Imagine you are earning a 5% rate of return on an investment where you contribute $1,000 a month over a thirty-year period of time. After you pay your 0.5% management fee you’ve lost 9.02% of your earnings even though you only paid 5.63% of your earnings towards the management fee. If your management fee was twice that much, 1% instead of 0.5%, you will have paid 10.48% of your earnings in fees but will have lost 17.12% of your earnings!
And speaking of fees, you could end up paying more in fees than you pay in taxes because you pay taxes only on your gains, while you pay fees on your entire portfolio. Fees, never forget, once they are paid, reduce the full effects of compound growth and that means you earn less and keep less.
Ignoring most financial advice and not having to pay the fee associated with that advice allows you not only to keep more of your profits but to generate more profits as well. Money that isn’t working for you is working for somebody else. But remember, it was your money before you allowed some advisor to come along and take if from you.
So, here’s some complimentary advice, that won’t cost you a dime, but can save you a fortune. Over “82% of large-cap fund managers, 87% of mid-cap managers and 88% of small-cap managers persistently fail to outperform their index benchmarks.”[i] And because managed funds are associated with higher fees than indexed funds, you can keep more of your money by avoiding the advice fund managers will charge you a fee for. Interestingly enough, higher fees are the primary reason managed funds underperform indexed funds.
Millions, however, still choose to actively manage their accounts instead of indexing them. One reason they take this risk is that they enjoy the gamble. As you know, gambling can become an addictive behavior and some people are addicted to paying others to manage their money in hopes of striking it rich. And for that reason, “money you place in actively traded accounts should be considered speculation”,[ii] not true money management.
Of course, you don’t have to pay anybody anything to manage your money if you do it right. You can experience nearly the same type of earnings that you would experience in a managed investment account by purchasing a well-funded participating whole life insurance policy. The key difference is that with the life insurance policy you have the added protection of specific guarantees. You have a guarantee that your money once earned, can’t be taken away from you in a market correction or recession. Additionally, you have the guarantee that should you die there will be a death benefit that your beneficiaries are guaranteed to receive, tax-free!
But the most overlooked aspect of participating whole life insurance is your living benefits. You actually get to manage the money that your policy earns over your lifetime. This allows you to take advantage of investment opportunities that you couldn’t afford to take advantage of if your money was being actively managed or even if your money was tied up in an index, EFTs, Bonds, Treasuries, or mutual funds elsewhere.
Most exciting of all though is, that the fees and the taxes that you would end up paying to others and losing for yourself by indexing or actively trading, are kept for you. This money continues to compound for you your entire lifetime even when you leverage your policy to take advantage of other opportunities along the way.
This is known as free cash flowing and it is free cash flow that allows people to generate great wealth without having to work harder or make more money. Sounds crazy but this is the fundamental difference between those who make it into the top 1% of wealthy people by earning more money and those who stay in the top 1% of wealthy people for their entire lifetime.
Free cash flowing is the phenomena that makes the velocity of money and the volume of interest work for you instead of against you. Managing your free cash flow can make you wealthier or poorer, depending on how you manage it. But before you can manage your free cash flow you need to create it. And that is where your participating whole life policy becomes the perfect financial tool.
Participating whole life insurance is a product that builds equity that you own and control. It is the only insurance product that builds equity, and therefore, it is the only safe product to use for taking control of your own money management. Once you establish the policy and build some equity, the rest becomes as simple or as complex as you desire.
The more complex you make it the more wealth you can generate. But even though you might design and follow a complex system of managing your money, you never have to worry that your system might become too complicated for you to manage because the same simple concept of free cash flow will remain the basis of your money management system. That is the best way for you to create more wealth while avoiding the advice and the fees associated with using fee for service money managers.