Personal Finance Blog for Retirement and Investment Advice

The Article Forbes Asked Pamela Yellen to Write – But Got Too Scared to Publish

Recently I was asked to write a full-length article for the Forbes website by one of their regular columnists.

The columnist, who I’ll call “Pat” to protect the guilty, had taken my Financial IQ Quiz and found it very insightful. So Pat asked me to answer ten questions in writing for publication in Pat’s column.

The questions indicated Pat knew full well that I have a contrarian take on Wall Street and that I’m an advocate for consumers and investors.

They included questions like…

  • “What are some of the scams in the mutual fund industry?”
  • “What’s the shocking truth about 401(k)s and IRAs?”
  • “How can investors protect themselves?”

So I painstakingly answered Pat’s questions, supporting each statement with highly credible, unimpeachable sources including Morningstar, the Securities and Exchange Commission, Government Accounting Office and the Department of Labor.

As requested, I made no mention of Bank On Yourself or the asset it is based on (super-charged dividend-paying whole life insurance).

About two days later, Pat thanked me for sending the Q&A, but declined to run it “because there’s just too much controversy” surrounding my work.

Pat even suggested I repurpose the content for my blog (a good case for “being careful what you wish for”…).

So below are my answers in full, which I think you’ll find very interesting. Some of these questions I’ve never addressed publicly before. (Check out question #5 about “what mutual funds do you recommend?”)

You Could Receive an Apple Watch or an Autographed Copy of My Latest Best-Selling Book – Just for Telling Us What You Think!

Yup! I really want to hear from you… AND I want you to read the answers I wrote, because it’s critical information you need to know to protect yourself and your hard-earned savings.

Apple Watch

Apple Watch

Fitbit Charge HR Wireless Activity Wristband

Fitbit Charge HR Wireless Activity Wristband

So just tell us in the “Speak Your Mind” box at the bottom of this post your thoughts on any or all of the following:

  • Which answer or fact is the most surprising to you and why?
  • Which answer or fact is the least surprising to you and why?
  • What do you think is the real reason Pat got too scared to publish this article on Forbes? (Pat is a staunch Wall Streeter who typically interviews portfolio and fund managers)

bank-on-yourself-revolutionWe’ll pick the most interesting, insightful or funny comments made on this blog by midnight, Sunday, August 2… and give seven posters their choice of a $25 dining gift certificate for a restaurant in your area, or a personally autographed copy of my latest best-selling book, The Bank On Yourself Revolution (a $25.95 value).

However, we’ll send the person who posts the most interesting comment their choice of an Apple Watch Sport (a $399.00 value) OR a Fitbit Charge HR activity and fitness wrist monitor (a $149.95 value).

NOTE: Comments are moderated and may take a few hours to up to two days to appear on the blog.

Here are the simple rules to participate:

  1. You must be a US resident over the age of 21.
  2. Your post must be made on this blog in the “Speak Your Mind” comments at the bottom of this blog no later than midnight on Sunday, August 2nd. You must include a valid email address to qualify.
  3. The top poster will be notified by Wednesday, August 5th and given a choice of an Apple Watch or a Fitbit Charge HR. We must hear back within two weeks about which you prefer along with a valid street address to send it to.
  4. The other 7 winners will be notified no later than Wednesday, August 5th and must respond within 14 days whether you wish to receive a dining gift certificate or an autographed copy of the book. A valid street address is required to receive a book.
  5. You may post more than one entry if you wish and there will be only one winner per household.
  6. Gifts will be awarded based on how interesting, insightful or funny the comments are, as determined by the Bank On Yourself team and comments others may make on your comments.
  7. The decisions of the Bank On Yourself team are final and, by participating, you agree to hold Bank On Yourself and its principles, employees and related companies harmless. Any posts deemed inappropriate by Bank On Yourself may be edited or deleted.
  8. The list of winners will be posted on this blog. All entries become the property of Bank On Yourself and by submitting an entry you give permission to Bank On Yourself to quote from or publish your comments.

Now Here’s the Q&A I Wrote for Forbes That They Got Too Scared to Publish…

1. What are some of the scams in the mutual fund industry?

For starters, mutual fund companies and the financial media love to tout and compare the results of funds over the past year, or past three or five years. And people make decisions about what funds to buy based on those performance records.

But the fact of the matter is that the only way to reduce or eliminate luck as a factor in performance results is by looking at track records of at least 15 years. Even a ten-year track record isn’t long enough, according to the well-respected Hulbert Financial Digest.

The second thing to be wary of is putting much faith into the performance reported in a mutual fund prospectus.

Case in point:

The top-performing mutual fund for the decade ending December 31, 2009, enjoyed an 18% annual return. However, the typical investor in that fund didn’t come anywhere close to getting an 18% annual return. In fact, they actually lost an average of 11% per year – every year – for ten years, according to Morningstar, Inc.

Wondering how that’s possible? It’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 that period and held it until the last day of the period – no matter how wild the ride got. But that rarely happens in real life. In fact, on average, investors hold mutual funds for less than five years.

2. What’s a secret that the mutual fund industry hopes people don’t ever find out?

The fees in far too many mutual funds are horrific wealth-killers. The fund industry hopes we all continue to believe that a fee of .5% or 1% a year is pretty insignificant.

The problem is that, in the case of mutual funds and retirement accounts like 401(k)s and IRAs, the fees are tacked on, and fees that compound against you can be devastating.

An annual fee of just 1% per year – and many people pay at least that inside their retirement accounts – will devour 28% of your savings over the next 35 years, assuming your returns average 7% per year, according to the Department of Labor.

People also assume that if you buy an Index Fund, the fees are going to be quite low, because it’s simply tracking an index and not being actively managed.

But I did an exposé in which I found that a very popular, widely held S&P 500 Index Fund will consume almost 23% of your money in fees over 30 years. And another S&P 500 Index Fund will siphon off more than 37% of your money over 30 years! If you had $1 million invested in this fund, that’s over $370,000 lost to fees! Someone’s getting wealthy, but it’s not the poor investor in those funds!

3. What percentage of mutual funds underperform their benchmarks?

Fully 80% of all mutual funds, portfolio managers and investment advisory services underperform their respective benchmarks, according to The Hulbert Financial Digest. And that’s not only because of the fees they charge. The experts are humans, too, and they’re predictably irrational like the rest of us, buying and selling at the wrong times.

4. If most actively managed mutual funds lag their benchmarks, why do they have the majority of investor assets?

As Mark Twain observed,

A lie can get half way around the world before the truth can even get its boots on.”

But with new money going into funds, that’s changing rapidly, as “passive investing is now the mainstream approach,” according to Morningstar (“Do Active Funds Have a Future?” by John Rekenthaler, August 6, 2014). 68% of net sales went into passive exchange-traded and mutual funds versus 32% that went into actively managed funds, during the previous 12 months.

5. What mutual funds do you recommend?

I’m an educator and consumer advocate, not a financial advisor, so I don’t make any specific fund recommendations.

What I can do, however, is suggest a simple three-step approach to investing that our research reveals will give you the best chance of success and also ensure you enjoy a financially stress-free future:

Step 1: Before you invest, build safe and liquid cash reserves equal to at least two years of household expenses, for those inevitable emergencies and opportunities that will arise. This safety net will provide you with priceless financial peace of mind.

Step 2: When you’re ready to invest, only invest money you can afford to wait at least 20 years to recover, not your rainy-day money. Why 20 years? Because since 1929, we’ve had three market crashes where the Dow took between 16 and 25 years to return to pre-crash levels.

Step 3: Invest in low-cost indexed mutual funds that are benchmarked to the broad stock market. And verify that their fees are truly low – look for funds with annual operating expenses of .25% or less.

6. What is the shocking truth about 401(k)s?

Even Ted Benna, who’s considered the “father” of the 401(k), admits he created a monster that’s out of control. Trying to turn the average participant into a skilled investor simply doesn’t work. That’s why these plans are more aptly called “hope and pray” plans.

Congress passed the Pension Protection Act of 2006 with provisions for eligible workers to be automatically enrolled in 401(k) plans, unless they explicitly chose to opt out. So, who do you think the “Pension Protection Act” was designed to protect? If you’re thinking the employees, you’re wrong. It was designed to protect employers from liability. When they follow the law and automatically put your money into “default” investments – typically target-date funds – you have no recourse if you lose your shirt.

Do you assume your 401(k) plan administrator picks good funds? Think again. A study from the Center for Retirement Research at Boston College found that plan administrators choose mutual funds that lag comparable indexes. Their choices were just marginally better than a monkey throwing darts.

Another shocking secret about 401(k) plans that most people discover the hard way is that once you put your money in one of these plans, you lose control of it. These plans have more strings attached to them than a puppet.

Ensnared in a web of strict rules and regulations

401(k) plans have more strings attached to them than a puppet

You’re subject to restrictions on what you can and cannot invest in, how much you can borrow and how you must pay it back, how long you must wait before you can access your money, when you must access it, and how much you must withdraw (and pay taxes on) at that time. Penalties for running afoul of these restrictions can be very costly. Imagine needing permission to use your own money!

And then there’s the promise of deferring your taxes. Most people aren’t aware that if tax rates stay the same, and other factors are equal, you’ll end up paying the same amount in taxes whether you defer your current taxes or you pay them now and invest what’s left.

However, what direction do you think tax rates are going over the long term? If you think they’re going up – as most people I talk to believe – and you’re successful in growing your nest-egg, you’re only going to end up paying higher taxes on a bigger number!

7. What’s a dirty secret about IRAs?

They have most of the same strings attached to them as a 401(k) and the same downsides I just described.

And a lot of people assume IRA fees are negligible, but hold on to your wallet, because a Government Accounting Office (GAO) study in 2013 blew the roof off that myth.

Have you ever left a job and rolled over your 401(k) into an IRA managed by the same firm? Undercover investigators hired by the GAO found that seven of the 30 largest 401(k) providers incorrectly stated there were no fees to open or maintain an IRA. And half of the ten largest firms incorrectly advertised free IRA’s on their websites.

The study found that at one of the largest IRA providers, the annual advisory fee is 1.5% of assets with balances up to $500,000 – which means you can kiss goodbye 40-50% of your account value to fees over time.

8. How can investors protect themselves?

The Securities and Exchange Commission found that “investors have a weak grasp of elementary financial concepts, and lack critical knowledge of ways to avoid investment fraud.” Education is the key.

Question everything and invest time to increase your financial IQ. Start by taking our Financial IQ Quiz to discover and increase your financial IQ. It takes less than ten minutes to do, and you’ll get the correct answers and clear explanations immediately. Just by taking the Quiz, you’ll be much more savvy about personal finance and investing than most people.

9. How should people save and invest for retirement?

Start by knowing the difference between saving and investing. To save means to put money in a vehicle that is safe, protected from loss, and has guaranteed growth. To invest means to put money in a financial vehicle or asset that has a certain amount of risk and no guarantees of growth.

Investing money that you’re saving for things like college or retirement – which is money you really can’t afford to lose – is a sure-fire path to financial insecurity and sleepless nights.

Wall Street has brainwashed us into believing we have to risk our money in order to achieve any significant growth. My research and investigation into over 450 different saving and investing products, strategies and vehicles over the past 25 years proves otherwise.

How to Add Predictability and Guarantees to Your Financial Plan

Find out how you can grow your nest-egg safely and predictably EVERY year – even when stocks and real estate tumble. The Bank On Yourself method has never had a losing year in more than 160 years! Request your FREE, no-obligation Analysis and find out how much your financial picture could improve.

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A 9.94% Annual Return Without Market Risk? [Video Proof]

What if I told you that it’s possible to get an annual return of nearly 10% – without the risk of stocks, real estate or other volatile investments?

Watch the Video above to see proof of the return of Bank On Yourself (then click on the icon in the lower right to enlarge)

I’m pretty sure you’d wonder what I’ve been smoking!

But I’m going to prove to you how the Bank On Yourself method has achieved that kind of return over the last half century.

To quickly recap, Bank On Yourself relies on a super-charged variation of an asset that has increased in value every single year for more than 160 years – dividend-paying whole life insurance. It’s never had a losing year – EVER. [Read more…]

Get all your questions about Bank On Yourself answered – Live Webinar

You’ve been reading about Bank On Yourself. You may have thought about trying the program. But you might have questions like…

  • “I don’t totally get how the concept works.”
  • “How can I be sure this is really legitimate?”
  • “Could this really work for me in my situation? How can I find out, without actually meeting with an Advisor or feeling obligated?”

That’s why I’d like to invite you to join me and three of the most experienced Bank On Yourself Authorized Advisors in the country (learn why only 200 Advisors have met the rigorous requirements) for a no-holds-barred online event where you can get all your questions answered anonymously.

Space on this online event is limited, so reserve your spot here now. [Read more…]

5 Financial Myths that Are Destroying Your Wealth

The problem isn’t so much what people don’t know, the problem is what people think they know that just ain’t so.”
— Will Rogers

Remember when you were absolutely certain about something that turned out to be false? Like Santa Claus or the Tooth Fairy. Or how about the witch that hides under your bed waiting to attack so you have to flip the light switch then spring into your bed before she gets you? (Okay, maybe that one’s just me.)

In honor of National Financial Literacy Month, let me just debunk a few “things you know that just ain’t so”:

1. You’ll come out ahead by deferring your taxes, and that’s one of the prime benefits of retirement plans such as 401(k)s and IRAs

[Read more…]

Why a Little Financial Information is Dangerous

Just cuz you’re following a well-marked trail doesn’t mean that whoever made it knew where they were goin’.”
— Texas Bix Bender

I respect people who are self-educated, and I respect people who continue to educate themselves about various topics, even after they’ve finished their degrees. As legendary basketball coach John Wooden used to say, “It’s what you learn after you know it all that really matters.”

That said, a little financial self-education can go a long way – toward completely destroying your financial future!

Why? Because when you cobble together your financial education with bits and pieces of advice you see on the internet, read in articles or hear on TV, you’re not really building a strong foundation of financial literacy. It’s like that old story of the 12 blind monks and the elephant. Each monk felt a different part of the elephant and used just that part to figure out what the whole animal looked like!

So one blind monk tells you to pay off all your credit debt ASAP, while another tells you that you need to build up a rainy day fund. One insists that you max out your 401(k), while another says to secure your future by paying off your mortgage. And the blind monk standing at the elephant’s tail thinks the economy stinks – so you need to get yourself a stash of precious metals!

When it comes to personal finances, you really need to see the whole elephant

[Read more…]

The Checklist: What You Need to Know Before You Commit to a Financial Product or Plan

People are quick to dispense advice on any subject, regardless of their qualifications. Most people don’t even distinguish between ‘opinion’ and ‘knowledge’. That’s why you must.”
— Dan Kennedy

Your Uncle Vinnie corners you at the Sunday barbeque: “You got to get on board! It’s like buying into Microsoft in the ’80’s.” Your dentist tells you to open wide and “You gotta check out this once in a lifetime opportunity. It’s the mother lode!” Your golf buddy swears she’s found the “ultimate tax shelter.” Your advisor calls with an exciting new financial product “that will get you 15% plus annual returns with little or no risk!”

Whatcha gonna do?

Hey, I’ve spent 25 years investigating over 450 financial products and vehicles. The research was intense and required sleuthing skills that probably qualify me for CSI. I can tell you that, though these products were sparkly and seductive on paper, 99.9% of them didn’t stand up to scrutiny!

I’m guessing you don’t have the time or inclination to put in that kind of effort. But to protect your family’s financial future, you need to get answers to at least a few basic questions before you (and your money) jump in: [Read more…]

It’s National Financial Literacy Month – Do You Know Your Financial IQ?

April is National Financial Literacy Month, and here at Bank On Yourself, we’re doing our part to give Americans the knowledge and skills they need to make smarter financial decisions.

As President Obama noted in a 2011 Proclamation supporting National Financial Literacy Month, “We must strive to ensure all Americans have the skills to manage their fiscal resources effectively and avoid deceptive or predatory practices.”

And the Senate resolved in 2012 that “increased financial literacy empowers individuals to make wise financial decisions and reduces the confusion caused by an increasingly complex economy.”

Wow! I think “complex economy” may be an understatement!

So we’ve put together a quick 20-question quiz here that increases your understanding of the most critical things you need to know about managing your money, investing, and planning for a secure retirement. [Read more…]

Can You Put a Lump Sum into a Bank On Yourself Plan?

This is the fifth installment in our series of answers to the most-asked questions we got on our recent “Ask the Bank On Yourself Advisors” online event.

This question is about whether you can pay a larger amount of premium into a Bank On Yourself policy in the early years, to supercharge the growth.

The answer is “yes,” and the big advantage is that it allows you faster access to a higher amount of cash value that you can use for a variety of purposes.

Here are three common situations where people do “lump sum” funding of their plans…

Situation #1: Debt Consolidation

[Read more…]

Is it Too Late? Am I Too Old to Benefit from Bank On Yourself?

One of the most-asked questions we got on our recent “Ask the Bank On Yourself Advisors” live online event was when is it “too late” to start a Bank On Yourself plan?

A number of people said things like…

I’m only 10 years away from retiring. Can I still benefit from this?”

In most cases, the answer is “yes.” In fact, one of the Advisors who presented during the event walked us through a case study of a couple who became Bank On Yourself policy owners at the ages of 59 and 60.

Happy Retirement

Is it too late for a comfortable retirement?

I started my own biggest plan yet last year when I was 61. (Oops! I just gave away my age!) And people older than I start new Bank On Yourself plans, as well.

The Bank On Yourself Authorized Advisors are masters at structuring plans to meet their clients’ unique situation and goals – and they have a LOT of flexibility in plan design.

But there’s also a different kind of Bank On Yourself dividend-paying whole life insurance policy that I call a “Bank On Yourself for Seniors plan.”

This involves a one-time lump-sum premium payment, and then you pay no more premiums – ever.

These plans are available for people up to age 85, and even come with a FREE long-term care benefit for stays in a long-term care facility or for home health care, in most states. [Read more…]