Читать книгу The Bank On Yourself Revolution - Pamela Yellen - Страница 10
ОглавлениеJust ’cause you’re following a well-marked trail doesn’t mean that whoever made it knew where they were goin’.
—TEXAS BIX BENDER
I JUST KEPT STARING at it:minus $62,734.06. That’s the “unrealized loss” we had in one of the mutual funds in our retirement account. It said so in the statement we’d just received.
A $62,734.06 unrealized loss!
I guess I thought I could stare that number down. After all, it was 2010, and we’d just had a nice run-up in the stock market. That particular mutual fund had one of the best long-term track records of any fund! And I’d already been waiting ten long years for my losses in that fund to recover. I kept staring, hoping that number would magically somehow turn positive. It didn’t.
INSIDE THIS CHAPTER …
• Paper Wealth Versus Real Wealth
• Thirteen Losing Years on Wall Street
• Why Investors Will Never Win
• What Has Wall Street Done to Our Retirement Plans?
• Where the Smart Money Goes
A $62,734 unrealized loss. Is that an oxymoron, like Great Depression, small fortune, accurate forecast, and quick reboot? There was nothing unrealized about it because I fully realized I had lost a whole bunch of money. And I definitely remember working my butt off to make that money.
I don’t know if unrealized loss qualifies as an oxymoron. But I do know it’s moronic that we keep pinning our hopes and plans for our financial security and retirement on investment strategies we can’t predict or control. Looking at the stock market’s ups and downs since 1997 makes a day on the roller coasters at Six Flags look tame.
At the time, my husband was sixty-one and theoretically four years away from retirement. Larry probably won’t retire at sixty-five because he says he’d get bored. But if we were relying only on the conventional financial planning wisdom, retirement wouldn’t even be an option for either of us.
At least Larry and I have options, thanks to our Bank On Yourself plans. That’s not the case for far too many people.
As I continued to review our retirement account statement, to my relief, another mutual fund showed an unrealized gain of $8,012.16. But I couldn’t get too excited, because I knew the word unrealized hides a bleak reality:
You don’t actually lock in a profit (or loss) until you sell an investment.
You don’t actually lock in a profit (or loss) until you sell an investment.
(Are you wondering why we still own any mutual funds at all? We hold on to them for one reason only: to prove that even if you buy and hold your investments and avoid acting emotionally, the stock market is still a crapshoot where the odds are stacked against you.)
The Federal Reserve’s widely publicized 2010 Survey of Consumer Finances showed that between 2007 and 2010, Americans’ wealth plunged by nearly 40 percent due to the collapse in home values and the stock market. It revealed that the net worth of U.S. families had been reduced to a level not seen since 1992. Yet there’s another side to this story that the report completely missed:
You can’t eat a number on paper.
You can’t eat a number on paper.
Paper Wealth Versus Real Wealth
Those glowing reports about how much Americans’ wealth had ballooned prior to the financial crash were pure fiction. Until you sell your assets and lock in your (hopefully) gains, you have nothing more than a bunch of eye-popping numbers on paper. Those numbers repeatedly sucker many of us into believing we have real wealth and financial security when we do not.
It’s true that during the bull markets we had some exceptional growth. Then, of course, we lost those gains when the market inevitably crashed. There’s a big difference between paper wealth and real wealth. During the go-go years of the dot-com bubble, Larry and I got into checking our retirement account almost every day because it was growing that fast. Yahoo! Some weeks we’d see such an enormous jump that we’d high-five each other shouting, “We’re rich! We’re rich!”
Didn’t we all feel like we were sitting real pretty again right before the financial crash of 2008? Then we discovered for the zillionth time that what goes up fast usually comes down fast, too. The stock and real estate markets did just that with a resounding thud. These collapses took the retirement security of millions of Americans with them. All our prosperity went unrealized.
We see the same principle in our home values: The rise in a home’s value is only an unrealized or paper gain—and it may vanish just when you really need the money. During the real estate boom years, we got some astonishing appraisals. We’d hear that a neighbor sold their home and get all excited: “Oh my gosh! Look how much money they sold their home for!” Our home value seemed to be jumping up every month. But soon we’d figure out that the high sales price of our neighbor’s home meant little to us. It was nothing more than a number on paper unless we were ready to sell our home and lock in our gains. But then we’d have to find another place to live. Uh-oh. The inflated profit we could get from the sale of our old home would end up disappearing in the inflated price we had to pay for the next one.
Paper wealth is really meaningless when it comes to having financial security and knowing the value of your retirement nest egg on the day you plan to tap into it. Real wealth and financial security come from having a strategy that guarantees steady, predictable growth—no matter what the economic climate is. That’s what Larry and I set out to find.
What’s Your Money IQ?
Q: If you have a $20 stock and it goes up by 40 percent, how much money did you make on that stock? (Hint: This is about a key financial principle, not a math question.)
A: Most people don’t get the answer, and the talking heads on Wall Street hope the truth never dawns on you: You don’t make any money unless you actually sell your stock and lock in your gains—assuming there are any gains to lock in. The same principle applies to the value of your home and any other investments.
The Wall Street Casino
We’ve been told again and again that to get our money to “work” for us, to build a comfortable retirement and get a rate of return that will outpace inflation, we must invest in the stock market and be willing to accept its inherent risks. How many times have you heard that the stock market is the best place to grow your nest egg?
I’m going to prove that this is a myth Wall Street has brainwashed us into believing! Wall Street grudgingly admits there are no guarantees that your investment account won’t lose some value in any given year. But let’s look beyond that seemingly benign statement to the heart-stopping reality:
• Many people saw their investment accounts plunge by 50 percent or more when the dot-com bubble burst. Many investors—myself included—had moved their money into NASDAQ technology stocks, which plunged 78 percent from March 10, 2000, to October 9, 2002. Today, the NASDAQ is still well below its 2000 high.
• Investors who were diversified beyond tech stocks didn’t fare much better. The S&P 500, which is a broader measure of the market, lost 49 percent in that same two-and-a-half-year period.
• After the S&P 500 peaked at 1565 in October 2007, it proceeded to lose 57 percent by March 2009. That’s two heart-stopping losses over 49 percent in one decade.
Then, as the market began to pick up steam in March 2009, Wall Street urged us to jump back into the market with both feet, and one of the biggest bull markets in history began. By the spring of 2013, they were boasting that both the S&P 500 and the Dow had hit new all-time highs.
So after all these crazy-making gyrations of the market, how have we actually done? The answer may shock you: As I write in mid-December 2015, in the nearly 16 years since the start of the century, the S&P 500 has had an overall return of less than 2% per year. Yikes!
To add insult to injury, inflation during that period averaged 2.3% per year, which means the real (inflation-adjusted) performance of the broad market remains negative after sixteen years. This doesn’t account for dividends, but it also assumes you have no fees, commissions, or taxes—not gonna happen!
YOUR RETIREMENT “PLAN” POWERED BY WALL STREET: 16-YEAR ANNUAL GROWTH RATE OF THE S&P 500 INDEX
Furthermore, most people we’ve surveyed believe there will be another major stock market crash in the next five to ten years—or even sooner. Maybe you’re in that camp, too. If you have most of your retirement savings in the stock market, how would another crash of 50% or more affect your retirement security?
How Long Does It Take the Stock Market to Recover?
Since 1929 we’ve had three market crashes where the Dow took between sixteen and twenty-five years to return to pre-crash levels.
After the stock market crashed in 1929, there was a six-month sucker rally, then the Dow continued tanking. Ultimately the Dow took three years to bottom out—dropping a staggering 89 percent! Then it took twenty-five years just to return to its pre-crash level.
Could something like that happen again? I don’t know and neither does anyone else, including all the talking heads on TV and in magazines and newspapers. That’s the problem. Too many of us have pinned our hopes for financial security on things we can’t predict or count on—and we never could and never will be able to.
So the big question to ask yourself is (in the immortal words of Dirty Harry): “Are ya feelin’ lucky?”
Can you imagine the impact on your own retirement plans and current lifestyle if you had to wait twenty-five years for the market to recover?
Can you imagine the impact on your own retirement plans and current lifestyle if you had to wait twenty-five years for the market to recover?
Here’s a revealing way to gauge your tolerance for market risk: What is the minimum acceptable annual return you’d want to get that would make you willing to stomach the nerve-wracking volatility of the stock market? 7 percent? 10 percent? Maybe even more? I’ve surveyed thousands of people, and almost everyone says they wouldn’t go through the agony if they got only 5 percent. But even if you only insisted on a 5 percent annual return, the Dow would have to be over 35,000 right now—today—to have given you that return, after adjusting for inflation. No, that’s not a typo. For proof, go to http://www.bankonyourself.com/why-you-need-dow-35000-today.html.
How long do you think it will take for the Dow to go to 35,000?
Investors Are Predictably Irrational
What will happen in the stock market isn’t predictable. But one thing is absolutely for sure and for certain: Investors are predictably irrational. We’re not talking smart or stupid, sophisticated or naïve. We’re talking across-the-board irrational.
So maybe you’re thinking you can handle the volatility of the market by just gritting your teeth and praying everything turns out all right as you roll the dice in the Wall Street Casino. Or maybe you think that at the first sign of trouble, you’ll be able to bail out of stocks and into bonds or money market funds to lock in your gains.
Unfortunately, that’s not what’s happening. History shows that most of us are far more successful at locking in our losses than our gains. Since 1994, DALBAR, Inc., the leading independent, unbiased investment performance rating firm, has studied the actual long-term results investors get in the market. In the 2015 Quantitative Analysis of Investor Behavior, they concluded:
• Over the last three decades, the average equity mutual fund investor has earned only 3.79 percent per year, or about one-third of the return of the S&P 500—beating inflation by only 1 percent per year. (Was that worth the roller-coaster ride and sleepless nights?)
• Investors in asset allocation funds (which spread your money among a variety of asset classes) earned only 1.76 percent per year, and fixed-income fund investors (like those in conservative bond funds) earned less than 1 percent per year for the past thirty years!
Shocking, isn’t it? But if you’ve noticed your investment accounts aren’t rising at the rate of the market, you recognize the truth of those numbers. How is it even possible for so many people to underperform the market indexes like that?
The verdict is in: DALBAR, Morningstar, and the behavioral finance experts confirm that the majority of investors consistently buy and sell at the wrong times. Sound irrational? Well, we’re human, and we humans make emotional decisions driven by fear (survival) and greed. But as financial writer Brett Arends warns us, “You can’t buy low and sell high if you buy high.” And that’s exactly what too many of us do.
The verdict is in: DALBAR, Morningstar, and the behavioral finance experts confirm that the majority of investors consistently buy and sell at the wrong times.
What’s Your Money IQ?
Q: What percentage of mutual funds, financial advisors, and investment advisory services underperform the overall market? And why?
A: 80 percent, according to the Hulbert Financial Digest. And it’s not just because of the fees they charge. It’s because all the experts are human, too, and are predictably irrational like all the rest of us, buying and selling at the wrong times.
In his book Predictably Irrational, behavioral economist Dan Ariely talks about how we human investors typically forget about our losses and mentally exaggerate our successes. (You gotta love the name of the institute Ariely co-founded: the Center for Advanced Hindsight.)
Are You the Dumb Money?
How many times have you sworn you’re done with the stock market forever? But then the market starts to rise. The Wall Street jocks tell you nonstop what you’re missing out on. Your friends talk about how much their investments are going up—and you jump back in because you can’t stand the pain of watching it rise day after day without you!
“In investing, the majority is always wrong.”
—Wall Street adage
I heard a well-respected investment analyst interviewed about why he believed the stock market rally still had legs in spite of the fact that it had recently nearly doubled. (By the way, students of history will tell you how rare it is for a market to continue rising after such an extraordinary rally—only a handful of bull markets in S&P 500 history have gained more than 100 percent.) He said, “People who missed out on the rally will jump in and propel the market higher.” Really? Have you heard that old saying, “If you’re sitting at a poker table and you can’t figure out who the sucker is, it’s you”?
The investing world has a specific technical term for that kind of investing: dumb money. When the dumb money is piling into the market, you know it’s about to reach a top. And when the dumb money is fleeing the market, a bottom isn’t very far away. Dumb money, which is a heck of a lot of investors, misses the mark on both sides.
What’s Your Money IQ?
Q: According to Morningstar, Inc., the top-performing mutual fund for the decade ending December 31, 2009, enjoyed an 18 percent annual return. However, the typical investor in that fund wasn’t so fortunate. What annual return did the typical investor get in that top-performing fund and why was their return so different?
A: The typical investor in the best-performing mutual fund of the last decade lost an average of 11 percent per year, every year for ten years, even though the fund’s prospectus boasted an 18 percent annual gain. That’s because mutual funds are legally required to advertise only the results of “buy-and-hold”investors. So when a fund advertises returns for any given period—in this case, a decade—it assumes investors bought the fund on the first day of the period and held it until the last day of the period—no matter how wild the ride got. Not gonna happen in real life. In fact, on average, investors hold mutual funds for less than five years.8
For more financial IQ quizzes, money tips, and straight-talking special reports, check out the free resources available at www.BankOnYourself.com
What Has Wall Street Done to Our Retirement Plans?
I’ll discuss retirement more thoroughly in Chapter 5. But according to a recent study by the Employee Benefit Research Institute, two-thirds of all workers say they’re behind schedule in saving for retirement and plan to continue working to support themselves.9 Even many of those who carefully did “all the right things” ended up with only sleepless nights and broken retirement dreams to show for it. Instead of achieving the financial peace of mind they hoped for, they’ve dug themselves into a financial hole so deep they may never be able to retire.
The stock market will continue on its endless roller-coaster ride, but you have only a limited amount of time to take control of your financial future. It seems that almost every week, a new Wall Street scandal gets exposed, doesn’t it? Insider trading, high-speed computerized trading that stacks the deck against you, corporations cooking the books, giving investors the shaft. And as soon as the government cracks down on one scheme, Wall Street invents a new, obscure way to separate us from our money that nobody can figure out until it’s too late.
Play the Tortoise and Hare Savings Race Game
Wall Street has conditioned us to believe that the only way to get inflation-beating returns is to risk your money in the market. To find out if that’s really true, we created a fascinating little game for you to play.
You can give the tortoise and the hare whatever amount of money you choose. The tortoise will put that money in a savings vehicle earning a steady 5 percent interest, year after year. The hare will put the money in an investment account earning a more exciting 8 percent return every year … except one. In the one year you select, the investment account will suffer a 30 percent loss.
I figure a one-time 30 percent loss is pretty realistic, when you consider the typical investor lost 49 percent or more in the market twice since 2000.
Which “loss year” will let the hare be ahead of the tortoise ten years from now? The first year? The tenth year? Or somewhere in between? Here’s a clue: If the 30 percent loss happens in the fifth year, the tortoise wins by more than 16 percent. But will the hare win if the loss is in the second or eighth year? You can choose different years and different starting amounts by going to www.BankOnYourself.com/race and playing the game yourself.
Is Your 401(k) on Life Support?
Government and industry statistics tell us that about 50 million Americans participate in employer-sponsored retirement plans. On the face of it, 401(k)s have it all—matching employer contributions, tax deferment, and professional administration and fund management. Workers are led to believe they can simply choose a fund, decide on a contribution amount, and then forget about it. Don’t give it a second thought. Just let the money grow over time.
Why wrestle with the time-consuming, risk-prone task of managing your own retirement financial planning when you can simply push the autopilot button and check back again in two or three decades to see how large your financial stockpile has grown? A Greek chorus of government regulators, Wall Street executives, financial planners, and media commentators regularly advises us that only professional retirement investment planners can hope to get the best long-term outcome for our nest egg.
Because Americans can’t possibly successfully grow their own retirement funds themselves, the government has instructed employers to offer their workers a variety of retirement plans, most commonly 401(k)s. And most of us assume that because the government gives its blessing to these plans, and employers offer them, they must be good for us, right? After all, they were “designed to make it easier for investors” to avoid the headaches and inherent risks of managing our own retirement accounts.
Easier? Yes. But wiser and less risky? Often not. The problem is that getting good returns depends on picking the right stocks, funds, or money managers. As we just learned, 80 percent of all mutual funds and 80 percent of all investment newsletters and advisors underperform the market over the long term.
But what wage earners don’t yet understand is that many of those personal retirement accounts we’ve been paying into will bleed tens, even hundreds of thousands of dollars in taxes, fees, and commissions—regardless of how the markets perform over the coming decades.
John Bogle, the founder of Vanguard, the world’s largest mutual fund company, has stated, “No mutual fund has yet reported on the returns that it actually earned for its investors.” Why? He explains, “Fund investors do not earn the full market return … because fund investors incur costs, and costs are subtracted directly from the gross returns funds earn.” Bogle also notes that during the 1990s bull market, “the 6.5 percent annual return earned by fund investors was 3.3 percent behind the 9.8 percent annual return reported by the funds themselves.”10 Wow! Investors received one-third less than what the funds advertised.
During the 1990s bull market, investors earned only a 6.5 percent annual return—one-third less than what the mutual funds advertised, according to John Bogle, founder of Vanguard.
And the 401(k) fee creep is hidden. Few people realize the compounded costs of high fees paid out over decades. These charges, paired with taxes and inflation, can all but consume a retiree’s capital appreciation.
Doesn’t it seem like the government ought to step in and fix this?
Well, it has—sort of. In 2006, Congress approved legislation to provide protection. But Congress didn’t protect you! Instead, Congress approved legislation that protects your employer and their 401(k) administrators, just in case you wake up one day and finally realize how much you have lost. The legislation says you can’t sue for damages as long as your employer automatically invests your 401(k) money in certain types of mutual funds!
As long as your employer automatically invests your 401(k) money in certain types of mutual funds, you can’t hold them liable for your losses, thanks to a law Congress passed in 2006.
Would it surprise you to learn that these “automatically invested” mutual funds impose some of the highest fees while underperforming the overall market (often significantly), and that the mutual fund industry heavily lobbied Congress to ensure their best interests won out? Didn’t think so. Just one more example of how the deck is stacked against you.
I’ll get into more detail on the problems of 401(k)s in Chapter 5.
CDs and Other “Safe” Investments
In recent years, the Federal Reserve Board threw seniors and savers under the bus by keeping interest rates at historic lows, and returns on CDs, savings, and money market accounts have been so low you need a magnifying glass to see them. Those who sought safety in these vehicles have a negative yield after taking inflation into account.
But you’ve got options. Throughout this book, I’ll show you a better alternative to traditional savings vehicles and unreliable conventional investments. And if you’ve had enough, you can join the hundreds of thousands who have already opted out of a system where the odds are stacked against you.
The “Home Sweet Home” Investment Plan
The stock market gives you no guarantees or predictability, and savings accounts and CDs typically don’t keep up with inflation. Are you ready to take a look at another bit of conventional financial wisdom that has been turned on its head?
We were taught we could count on the equity in our homes to be a major part of our retirement and wealth-building plan. Not long ago, home equity was the biggest chunk of most nest eggs. Many of us even made extra mortgage payments or refinanced into fifteen-year loans so we could have the security of knowing our homes would be paid off in full when we retired. Here’s a snapshot of how well the strategy of plowing money we could have put into our savings into our homes instead has worked out in recent years:
SOURCE: Standard & Poor’s Case-Shiller Home Price Index.
Starting in January 2002 to the peak of the housing market bubble in June 2006, home values skyrocketed by 71 percent. But by March 2012, they had plunged to a level barely 10 percent above where they were a decade earlier.
From January 2002 to January 2013, housing prices increased by less than a measly 2 percent per year. However, we had 30 percent inflation during that period, which more than wiped out any real gains in home values. And that ignores the pain and suffering experienced by millions of people who lost their homes or are underwater on their mortgages.
The bubble that burst in 2006 laid bare the fiction that housing prices only go up. Real estate is subject to the same volatility and unpredictability as any other investment. Even seasoned home buyers who regularly purchase properties to improve them and flip them for profit were caught short in this latest real estate crash.
Real estate investments can be part of a well-diversified financial plan. Real estate enjoys some tax advantages and has the potential for income and appreciation. But you have no way of predicting real estate values, whether residential or commercial. You also can’t predict how much rent you’ll be able to charge for your property, how long it will take to find a tenant, or what maintenance costs you’ll incur.
And the financial crisis and credit lockdown have made it painfully clear how little control you have over the equity in your home and other real estate. Home equity lines of credit were slashed or frozen without warning, and refinancing options dried up even for people with good credit.
Many people were unpleasantly surprised to discover how difficult it can be to sell your real estate to get at your equity. Much like trying to predict the stock market, you can’t guarantee the real estate market will be up when you’re ready (or need) to sell, and you have no way of knowing how long it will take to sell.
How an Experienced Real Estate Investor Got Caught Short
Eric Greene proudly bought his first home forty years ago when he was only twenty-three years old. Since then he’s bought and sold a dozen homes and investment properties, making a profit each time. As the owner of a successful retail business, he accumulated a nice nest egg by saving diligently and investing the money in the stock market. He planned to retire around age sixty-five.
Eric built his last dream house in 2004. As the value increased rapidly over the next few years, he refinanced several times, investing the cash in home improvements. He felt confident that this real estate investment, like all his others, would continue to increase in value. “Heck,” Eric says, “even the government and Congress told us real estate was just going to continue to rise.”
When the bubble burst in 2007, Eric found himself underwater on his mortgage by hundreds of thousands of dollars. And with the slowdown in his business, he could no longer afford to make the payments and make repairs to his home. After Eric negotiated fruitlessly with the bank for more than a year, his dream home was sold on the courthouse steps. His retirement account was totally decimated by the stock market crash. Now at age sixty-three, Eric is facing the unimaginable prospect of having to build a retirement fund from scratch. Fortunately, Eric found Bank On Yourself and says he now has the peace of mind of knowing the Bank On Yourself plan he started four years ago will give him the predictability and guarantees that were missing from his previous financial plan.
Even if a crash of the magnitude of 2007 proves to be a one-time disaster, is owning real estate a reliable wealth-building strategy? According to Robert Shiller, co-creator of the widely used Case-Shiller Home Price Index, periods of rapid increases have consistently been followed by declines. As a result, home values in the U.S. have outpaced inflation by only about 1 percent per year over the long term. That’s not even close to the growth rate you really need for your nest egg, is it? And the days of using a house as a piggy bank or an ATM are gone.
U.S. home values have only outpaced inflation by about 1 percent per year over the long term.
In the April 13, 2013, article, “Why Home Prices Change (or Don’t)” in the New York Times, Shiller wrote, “Booms are typically followed by busts, usually in far less than ten years. In a decade, an entire housing boom, if there is one in inflation-corrected terms, is likely to have been reversed and completely washed away.” As a 2011 opinion piece titled “The Housing Illusion” in the Wall Street Journal noted, “A home’s main economic purpose is—or should be—shelter. During the mania of the last decade, housing too often became an investment out of proportion to any sensible contributions to national wealth and well-being.”
How Precious Are Metals?
Now let’s take a look at the promise of gold and other precious metals. I’ve found most people who are buying gold today have no clue about the volatile history of that metal. And as the saying goes, those who forget or are ignorant of the past are condemned to repeat it.
A picture is worth a thousand words:
INFLATION-ADJUSTED PRICE OF GOLD
An ounce of gold would have had to be worth more than $2,000 in December 2015 to have same purchasing power it had in 1980.
In September 2011, gold hit a record high of $1,920 per ounce. Anyone who bought gold at its low of $608 in 2007 and sold it at or near its high enjoyed a most impressive gain. What I haven’t been able to find are any flesh-and-blood individual investors who timed their gold purchases to actually cash in on these theoretical returns. I’m sure some such lucky souls did make a killing. They are, however, far more rare than the precious metal itself.
By June 2013, gold had plunged by 38 percent. On April 15 alone, gold fell a whopping $115 per ounce—it’s like bungee jumping without the bungee cord!
On an inflation-adjusted basis, the price of gold would have to be about $2,003 per ounce today to have the same purchasing power it did thirty-five years ago. In spite of gold’s recent meteoric rise, that’s around $930 per ounce more than gold’s price in December 2015.
For those of us who don’t have the Midas touch when it comes to investment timing, gold remains a leaden financial vessel.
In Common Sense on Mutual Funds, John Bogle points out that “Gold provides no internal rate of return. It provides none of the intrinsic value that’s created for stocks by earnings growth and dividend yields, and none of the value provided for bonds by interest payments. For the more than two centuries between 1802 and 2008, an initial investment of $10,000 [in gold] grew to barely $26,000 in real returns.”
Gold pays no dividends and generates no income, so your only way to profit from a gold investment is to actually sell it for a higher price than you paid for it. Until you do sell, your paper profits do you little good, since you can’t take that pretty number on paper to the grocery store.
And what about taxes? Most people don’t realize that you will pay one of the highest federal tax rates on any profits you might make with gold whether you’ve got gold coins or bars or an exchange-traded fund that invests in gold bullion. That’s because precious metals are considered a collectible, which is taxed at nearly double the rate of stocks and real estate capital gains.
What About Silver?
Like gold, silver gains popularity during times of economic and stock market volatility. However, the returns on silver are among the lowest of all commodities, compared to the long-term risk. Through the end of 2015, silver lost an incredible 69 percent of its value since its high in April 2011. That’s a big decline for a so-called safe asset, and it’s a reminder of the dangers of commodities.
In sum, gold and silver provide zero certainty, especially for individual investors hoping to shield their savings from volatility and risk. History has proven that chasing rising gold prices is a fool’s errand. Folks rush to metals when times are tough as a predictable savings vehicle, yet gold is one of the most volatile investments of all. To really build your nest egg safely, you need a strategy that allows you to chart exactly how much your money will appreciate year after year, no matter what. That’s truly the gold standard of building wealth.
Pundits Tell Us Not to Worry
From articles and columns in the Wall Street Journal and Financial Times to the madcap commentary and analyses of CNBC’s Jim Cramer, talking heads and financial “gurus” keep spouting the same old platitudes to reassure investors—despite all evidence to the contrary. Consider these widely accepted beliefs about personal finance:
1. Over time, the stock market has consistently proven the best and most reliable investment vehicle for the vast majority of Americans. (Not.)
2. You won’t require as much income when you retire as you do while working.
(Hey, old age isn’t a prison sentence! After working and sacrificing for most of your adult life, retirement should be a reward. With proper planning, the vast majority of people can live wealthy lives in their golden years.)
3. You’ll retire in a lower tax bracket. (Does anybody believe tax rates are going to go down over the long term?)
4. No worthwhile investment is free of volatility and uncertainty. (Keep reading!)
I can personally attest that many hundreds of thousands of people—folks just like you and me—have beaten the system by shunning uncertainty and volatility in exchange for guaranteed annual growth of their financial portfolio. These savvy savers have never had a losing year or even a single losing day.
Yet the financial gurus—whose advice got us into this mess in the first place!—are telling us to “take more risk,” “keep working until you drop,” and “plan on living on a lot less in retirement.”
To which I say, “Phooey!” Join the Bank On Yourself Revolution, and see that disastrous conventional wisdom turned on its head!
Where the Smart Money Goes
Many people have bought into Wall Street’s mantra that “investing pays off over the long haul” and try to just shrug off their losses. Wall Street has been very successful in brainwashing us into accepting the dubious insight that the market will experience ups and some downs, “but if you just hang in there, it’ll all work out in the end.” Really? Hey, I’m sixty now, and I no longer have decades to wait around for my investments to recover!
The chart on the next page shows the growth pattern of one of my Bank On Yourself–type policies. It displays the growth I’ve had so far, along with the growth I’ll have if I continue paying the level premium and the dividends stay where they are today. Right now dividends, like interest rates, are at historic lows. If they increase, the growth will be even greater.
(Keep in mind that no two plans are alike, so your plan won’t look like mine. Yours would be custom-tailored to your unique situation and your short-term and long-term goals. But unlike traditional investing and saving strategies, you can actually know the bottomline guaranteed amount you’ll have in your plan at every point along the way, before you decide if you want to move forward with Bank On Yourself. To find out what your numbers and results could be if you added Bank On Yourself to your financial plan, request a free Analysis at www.BankOnYourselfFreeAnalysis.com or by completing and submitting the form on page 265.)
If you want a growth curve that just keeps increasing at a steeper pace—no luck, skill, or guesswork required—take a look at Bank On Yourself. That’s how these policies are engineered to grow.
GROWTH CHART
Growth Pattern of Cash Value Over Thirty Years, in One of My Properly Structured Dividend-Paying Policies
And that’s why Larry and I have built our financial foundation on Bank On Yourself. After researching over 450 financial products and strategies, I found only one that allows people to bypass Wall Street, fire their bankers, and take back control of their own financial futures. In the next chapter we will look at exactly what Bank On Yourself is and how it works. That’s your first step toward joining the Revolution and growing your wealth safely and predictably.
On the other hand, if you still believe that Wall Street holds the key to your financial security and that the economic challenges that have caused the volatility in the markets are over, keep doing what you’ve been doing. Cross your fingers and hope that, against all odds, it will still work out.
But ask yourself: “Will continuing to invest the same way I’ve been investing get me the financial peace of mind I want?”
Once you’ve made the decision to stop wandering down the same blind alley, you need to take action. You need to take the proper steps and use the financial vehicles that will give you a solid financial foundation and ensure you never again suffer a “lost decade”—or even another lost year.
KEY TAKE-AWAYS
1. You can’t count on paper profits. We’ve been seduced into believing we have real wealth by eye-popping numbers on pieces of paper. Whether that’s your brokerage account or 401(k) statement, a home appraisal, or the price today of an ounce of gold, those numbers are meaningless unless you sell the asset and (hopefully) lock in a gain. That’s called market timing, and most people and experts fail miserably at it.
Bank On Yourself–type policies are different. The numbers on your annual statement represent real wealth that doesn’t disappear when the markets crash.
2. What the stock market gives, it takes away. The wild swings we’ve witnessed in this age of electronic trading prove that Wall Street is not the smart choice for the twenty-first century. Your bets are not going to regularly beat the market. In fact, the only thing Wall Street guarantees is that they, the money managers and brokers, get paid, whether you win or lose. Can you really afford to risk your financial nest egg? Would you plunk it all down in Vegas? If you might need that money in the next twenty years for any purpose, you can’t afford to entrust it to the Wall Street Casino either.
3. Nothing in life is free. When you entrust your nest egg to financial professionals, the fees you pay for their services are compounded year after year and can take an enormous bite out of your savings. But with Bank On Yourself, all of the fees and costs have already been taken into account in the bottom-line results you are guaranteed before you even begin your plan. There are no nasty surprises.
4. CDs, savings, and money market accounts have trouble just beating inflation. Being conservative by keeping your money in cash keeps you at the mercy of a bank, and banks are not in the habit of being generous.
5. The sobering lesson of the Great Recession is that real estate prices do not only go up. Over the long term, home values have appreciated by only 1 percent more than inflation. Live in your home, enjoy your home, but don’t expect to cash out big when you sell it.
6. There is no pot of gold at the end of the rainbow. With their wild price gyrations and high tax rates, you’d have to have a magical Midas touch to get your pots of gold and silver to really pan out.
7. Bank On Yourself has important advantages not offered by traditional investments. Your money will grow predictably. It doesn’t go backward or suffer a lost decade, and you will know right from the start the guaranteed amount it will grow every year. You can go to sleep at night confident that, on the day you need it, your money will be waiting for you.
