the lock-in and reset.
Which means let's say in 2017 at the beginning you had a million at the end you had a million
250,000 because you earned 25%. Now, let's say the next year 2018. Now, 2018 was sort of ho-hum. But let's
say 2018 was like 10 years earlier 2008 and the market crashed 40 percent. People who have their
money in the market they would lose 40 percent of what they had made the year before on their
entire nest egg. With indexing you lock in your gain. So, let's say the market crashed 40 percent
in 2018 the client who made a quarter of a million they didn't lose that quarter of a million.
That million 250,000 that quarter of a million they made in 2017 became newly protected principle.
You lock in your gain each linking period every year in this example. You lock-in and you reset.
If the next year the market crashes you didn't earn anything in 2018 but you didn't lose the money you
made up until that point. It's amazing how many financial advisors who have your money in the
market don't understand that. They just say well the market always comes back. When you're retired
you don't have the luxury of waiting for years for the market to come back like people had to after
2008 and also after 2003. People had to wait four years just to make back the money they lost. You
can't afford to do that in retirement. That's why my favorite vehicle for retirement and predictable
income is a maximum funded indexed universal life contract because you don't lose when the
market goes down and that's the peace of mind you want to have and it's actually average returns
in the seven to ten percent range. So, a low volatility index means that your returns
are going to be a little bit lower but the insurance company may credit you 125% up to 190%
participation and then you're able to really get a good rate of return even though you're in a low
volatility index strategy. So, in 2017 there were many many clients using a low volatility index
strategy where the participation rate allowed them in the year 2017 to lock in gains of 26%
and so again there are naysayers general financial planners who simply don't know what they
don't know and they go I've never seen a universal life policy performed like this. Well, then they've
been looking at the wrong ones. Because we have hundreds of statements a year where actual clients
lock in gains of 16%, 25% some years 26%, 61.33% and in another episode where I talk about multipliers
some have locked in gains over a hundred and fifty percent in one single year by using
multipliers. So, if this is intriguing you and you want to learn more
I would recommend you study this 300-page book this is my 11th book. I've been very blessed in my
career to have 11 bestsellers actually now 12 and this one has been flying off of our warehouse
shelves it's a 300-page book and it retails for 20 bucks. I want to gift you a copy for free to
claim your free copy you simply go to laser fund laserfund.com or you click on the link below.
You contribute a nominal amount towards the shipping and handling I'll cover the rest of that
expense and I'll pay for the book. There's options in there if you like to listen and learn or watch
and learn and there's also opportunities if you like to attend webinars and educational sessions.
Subscribe to this channel, okay. Click the bell so you'll be notified every time I post a
new educational video. But this is actually two books in one and there's 200 pages that contain
all the charts and graphs if you're a right brain learner you flip it over this is 100 pages with 62
actual client stories of how people have used maximum funded indexed universal life structured
properly funded correctly then it qualifies to be a laser fund for all kinds of goals
retirement, college funding for your kids, emergency funds, working capital for business, real estate
management. It's like a financial swiss army knife. So, begin learning engage and we would love to help
you I'd love to point you to the advisors that I trust to understand how to do this correctly.