This is the perfect birthday present for a young person. Because of the power of compound interest, you can start your loved one on the path to financial freedom that they will remember for a lifetime.
You can start small or large. You can establish an account for any person of any age. Even if they have not been born yet, you can lay the foundation for a better life.
The nice part is that you can do it easily and quickly.
You can start with as little as $100 by bank draft.
Fill out the application (download http://www.tiaa-cref.org/pdf/forms/mf-app.pdf) and send it to TIAA-CREF.org, one of the most secure pension providers.
Depending on the age of the recipient, you can be the owner with them and leave them the money as a transfer or they can be the owner from the start. If they have earned income, the ROTH IRA will add another 25% tax-FREE earnings to their retirement nest.
The point is to get them started with an equity index mutual fund early. Since this fund does not trade stocks, the tax bite is minimal. TIME creates wealth, not fast trading. As Warren Buffett, one of the world’s best investors, said,
“We continue to make more money when snoring than when active.”
berkshirehathaway.com
Look at what your gift can provide in the future because of compounding:
$100 is worth $10,000 later. $1,000 gets $100,000 and $10,000 gets $1,000,000.
If you start your gift early, providing $100 a month for 8 years before age 26, the child can have $36,000 at 30, $100,000 at 40, and $1 million at age 65. (http://www.saferchild.org/power.htm)
You can use this gift to help them go to college, start their life, buy a home, start a business, or just have as a basis for financial security later in life. You can structure it the way you want. When you or they take money out, the tax can be as low as 5% depending on the owner’s income level and type of account. See our FREE Guide: http://www.theinsidersguides.com/freeguide.html
They can use it later in life as a reserve to help them through a crisis or just to remember you as they spend it. Ether way, this reserve could provide wealth for life. What a perfect birthday present.
Wednesday, December 12, 2007
Tuesday, November 20, 2007
Every $100 you invest becomes $10,000 to spend later
Yes, it's true.
Children need to know early that there are ways to grow savings to be able to afford what they want. If they knew $100 invested will grow to $10,000 later, they will see why it is worth investing. Right now, saving $100 in a bank account paying 1.2% does NOT offer much attraction.
Here is how $100 becomes $10,000. In year 1, your investment of $100 in a tax-FREE account like a stock mutual fund Roth IRA may not grow to $113. Don't sell the shares. They will go up. In the year 5—$182, year 10—$330, year 20—$1,089, year 30—$3,595, year 39—$10,529.
Children know someone owns their favorite store--ToysRUs, Sports Authority, or Walmart. Now they own part of the store. They make money when other people buy from their store. This is how they can understand how they earn money. At night, there are children all over the world buying at their store. It works during the day too. Every time someone buys, they earn a penny.
“We continue to make more money when snoring than when active.”
Warren Buffett, one of the world’s best investors berkshirehathaway.com
The growth of the $100 to $10,000 over time by itself is a “miracle” that can inspire even adults. In fact, if we updated this phenomenon at every age, teens might want to calculate how fast they could save enough for a car or game console. Teens could figure out in math class with an Internet future value calculator that by investing $100 a month from their jobs, they could have $1,200 in 1 year or $4,000 in 3 years. As they start their first job, young adults could have $25,000 in 5 years to buy whatever they need and pay off their student loans. Most don’t.
Of course their parents have to cooperate by not short-circuiting this lesson by buying the items for the kids. Teens need to understand where parents got the money to buy things. We aren’t teaching them where the money comes from. We aren’t teaching them about investing since Many of Us don’t wait till we have the money to buy things. We just use the “magic” of borrowing. They never learn how to problem-solve with money and they've never learned how to defer what they want.
How did we get here? There is now $915 billion in U.S. credit card debt. It all started when Bank of America launched the nation's first general-purpose credit card in 1958. It simply dropped 60,000 of them in a mass mailing to residents in Fresno, California. The bank hoped to attract customers with a new type of "revolving" credit line, which could be used for purchases everywhere and paid off over time. Every vet wanted a house, car, and fridge immediately to make up for the lost time of WW2.
Revolving credit accounts allow us to buy without thinking. Now, we don’t even think about whether we really need the item. We don’t consider the total cost either. Credit finance charges can KILL you slowly--like smoking. We are giving away our futures when we use credit. It works just like the “miracle” of compounding—only in reverse. We pay off our credit cards over 30 or 40 years because we can’t stop using them. Some will pay 5 times the price of the item over time.
For example: You will have to pay $161 per month for 10+ years to pay off your debt of $10,050 at 15%. You will spend at least $19,360 to pay off that $10,050. (If your rate is 25%, you will pay $25,080 for $10,050.) You pay almost double for that $10,050!
That’s not all—THE REAL COST IS MORE!
Think of it. If you did not have to use that $161 each month to pay the $10,050 in debts, you would be able to use the $161 per month to make money. You could have made about $37,036 in the 10 years using a stock mutual fund. So the REAL cost of that $10,050 debt is actually $56,396!! The lender gets the $19,360 (to pay the debt over time) and you gave up earning $37,036 from the $161 payment per month for 10 years. That is enough for a down payment on a house!
Most people buy things they don’t need on credit and pay the minimum at rates that hit 29% for some. So we give up our future: house down payment, education funding, business start up, or retirement funding. Unfortunately, many people never pay off the whole debt. It is $915 billion—most on the shoulders of debt addicts.
Mississippi proposes to do something to break the cycle of debt. Following the success of Child Trust in England, MS will create a $500 investment account for all children born in the state. The initial endowment of $500 would be provided by the state to each newborn, and total additional state-tax-deductible contributions of up to $2,000 per year could be made by family members, friends, churches, charities, and others. Child account holders could use the accounts for any purpose at age 18 - including a college education, home ownership, or investing in a small business.
Our members do the same using existing accounts. See our FREE Guide: theinsidersguides.com/freeguide.html
Children need to know early that there are ways to grow savings to be able to afford what they want. If they knew $100 invested will grow to $10,000 later, they will see why it is worth investing. Right now, saving $100 in a bank account paying 1.2% does NOT offer much attraction.
Here is how $100 becomes $10,000. In year 1, your investment of $100 in a tax-FREE account like a stock mutual fund Roth IRA may not grow to $113. Don't sell the shares. They will go up. In the year 5—$182, year 10—$330, year 20—$1,089, year 30—$3,595, year 39—$10,529.
Children know someone owns their favorite store--ToysRUs, Sports Authority, or Walmart. Now they own part of the store. They make money when other people buy from their store. This is how they can understand how they earn money. At night, there are children all over the world buying at their store. It works during the day too. Every time someone buys, they earn a penny.
“We continue to make more money when snoring than when active.”
Warren Buffett, one of the world’s best investors berkshirehathaway.com
The growth of the $100 to $10,000 over time by itself is a “miracle” that can inspire even adults. In fact, if we updated this phenomenon at every age, teens might want to calculate how fast they could save enough for a car or game console. Teens could figure out in math class with an Internet future value calculator that by investing $100 a month from their jobs, they could have $1,200 in 1 year or $4,000 in 3 years. As they start their first job, young adults could have $25,000 in 5 years to buy whatever they need and pay off their student loans. Most don’t.
Of course their parents have to cooperate by not short-circuiting this lesson by buying the items for the kids. Teens need to understand where parents got the money to buy things. We aren’t teaching them where the money comes from. We aren’t teaching them about investing since Many of Us don’t wait till we have the money to buy things. We just use the “magic” of borrowing. They never learn how to problem-solve with money and they've never learned how to defer what they want.
How did we get here? There is now $915 billion in U.S. credit card debt. It all started when Bank of America launched the nation's first general-purpose credit card in 1958. It simply dropped 60,000 of them in a mass mailing to residents in Fresno, California. The bank hoped to attract customers with a new type of "revolving" credit line, which could be used for purchases everywhere and paid off over time. Every vet wanted a house, car, and fridge immediately to make up for the lost time of WW2.
Revolving credit accounts allow us to buy without thinking. Now, we don’t even think about whether we really need the item. We don’t consider the total cost either. Credit finance charges can KILL you slowly--like smoking. We are giving away our futures when we use credit. It works just like the “miracle” of compounding—only in reverse. We pay off our credit cards over 30 or 40 years because we can’t stop using them. Some will pay 5 times the price of the item over time.
For example: You will have to pay $161 per month for 10+ years to pay off your debt of $10,050 at 15%. You will spend at least $19,360 to pay off that $10,050. (If your rate is 25%, you will pay $25,080 for $10,050.) You pay almost double for that $10,050!
That’s not all—THE REAL COST IS MORE!
Think of it. If you did not have to use that $161 each month to pay the $10,050 in debts, you would be able to use the $161 per month to make money. You could have made about $37,036 in the 10 years using a stock mutual fund. So the REAL cost of that $10,050 debt is actually $56,396!! The lender gets the $19,360 (to pay the debt over time) and you gave up earning $37,036 from the $161 payment per month for 10 years. That is enough for a down payment on a house!
Most people buy things they don’t need on credit and pay the minimum at rates that hit 29% for some. So we give up our future: house down payment, education funding, business start up, or retirement funding. Unfortunately, many people never pay off the whole debt. It is $915 billion—most on the shoulders of debt addicts.
Mississippi proposes to do something to break the cycle of debt. Following the success of Child Trust in England, MS will create a $500 investment account for all children born in the state. The initial endowment of $500 would be provided by the state to each newborn, and total additional state-tax-deductible contributions of up to $2,000 per year could be made by family members, friends, churches, charities, and others. Child account holders could use the accounts for any purpose at age 18 - including a college education, home ownership, or investing in a small business.
Our members do the same using existing accounts. See our FREE Guide: theinsidersguides.com/freeguide.html
Saturday, October 27, 2007
Buy security--NOT insurance for children
Many parents and grandparents want to help secure the future for their offspring. Life insurance is NOT the way to do it.
Since 1976, the best way to provide a financial basis for the next generation is a stock index mutual fund contribution. An index fund does not produce a large tax bill but assures your child of beating 88% of all similar funds over the long term. BusinessWeek 11/03. Start with $2000. The child can take over making contributions when they get a job. By age 30, they will have $100,000 (inflation-adjusted) and by age 66, $2 million—now that’s SECURITY. Here is the only financial plan they need: http://www.saferchild.org/power.htm
As you can see, your child will have even more cash available for life than any life insurance policy can provide. Childhood mortality is very rare today so children are more likely to run out of money than die. No matter what happens to social security or pension plans in the future, your child can take care of themselves. At age 67 they can spend inflation-adjusted $100,000 a year in retirement. It is all due to compounding market rates of return on contributions you made from birth.
How do you get this plan started? Use our FREE guide to set it up in 1 hour: http://www.theinsidersguides.com/freeguide.html. Children can start their own TAX-FREE Roth IRA as soon as they begin earning money—age 22 or earlier. Their part of this plan provides tax-free earnings so these amounts are more valuable than a pension plan which is taxable.
Depending on how and when you set up your part of their plan, they could have enough money for a down payment for their first home, for disability, for education funding or medical emergencies.
Investing is about TIME not about picking the right fund. This plan may earn 10% per year on average since it is based upon investing in stock market returns. Your $2,000 contributions, starting at birth, make it more likely that these estimates will be quite accurate. Even if you start late, investing $16,000 before your child hits age 20 will give them a running start to build the Wealth Reserve they will need in life not death.
Do it for them so they can learn how to become independent.
Since 1976, the best way to provide a financial basis for the next generation is a stock index mutual fund contribution. An index fund does not produce a large tax bill but assures your child of beating 88% of all similar funds over the long term. BusinessWeek 11/03. Start with $2000. The child can take over making contributions when they get a job. By age 30, they will have $100,000 (inflation-adjusted) and by age 66, $2 million—now that’s SECURITY. Here is the only financial plan they need: http://www.saferchild.org/power.htm
As you can see, your child will have even more cash available for life than any life insurance policy can provide. Childhood mortality is very rare today so children are more likely to run out of money than die. No matter what happens to social security or pension plans in the future, your child can take care of themselves. At age 67 they can spend inflation-adjusted $100,000 a year in retirement. It is all due to compounding market rates of return on contributions you made from birth.
How do you get this plan started? Use our FREE guide to set it up in 1 hour: http://www.theinsidersguides.com/freeguide.html. Children can start their own TAX-FREE Roth IRA as soon as they begin earning money—age 22 or earlier. Their part of this plan provides tax-free earnings so these amounts are more valuable than a pension plan which is taxable.
Depending on how and when you set up your part of their plan, they could have enough money for a down payment for their first home, for disability, for education funding or medical emergencies.
Investing is about TIME not about picking the right fund. This plan may earn 10% per year on average since it is based upon investing in stock market returns. Your $2,000 contributions, starting at birth, make it more likely that these estimates will be quite accurate. Even if you start late, investing $16,000 before your child hits age 20 will give them a running start to build the Wealth Reserve they will need in life not death.
Do it for them so they can learn how to become independent.
Tuesday, September 11, 2007
The nest egg you can’t outlive
In the 21st Century you are more likely to run out of money than die. Living the lifestyle you desire is the focus of most people who are looking forward not backward. As a former life insurance sales executive, I became sad at the number of lower or middle-income families who had been paying for a life insurance policy for many years. Despite the fact that many had not started to save for retirement by the age of 40 years, these folks continued to pay their premiums. Most have limited means to pay for their 20 to 30 year retirement but their funerals are taken care of, presumably.
Owning life insurance is not as important as having a nest egg that grows in retirement. This sounds wrong because the financial services industry repeats the same bad advice. Why? Because most insurance sellers don’t sell securities. Instead of providing what YOU need, the industry sells what they have to sell—life insurance and annuities.
Portfolio growth is the only way you can have a good chance of having enough cash to live on. Retirees wonder if they can guarantee a lifetime income by buying one “magic bullet.” An honest advisor would say THERE IS NO GUARANTEE. However, you can learn to oversee your own retirement spending strategy. One of our members with IRA accounts and no pension started withdrawing $7,000 a month from his $850,000 nest egg. His ‘eggs’ consist of 8 different Vanguard funds that have earned over 12% during the past 20 years. Two are international. For details, see our Retirement Spending Guide: http://www.theinsidersguides.com/retspe31.html
There is no guarantee but diversification improves your odds. His Vanguard choices are:
Name Return Since
500 Index 12.26 1976
International Growth 13.39 1981
Energy 15.31 1984
International Value 12.31 1983
Extended Market 12.50 1987
Windsor 12.61 1958
Health 19.03 1984
Windsor II 13.21 1985
This member believes that if he can earn at least 11% over time, he will have enough funds to last to age 100. His plan increases his income to $101,000 at age 80 to offset inflation. He receives social security and considers it his bond portfolio income. To see his plan, request “John’s retire spreadsheet”: retire@theinsidersguides.com.
This member believes that the global markets will fuel growth in the 21st Century. He thinks that India, China, Latin America will resemble the growth of America in the 19th Century and early 20th Century. Just as early Americans got some of their capital from the “old” world, so American investors will provide it to the “new” world. Therefore, he plans to own “emerging market” equities and control the impact of changes in the value of a dollar by changing his allocations. He thinks this will secure his family a favorable return long term. He also believes that the crucial sectors in the next 100 years will be Energy and Health. Finally, he thinks the trend to owning index mutual funds and ETFs will eventually reduce his costs to under 0.3%.
This member has maintained his ownership of Windsor and Windsor II because he believes active managers may still be able to succeed in maintaining above average returns. Active managers may be able to help him diversify his portfolio into areas he doesn’t know about in the future. He plans to maintain an active involvement in his asset allocation. He suspects there are patterns to the shifts of asset class leaders over time.
His plan calls for maintaining a year’s worth of income outside his equity portfolio of $850,000. If he finds his returns have surpassed his 11% annual target, he will transfer any excess out of the funds that accounted for the gains to his check-writing bond fund protected by a Roth IRA wrapper. He pays tax on the amount he converts if required. He pays no tax on the fixed income earnings.
Our member John has performed numerous tests on his portfolio’s probable future. He has used our Retirement Spending Guide to practice living in retirement. He begins in a year. His wife continues to work part-time which provides a generous health insurance plan. John will continue to keep us up to date on his progress.
Nothing is guaranteed but John believes his financial future lies in equities not fixed income as his old advisor used to say. Traditional advice of 60/40 stock/bond portfolios or annuities in retirement assumed that retirements would be short and low volatility was good. John has ridden out 3 market downdrafts in his later years and thinks there will be more in the next 30 years of retirement. (See Chart in FREE Guide @ http://www.2insider.com/). However, he does not think fixed income portfolios allow him to keep growing his nest egg. Growth is the only cure for longevity.
Owning life insurance is not as important as having a nest egg that grows in retirement. This sounds wrong because the financial services industry repeats the same bad advice. Why? Because most insurance sellers don’t sell securities. Instead of providing what YOU need, the industry sells what they have to sell—life insurance and annuities.
Portfolio growth is the only way you can have a good chance of having enough cash to live on. Retirees wonder if they can guarantee a lifetime income by buying one “magic bullet.” An honest advisor would say THERE IS NO GUARANTEE. However, you can learn to oversee your own retirement spending strategy. One of our members with IRA accounts and no pension started withdrawing $7,000 a month from his $850,000 nest egg. His ‘eggs’ consist of 8 different Vanguard funds that have earned over 12% during the past 20 years. Two are international. For details, see our Retirement Spending Guide: http://www.theinsidersguides.com/retspe31.html
There is no guarantee but diversification improves your odds. His Vanguard choices are:
Name Return Since
500 Index 12.26 1976
International Growth 13.39 1981
Energy 15.31 1984
International Value 12.31 1983
Extended Market 12.50 1987
Windsor 12.61 1958
Health 19.03 1984
Windsor II 13.21 1985
This member believes that if he can earn at least 11% over time, he will have enough funds to last to age 100. His plan increases his income to $101,000 at age 80 to offset inflation. He receives social security and considers it his bond portfolio income. To see his plan, request “John’s retire spreadsheet”: retire@theinsidersguides.com.
This member believes that the global markets will fuel growth in the 21st Century. He thinks that India, China, Latin America will resemble the growth of America in the 19th Century and early 20th Century. Just as early Americans got some of their capital from the “old” world, so American investors will provide it to the “new” world. Therefore, he plans to own “emerging market” equities and control the impact of changes in the value of a dollar by changing his allocations. He thinks this will secure his family a favorable return long term. He also believes that the crucial sectors in the next 100 years will be Energy and Health. Finally, he thinks the trend to owning index mutual funds and ETFs will eventually reduce his costs to under 0.3%.
This member has maintained his ownership of Windsor and Windsor II because he believes active managers may still be able to succeed in maintaining above average returns. Active managers may be able to help him diversify his portfolio into areas he doesn’t know about in the future. He plans to maintain an active involvement in his asset allocation. He suspects there are patterns to the shifts of asset class leaders over time.
His plan calls for maintaining a year’s worth of income outside his equity portfolio of $850,000. If he finds his returns have surpassed his 11% annual target, he will transfer any excess out of the funds that accounted for the gains to his check-writing bond fund protected by a Roth IRA wrapper. He pays tax on the amount he converts if required. He pays no tax on the fixed income earnings.
Our member John has performed numerous tests on his portfolio’s probable future. He has used our Retirement Spending Guide to practice living in retirement. He begins in a year. His wife continues to work part-time which provides a generous health insurance plan. John will continue to keep us up to date on his progress.
Nothing is guaranteed but John believes his financial future lies in equities not fixed income as his old advisor used to say. Traditional advice of 60/40 stock/bond portfolios or annuities in retirement assumed that retirements would be short and low volatility was good. John has ridden out 3 market downdrafts in his later years and thinks there will be more in the next 30 years of retirement. (See Chart in FREE Guide @ http://www.2insider.com/). However, he does not think fixed income portfolios allow him to keep growing his nest egg. Growth is the only cure for longevity.
Wednesday, September 5, 2007
Self-Insurance: The 21st Century Protection
The Rules Have Changed: I was forced to “self-insure” the cost of rebuilding my home.
A few years ago State Farm sent me a small notice that I now have “extended” not “full replacement” coverage on my home. I called to get my full replacement coverage back. The underwriter declined to cover the cost of rebuilding. State Farm’s decision to reduce its corporate risk was final despite my 20-year loyalty. It will not pay the cost of rebuilding my home if lost. So I raised my deductible and cut every extra the agent had added years ago. I am saving and investing $300 a year.
You too may be overpaying for “insurance” and other financial services you don’t need by about $3,000 a year. Most of those we help have found that they have overpaid for insurance and other services all their adult lives. They conclude that if they had invested the savings of $3,000 annually for 30 to 40 years, they would be millionaires by now.
How is this possible? In one sentence, we don’t know what we are buying and thus we can’t buy only what we need. Our society does not teach us to understand money and financial services. Thus we are prone to overpay for products a salesman has convinced us to buy.
For example, most “insurance” policies include items you can do without or are already paying for already. Your auto policy may have health care, towing, rental car, funeral and other extras. Your homeowners may have fire arms, tiara and contractor’s coverage. You can reduce your vehicle and homeowners’ premiums by 42% by buying only what you need and taking higher deductibles. Of course, you are not likely to know what you don’t need, unless the salesperson educates you. However, the commission is increased by the extras you don’t know you could drop.
A self-insurance fund or “Wealth Reserve” is a reserve you accumulate with the premium you don’t send to the insurer. You earn money on the money invested just like they do. When and if you have a claim or need a deductible, you take it from your Wealth Reserve, just like the insurer would. The difference is that savvy buyers don’t pay more than they need to for anything. Most businesses self-insure some of their risks.
Your self-insurance fund or Wealth Reserve can grow until you need it. The premiums and fees you save by buying smart can create a Wealth Reserve large enough to insure many risks with the same funds. You are not likely to face additional expenses all at once. In time, the compounding effect turns the accumulations into a Wealth Reserve that serves to pay for not only your deductibles but also temporary in-home care or confinement in a nursing home, if needed, or a family legacy and your funeral expenses. In short, you self-insure for the risks you can manage and insure the catastrophic risks you can’t afford. Your savings pay for the risks that are very unlikely to happen but could change your lifestyle.
Insurance was originally intended to transfer risks that could wipe out your financial future. The intent was not to replace sound financial practices. For instance, a legitimate insurance premium of $13 a month for $500,000 of life coverage represents a real transfer of risk of a catastrophe hitting your family. Your death would rob your family of the life you have made together.
However, paying $215 a month for the same coverage in a permanent policy because “it builds cash value” or “forced savings” makes no sense for a 31 year old. That excess premium of $202 per month could create a real Wealth Reserve of $1.3 million in 35 years. Adding all the premiums and fees you save from insurance, banking, brokerage, and other financial transactions you don’t need, can create a huge pile of money to serve as your “bank” when you need to buy major appliances and perhaps a second car. Many of our members have accumulated substantial Wealth Reserves which finance cars, vacations, college, and businesses.
Our members have shown that savings can come from almost every facet of their lives. Some members have found $100, $200 even $500 a month to invest in their Wealth Reserve. Over time, they have accumulated large Reserves which help them get them what they want for their families. http://www.theinsidersguides.com/selban21.html
Many members have seen the wisdom of self-insuring long term care needs instead of buying insurance. Two policies started at age 65 could cost over $120,000. Your family may never get to make a claim. You must keep paying premiums for ever, even when they go up as they did in 2000. Almost a THIRD of policyholders have let their coverage lapse. ConsumerReports.org reviewed 47 policies in 2003. They concluded that “for most people, long-term-care insurance is too risky and too expensive.” New treatments may not be covered. Insurers may fade. Family care at home is the norm. Almost half of nursing-home stays last three months or less and are paid by others. 2/3 of us will either never go to a nursing home or will spend less than three months in one. Life insurance riders are expensive and insufficient. Self-insuring is better for some.
Below is a copy of the worksheet for one member, the King family. They used our Insider’s Guide to Your Spending Plan to complete a financial strategy to meet their goals: http://www.theinsidersguides.com/spepla31.html
EasySheet Where Wealth Reserve contributions come from:
Monthly expense savings for King family: Your family:
Vehicle (2) insurance $ 56 $_________
Homeowners insurance $ 11 $_________
Permanent UL life insurance $ 167 $_________
Mutual fund fees $ 83 $_________
Mortgage insurance PMI $ 103 $_________
Accident insurance at work $ 33 $_________
Umbrella liability insurance $ -18 * $_________
Bank fees $ 10 $_________
Credit card finance charges $ 125 $_________
Other fees, commissions, charges $ 30 $_________
Total amount saved monthly $ 600 $_________
Saved annually $7,200 $__________
Projected Spending Plan for King family: Your family:
Ten year accumulation $139,403 $_________
College funds
Vacation home
Twenty year accumulation $599,489 $_________
Small business startup
Travel
Luxury vehicles
Thirty year accumulation $2,117,948 $_________
Retirement supplement
Foundation creation
Legacy
*Umbrella liability insurance was new expense King needed to spend. Accumulation estimates assume an investment in a market index fund with the same economic performance in the future as in the last 50 years.
A few years ago State Farm sent me a small notice that I now have “extended” not “full replacement” coverage on my home. I called to get my full replacement coverage back. The underwriter declined to cover the cost of rebuilding. State Farm’s decision to reduce its corporate risk was final despite my 20-year loyalty. It will not pay the cost of rebuilding my home if lost. So I raised my deductible and cut every extra the agent had added years ago. I am saving and investing $300 a year.
You too may be overpaying for “insurance” and other financial services you don’t need by about $3,000 a year. Most of those we help have found that they have overpaid for insurance and other services all their adult lives. They conclude that if they had invested the savings of $3,000 annually for 30 to 40 years, they would be millionaires by now.
How is this possible? In one sentence, we don’t know what we are buying and thus we can’t buy only what we need. Our society does not teach us to understand money and financial services. Thus we are prone to overpay for products a salesman has convinced us to buy.
For example, most “insurance” policies include items you can do without or are already paying for already. Your auto policy may have health care, towing, rental car, funeral and other extras. Your homeowners may have fire arms, tiara and contractor’s coverage. You can reduce your vehicle and homeowners’ premiums by 42% by buying only what you need and taking higher deductibles. Of course, you are not likely to know what you don’t need, unless the salesperson educates you. However, the commission is increased by the extras you don’t know you could drop.
A self-insurance fund or “Wealth Reserve” is a reserve you accumulate with the premium you don’t send to the insurer. You earn money on the money invested just like they do. When and if you have a claim or need a deductible, you take it from your Wealth Reserve, just like the insurer would. The difference is that savvy buyers don’t pay more than they need to for anything. Most businesses self-insure some of their risks.
Your self-insurance fund or Wealth Reserve can grow until you need it. The premiums and fees you save by buying smart can create a Wealth Reserve large enough to insure many risks with the same funds. You are not likely to face additional expenses all at once. In time, the compounding effect turns the accumulations into a Wealth Reserve that serves to pay for not only your deductibles but also temporary in-home care or confinement in a nursing home, if needed, or a family legacy and your funeral expenses. In short, you self-insure for the risks you can manage and insure the catastrophic risks you can’t afford. Your savings pay for the risks that are very unlikely to happen but could change your lifestyle.
Insurance was originally intended to transfer risks that could wipe out your financial future. The intent was not to replace sound financial practices. For instance, a legitimate insurance premium of $13 a month for $500,000 of life coverage represents a real transfer of risk of a catastrophe hitting your family. Your death would rob your family of the life you have made together.
However, paying $215 a month for the same coverage in a permanent policy because “it builds cash value” or “forced savings” makes no sense for a 31 year old. That excess premium of $202 per month could create a real Wealth Reserve of $1.3 million in 35 years. Adding all the premiums and fees you save from insurance, banking, brokerage, and other financial transactions you don’t need, can create a huge pile of money to serve as your “bank” when you need to buy major appliances and perhaps a second car. Many of our members have accumulated substantial Wealth Reserves which finance cars, vacations, college, and businesses.
Our members have shown that savings can come from almost every facet of their lives. Some members have found $100, $200 even $500 a month to invest in their Wealth Reserve. Over time, they have accumulated large Reserves which help them get them what they want for their families. http://www.theinsidersguides.com/selban21.html
Many members have seen the wisdom of self-insuring long term care needs instead of buying insurance. Two policies started at age 65 could cost over $120,000. Your family may never get to make a claim. You must keep paying premiums for ever, even when they go up as they did in 2000. Almost a THIRD of policyholders have let their coverage lapse. ConsumerReports.org reviewed 47 policies in 2003. They concluded that “for most people, long-term-care insurance is too risky and too expensive.” New treatments may not be covered. Insurers may fade. Family care at home is the norm. Almost half of nursing-home stays last three months or less and are paid by others. 2/3 of us will either never go to a nursing home or will spend less than three months in one. Life insurance riders are expensive and insufficient. Self-insuring is better for some.
Below is a copy of the worksheet for one member, the King family. They used our Insider’s Guide to Your Spending Plan to complete a financial strategy to meet their goals: http://www.theinsidersguides.com/spepla31.html
EasySheet Where Wealth Reserve contributions come from:
Monthly expense savings for King family: Your family:
Vehicle (2) insurance $ 56 $_________
Homeowners insurance $ 11 $_________
Permanent UL life insurance $ 167 $_________
Mutual fund fees $ 83 $_________
Mortgage insurance PMI $ 103 $_________
Accident insurance at work $ 33 $_________
Umbrella liability insurance $ -18 * $_________
Bank fees $ 10 $_________
Credit card finance charges $ 125 $_________
Other fees, commissions, charges $ 30 $_________
Total amount saved monthly $ 600 $_________
Saved annually $7,200 $__________
Projected Spending Plan for King family: Your family:
Ten year accumulation $139,403 $_________
College funds
Vacation home
Twenty year accumulation $599,489 $_________
Small business startup
Travel
Luxury vehicles
Thirty year accumulation $2,117,948 $_________
Retirement supplement
Foundation creation
Legacy
*Umbrella liability insurance was new expense King needed to spend. Accumulation estimates assume an investment in a market index fund with the same economic performance in the future as in the last 50 years.
Wednesday, August 29, 2007
Make Your Grandchild Wealthy With $1000
Make Your Grandchild Wealthy With $1000:
A Grandparent’s Guide to Making your Grandchild a Millionaire
In the decades ahead, as a result of mortality and inheritance, an estimated $20 trillion will be passed to the next generation.
How can we provide for our grandchildren in the best way?
1. We can provide a way for our grandchildren to grow into controlling money so they know how to benefit from it.
2. We want to avoid taxes for ourselves and them as much as possible.
The Best
Invest early and often. This is the most important advice every grandparent has for the younger generation. Those who are lucky or wise enough to follow this advice turn out to have a happier life by any measure. You may not be able to convince your loved ones of this common sense. Even some of our best schools now understand that this lesson needs to be taught to all, early, just like sex education. Speaking to individuals about their money is the last taboo our society has yet to confront. Unlike sex education, our culture has to make a commitment to make this education universal.
Until it does, you may be able to actually make this happen for your grandchildren as your legacy.
$1,000, invested at birth can be worth about $1,233,274 at age 65. $3,000 at birth can get them about $3,699,823. $5,000 can become about $6,166,372. That is worth about a $1,000,000 in today’s purchasing power.
How cool would it be if you made it possible for them to not have to worry about their retirement? Social Security? You don’t know what the future will bring. You DO know they have a lot of time before retirement. You have the ability to help them get a jump on things. They get a head start on their way to a comfortable life.
If you started them out early, they will have already seen the power of compounding by the time of their first job. Compounding can turn that $1,000 or $5,000 into their lifetime security fund. They can start their Roth IRA or company Roth IRA and know how to earn 12% on their money. Some mutual funds holding stocks have earned 12% historically. At their job, they can contribute $3,000 a year ($120,000) and have another $1million tax-FREE to assure them of long-term care if they need it.
One advisor said: “Obviously, starting early for grandchildren might make all the difference for the next generation. This might become a financial legacy that the present generation can give to the younger generation without leaving assets in a will. But for you and me, the hard fact is that it is TIME and not anything else that we can currently change, that makes compounding work. Look at what a single gift of $1,000 at birth can do for a child.”
Baby's Birth $1000
Age 10 $3,000
age20 $10,893
age 25 $19,788
age 30 $35,950
age 65 $2,347,857
“WOW! That is amazing. Even if they start investing later in life, they can’t make up the time by putting in a little more money, or following advice to ‘buy low, sell high’ or to ‘pick winners and let them ride’?”
Another way to look at this Gift of a Lifetime is that your $5,000 investment before age 5 could allow your grandchild to have what I call a “Wealth Reserve.” They would have a Wealth Reserve of about $50,000 by age 22. That would allow them to start a home, business or go to graduate school if they like. You have the peace of mind of knowing that you have provided the financial foundation for their entire life. If they don’t spend it right away, they can avoid interest expenses when they buy things on time and have enough to insure their retirement needs.
A Wealth Reserve can help your loved one “self-insure” their insurance needs. They can buy insurance and other financial services for less because they have a reserve that covers the high deductibles of insurance policies. They insure for the catastrophic risks like businesses do. They pay less in premiums and fees because they have the reserves to cover the smaller expenses.
In the past, parents and grandparents purchased small insurance policies on their loved ones in the mistaken belief that an insurance policy provides for their financial foundation or guarantee of their future insurability. Neither of these beliefs is true. Sometime in the past these solutions may have been useful to young poor families but not lately.
Child mortality was high when you grew up. Insurers came to collect pennies each week from your parents to pay for a $1,000 or $5,000 death benefit. These small policies provide little benefit when they might be used some 85 years later. I recently cashed mine in for a couple of hundred dollars. Even cremations cost more than the total death benefit today.
Today, almost any child will be insurable by the age they need to have life insurance to protect those who depend on them for financial security. There is no benefit to purchasing a policy at birth to maintain insurability, as some carriers contend. When your grandchild gets married and needs insurance to protect their family, they will need a lot more coverage than the best of the child policies. Also, many employers now provide life insurance, even if your grandchild has a medical condition that would require a higher premium for coverage. The employer’s group rate takes this into account since employees do not obtain full underwriting.
Wouldn’t it be better to provide a Wealth Reserve of about $36,000 at age 18 for your grandchild’s college expense? If they are not interested in college, the $50,000 at age 22 would help them start a business or buy a home or at age 65, provide a pre-paid retirement.
The best part: You don't have to be wealthy to act wealthy. Give $1000 today. We show you how to start.
Find more about The Gift of a Lifetime at
http://www.theinsidersguides.com/gigiofli.html
A Grandparent’s Guide to Making your Grandchild a Millionaire
In the decades ahead, as a result of mortality and inheritance, an estimated $20 trillion will be passed to the next generation.
How can we provide for our grandchildren in the best way?
1. We can provide a way for our grandchildren to grow into controlling money so they know how to benefit from it.
2. We want to avoid taxes for ourselves and them as much as possible.
The Best
Invest early and often. This is the most important advice every grandparent has for the younger generation. Those who are lucky or wise enough to follow this advice turn out to have a happier life by any measure. You may not be able to convince your loved ones of this common sense. Even some of our best schools now understand that this lesson needs to be taught to all, early, just like sex education. Speaking to individuals about their money is the last taboo our society has yet to confront. Unlike sex education, our culture has to make a commitment to make this education universal.
Until it does, you may be able to actually make this happen for your grandchildren as your legacy.
$1,000, invested at birth can be worth about $1,233,274 at age 65. $3,000 at birth can get them about $3,699,823. $5,000 can become about $6,166,372. That is worth about a $1,000,000 in today’s purchasing power.
How cool would it be if you made it possible for them to not have to worry about their retirement? Social Security? You don’t know what the future will bring. You DO know they have a lot of time before retirement. You have the ability to help them get a jump on things. They get a head start on their way to a comfortable life.
If you started them out early, they will have already seen the power of compounding by the time of their first job. Compounding can turn that $1,000 or $5,000 into their lifetime security fund. They can start their Roth IRA or company Roth IRA and know how to earn 12% on their money. Some mutual funds holding stocks have earned 12% historically. At their job, they can contribute $3,000 a year ($120,000) and have another $1million tax-FREE to assure them of long-term care if they need it.
One advisor said: “Obviously, starting early for grandchildren might make all the difference for the next generation. This might become a financial legacy that the present generation can give to the younger generation without leaving assets in a will. But for you and me, the hard fact is that it is TIME and not anything else that we can currently change, that makes compounding work. Look at what a single gift of $1,000 at birth can do for a child.”
Baby's Birth $1000
Age 10 $3,000
age20 $10,893
age 25 $19,788
age 30 $35,950
age 65 $2,347,857
“WOW! That is amazing. Even if they start investing later in life, they can’t make up the time by putting in a little more money, or following advice to ‘buy low, sell high’ or to ‘pick winners and let them ride’?”
Another way to look at this Gift of a Lifetime is that your $5,000 investment before age 5 could allow your grandchild to have what I call a “Wealth Reserve.” They would have a Wealth Reserve of about $50,000 by age 22. That would allow them to start a home, business or go to graduate school if they like. You have the peace of mind of knowing that you have provided the financial foundation for their entire life. If they don’t spend it right away, they can avoid interest expenses when they buy things on time and have enough to insure their retirement needs.
A Wealth Reserve can help your loved one “self-insure” their insurance needs. They can buy insurance and other financial services for less because they have a reserve that covers the high deductibles of insurance policies. They insure for the catastrophic risks like businesses do. They pay less in premiums and fees because they have the reserves to cover the smaller expenses.
In the past, parents and grandparents purchased small insurance policies on their loved ones in the mistaken belief that an insurance policy provides for their financial foundation or guarantee of their future insurability. Neither of these beliefs is true. Sometime in the past these solutions may have been useful to young poor families but not lately.
Child mortality was high when you grew up. Insurers came to collect pennies each week from your parents to pay for a $1,000 or $5,000 death benefit. These small policies provide little benefit when they might be used some 85 years later. I recently cashed mine in for a couple of hundred dollars. Even cremations cost more than the total death benefit today.
Today, almost any child will be insurable by the age they need to have life insurance to protect those who depend on them for financial security. There is no benefit to purchasing a policy at birth to maintain insurability, as some carriers contend. When your grandchild gets married and needs insurance to protect their family, they will need a lot more coverage than the best of the child policies. Also, many employers now provide life insurance, even if your grandchild has a medical condition that would require a higher premium for coverage. The employer’s group rate takes this into account since employees do not obtain full underwriting.
Wouldn’t it be better to provide a Wealth Reserve of about $36,000 at age 18 for your grandchild’s college expense? If they are not interested in college, the $50,000 at age 22 would help them start a business or buy a home or at age 65, provide a pre-paid retirement.
The best part: You don't have to be wealthy to act wealthy. Give $1000 today. We show you how to start.
Find more about The Gift of a Lifetime at
http://www.theinsidersguides.com/gigiofli.html
Friday, August 17, 2007
Why "saving" keeps us from becoming wealthy
The savings rate has fallen to almost zero and for good reason. It doesn't work.
One successful investor once said, “Nobody ever accumulated wealth just by saving.”
You build wealth by putting some of your money to work. Yes, you have to send your money out to get a job! And not just any job. You want your money to get a good job making good money. Without a good job, your money will make only enough to cover "working expenses" and inflation. The rate of inflation has been running about 3%. $1 in 1970 is worth 19 cents now.
Where can your money find a good job?
Bank: A bank is where most money works. It earns less than the expense of sending it to work and the cost of inflation which eats 3% to 4% a year. If your money earns 3% and it pays up to 0.8% in income tax, your money earns 2.2%. Inflation of 3% takes everything. You are paying others to employ your money, like sending it to prison!
Real estate rentals: There are many systems that claim they will make you rich as Trump. However, the hard part is finding and maintaining property for a profit. Tenants must be managed. Historically, real estate has returned about 5% over time. It is hard work. It is easier to invest in a real estate investment trust (REIT) and let professionals do it for you with less risk.
Bonds: You loan your money to other people and they pay you back. If your money earns 7%, you have to pay up to 2% in income tax so your money earns 5%. However, inflation of 3% takes away money’s buying power, so you are left with 2%. Tax on the real return of 4% is over 50% of the income. You pay half in tax. Not a very good job.
Stocks: You buy part ownership of many companies. If one does poorly one year, others do well. Your money earns dividends of from 2% to 4% and it also gets a bonus if the companies do well. If you keep expenses low (don’t switch from company to company) your money earns 10% on average. It pays income tax of up to 2% on the dividends and less than 0.5% on the bonus (capital gains). Inflation of 3% leaves your money earning 4.5%. However, this job is not a government job so you might make more or less some years. Over time this job pays the best. Not everyone understands that so this job requires patience like running a business—some quit the job when times are tough.
Over time, your money can make you wealthy. Investing 10% of your family income in a stock mutual fund may earn 10% on average for 10, 20 and 30 years. Investing can allow you to accomplish your financial goals. The miracle of compounding turns your $250 a month each into $1.1 million in 30 years. Check it yourself. You paid $180,000 for that $ 1.1 million. http://www.moneychimp.com/calculator/compound_interest_calculator.htm
To avoid income tax now, use your employer’s 401K or pension plan or make your own with an IRA. Put part of that 10% in a regular account for a home down payment, cars, college funds, vacations—whatever your short-term goals are. Your retirement fund will be full by the time you need it in 30 or 40 years.
If you begin early, your Wealth Reserve can grow large enough to use it as your own bank and help you insure yourself. You spend less on credit and loans. Thus more of your income goes to buying assets that grow by themselves. This is real security: http://www.saferchild.org/power.htm
Your Unbiased Advisor does not sell products. As Editor of The Insiders Guides, I have compiled the "tricks of the trade" of the financial services industry. You can use the Guide you need to buy only what you need and skip the extra commissions and fees that insiders never pay. You buy financial services "wholesale" and use the savings to become wealthy. Our members save up to $3,000 a year.
Our FREE Guide, The Insider’s Guide to Making Your Financial Future, provides the basic information our members use to grow wealth.
One successful investor once said, “Nobody ever accumulated wealth just by saving.”
You build wealth by putting some of your money to work. Yes, you have to send your money out to get a job! And not just any job. You want your money to get a good job making good money. Without a good job, your money will make only enough to cover "working expenses" and inflation. The rate of inflation has been running about 3%. $1 in 1970 is worth 19 cents now.
Where can your money find a good job?
Bank: A bank is where most money works. It earns less than the expense of sending it to work and the cost of inflation which eats 3% to 4% a year. If your money earns 3% and it pays up to 0.8% in income tax, your money earns 2.2%. Inflation of 3% takes everything. You are paying others to employ your money, like sending it to prison!
Real estate rentals: There are many systems that claim they will make you rich as Trump. However, the hard part is finding and maintaining property for a profit. Tenants must be managed. Historically, real estate has returned about 5% over time. It is hard work. It is easier to invest in a real estate investment trust (REIT) and let professionals do it for you with less risk.
Bonds: You loan your money to other people and they pay you back. If your money earns 7%, you have to pay up to 2% in income tax so your money earns 5%. However, inflation of 3% takes away money’s buying power, so you are left with 2%. Tax on the real return of 4% is over 50% of the income. You pay half in tax. Not a very good job.
Stocks: You buy part ownership of many companies. If one does poorly one year, others do well. Your money earns dividends of from 2% to 4% and it also gets a bonus if the companies do well. If you keep expenses low (don’t switch from company to company) your money earns 10% on average. It pays income tax of up to 2% on the dividends and less than 0.5% on the bonus (capital gains). Inflation of 3% leaves your money earning 4.5%. However, this job is not a government job so you might make more or less some years. Over time this job pays the best. Not everyone understands that so this job requires patience like running a business—some quit the job when times are tough.
Over time, your money can make you wealthy. Investing 10% of your family income in a stock mutual fund may earn 10% on average for 10, 20 and 30 years. Investing can allow you to accomplish your financial goals. The miracle of compounding turns your $250 a month each into $1.1 million in 30 years. Check it yourself. You paid $180,000 for that $ 1.1 million. http://www.moneychimp.com/calculator/compound_interest_calculator.htm
To avoid income tax now, use your employer’s 401K or pension plan or make your own with an IRA. Put part of that 10% in a regular account for a home down payment, cars, college funds, vacations—whatever your short-term goals are. Your retirement fund will be full by the time you need it in 30 or 40 years.
If you begin early, your Wealth Reserve can grow large enough to use it as your own bank and help you insure yourself. You spend less on credit and loans. Thus more of your income goes to buying assets that grow by themselves. This is real security: http://www.saferchild.org/power.htm
Your Unbiased Advisor does not sell products. As Editor of The Insiders Guides, I have compiled the "tricks of the trade" of the financial services industry. You can use the Guide you need to buy only what you need and skip the extra commissions and fees that insiders never pay. You buy financial services "wholesale" and use the savings to become wealthy. Our members save up to $3,000 a year.
Our FREE Guide, The Insider’s Guide to Making Your Financial Future, provides the basic information our members use to grow wealth.
Wednesday, August 15, 2007
12 things your agent/broker/banker/money-manager won’t tell you.
1. “We have FEES and COSTS for everything. Most are not necessary.” For instance, your life insurance policy is probably one with a higher premium than necessary. Compare the cost of $200,000 benefit for a 50 year old in good health--$356 versus $481 per year. Also, it does not cost $50 to buy 200 shares of IBM. You can buy them for $0. And why should your broker charge you $160 when your account is inactive? Why are you paying 50 cents to deposit a check? Banks should pay you to deposit checks. Is your 401k money manager really worth 1.54% of your assets each year? And looses money too? Your employer should buy a retirement plan that costs you $0.30% or less with no kickbacks.
2. “We offer products that are best for our firm, not for you. We don’t show you all the fees and commissions and financial kickbacks and perks we earn when we sell you our products. Our products are the “best” available because we sell them. We are the best in the industry because our marketing image says we are.” One pension plan provider charges 2.75% a year for their tax-deferred annuity. It has over 9 years of surrender charges so you can’t transfer your money if you change employers. It charges another $30 a year for ‘recordkeeping.’ Its mutual funds are among the poorest performers. One brokerage firm steered customers into their own funds because they have a higher broker payout. Your agent doesn’t sell SBLI, your broker doesn’t sell Vanguard, your banker does offer really free checking, and your money manager doesn’t price your funds at cost—0.1% or less.
3. “We will discuss your financial needs with half truths.” You are told you need $1,000,000 of life insurance but the policy type that your agent picks is the most expensive in the world. Even if you agree you need $1 million, you pay more for permanent, 30 year guarantee term or “return of premium” term than just term. You want a guaranteed income for the rest of your life but your broker doesn’t mention that the annuity payments loose half their value in 24 years. You want to save for college but your banker doesn’t mention that 529 plans are NOT taxed like the custodial account just opened for your child. You want to save for retirement but your broker put you in ‘hot’ funds.
4. “We don’t tell you about other alternatives. We don’t get paid to tell you there are less expensive alternative ways to solve your problems.” You can buy a FREE checking account from your credit union. The CDs pay more, the checking costs less and the loans are cheaper. You don’t need an ATM on every corner. You can defer taxation on your account earnings by buying and holding stocks or tax-managed funds. You can save on liability insurance by buying only what you need. Wealthy people buy “assets that grow by themselves” so they can self-insure and self-fund their needs. Consumer Reports reviewed 47 policies and concluded that “for most people, long-term-care insurance is too risky and too expensive.”
5. “We don’t explain how you can reach your goals in the least costly way.” Banks offer life insurance to cover your loan because you want to get the loan. They don’t explain that your existing term policy will cover the loan. Also, you can build a much larger retirement nest egg by investing in stock mutual funds costing .07% vs. 1.3%. Compounding magnifies the difference—20% more money over time. When new employees sign up for the retirement plan they are encouraged to pick the ‘safest’ option—treasury bonds. Stocks are more likely to grow in value over the long term.
6. “Our products must be ‘sold not bought. We use half-truths in order to contrive an ‘urgent financial need’ that you can solve only by buying our products.” One firm charged a 91-year-old “client” more than $35,000 for four trades over two years, at approximately $8,800 per trade. The largest annuity seller is accused of misleading policyholders regarding bonus payments promised on annuity products. Life insurance is not the foundation of every financial plan—you are more likely to run out of money than die in the 21st Century.
7. “We believe the hype of our industry: We give good financial advice that you can’t get anywhere else.” There are no classes in our high schools called Financial Health Class. You can’t easily find out the “tricks of the trade” used to sell you the products created to pay high fees to sellers. Young single people don’t need life insurance. They need to invest 10% of their income at an early age to become wealthy. Also if brokerage firms actually followed their own stock selection advice, they would have negative returns. The average return for the top 10 brokerage firms was minus 2.26% from 1997-2001! Most were negative (Investars). 88% of managed mutual funds earn less than the market.
8. “We are experts at figuring out what your “hot buttons” are and using them to get you to buy our products. We exploit the fact that everyone wants to buy the next Google stock or become a millionaire overnight buying and selling real estate or gold. We exploit the fact that seniors fear losing money and want to earn 10% on their money with a completely guaranteed investment.” Finding the next Google is like finding a dime in a football field on the first try. The average equity investor earned a paltry 2.57% annually; compared to inflation of 3.14% and the 12.22% the S & P 500 index earned annually, 1984-2002. You pay for guarantees by earning less and not keeping up with inflation. So even though you don’t lose money, inflation reduces money’s buying power. Putting your money into different investments reduces your chances of losing money and increases your chance of beating inflation.
9. “We don’t sell products from companies that don’t pay a commission—so you never obtain the least-cost product. We only sell products with commissions and fees and kickback incentives and “soft dollar” reimbursements.” When was the last time your broker offered the funds with the highest returns over a 20-year period? Vanguard Primecap--13.6% over 20 years--#1 in large company growth stock funds. Vanguard Health--17.4% over 20 years--#1 in Sector funds. Vanguard Energy--16.4% over 20 years--#2 in Sector funds. Did your agent call to tell you that life insurance rates are dropping so you should apply?
10. “We charge you fees whether we give good service, good rates, good returns, or good benefits.” One money manager charges 1.5% for the same exact fund that charges .07%. With $250,000 invested, you will give up about $700,000 (2,723,138 vs. 2,022,979 over 20 years of compounding at market rates). Only 12% of managers can beat their benchmarks over long periods of time. You don’t get a refund if your manager can’t beat the index. You can’t get a refund if your CD or annuity renews at a lower rate. You can’t get a refund if we mess up your trustee to trustee transfer. We don’t give you a “better” death benefit check for $200,000 when your loved one dies. Many banks hit customers for fees they didn’t know about.
11. “When things go wrong, we treat you like you’re the enemy.” All brokerage firms disallow you to sue for bad service—you must use their arbiter and settle for the decision. One firm has the worst call response service in the industry. Another company pressured outside engineers to prepare reports concluding that damage was caused by water rather than by wind. They just denied all of them in the same geographic area. Another insurer dropped coverage and stopped signing new policies in coastal areas of 9 states. Some long term care insurers aren’t paying claims.
12. “We don’t care if you have been a loyal customer. We buy and sell customer accounts anytime we can make more money from it.” In the last few years, hundreds of customers have had their accounts dumped on others. For instance, John Hancock’s president sold the company to Manulife [Canada], Fireman’s Fund was sold to Allianz [Germany], Household Finance went to HSBC [Hong Kong], and Sage Life went to Old Mutual [S. Africa]. Brown & Co and HarrisDirect went to E*Trade. Golden West Financial went to Wachovia. MBNA and Fleet Bank went to Bank of America. A complete list is available at http://www.theinsidersguides.com/whoowyoacno.html. More consolidation is expected: HSBC, Rydex, Gateway Investment, GAMCO Investors, Julius Baer Investment, UBS AG. Your accounts could be next. You can do it yourself and save.
"Investors should purchase stocks [financial services] like they purchase groceries—not like they purchase perfume…” Benjamin Graham
2. “We offer products that are best for our firm, not for you. We don’t show you all the fees and commissions and financial kickbacks and perks we earn when we sell you our products. Our products are the “best” available because we sell them. We are the best in the industry because our marketing image says we are.” One pension plan provider charges 2.75% a year for their tax-deferred annuity. It has over 9 years of surrender charges so you can’t transfer your money if you change employers. It charges another $30 a year for ‘recordkeeping.’ Its mutual funds are among the poorest performers. One brokerage firm steered customers into their own funds because they have a higher broker payout. Your agent doesn’t sell SBLI, your broker doesn’t sell Vanguard, your banker does offer really free checking, and your money manager doesn’t price your funds at cost—0.1% or less.
3. “We will discuss your financial needs with half truths.” You are told you need $1,000,000 of life insurance but the policy type that your agent picks is the most expensive in the world. Even if you agree you need $1 million, you pay more for permanent, 30 year guarantee term or “return of premium” term than just term. You want a guaranteed income for the rest of your life but your broker doesn’t mention that the annuity payments loose half their value in 24 years. You want to save for college but your banker doesn’t mention that 529 plans are NOT taxed like the custodial account just opened for your child. You want to save for retirement but your broker put you in ‘hot’ funds.
4. “We don’t tell you about other alternatives. We don’t get paid to tell you there are less expensive alternative ways to solve your problems.” You can buy a FREE checking account from your credit union. The CDs pay more, the checking costs less and the loans are cheaper. You don’t need an ATM on every corner. You can defer taxation on your account earnings by buying and holding stocks or tax-managed funds. You can save on liability insurance by buying only what you need. Wealthy people buy “assets that grow by themselves” so they can self-insure and self-fund their needs. Consumer Reports reviewed 47 policies and concluded that “for most people, long-term-care insurance is too risky and too expensive.”
5. “We don’t explain how you can reach your goals in the least costly way.” Banks offer life insurance to cover your loan because you want to get the loan. They don’t explain that your existing term policy will cover the loan. Also, you can build a much larger retirement nest egg by investing in stock mutual funds costing .07% vs. 1.3%. Compounding magnifies the difference—20% more money over time. When new employees sign up for the retirement plan they are encouraged to pick the ‘safest’ option—treasury bonds. Stocks are more likely to grow in value over the long term.
6. “Our products must be ‘sold not bought. We use half-truths in order to contrive an ‘urgent financial need’ that you can solve only by buying our products.” One firm charged a 91-year-old “client” more than $35,000 for four trades over two years, at approximately $8,800 per trade. The largest annuity seller is accused of misleading policyholders regarding bonus payments promised on annuity products. Life insurance is not the foundation of every financial plan—you are more likely to run out of money than die in the 21st Century.
7. “We believe the hype of our industry: We give good financial advice that you can’t get anywhere else.” There are no classes in our high schools called Financial Health Class. You can’t easily find out the “tricks of the trade” used to sell you the products created to pay high fees to sellers. Young single people don’t need life insurance. They need to invest 10% of their income at an early age to become wealthy. Also if brokerage firms actually followed their own stock selection advice, they would have negative returns. The average return for the top 10 brokerage firms was minus 2.26% from 1997-2001! Most were negative (Investars). 88% of managed mutual funds earn less than the market.
8. “We are experts at figuring out what your “hot buttons” are and using them to get you to buy our products. We exploit the fact that everyone wants to buy the next Google stock or become a millionaire overnight buying and selling real estate or gold. We exploit the fact that seniors fear losing money and want to earn 10% on their money with a completely guaranteed investment.” Finding the next Google is like finding a dime in a football field on the first try. The average equity investor earned a paltry 2.57% annually; compared to inflation of 3.14% and the 12.22% the S & P 500 index earned annually, 1984-2002. You pay for guarantees by earning less and not keeping up with inflation. So even though you don’t lose money, inflation reduces money’s buying power. Putting your money into different investments reduces your chances of losing money and increases your chance of beating inflation.
9. “We don’t sell products from companies that don’t pay a commission—so you never obtain the least-cost product. We only sell products with commissions and fees and kickback incentives and “soft dollar” reimbursements.” When was the last time your broker offered the funds with the highest returns over a 20-year period? Vanguard Primecap--13.6% over 20 years--#1 in large company growth stock funds. Vanguard Health--17.4% over 20 years--#1 in Sector funds. Vanguard Energy--16.4% over 20 years--#2 in Sector funds. Did your agent call to tell you that life insurance rates are dropping so you should apply?
10. “We charge you fees whether we give good service, good rates, good returns, or good benefits.” One money manager charges 1.5% for the same exact fund that charges .07%. With $250,000 invested, you will give up about $700,000 (2,723,138 vs. 2,022,979 over 20 years of compounding at market rates). Only 12% of managers can beat their benchmarks over long periods of time. You don’t get a refund if your manager can’t beat the index. You can’t get a refund if your CD or annuity renews at a lower rate. You can’t get a refund if we mess up your trustee to trustee transfer. We don’t give you a “better” death benefit check for $200,000 when your loved one dies. Many banks hit customers for fees they didn’t know about.
11. “When things go wrong, we treat you like you’re the enemy.” All brokerage firms disallow you to sue for bad service—you must use their arbiter and settle for the decision. One firm has the worst call response service in the industry. Another company pressured outside engineers to prepare reports concluding that damage was caused by water rather than by wind. They just denied all of them in the same geographic area. Another insurer dropped coverage and stopped signing new policies in coastal areas of 9 states. Some long term care insurers aren’t paying claims.
12. “We don’t care if you have been a loyal customer. We buy and sell customer accounts anytime we can make more money from it.” In the last few years, hundreds of customers have had their accounts dumped on others. For instance, John Hancock’s president sold the company to Manulife [Canada], Fireman’s Fund was sold to Allianz [Germany], Household Finance went to HSBC [Hong Kong], and Sage Life went to Old Mutual [S. Africa]. Brown & Co and HarrisDirect went to E*Trade. Golden West Financial went to Wachovia. MBNA and Fleet Bank went to Bank of America. A complete list is available at http://www.theinsidersguides.com/whoowyoacno.html. More consolidation is expected: HSBC, Rydex, Gateway Investment, GAMCO Investors, Julius Baer Investment, UBS AG. Your accounts could be next. You can do it yourself and save.
"Investors should purchase stocks [financial services] like they purchase groceries—not like they purchase perfume…” Benjamin Graham
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