What does the perfect investment look like? Many really don’t know. Today’s the day to find out. Let’s consider consider 3 things:
- What are the attributes of the “perfect investment”?
- What are the pros and cons of the popular investments and how they measure up to the attributes of the perfect investment?
- What is the “gold standard” of assets? The answer will surprise you!
What Are the Attributes of the “Perfect Investment”?
If you were designing the perfect investment, what would it look like? How would an engineer design it? Engineers are involved in the design, evaluation, development, testing, modification, inspection and maintaining of a wide range of structures and systems. Below is the list I believe an engineer and everyone would come up with.
High Rate of Return
The first thing most people say is that they want the market value of their investment to increase significantly over time. Not just a high gross rate of return but a high net (after fees and taxes) rate of return. Better yet, people want a high risk-adjusted rate of return – means getting the highest rate of return in consideration of the risk you must take in a particular investment.
Consistent Rate of Return
When pressed, most people will further explain that not only is it desirable to have a high rate of return on average, but that if we’re talking about the “perfect investment” we want that high rate of return to be consistent. In other words, if investment A and investment B both yielded (say) a 20% return per year over the course of ten years, people would prefer to hold the investment that was more predictable, year to year.
Conservative (Safe)
This is a logical extension of the desire for consistency. People want an investment that only goes up: Once it reaches a particular market value, it can’t go down from there.
Liquid
It’s one thing to know that your investment is “worth” a certain amount of money, but it’s another to be able to convert it into dollars should the need arise. A liquid asset can be sold for its market value to raise cash very quickly.
Guarantees
Some assets come with actual guarantees with 100+% reserves put out by reputable and strong institutions, so naturally the “perfect investment” would too.
Tax Benefits (Tax Free)
Ideally, our hypothetical investment would not significantly increase our tax liability. In a perfect world, we would enjoy all its other benefits without suffering any tax consequences—the investment gains would be tax free while alive or at death.
No Contribution Limits
The perfect investment will not have contribution limits.
No Market Volatility
Now that we’ve hit the major items, people often circle back to the rate of return considerations. It’s not just that they want this hypothetical investment to be dependable, but ideally it would not be tied to the performance of the stock market. This way, if and when, the individual’s other assets have a bad year, the “perfect investment” still has a predictable increase, which is all the more valuable in such a scenario.
Yields Income Besides Capital Gain
The perfect investment would provide a consistent cashflow over time, beyond its simple market appreciation in value.
Preferred Creditor Protection
It’s one thing to focus on the safety and guarantees propping up the market value of the asset we’re studying, but to make it even more desirable the owner would enjoy creditor protection. In other words, if the owner of our hypothetical investment got into trouble elsewhere, and owed outsiders more than he could pay them, these creditors would not be able to seize his “perfect investment.” (That’s part of what makes it perfect.)
Inflation Protection
This is similar to “no market volatility.” Just as the investor wouldn’t want this hypothetical asset to drop when the stock market crashes, on the other hand we want our perfect investment to increase in value to keep pace with price inflation.
Control
This is related to “liquidity”. For some strange reason, people are very familiar with giving away control of their money to strangers who promise them nothing but hope of profit. The government gatekeepers can change the rules of the game when they want without your approval. Under these rules their money is effectively in prison, perhaps for decades. The ideal investment would not give up control to strangers and gatekeepers, and have their money locked up behind onerous penalties for “early withdrawal.”
Transferable Easy & Fast
If desired, the owner should be able to easily transfer ownership of the perfect investment to someone else easily, and in an expedient manner.
Easy to Manage
There shouldn’t be a big “learning curve” to figure out how to make decisions with the perfect investment. Not only does the owner want to be in control, but that control shouldn’t come with headaches.
No Hidden Fees or Penalties
Many people have been burned enough times by institutional money management firms that promote impressive rates of return in their brochures, without making it clear how much of those returns are absorbed by the management fees. The perfect investment would be very transparent so that the owner would never be surprised by money taken off the top.
Low Fees
When there are fees those fees would be very low.
Reputable
People want their investment options to be legal, right? So, in addition to all the attributes we’ve described so far, it would also be ideal if our investment were reputable.
Private
The perfect investment, though reputable, would also be private from others. Your tax person wouldn’t be getting tax slips every year, explaining the performance of your investment and otherwise telling people about your business, during your living years, and when you have passed away.
Guaranteed Borrowing
Borrowing should be avoided because it can get you into a bad place. However, there are situations where borrowing makes sense IF the terms of the loan put you in control and not the lender. A perfect investment would allow you to borrow from it – for any reason – without a credit check – with no liens on your assets – with no personal guarantees – without withdrawing (cutting down the apple tree) and losing a lifetime of uninterrupted compound interest – and repay on their own terms.
Notice that “follow the crowd” is not one of the attributes of the perfect investment.
The Pros and Cons of Popular Asset Classes
Let’s use the above list of criteria in reference to popular types of assets first. Once you see the pros and cons of the other places where the gurus have no problem, it may dawn on you that the conventional wisdom regarding one asset is uninformed.
Stock market
This includes stocks, mutual funds and EFTs (Exchange Traded Funds).
Pros
- Enjoy a relatively high rate of return on average, over long periods of time
- Liquid
- Dividends – flow of income
Cons
- Volatile
- No downside protection
- Tax on growth
- If you want tax benefits, you’ll have to run your stock holdings through a tax-qualified plan such as a RRSP (registered retirement savings plan) where there a strict limits on maximum contributions and when you can access your money (if you want to avoid penalties).
- Fees to manage or sell
Bonds
Pros
- Safer than stocks – because bond holders are paid before stock holders
Cons
- Don’t appreciate in value as rapidly as stocks
- Bonds are poor assets during periods of unexpected and rapid price inflation
Real Estate
Pros
- Property values tend to rise over the long term as long as you can find tenants
Cons
- Property values do not always go up – Great Depression, real estate in 1980s, housing bubble burst in 2000s
- Lack of liquidity
- Invasive borrowing rules
- Fees to sell
Gold & Silver
Pros
- Safe haven
- Privacy, control, ease
Cons
- Volatile
- Does not generate income – must redeem (cut down the apple tree) to for liquidity
- Liquidity
- fees to buy and sell
Cash
This includes money market funds, bank deposits, GICs.
Pros
- Liquidity
- Safe
- Possible guarantees
Cons
- Bank deposits are an IOU – banks do collapse and because they’re designed to collapse require you to pay for CDIC (Canada Deposit Insurance Corporation) to protect your money
- None to minimal interest
Surprise!
- The first surprise is that these attributes come close to describing a specially designed high-yield dividend-paying life insurance policy.
- The second surprise is dividend-paying life insurance is not an investment. An investment value increases and decreases. Dividend-paying life insurance values only increase making it a “sound-money” savings vehicle.
Quick Compare
Below is a quick recap how each stack up. Some of the answers could be different depending on the circumstances. If you don’t agree don’t hesitate to contact me to discuss.
It should be very obvious a structural engineer would only approve one of these:
DIVIDEND-PAYING LIFE INSURANCE
Dividend-paying Life Insurance as the “Captain Kirk” of Assets
- Dividend-paying life insurance does very well on just about all the criteria listed earlier, and even when it’s weak, it’s not all that weak. “Captain Kirk” is from the classic TV show Star Trek. The Captain was one of the most well-rounded and consequently the one who would be best to deal with a generic crisis. Captain Kirk was pretty good at everything and had no serious deficiencies.
- Dividend-paying life insurance is the only asset that provides all the attributes of a perfect investment.
- Why would anyone invest in an asset that does not provide all the attributes of a perfect investment?
- Dividend-paying life insurance cash value long-term returns are virtually the same as long-term average annualized returns after fees and taxes. Proof is seen in an Ontario dentist client’s 33-year-old dividend-paying life insurance policy. Why is this?
- The stock market has a losing session an average of 120 days every year out of 260 trading days. Here are the 2023 results through the end of August. And, yes, the Perfect Investment is Dividend-Paying Life Insurance.
- Another reason is interrupted compound interest. Every losing stock market losing session interrupts compound interest. This hypothetical graph shows how the average 120 daily stock market losses every year interrupt compound interest – which hurts returns even though the average return is the same in each after 5 years.
- Dividend-paying (DP) life insurance is professionally managed just like mutual funds. In the case of DP life insurance its 30 to 40% blue-chip stock with the balanced quality fixed income. They have more years (175) of pension management and investing experience than do investment fund managers.
- Why do people continue to try to put a square peg (stock market) into a round hole (all the attributes of the perfect investment that dividend-paying life insurance provides)?
- Dividend-paying life insurance cash value has the best risk-adjusted return of all assets – by a long shot – significantly better than the risk-adjusted return for stocks. The stock market has 32 times more risk/volatility (as measured by standard deviation) than that of the risk of dividend-paying life insurance. For 32 times more risk an investor should expect returns much more from the stock market. This also shows the value of recovering loan interest via the Infinite Banking Concept®️ that you forfeit when you do business with the banks
- Why would anyone take 32 times more risk to get virtually the same long-term average annual return?
- Warren Buffett’s #1 Rule of Investing is “don’t lose money”. DP life insurance does not lose money – because DP life insurance companies are so confident in their investment managers and actuaries abilities they absorb any annual investment loses by absorbing them known as smoothing returns. This is built-in “downside protection” that stock market investments do not offer. This makes dividend-paying life insurance the world’s safest liquid accessible asset.
- Why would anyone accept stock market losses when you can avoid them?
- Since dividend-paying life insurance does not lose money that makes it a “sound money” asset. Sound money is money that is not prone to sudden appreciation or depreciation in purchasing power over the long term. Stocks therefore are not considered “sound money”.
- Why would anyone prefer “unsound money” to “sound money”?
- Dividend-paying life insurance is the foundation for the Infinite Banking Concept®️ (IBC®️). It is the only way you can recapture lost money. Lost money is loan interest you pay on loans and mortgages. It is also the opportunity cost lost when you redeem an asset – the value that money would have grown to had you not redeemed it. This lost money over a lifetime adds up to over $500,000. The authentic IBC is available only from an Authorized IBC®️ Practitioner®️. IBC®️ is a great “operating account” for having “working capital” to invest in opportunities like real estate without relying on 3rd party lenders.
- Why would anyone not want to recover lost money over their lifetime?
Gold Standard
Without any doubt, dividend-paying life insurance is truly the gold standard of a perfect investment. It should be a significant piece of your financial security plan – and it should be the first piece before considering stock market investing.
Dividend-paying life insurance is so all-encompassing that it is not too far-fetched to say that if you could only select one, no other strategy will ever be needed to get the desired financial results.
When I started in the financial planning industry 40 years ago, I offered people what they wanted – stock market investing opportunities. My research 37 years later shows you get virtually the same returns with dividend-paying life insurance with significantly less risk and all of the attributes everyone wants that stock market investing does not deliver.
For those who want stock market investing options we offer them and we do it quite well.
However, in my professional opinion, as a Certified Financial Planner (CFP), obligated to provide recommendations in the best interest of clients, knowing what I know about dividend-paying Whole Life insurance, it should without any doubt be part of everyone’s financial/investment portfolio.
Why are more people not using dividend-paying life insurance?
Below is a quick recap how each stack up. Some of the answers could be different depending on the circumstances. If you don’t agree don’t hesitate to contact me to discuss.
Here are a few reasons:
Financial institutions earn more money from investment funds than they do from Whole Life insurance. Therefore, they promote investment funds much more than insurance. As said above, the investment industry and those who support it have been able to successfully marketed that insurance is a bad place to put your money. As I’ve proven, that is simply not true. Teaching things right is not the same as teaching the right things or teaching right things right. The financial services industry by not educating people on dividend-paying life insurance is withholding teaching right things right.
The news media wants something to report on multiple times every hour. The stock market is perfect for the news media because it creates drama. The stock market has a losing session 46% of the time every year on average. News about dividend-paying life insurance new daily consecutive 43,000+ winning sessions is not as newsworthy as the drama of stock market losing sessions.
Paradigms and misinformation. It has been proven that people believe lies as if they are truths if they hear them often over a long period of time. If we were to replace the labels “stock market” and “Whole Life insurance” (and discard the lies we were told) with “option A” and “option B” and chose on the basis of the attributes of the perfect investment and their actual returns every person would select the option that was dividend-paying life insurance as the must-have piece of their financial security plan foundation! Another paradigm is age.
While older ages and health do increase the cost of insurance piece of dividend-paying life insurance, it is not a detriment to its cash value growth. Remember, this is an asset-play not an expense-play. Older people don’t stop buying real estate at older ages because the price goes up. For those not insurable they can insure a family or business member and still have access to the cash value.
Next Step
For those who are age 50-plus its time to acknowledge conventional financial planning, using the stock market as your primary means to save and grow your money, considering all the attributes, is far from the perfect investment that dividend-paying life insurance is. The good news is its not too late to start on the right path!
For those starting out the lesson is to learn from those ahead of you and not follow the same path. For those in-between, its not too late to start on the right path!
You can start on the right path by connecting with us now!
Read Lessons from History here: https://dofinancial.ca/lessons_from_history_whole_life_insurance/
The above includes excerpts from the book The CASE for IBC written by R. Nelson Nash, L. Carlos Lara, and Robert P. Murphy PhD. You can acquire the book here: https://thecaseforibc.com/“
