Trump Tweets, Black Swan Events and Your Money

How much does your financial future depend on a 140-character Trump tweet, stroke of a pen on an Executive Order, or an off-hand comment to a reporter?

A lot, as these recent news headlines reveal:

  • “Trump Sinks Pharma Stocks on Medicare Price Negotiation”
  • “Dollar Dumps Most in 30 Years as Trump Raises Doubt Over Strong Dollar”
  • “When Trump Tweets, Wall Street Trades – Instantly”
  • “Trump, Not the Fed, Is What Moves Markets Now”
  • “Toyota Stock Drops Immediately After Trump Tweet”
  • “Trump’s Executive Orders Send S&P 500 to an All-Time High”
  • “Dow Jones Industrial Average Sells Off After Trump’s Executive Order on Immigration”

As you can see, when President Trump tweets or speaks, the markets react – in some cases violently.

Whatever your opinion of Trump is, there is one thing we can all agree on:

We are in uncharted waters. We have never had a president like Trump. We’ve never had an administration like Trump’s. There is no historical precedent for this.

What none of us knows is what to expect in terms of unintended consequences. What will be the potential impact on bond markets and interest rates? What is the risk of trade wars, currency wars, and U.S. relations with Russia, China, the Middle East, or North Korea?

Was Trump’s Election a “Black Swan Event”?

A “black swan event” is an event in human history that was unprecedented and unexpected when it occurred. By that definition, Trump’s election was a black swan event.

The idea of a black swan event was introduced by former Wall Street trader, Nassim Nicholas Taleb, as the 2008 financial crisis unfolded. The dot-com bubble of 2000 is another black swan event with similarities to the 2008 financial crisis.

So here’s a quick quiz for you: How much did the markets lose in the aftermath of those two crashes?

If you don’t remember, you’re not alone. As the behavioral finance experts have observed, we human investors typically forget about our losses and mentally exaggerate our successes.

Going back just 17 years, many people saw their investment accounts plunge by 50% or more when the dot-com bubble burst. And many investors had moved their money into NASDAQ technology stocks, which plunged 78% over 19 months.

In the most recent market crash, the S&P 500 lost 57% over an 18-month period.

There are many who would argue that the current bull market has outpaced the economic fundamentals. Today, stock market valuations are approaching levels last seen just before the last two market crashes. (They are now over 29 times the S&P 500, compared with an historical mean of 16.7 times, according to the Shiller cyclically adjusted price-to-earnings ratio.)

To add to the concern, in the last 100 years, there has never been a two-term presidency end that wasn’t followed by a recession within 12 months.

It pains me when I hear people say, “Oh, but my investments are up a lot since the last crash, and they’ve gone up even more in the last year.”

Those who forget history are condemned to repeat it.

Didn’t we all feel like we were sitting real pretty right before the crash of 2008 (and the crash of 2000)? Then we discovered – yet again – that what goes up fast usually comes down fast, too.

The stock and real estate markets did just that – with a resounding thud, and took the retirement security of millions of Americans with them.

The Critical Difference Between “Paper” Wealth and Real Wealth

If you think you can relax and coast until retirement because of the sky-high numbers on your retirement account statements, then you have forgotten the lessons of the last two crashes (and the crashes that came before them).

Your investment account statements, 401(k) and IRA statements, real estate appraisals and business valuations are nothing more than pretty numbers on paper. And those numbers repeatedly sucker many of us into believing we have real wealth and financial security when we do not.

Key Point: You don’t actually lock in any profit until you sell an investment and lock in (hopefully) any gains. Until then, you have only a paper profit, which can vanish in the next market crash.

Real wealth, on the other hand, doesn’t disappear when the markets crash. And, as we just discussed, your investment accounts, retirement plan balances, real estate appraisals and business valuations all represent paper wealth.

So, what asset represents REAL wealth, that doesn’t disappear when the markets crash?

A Bank On Yourself-Type Supercharged Dividend-Paying Whole Life Policy Is Real Wealth!

Your principal AND growth are locked in – even when the markets are tumbling. This is an off-Wall-Street strategy. Dividend-paying whole life has increased in value every single year for more than 160 years. Even during the Great Depression and Great Recession.

Your annual statements represent real wealth, which you can access how and when you want – without having to beg for it or ask permission to use it.

Dividend-paying whole life insurance is the best way to build a solid financial foundation that can help you weather whatever challenges life throws at you.

And the supercharged variation that’s used for the Bank On Yourself concept builds cash value significantly faster and lets you take an income stream in retirement with no taxes due on it, under current tax law.

Bank On Yourself Lets You Sleep at Night – Even When the Markets Are Crashing

It’s easy to find out how adding the Bank On Yourself method can help you reach your financial goals and dreams – without taking any unnecessary risks. Just request a FREE Analysis.

You’ll also get a referral to one of only 200 advisors in the U.S. and Canada who have met the rigorous training and requirements to be a Bank On Yourself Authorized Advisor.

So why not request your free, no-obligation Analysis NOW, while it’s fresh on your mind?

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Five Pieces of Free Financial Advice on Saving and Investing You Should Avoid

We all love free advice. Why pay for advice if someone is willing to give it to you for free?

Some advice will cost you little or nothing if it’s wrong. “You should wear these shoes with that suit.” “Try the catch-of-the-day. You’ll love it!” “I think you should turn left here.”

Other bad advice can be much more costly—both now and for the rest of your life.

This article focuses on free financial advice. We’ll tell you why five bits of so-called “wisdom” you’ve heard over and over again are wrong.

We’ll give you some tips on choosing sources of free financial advice you can trust, while avoiding all the dumb financial advice that’s out there.

Why Free Financial Advice Is Often Dumb Financial Advice

[Read more…]

The 8th Wonder of the World? Here’s proof

Recently we “ethically bribed” our readers into learning more about what I’ve called the “8th Wonder of the World.”

You see, the two most common reasons people have for adding the Bank On Yourself method to their financial plan are:

  1. To grow wealth safely and predictably every year – no matter what’s happening in the market or the economy – and to protect themselves from losses in future market crashes
  2. To become their own source of financing when they want to make a major purchase or when an emergency expense comes up – so they can get access to money when they need it and for whatever they want – no questions asked

The second reason – the ability to become your own “banker” – is so compelling that once people use that feature of their Bank On Yourself plan, they often write to tell us what a powerful and emancipating feeling it is. [Read more…]

Michael Kitces’ Big Blind Spot on Bank On Yourself Policy Loans

In his review of Bank On Yourself, Michael Kitces repeatedly harped on the worst-case scenario of a life insurance policy owner taking out a life insurance loan with no regard for ever paying it back.

Kitces rightly pointed out there could be significant tax consequences if a life insurance policy were to lapse due to a large policy loan.

If the interest is not paid, it gets added to the loan balance. Eventually the loan balance could come so close to the cash value securing the loan that the life insurance company—after giving fair warning—would take the cash value to pay off the loan, causing the policy to lapse.

What Kitces didn’t mention is that if the loan balance ever does exceed the available cash value, paying some or all of the loan interest out of pocket generally solves the problem. And he didn’t tell you about the option of taking a policy “reduced paid-up,” as I discussed in our previous article on this topic.

So, we agree with Michael Kitces that a growing loan can cause a life insurance policy to lapse.

But Kitces mostly talks about “when the policy lapses.” Huh? “When”? That’s an odd assumption. It’s like saying, “Don’t take out a mortgage to buy a home, because when you default on your loan …”

Does he really think we are that irresponsible? [Read more…]

Why Your Efforts to Grow a Retirement Nest Egg in the Stock Market May Disappoint You

You’re not reckless. You don’t like to take unnecessary risk. But you don’t want to run out of money in retirement. And your financial advisor says you must invest in the market to provide for a secure retirement.

Do you really have to take those risks? What if I told you that hundreds of thousands of people are building their retirement nest egg without even going near the stock market … or the real estate market … or precious metals?

When people think of “the stock market,” they often equate it with the Dow Jones Industrial Average (DJIA) they see quoted everywhere.

The Dow is the most recognized market index in the world, and looking at its performance can help answer the question: Does your advisor’s advice make any sense?

The Dow has gone up over time – but has it gone up enough to make it worth the risk?

Only you can decide if it was worth the risk to you. But to make an intelligent decision, you first need the answers to two questions:

  1. How much has the Dow gone up?
  2. What were the risks?

Only then can you decide if it was worth it. [Read more…]

Here’s What Michael Kitces Missed in His Bank On Yourself Review, Part 2

In part 1 of this article, I explained that financial planner and investment advisor Michael Kitces wrote a review of the Bank On Yourself concept that redefined my trademarked phrase, “Bank On Yourself” to fit his interpretation of how the concept works.

Now I’ll show you how Kitces missed five critical key requirements of the Bank On Yourself concept—and why it’s so important that you don’t make the same mistake.

To review, to truly be banking on yourself

  1. You must use a dividend-paying whole life insurance policy
  2. The policy must have a “non-direct recognition” policy loan feature
  3. The policy must incorporate a flexible policy design
  4. You, as the policy owner, must be an “honest banker”
  5. You must work with a knowledgeable advisor

Let’s See How Michael Kitces Misunderstood—or Simply Missed—Each of These Five Requirements of Bank On Yourself:

1. You must use a dividend-paying whole life insurance policy

[Read more…]

Here’s What Michael Kitces Missed in His Bank On Yourself Review, Part 1

Financial planner and investment advisor Michael Kitces understands a lot about many areas of money and finance. He has been to school. He has twice as many letters after his name as he has in his name. Literally.

Surprisingly, Kitces does not understand some basic fundamentals of the Bank On Yourself strategy for personal finance.

Kitces wrote a review of the Bank On Yourself concept. And while he got some of the fundamentals right, he missed some very important points.

From time to time, readers ask us about Kitces’ article, so I want to clear up the misconceptions in it. I’ll cover four things he got right about the Bank On Yourself strategy, then I’ll reveal the things Kitces got wrong—including five fundamental concepts.

Here’s What Michael Kitces Got Right in His Bank On Yourself Review …

In his Bank On Yourself review, Michael Kitces correctly stated four things:

1. Kitces: Permanent life insurance “gives an insurance company the means to provide policy owners a personal loan at favorable interest rates, because the cash value provides collateral for the loan”

Well stated! You can’t take out a life insurance policy loan unless you have a life insurance policy with enough cash value to serve as collateral for the loan. And the interest charged for policy loans is generally at competitive, below-market rates.

2. Kitces: “Even as cash value life insurance operates as collateral for a life insurance policy loan, it also remains invested, earning a rate of return that slows the erosion of the net equity in the policy”

[Read more…]

Why Most Early Proponents of the 401(k) Now Say It’s a Failure

Herbert Whitehouse was one of the first proponents of the 401(k) 35 years ago, when he was a human resources executive at Johnson & Johnson.

Today the 65-year-old Whitehouse says he will have to work into his mid-70s if he wants to maintain his standard of living, after his own 401(k) took a hit in 2008.

Whitehouse is one of a chorus of early 401(k) supporters who have changed their minds.

A recent article in the Wall Street Journal reveals how pre-retirees at all income levels are falling shortway short – of the amount of money they need to have to be able to retire.

Fully half of those between ages 50-64 have less than one year of their income saved.

The top 10% (those making $251,000 or more annually) have an average of only two years of their income saved.

The article mentions that “financial experts recommend that people amass at least eight times their annual salary to retire.”

Those “experts” ought to have their heads examined, because even a $1 million nest-egg would provide you only $28,000 a year at the current recommended withdrawal rate of 2.8% per year. [Read more…]

4 Mistakes to Avoid to Make This Your Best Year Yet

It’s a brand new year, and I’m very excited! Are you?

Are you reviewing last year’s goals and accomplishments? Taking note of who you’ve become in the process of pursuing your dreams? Setting your sights on even more growth and achievement in 2017?

When you look at the key areas of your life – your finances, relationships, health, career and personal/spiritual growth – can you see how far you’ve come in the past twelve months?

Or when you think back to January 2016, do you realize that you’re almost exactly where you were twelve months ago?

Bummer.

Or as Yogi Berra said,

It’s like déjà vu all over again.”

If your life is beginning to feel like the movie Groundhog Day, you might be shooting yourself in the foot with one of the following four missteps:

Mistake #1: Repeating What Didn’t Work Last Year

[Read more…]

Six Reasons Your 401(k) is a Scam

I’m going to make a very bold statement that’s sure to get me some nasty blowback. But as a financial investigator who’s exposed the truth about the conventional financial wisdom, I’m used to that, so here goes…

401(k)s are a scam. Want proof?

Here Are Six Reasons Why 401(k)s Are a Scam…

Reason #1: The Tax-Deferral Scam

In our immediate-gratification society, deferring your taxes by funding your 401(k) sounds so good.

But when the tax man eventually comes calling, he won’t ask you to pay what your tax liability would have been if you’d been paying taxes all along. He’ll tell you what your tax liability is at the time your taxes are due.

So let me ask you a question: Can you tell me what your tax rate will be 30 years from now? Didn’t think so.

And 89% of the people we’ve surveyed believe tax rates can only go up over the long term, due to our country’s unsustainable debt and aging demographics. Unfortunately, if tax rates do go up and you’re successful in growing your nest-egg, you’ll only be paying higher taxes on a bigger number.

Oops! That destroys the whole “tax-deferral” argument.

Reason #2: The “Free Money” Scam

[Read more…]