A recent comment made by a reader of this blog inspired this post. I’ve never gone into detail on the question of how
the rate of return on a Bank On Yourself policy compares with investing in stock market and mutual funds.
And is it really true that if you simply hold on long enough, investing in stocks and mutual funds will out-perform just about anything else?
So, I’ve decided to lay those questions to rest – once and for all – right here. Here’s the comment by a reader who calls himself “Tob” that sparked this post:
This is a ridiculous attempt to compare whole life insurance to the “stock market” after the worst decade. I can show you how investing blows the pants off whole life using investing basics. Balanced Funds. How many funds do you want that have produce 10% per year compounding average to convince you?”
So, has “Tob” really found that elusive investment that gives you a 10% average return, and still lets you sleep at night?
We’ll get to the answer to that question in a moment.
First, let me address the question,
“What the heck is the rate of return on a typical Bank On Yourself policy?”
And the answer is that you would have to get a 7 – 8% annual return in a taxable account to equal the average net return in a typical and properly designed Bank On Yourself-type policy (assuming you’re in the 35% tax bracket).
Keep in mind that you receive a guaranteed and predictable cash value increase every single year – in both good times and bad.
In addition, you have the potential to receive dividends. While not guaranteed, the companies used by Bank On Yourself Authorized Advisors have paid dividends every year for more than 100 years.
The growth in a whole life insurance policy is not only guaranteed, it’s exponential.
The chart below shows you the exponential nature of the growth in a properly designed Bank On Yourself policy. These policies are designed to get better (more efficient) every single year, simply because you stick with it, rather than jumping from one investment to another. Notice how this gives you some built-in protection against inflation:
This chart is based on one of my own Bank On Yourself policies, showing the actual growth I’ve received so far in the policy, and the projected future growth, based on the current dividend scale (dividends are not guaranteed and are subject to change).
However, no two Bank On Yourself plans are alike – each one is custom tailored to the client’s unique situation. To find out how much your financial picture could improve if you added Bank On Yourself to your financial plan, and to get a referral to a Bank On Yourself Authorized Advisor (a life insurance agent with advanced training in this method), request a free, no-obligation Analysis.
Unlike stocks, real estate, and other traditional investments, both your annual guaranteed cash value increase and any dividends you may receive are locked in, once credited to your policy. They do not vanish due to a market correction or crash.
Imagine if you still had every penny of gains you’d received on your investments!
How much brighter do you think your financial picture might look right now?
To give you an idea of just how much of a difference having your gains locked in can make, here’s a fascinating little quiz…
Do you think it’s possible to invest $50,000, get a 25% average annual return on your money every year for four years… and end up with only the $50,000 you started with?
If you answered “no,” you’re in for a real surprise!
Let’s assume your money increases by 100% the first year, and then goes down by 50% in the second year. But you do really well in the third year, because your money increases by 100% again. Unfortunately, however, you take a 50% hit in the fourth year.
If you add those four annual percentages together and divide by four, you have a 25% annual return.
Not bad, huh?
But let’s see how much money you actually have in your account…
You started with $50,000 and your 100% increase in the first year doubled your money to $100,000. Then you lost 50% in year two, giving you a balance of $50,000.
You did great in year three, when your 100% increase doubled your balance to $100,000. But the 50% decline in the fourth year leaves you with… the same $50,000 you started with four years earlier!
So what good did getting a 25% average annual return do you?
That and a quarter won’t even buy you a cup of coffee, let alone a mocha latte!
You have nothing to show for this roller-coaster ride other than heartburn and a stomach ache.
But this is the kind of smoke and mirrors the Wall Street illusionists have been using to pull the wool over your eyes for decades!
You take all the risk, and they get the rewards, whether you make money or not!
But the myths and lies perpetuated by the Wall Street propaganda machine don’t stop there. Here are three shocking facts about the long-term returns people are really getting in the stock market:
Shocking Fact #1:
A recent study1 revealed that, for the past 190 years, American stocks have averaged a REAL annual return of only 1.4 percent!
Are you wondering how that could possibly be?
As the study’s author pointed out, the popular charts of stocks, bonds, bills and inflation that line the walls of brokerage offices assume full reinvestment of dividends, no commissions and no taxes.
Is that how you invest?
This study didn’t even adjust for commissions and taxes, because they vary so widely. It only accounted for inflation and the fact that investors typically don’t reinvest all their dividends.
Is a paltry 1.4 percent real return worth the risk and sleepless nights to you?
And remember, that figure doesn’t even take into account commissions or taxes!
Shocking Fact #2:
For the last forty years, ordinary long-term treasury bonds have outpaced investing in the stock market.2
Long-term treasury bonds are what grandma buys so she can sleep at night!
Which means the only rewards investors have received for taking the extra risk of stocks and mutual funds for the past four decades are sleepless nights and broken retirement dreams!
Shocking Fact #3:
The typical equity mutest fund investor has only earned 3.83% annually for the past 20 years, beating inflation for that period by only a hair. Asset allocation and fixed income investors haven’t even managed to outpace inflation for the last twenty years!3
So, what about that 10% annual return “Tob” was talking about?
In your dreams, my friend!
A so-called “balanced fund” is a mutual fund that “buys a combination of stocks and bonds to provide income and capital appreciation, while avoiding excessive risk.”
However, these funds have averaged only a 2.74% annual return for the last ten years, lagging inflation. The 15-year average is a little better – 4.85%. And the 20-year average has been 6.18% (see Wall Street smoke and mirrors revelation above), however, the fees charged by mutual fund companies for this type of fund are around 1.3% What’s left barely outpaced inflation during that period.
Oh yeah – in 2008, the average balanced fund lost 28%, according to Morningstar.
Woohoo! Where can I get me some of that stuff!?!
Let me let you in on a little secret…
Let me let you in on a little secret...
One of the many advantages of a properly structured Bank On Yourself-type policy is that you can borrow the equity in your policy, use it to invest elsewhere, and your money in the policy continues growing as though you hadn’t touched a dime of it! (Note – not all companies offer this feature.)
I explain exactly how and why this happens on pages 68-69 of my best-selling book.
So, if you found a great investment, you could borrow money from your policy to put into that investment.
Result: You could be receiving the 7 – 8% after-tax equivalent return I talked about at the beginning of this post… PLUS the return of the investment you put the money into!
This allows you to have your money working for you in two ways at the same time!
Chapters 8 and 11 of my book give real-life examples of people doing just that, from the Arizona couple using the money in their Bank On Yourself policy to fund a horse breeding business, to the surgeon who used his equity to purchase shares in a very profitable surgical center.
The bottom line is that the rate of return on a Bank On Yourself policy will put just about any traditional investment to shame, and it will do that without the risk or volatility of stocks, real estate, gold, commodities and other investments.
Haven’t we learned that return of our money is at least as important as the return on our money?
Financial security comes from knowing you have a solid financial foundation and that you have a nice chunk of your savings in a plan that only goes in one direction – UP.
So, if you haven’t started to Bank On Yourself, why not find out what it could do for you and your family?
Take the first step now by requesting your free Analysis. You have nothing to lose and everything to gain.
1. “Stock market’s real return? Paltry,” by Anthony Mirhaydari, MSN Money, February 1, 2010
2. “Bonds Why Bother?” by Robert Arnott, Journal of Indexes, May/June 2009 Issue
3. DALBAR’s 2011 Quantitative Analysis of Investor Behavior
As I’ve read many books on the subject, my question is not one of if this works or if it’s better than other alternatives, but rather the type of policy to use issue…as in the question and statement below.
You and Nelson Nash, Doug Andrews, Patrick Kelly, Brett Anderson, Marion Snow, Terry Laxton, (hope I didn’t leave out any I’ve read out, ) have all done a great job of persuading me of using life insurance instead of the alternatives) but although I have obviously read much material I have yet to find a convincing case for using WL instead of UL, or EIUL (I have reasons for not using VUL as it is basically using mutual funds)
(The commission question is not the issue as in any minimum face maximum policy the agent reduces his/her commission, and neither is the captive agent issue as although it appears that the advisors promoting the BOY concept are not captive you have suggested by your statement (No other life insurance product comes with as many guarantees as whole life, and it is the only one recommended for Bank On Yourself.) that to be an advisor with BOY the agents must use a WL policy and likely from a specific company (or a very limited number of companies) so although technically they are not captive they have effectively made themselves captive. [sort of like going steady].
So if a UL or IUL or VUL policy was compared to a WL policy for a past period of time (I realize past performance is no guarantee of…etc) however as the validation of the WL policy is that “these policies have paid a dividend for over 100 years”… is used, a comparison of the past performance of different types of policies over say 20 years would seem to be reasonable. (I am aware that UL VUL and EIUL have not been in existence as long as WL so the comparison could be for as long as they were in the race [UL longer than IUL], and whatever guarantees the WL policy has that are referred to below [that might affect the financial outcome] could be incorporated in the comparison.
If the WL policy did not perform as well or better than say the EIUL it would be OK to say so… if you included what the benefits were that one was giving up. Such as in the cash value in early years of a policy to a 401k. with the policy you get the death benefit with no addition out of pocket expense, and as the 401k can’t be touched without taxes and penalties before 59 ½ the value of the account is an illusion.
You go into great length to disprove the contentions of the other alternative proponents – and with great success I might add – but UL, VUL, and EIUL are just as much an alternative consideration as Mutual funds, 401k, etc., so to dismiss other types of polices with a flick of the wrist statement as in “No other life insurance product comes with as many guarantees as whole life, and it is the only one recommended for Bank On Yourself.” does not answer the question.
So how about an answer to – WL vs UL, EIUL- that finally clarifies the issue, as you do regarding Insurance vs the other alternatives?
Thank you for the opportunity to finally clarify the issue of why I prefer Whole Life to Universal Life and Equity Indexed Universal Life. After reading these two articles, I believe you will understand:
http://www.bankonyourself.com/indexed-universal-life-versus-whole-life
http://www.bankonyourself.com/whole-life-vs-universal-life-insurance
Your response did not address the question that I asked in the manner I asked for.
So if a UL or IUL or VUL policy was compared to a WL policy for a past period of time (I realize past performance is no guarantee of…etc) however as the validation of the WL policy is that “these policies have paid a dividend for over 100 years”… is used, a comparison of the past performance of different types of policies over say 20 years would seem to be reasonable. (I am aware that UL VUL and EIUL have not been in existence as long as WL so the comparison could be for as long as they were in the race [UL longer than IUL], and whatever guarantees the WL policy has that are referred to below [that might affect the financial outcome] could be incorporated in the comparison.
The article that you wrote concerning UL vs WL assumed that this was not an apples to apples comparison:
1. That if the agent would not properly structure the policy by using the wrong test for premium
2. That if policy loans would be larger than they should be to sustain the policy
3. That if agent would project interest at a rate that could not be sustained
4. That if the client would not manage to fund the policy as they would the WL policy
What I asked for was a history comparison for the last 20 years that assumed this was an apples to apples comparison:
1. The agent used the correct test for premiums
2. Policy loans would not be taken in an amount that would cause the policy to lapse
3. The interest rate would be what was historically credited
4. The client would fund the policy just as they would the whole life.
So unfortunately there is no conclusion that can be drawn from your article and I have no valid reason to believe that a properly structured, maximum funded, correctly managed UL or EIUL would not perform as well or better than a WL policy.
Thanks Anyway
I think you missed the key points made in these two articles. I did not write them. The Vice President of a top company that sells both universal and whole life wrote them and he has no vested interest in one over the other. It’s by far the most objective overview of how these two types of policies compare that I have ever seen.
I am not going to reiterate the many valid points made in these articles. I would simply encourage you – and anyone else who wants to know the facts (as opposed to the hype) – to park their preconceptions at the door and review these two articles several times.
You keep asking for “an apples to apples” comparison of these two different products. However, they are NOT the same, for all the reasons mentioned. That’s a key point you seem to be missing. In my experience, advisors who tout the benefits of Universal Life over Whole Life don’t truly understand how dividend-paying Whole Life actually works. Once they do fully understand the inner workings of Whole Life, they soon quit recommending Universal Life.
And if they ever clamp down on how Universal Life policies are allowed to be illustrated, I predict sales will plummet.
The effect of taking policy loans from an Indexed Universal Life policy can be devastating, as explained in Point #3 in this article. This is why Universal Life is particularly inappropriate for anyone who wants to use their life insurance policy to become his or her own source of financing.
[...] dividend-paying whole life policy grows by a guaranteed and pre-set amount every year. In addition, the growth is exponential, meaning it gets better (more efficient) every single year you have the policy, simply because you [...]
Very interested in your information, especially as it might apply to guaranteed income stream for retirement. How is BOY different from a good annuity? With the markets as jittery as they are, can we be assured that these companies will still be around in 20- or 30 years? I remember once being told that GM was a great bond to buy because they would never go under!
It’s WAY different from an annuity – or any other product. The Bank On yourself method has 18 advantages and guarantees and I encourage you to compare your best or favorite strategy (including annuities) against these to learn the differences.
And to find out why these companies are likely to continue to be around forever, read why Bank On Yourself is a strategy for ANY economy.
I am a little confused on the policy loan issue. If I take a loan against the cash value of my policy and the insurance company is charging me interest on that loan, aren’t they charging me interest on my own money??? How does that make sense?
Yes, they are charging you interest on your own money (they’d go out of business if they didn’t do that – why would any policy owner want that to happen?). However, what you totally missed is the fact that, with a Bank On Yourself-type policy, the interest you pay ultimately benefits you, the policy owner. As I discuss in detail on pages 100-103 of my best-selling book, you’ll end up with the exact same cash value if you borrow from your policy and pay it back at the interest rate charged by the company as you would if you never borrowed a penny. So who benefits from that interest if not you?
This is quite unbelievable. The messages I read on here are very full of misinformation. This is just one which I could not believe my eyes. My responses to this thread to follow.
You State —- Yes, they are charging you interest on your own money (they’d go out of business if they didn’t do that – why would any policy owner want that to happen?). However, what you totally missed is the fact that, with a Bank On Yourself-type policy, the interest you pay ultimately benefits you the policy owner…
My RESPONSE — HOW DOES interest which I pay to someone else benefit me. If I go to a bank and get a loan, lets say for 10,000 at 6%. I pay it back after exactly one year paying the bank 10,000 + 600(their interest). If I have a WHOLE LIFE contract I ask the insurance company for the same loan at 6% and I make the same identical transaction and pay the loan back at the end of 1 year, I pay the 10,000 + 600(interest back to the insurance company).
I am not “paying myself back” the 10,000 since it was the insurance companies money which was borrowed by collateralizing the cash value of my life insurance contract. So how is this any different than borrowing from the bank?
I know in the BANK ON YOURSELF methodology youre supposed to pay yourself back at 10% therefore taking more money from your own CASHFLOW to DUMP into the life insurance policy as PUA’s. But I can do that while borrowing from the bank and just sending the extra cash I would have paid to the bank to the life insurance company and place it towards PUAs. So how exactly does it benefit the owner of the policy?
What If I took a loan out at 1.5% tax deductible (libor 6 month rate) collateralized by my portfolio of bonds(muni,gvmt,corporate etc.) I would only pay 1% net after tax on the 10,000 or $100 in interest and save the $500 which can go towards my PUA purchase. Wouldnt that be a better deal to make then to borrow from the life insurance company? Please explain how that is not a better way of doing it. What if it were an equity line against my home at 4%(tax deductible) it would still be a better deal. So please explain how it benefits the policy holder to borrow at a higher interest rate, NON tax deductible from the life insurance company.
YOU SAY>>>you’ll end up with the exact same cash value if you borrow from your policy…
MY RESPONSE — THIS IS COMPLETE MISINFORMATION…YOU DO NOT borrow from your policy. Where is this stated in the life insurance contract? Please show me where this is stated in a life insurance contract? This is a VERY big mistake and could prove to be disastrous. One uses their life insurance cash values as COLLATERAL for the loan which the insurance company gives them. You are NOT “BORROWING FROM YOUR POLICY” YOU are borrowing from the insurance companies funds and using your cash values as collateral. This needs to be corrected ASAP as it could mislead everyone. If you do not believe this call any insurance company and ask.
YOU SAY — and pay it back at the interest rate charged by the company as you would if you never borrowed a penny. So who benefits from that interest if not you?…
MY RESPONSE — THIS IS ABSURD, the insurance company benefits from the interest you pay them. You DO NOT. It is obvious there is a lack of knowledge regarding the products you are speaking of. What you, the consumer who owns WHOLE LIFE benefits from, is the growth of the cash value in the policy. The cash values are not affected by the loan(depends on direct recognition). The loan is a contract between you and the insurance company which uses the CASH VALUES as collateral. There is much misinformation in the public regarding everything I have addressed here. Bank on Yourself or INFINITE BANKING when put to a TRUE TEST cannot work as it is sold and described. I have analyzed hundreds of these scenarios and NOT ONE works as described. Its too bad people(GOOD PEOPLE) fall for this stuff. I am sure you have fallen for it just like everyone else without true testing and verification of the facts.
If you please answer and respond to what I have stated above that you FACTUALLY can prove to be false since I for one would like to know where I am not seeing something that maybe you may be seeing.
I’m not sure why you want me to “answer and respond” when you have already made up your mind.
I will, however, point out briefly several errors in your post, all of which I have gone into in detail on the website and in my book:
The cash value in your policy is the policy owner’s money, not the insurance company’s. The insurance company is simply the administrator of the policy.
You do not use your cash value as collateral for a loan, as you stated not once, but TWICE! (And you’re telling ME I need to correct my information about this “ASAP”?!? You’re the one who needs to “call any insurance company and ask.”)
It is your death benefit that is used as collateral for any loans, which I’ve spelled out clearly here and in my book.
I’ve also given a clear example of how loans from dividend-paying policies work in this regard here:
http://www.bankonyourself.com/is-bank-on-yourself-too-good-to-be-true.html
You will end up with the exact same cash value whether you take policy loans and pay them back at the interest rate the company charges, as you would if you didn’t take any loans.
If you can get a lower interest rate from another source, that’s your choice. Personally, I have no love lost for banks and financing companies, and would prefer to pay interest back to my own policy (myself) than contribute to some banker’s next yacht.
And I can set my own re-payment schedule, too, and not worry if I have some emergency come up and have to reduce or skip some loan payments.
It is like taking ten dollars out of your own pigbank and putting back ten dollars plus interest…in your own pigbank. Now your ten dollars is that much fatter.
Thanks for the response. I was all set to start investing with a wealth manager in my area last year when my father in law gave me your book. Needless to say, it really made me stop in my tracks and research this concept. I met with an advisor and like most people, am still looking for “the catch”… When I brought this up to the wealth manager, just as you said, his response was that this “seemed gimmicky” and pushed the VUL policy. I still haven’t made the commitment to start a policy. The reason I didn’t start one was because I asked the advisor to refer my to some people who were currently doing BOY so I could talk to them. His immediate answer was no and I have also referred several friends and they all have had the same response from their advisors. Is there a reason for this? Thanks again..
Thanks for the feedback. There are a couple of reasons the advisors don’t give out the names and contact information of their clients.
For one, almost 350,000 people visited the Bank On Yourself website in the past year. If only 5% of them ask to speak to Bank On Yourself clients, that’s almost 18,000 people who would be calling people and intruding into their personal time.
We used to provide contact information of clients who said they’d be willing to talk to people about their experience with Bank On Yourself. We asked the inquirers to please limit the conversation to 10 minutes, so as not to impose. However, we’d hear back from the clients that the conversation usually lasted an hour or more. That’s the second reason referrals are no longer provided.
The last reason is that many Bank On Yourselfers have shared their stories in detail and we encourage you to review them. As you know, a couple of dozen people shared their stories in Chapters 7 -12 of my best-selling book. And here are several links on this website to more of them:
http://www.bankonyourself.com/success-stories
http://www.bankonyourself.com/bank-on-yourself-under-the-microscope.html
http://www.bankonyourself.com/when-opportunity-knocks-will-you-be-ready.html
http://www.bankonyourself.com/bank-on-yourself-success-story-video.html
http://www.bankonyourself.com/videos-reveal-how-bank-on-yourself-turns-dreams-into-reality.html
http://www.bankonyourself.com/is-bank-on-yourself-too-good-to-be-true.html/comment-page-1#comment-6432
I hope this helps! And, since you’ve read the book, you know that the most common regret Bank On Yourselfers express is that they didn’t start sooner. I sincerely hope this is one regret you don’t end up having.
[...] Investor Trap #2: You could get a 25 percent “average annual return” for years and still not make a single dime or even lose money! This is due to the smoke and mirrors the Wall Street illusionists have been using to pull the wool over your eyes for decades. Don’t take my word for it – I exposed the mutual fund “rate of return” myth” here: http://www.bankonyourself.com/whats-the-rate-of-return-on-a-bank-on-yourself-plan.html [...]
Can I invest or fund or hold Silver in the insurance company as a hedge against inflation?
Insurance companies do not invest in currency for a number of reasons, so if you wish to hold silver, you should do it outside of your policy. Remember that life insurance companies have a more than 160 year history of investing successfully and conservatively, and have done so in every period of economic boom and bust, including in periods of high inflation.
I suggest you also read this blog post before making decisions about where to invest in the event of a period of high inflation.
I’m an agent with a major mutual life insurance company. I love over-funding whole life (and I love your video poking fun at Dave and Suze–well done), but I have some questions. It appears you prefer companies who don’t use direct recognition when calculating dividends. This is fine, as long as you disclose that the interest rate charged by the insurance company is variable. Since the company must make a return on loaned funds that is reasonable, can high interest rates negatively affect a BoY plan if too much is borrowed? I applaud what you’re doing, I’d just like some clarification.
In the earlier years, borrowing too much can be a problem if you don’t pay it back. If you do – or if you at least pay the interest, it’s not a problem.
After reading your book and many pages on this website, I have a few questions.
1.) Why do so many people take out multiple BOY policies? Wouldn’t it be just as beneficial to have one policy?
2.) How are the Advisor’s commission reduced by 50%? Is it because people buy multiple policies?
3.) I’ve been searching your website to find a statement, but no such luck. Where can I find a BOY statement? I am curious to see how these PUARs help.
1. They take out multiple policies as their income grows and they experience the power of the product and concept. As I’ve mentioned, the only regret most people have is that they didn’t start sooner and put more into their plan. So ultimately, they start more plans to achieve even more of their goals.
2. The commissions are reduced by 50-75% because the PUAR pays only a tiny commission and 50-75% of the premium is directed into the PUAR.
3. You can see information about the policies and links to the policy statements here.
[...] Investor Trap #2: You could get a 25 percent “average annual return” for years and still not make a single dime or even lose money! This is due to the smoke and mirrors the Wall Street illusionists have been using to pull the wool over your eyes for decades. Don’t take my word for it – I exposed the mutual fund “rate of return” myth” here: http://www.bankonyourself.com/whats-the-rate-of-return-on-a-bank-on-yourself-plan.html [...]
[...] Investor Trap #2: You could get a 25 percent “average annual return” for years and still not make a single dime or even lose money! This is due to the smoke and mirrors the Wall Street illusionists have been using to pull the wool over your eyes for decades. Don’t take my word for it – I exposed the mutual fund “rate of return” myth” here: http://www.bankonyourself.com/whats-the-rate-of-return-on-a-bank-on-yourself-plan.html [...]
I’m not a BOY client and still trying to evaluate the program. What I gather is the BOY portfolio does contain bonds and dividend paying common/preferred shares of conservative companies, which are less exposed to market swings. My concern, and operating from a lack of knowledge of the BOY portfolio, is how will the BOY portfolio be impacted by what apprears to be a momentum gathering move towards the $USD loosing its position as the world’s reserve currency. This action, if successful, will have a significant impact on the value of the $USD and our ability to continue to pay the interest on our debt through printing money.
This will have a disasterous economic and financial market impact on the US. Does BOY have a rebalancing strategy to mitigate this risk? How will you guarantee the minimum ROI if you’re heavy in US stock and bonds? It’s not a matter of if, but a matter of when. Thanks.
I understand your concern, Ron. The companies used by Bank On Yourself Advisors do not own common stock in companies.
I have addressed these issues in depth in a blog post titled “Is the U.S. Headed Toward Financial Doomsday?” and another on how Bank On Yourself policies will hold up under various economic scenarios. Once you’ve studied these two articles, I’d love to hear your thoughts.
[...] Investor Trap #2: You could get a 25 percent “average annual return” for years and still not make a single dime or even lose money! This is due to the smoke and mirrors the Wall Street illusionists have been using to pull the wool over your eyes for decades. Don’t take my word for it – I exposed the mutual fund “rate of return” myth” here: http://www.bankonyourself.com/whats-the-rate-of-return-on-a-bank-on-yourself-plan.html [...]
[...] Investor Trap #2: You could get a 25 percent “average annual return” for years and still not make a single dime or even lose money! This is due to the smoke and mirrors the Wall Street illusionists have been using to pull the wool over your eyes for decades. Don’t take my word for it – I exposed the mutual fund “rate of return” myth” here: http://www.bankonyourself.com/whats-the-rate-of-return-on-a-bank-on-yourself-plan.html [...]
[...] whole life policy grows by a guaranteed and pre-set amount every year. In addition, the growth is exponential, meaning it gets better (more efficient) every single year you have the policy, simply because you [...]
Your 30 year chart above shows zero ($0) growing to about $1,700,000 in thirty years. I will buy all of those you can sell me!– nothing in and millions out. What am I missing?
That graph only shows the growth pattern on the cash value, not the premiums paid in, which of course, they were.
[...] Investor Trap #2: You could get a 25 percent “average annual return” for years and still not make a single dime or even lose money! This is due to the smoke and mirrors the Wall Street illusionists have been using to pull the wool over your eyes for decades. Don’t take my word for it – I exposed the mutual fund “rate of return” myth” here: http://www.bankonyourself.com/whats-the-rate-of-return-on-a-bank-on-yourself-plan.html [...]
[...] take my word for it – I exposed the mutual fund “rate of return” myth” here: http://www.bankonyourself.com/whats-the-rate-of-return-on-a-bank-on-yourself-plan.html ]]> Investor Trap #3: If you’re investing in mutual funds inside a 401(k) plan, fees can [...]
I just started the BOY concept, yet I still have hesitation. I still believe the stock market/equities are the best investment for a buy and hold investor. The data on historical stock returns say around 9% year (probably 7% after taxes if we are changing the capital gains to ordinary income of 35% not 15%, fees, etc) probably holds true if you stick it into a Roth and leave it for 20-30 years. My own rate of return 15+ is about 7-8% on blue chips.
Pam, do you have some documents for the last 20 years on internal rate of return for some of these policies? I am getting estimates at around 4-4.5% (20 year), let’s say 6% at a taxable equivalency, not what you have above. For me, I’m basically getting a bond fund with some life insurance guarantee, and the ability to draw as a emergency fund, but not necessarily a investment of any sort.
Please do not include inflation into the analysis because it will be equivalent whether we use BOY or equity returns. Thank you.
What I explained in this blog post IS the internal rate of return based on the current dividend scale, which is at historic lows right now. When interest rates and dividends are higher, so is the internal rate of return.
You’ve really missed the point- it’s NOT about the return on your money, it’s about the return of your money.
The idea of a “buy and hold” investor is a myth – almost no one actually does that. The typical mutual fund is held less than 3-5 years. And all the stats show the typical investor way underperforms the market.
For more insight, check out the interview I did about the behavior gap.
If you’ve truly been successful investing, you’re in the minority, so knock yourself out. (Most people who actually pull out their investment statements and do the math discover they way overestimated their actual return.)
And if investing in the market worked for most people, why are pre-retirees now having to postpone their planned retirement by an average of 5 years?
It’s one of the biggest lies ever perpetrated on the American public. And the ONLY thing Wall Street guarantees is that they get paid whether you win or lose.
[...] whole life policy grows by a guaranteed and pre-set amount every year. In addition, the growth is exponential, meaning it gets better (more efficient) every single year you have the policy, simply because you [...]