The AND Asset
The AND Asset
Caleb Guilliams
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All Rights Reserved. Printed in the United States of America. No part of this
publication may be reproduced, stored in a retrieval system or transmitted in
any form or by any means, electronic, mechanical, photocopying, recording
or otherwise without the written permission of the publisher: Better Wealth
Publishing.
ISBN-13: 978-1-7327249-0-7
ISBN-10: 1-7327249-0-3
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INTRODUCTION
This book is my best effort to share with you what I firmly believe is
the greatest way to invest in yourself now and in the future.
When I started my journey, I had an entrepreneurial/financial
planning dilemma. I knew that I was my own greatest asset. From
an entrepreneurial perspective, I wanted to keep as much money as
possible readily available so that I could invest in myself. However,
from a financial planning perspective, I knew that if I could start
saving for retirement at a young age my wealth would grow with
the power of compound interest.
I believe that many people share this short-term/long-term dilemma.
In this book I will walk you through the best ways to live well in the
present while still planning for the future.
There are a lot of books out there that purport to help people to live
the life they want to live.
What separates this book from all the others is that I don’t focus on
WHAT you do. Rather, I show you radically better ways HOW to do
what you’re currently doing.
One thing that I hope you can agree with me on is the value of time.
This book will show you better ways to buy back your time so that
you can do the things that you absolutely love.
Which of these apply to you?
Entrepreneur – This book will show you better ways to use your
money in your business or entrepreneurial endeavors.
Investor – Real estate, stocks, bonds, options, crypto currency, etc.
This book will show you a better way to invest.
High Income – Pay a lot in taxes, can’t contribute to a Roth IRA.
This book will show you a better way to save more money and
leverage your assets.
Inexperienced – You might have just started thinking about saving
and investing. This book will open your eyes to the possibilities of
how to master money management.
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INTRODUCTION
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We are going to discover the most ideal place for you to save your
money. Then, if I did my job correctly, you will know how you can
have total control over your money today and in the future while
also letting it grow with uninterrupted compounding.
There may be better strategies or other ideal accounts in the future.
But, at the time of writing this book, I am giving you what I believe
is the very best way to save and use money throughout your life.
Whether you’re in debt with a negative net worth or own a billion
dollar business, in some way, you can apply the principles of this
strategy in your own life. This strategy won’t replace what you’re
currently doing, but it will, hopefully, show you a better way how to
do what you’re doing.
Please allow me a friendly suggestion. While it may be tempting
to immediately jump to Section 3, I would really encourage you to
read this book in its entirety. Strategies can come and go, but the
principles within this book are universal.
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Contents
Introduction .............................................................................................. v-x
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2
FINANCIAL FREEDOM
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2
Efficiency
Let’s look at the importance of efficiency, or the “E” in E=mc2. We’ll
call this the “Big E” because maximizing efficiency involves the
whole process of growth, income and legacy. It’s all about getting
your money to work for you more and more as the years go by.
The wealth equation (E=mc2) is a deceptively simple, immensely
powerful and astonishingly effective formula that can help anyone
achieve financial independence so let’s break it down in simple
terms and put it to work. To start, let’s talk about efficiency.
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Most people with knowledge of the game would choose the swing
in a heartbeat because perfecting your swing is far more valuable
than having the very best club. It literally separates the best golfers
from everyone else!
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EFFICIENCY
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The term I use for a loss is a “wealth transfer.” Any time you lose
money, your wealth is leaving you and being transferred to someone
else. I picked up the term “wealth transfer” from Don Blanton in
his book Your Circle of Wealth and I use it regularly with clients.
Wealth transfers can occur any time you make a financial decision
regardless of your situation.
The significant financial expenses you have may include buying
homes, paying taxes, fees, education, investing and major purchases
(like vacations, cars, etc.). Wealth transfers can happen during any of
these transactions and can happen without you knowing. Any time
a wealth transfer occurs, you lose more than you think.
What’s the true cost of a wealth transfer? Well, it’s significantly more
than just the initial loss. When you lose a dollar, you don’t just lose
that dollar, but you also lose the opportunity of what that dollar
could have earned you over time. A question that should be asked is:
“What would a wealth transfer be worth if it was kept and allowed
to grow?”
That amount is called an “opportunity cost” and is a fundamental
truth about money. The basic definition of opportunity cost is the
loss of potential gain from other alternatives when one alternative
is chosen. All of your decisions have secondary effects, either
positive or negative.
TH
OW
GR
U ND
PO
COM
WEALTH TRANSFER
OPPORTUNITY COST
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EFFICIENCY
Once you grasp the concept of opportunity cost, you will view
the world and money differently. Ultimately, it’s having the
understanding that your decisions have consequences. For example,
you may start to realize the true cost of a four dollar latte (what
could those four dollars be worth in the future?). Opportunity cost
can be very empowering because you have something solid to work
with. You can determine the true cost of not investing in something
or investing in yourself.
A good example of investing in yourself is starting a business. The
initial cost for me to start my financial business took a significant
part of my time and money. However, the decision offered many
benefits, and ultimately, was something I had to do in order to help
as many people see and reach their highest potential.
My suggestion is to never make a decision based solely off of
numbers. Rather, look at how that decision will help you get closer
to or farther from your underlying Why.
Opportunity costs, like a four dollar latte, may not be terribly
impressive. Just imagine adding a few zeros to that number.
What if I could show you how to prevent $4,000 or even $40,000 in
losses? What about preventing $400,000, $4 million, or even more
in losses?
How could that affect your net worth? How could it affect your
earnings potential? And perhaps most importantly—if I could show
you how to prevent losing a significant amount of money, would you
then turn around and invest that money in the most efficient way
possible?
Wealth transfers affect your net worth far more than gains
do because when you lose money, you have less capital
working for you, meaning less opportunity to make gains.
Since wealth transfers are so important to maximizing the overall
efficiency of your financial plan, let’s look at some of them in a little
more detail. There are four main types of wealth transfers that are
working against your money: investment loss, taxes, fees and what
I’m going to call use.
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In fact, by the time you finish this book, you’ll know how
to enable your savings to outperform the most common
investments available today.
Money that is saved doesn’t have to be unproductive. It should be
safe and not subject to loss. A majority of people are encouraged
to save for retirement through the use of mutual funds. However,
mutual funds are an investment product. They are not a savings
product because any money in the stock market is subject to risk.
Many individuals are storing most, if not all of their retirement
money in financial vehicles that are subject to loss. As history has
shown, a single event can cause significant value loss within a
matter of a few days!
Additionally, if you are involved in any investment that includes
stocks, bonds or mutual funds, you are losing more money than you
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EFFICIENCY
END OF YEAR
YEAR ANNUAL RETURN ANNUAL GAIN/(LOSS)
BALANCE
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you wish. The effect of using a taxable account is that you are only
taxed on your gains, not the initial principal. A taxable account does
little to minimize wealth transfers due to taxes.
Tax-deferred Accounts use pre-tax dollars. You are deferring,
postponing or putting off paying taxes on these dollars. Your account
then grows in a tax-deferred environment. Unlike taxable and tax-
free accounts, in most cases, you will pay a penalty if you access your
money early. You are also obligated to begin to take your money out
at a certain point later in life. When taking money out of the account,
the principal you put in and the gains you received are taxed as
income. None of the gains are taxed at a capital gains rate, which is
most often lower.
A tax-deferred account has the most restrictions. It postpones the
whole tax bill to the future, and you give up total control of how
efficient you can be. The only way this account is more efficient in
the long run relative to taxes, is if you are in a lower tax bracket
when you begin to withdraw money.
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Here’s another way to think about it. You walk into a bank to get a
loan. The bank approves you for the loan and you are thrilled. Before
receiving the money, you want to know two things — when you have
to pay the money back and what the interest rate is. The bank tells
you that you can pay them back in 30 years, and when you do, they’ll
look at what they need at that time and then tell you the interest
rate. There is no way you would take this deal! Yet, this is exactly the
kind of offer you might be utilizing with a tax-deferred plan.
Tax-free Accounts use after-tax dollars. You have already paid income
tax on the money you put into these types of accounts. However, unlike
a taxable account, these dollars grow in a tax-free environment. You
do not pay taxes on your gains. And, in most cases, you can access
your money tax-free. It’s your money to do with as you please.
8% TIME TO DOUBLE
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When you look at it this way, you can begin to understand how
seemingly small fees can hinder your ability to multiply your money.
Actual Value
A third way to understand the real cost of fees is to use actual
numbers. If you contributed $10,000 every year to an account that
earned 4%, you would have an account balance of $583,283 after
30 years. With a 2% fee, your account value would drop to $416,662.
That’s a difference of $166,621! You personally would have paid
$109,023 in fees; the rest was lost due to opportunity cost.
If instead you were able to earn an 8% ROR without fees, your
account balance would be $1,223,459. With a 2% fee, your account
value would drop to $830,162. That’s a difference of $393,297! In
this example, you personally would have paid $173,343 in fees, and
a sizeable $219,954 was lost due to opportunity cost.
In all of these examples, you assume you don’t lose any money in the
investment itself. In most situations you have to pay fees whether
you make money or not!
ACTUAL VALUE
1,250,000
1,000,000
750,000
500,000
200,000
0
5 10 15 20 25 30
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EFFICIENCY
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EFFICIENCY
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3
Most Efficient Way to Buy a
House
I’m not going to go into a philosophical discussion of owning versus
renting a house. I won’t try to convince you that you can save more
money if you downsize. I’m simply going to analyze what is the most
efficient way to buy a house. Why?
Most people are more emotionally invested in this financial decision
than any other one that they make. After all, it’s their home and not
just a house. It’s a place where they can relax and feel comfortable
being themselves every day, raise their family, celebrate holidays
and special occasions, take part in hobbies, entertain and more.
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With regards to how you pay for it, there are two basic options; you
can pay with cash or finance it. With regards to when you pay it off,
there are many different strategies so you will need to explore both
ends of the spectrum. You can either pay it off as quickly as possible
or pay it off over as long a time as possible.
Keep in mind that you are looking for the most efficient solution.
That may or may not be the most comfortable or commonly used
solution.
For this exercise, let’s make four assumptions:
1. The price of the house is $250,000.
2. You have $250,000 in cash available.
3. You can get a 30 year loan at 4% interest.
4. You can access an investment that will give you a 4% return
on your money for 30 years.
You have two options:
Option One: Pay Cash
Let’s say you pay $250,000 in cash for the house. Then, you take
the monthly payment you were going to pay the bank ($1,189) and
invest it, earning a steady 4% over 30 years. This way, you end up
with $828,374 in cash and a paid off house.
Option Two: Finance the House
If you finance the house at 4% and save your $250,000 in an account
that earned 4%, after 30 years, you would also have $828,374 in
cash and a paid-off house.
Mathematically, the results are the same, but this practically never
happens because it requires the buyer to stay in the house for 30
years. It also requires the cash buyer to pay themselves faithfully for
30 years, which is also unlikely.
Now, let’s discuss the most efficient way to purchase a house. With
the focus on efficiency, you are going to look at several factors
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BUYING A HOUSE
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BUYING A HOUSE
$40,000
$30,000
$20,000
$10,000
$0
1 6 11 16 21 26 30
$15,000
$10,000
$5,000
$0
1 6 11 16 21 26 30
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Opportunity Cost
If you pay cash for a house in this example, you tie up those funds for
30 years. However, if you finance the house, you have the $250,000
available for any opportunities you can find or create. Just because
you can invest your money in something for 30 years and earn 4%,
doesn’t mean you have to!
Do you think that in the next 30 years, with a little help and direction,
you would be likely to find a way to earn more than 4%?
In this example, you gain more control over your money and can
generate greater returns by financing instead of paying cash. Yet
again, efficiency suggests to finance.
Security
Many people believe that paying off their house as soon as possible
is a sound, financial decision. I use the word “believe” intentionally.
It’s not strong enough to say that people think they should pay off
their house early or that people are under that impression. For lots
of people, it’s a firmly held belief.
If you are one of those people, please hear me out before you toss
my book in the trash. It appears to me that there are two reasons
many people feel this way.
The first is that you are human and are prone to insecurity. You
feel safer when you think you’re in control when things are settled.
Something unresolved, like a mortgage, lurks threateningly in the
back of your mind.
Prone to worry, you may fret over what you would do if “something
happened.” You don’t really think it through, strategize or make a
plan for that eventuality. You just comfort yourself with thinking
that if you could get the house paid off, you would at least have a
place to live. I get that. I really do. The feeling of safety (that you are
doing what you can to ensure your security) whether it is warranted
or not, is a powerful influence.
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BUYING A HOUSE
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It’s only if you bring efficiency to the table and start asking questions
and running numbers in multiple areas, that you begin to see there
is so much more going on than interest rates and monthly payments.
You begin to see the whole picture. You begin to see losses you can
avoid and gains you can capture. You begin to see ways that you can
exercise control over the process to work it to your advantage.
If you make a number of moves to increase the efficiency of each part
of the process, the whole process ends up working efficiently, and that
makes a substantial difference at the end of the day. I wanted to show
you the most efficient way to buy a house to illustrate the principle
that it is not just what you buy, but how you buy it that matters.
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Section 2
Compounding And Control
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4
Uninterrupted Compounding
I’ve established that being efficient with your money (minimizing
losses, maximizing gains and mastering control) is what will enable
you to reach financial independence in the quickest and safest way
possible.
If I take the wealth equation (E=mc2) and put it in sentence form,
it reads like this: Efficiency is multiplying your money by the use
of compounding and control. In this chapter, I discuss the first “c”
in the wealth equation—compounding. When used in the wealth
equation, I mean a very specific type of compounding, uninterrupted
compounding.
The Power of Compounding
When you invest, your money earns interest (dividends or capital
gains, etc.). Interest begins to grow from the first year. However, in
the second year you earn interest on your original money and the
interest from the first year.
In the third year, you earn interest on your original money and
the interest from the first two years. And so on. Every year you are
not just earning a return, you are earning a greater return. This is
compounding.
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1000
750
500
250
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UNINTERRUPTED COMPOUNDING
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The Problem
There is a reason that compounding is the first “c” in the wealth
equation. The power of exponential growth from compounding
works reliably over time. The principle and the math work at all times
and in all situations. Simple math and reason can easily illustrate
that the principle of compounding pays off royally. However, most
people are not experiencing that type of growth in their financial
accounts.
Why is that? If compounding is a well-known principle, and
produces astounding results, why is it that most people are not
getting those results?
It is because, while people may be trying to compound their funds,
they are not getting the kind of compounding that I advocate in the
wealth equation – uninterrupted compounding.
Don’t Disrespect the Eighth Wonder!
Most people will never have the eighth wonder of the world working
for them because compounding is interrupted by one of four main
things; investment losses, taxes, fees and use of money. These are
the same wealth transfers I defined earlier. You need to think long-
term and consider the effects of these wealth transfers over all the
stages of your life.
Here is a quick review of wealth transfers:
Losses
The definition of risk is the chance for loss. Whenever you experience
a loss on an investment, you lose more than just the amount of the
loss. You lose earning potential.
Taxes
The future rate of taxes you pay and the future bracket you will
be in may change, but taxes are not going away. Any time you pay
more taxes than necessary today or in the future, you interrupt the
compounding curve.
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UNINTERRUPTED COMPOUNDING
Fees
Not only do fees impede growth, but they also work against you
even when your account suffers a loss in value.
Use of Money
Any time you use a dollar, you don’t just lose that dollar. You also lose
what that dollar could have earned you over your lifetime. The fact
that most people are taught to save money during the accumulation
phase, and then spend it down in retirement, guarantees that they
will never get true, uninterrupted compound interest for life.
Expanding the Penny Example
In the penny example, there was nothing working against the
exponential growth of compound interest. In people’s actual
experience, any and all of the four wealth transfers can interrupt
the compounding process.
Imagine that three times during the 30 days (on day 5, 15 and 25),
your pennies did not double. That loss would have interrupted the
compounding process, and your final amount would have fallen
from $5,368,709 to $671,089. Interestingly, only $42,025 was
lost due to the penny not doubling on those three days. However,
the additional $4,697,620 loss was the effect of interrupting the
compounding process.
Let’s also consider taxes. In this same example, you pay a 15% tax on
the growth of your money. This 15% tax would reduce your account
balance from $5,368,709 to $559,732. Even though you only paid
$182,736 in total taxes, they caused a reduction in the account
balance of $4,808,977.
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Most people and financial planners alike don’t take the time
to do these basic calculations that reveal the devastating
effects wealth transfers have on their financial plans.
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UNINTERRUPTED COMPOUNDING
It has been my experience that most people know they are losing
some portion of their gains, but they are regularly a bit stunned
to see how great that loss actually is over time. They are not only
losing that money, but as all of these examples show, they are losing
much more due to the compound-interrupting effect.
By now, you are aware of this effect and can turn these compounded
losses into compounding gains. Your first priority should be to
maximize the efficiency of your money by finding dollars that are
being lost to any wealth transfers. There are almost always many
more dollars to be found than you originally anticipate. Once you’ve
found a powerful stream of money, you can set that stream up to
earn uninterrupted compound interest for the rest of your life.
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Compared to What?
By far, the response I most often get when I explain to people that they
can be assured of getting an uninterrupted, 4% ROR is: “That’s not very
good.” People don’t tend to think that a 4% ROR is a very good deal.
My question to them, which I learned to ask from Todd Langford, the
founder of Truth Concepts, is always this; “It’s not very good compared
to what?” There must be something you are comparing that number
to in order to determine that it’s not very good.
When I talk about a 4% actual ROR, people generally make a
comment about market-based investments which advertise an 8%
average ROR. So let’s compare the two; a 4% actual ROR versus the
advertised 8% average ROR.
Let’s compare a 4% actual ROR to a period from 1998 to 2016 (a
19 year period) when the Standard and Poor’s 500 index (S&P)
averaged right around 8%. (It’s a commonly held assumption that
the S&P will return an average of 7-9% over long periods of time.)
We’ll start with the average number. If you put $1,000 in the S&P,
and it “averaged” (as Wall Street advertises) an 8% return, you would
expect to have $4,316 at the end of 19 years.
However, since you know that average and actual ROR are different,
you need to calculate a more accurate number by calculating the
ROR each year, including years in which the return was negative.
When you do this, you find that you end up with only $3,278. This is
a 6.45% return.
In addition to the above calculation, you need to factor in taxes.
Let’s use a tax bracket of 15%. By doing this, you further reduce your
final number to $2,446 and reduce your ROR to 4.82%. But, we’re not
quite done. You still need to account for fees. Once you uncover and
calculate for a 2% fee, you end up with an actual total of $1,734 and
an actual ROR of 2.94%.
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UNINTERRUPTED COMPOUNDING
4,200
3,150
2,100
1,050
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UNINTERRUPTED COMPOUNDING
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Let’s see what happens when someone pays $35,000 in cash for a
brand new car, keeping opportunity costs in mind. In this example
we will assume you can earn 4% interest.
By paying cash, you don’t have to pay any interest to a car dealer
or bank. Many people stop there and say that was a good purchase
because they avoided paying interest. The question that needs to be
asked is what was the true cost of paying cash?
If the cash buyer would have left their money to grow at 4% they
would have $42,583 after five years. After 10 years, that $35,000
would have grown to over $50k, $110k after 30 years and over
$365k after 60 years.
What was the true cost of paying cash? It depends. Over five years
paying cash cost $7,583 in interest. Over 60 years the decision to pay
cash cost $333,187 in interest. When you pay cash for anything, you’re
giving up what that dollar could have earned you over your lifetime.
This is only the purchase of one car! Can you imagine the money
people are losing unknowingly and unnecessarily on multiple car
purchases over their entire life? This is only on a purchase that is
paid back over five years! Imagine the amount of money people are
losing on longer term purchases?
I understand, for many there is peace-of-mind in not having a car
payment or any debt. Do not fool yourself. There is an opportunity
cost to paying cash for things. Over long periods of time, that can be
a significant amount of money.
Just to be clear, I’m not making this point because I want to
encourage people to pay for major purchases by using credit
rather than cash. That is not my point at all. I am uncovering and
illustrating a money truth that you need to be aware of in order
to minimize wealth transfers or losses that come from using your
money. It’s not just what you buy that is important, but how you
buy it.
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UNINTERRUPTED COMPOUNDING
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5
Mastering Unhindered Control
As important and powerful as uninterrupted compounding is, the
second “c” in the wealth equation reveals itself to be even more
consequential. The second “c” is control. The more I talk with and
assist people, the more I realize the importance of control. I see that
control is missing from many people’s strategies. By the end of this
chapter, I sincerely hope that you gain some valuable insight about
how powerful it can be to gain and exercise control.
The Explosive Power of Control.
In the last chapter (when I talked about the exponential growth that
uninterrupted compounding produces), I was describing an internal
ROR. Internal ROR is the return you receive before factoring in taxes,
fees or anything else. The exponential shape of a compounding
curve is something that will reliably be produced by an investment
if you simply reinvest the returns and allow the investment to
continue to compound over time without interruption.
Compounding is a Passive Long-term Strategy.
You don’t have to do anything for compounding to work for you.
In fact, that’s kind of the point of compounding. If you don’t do
anything to interrupt the inherent, reliable and productive process,
it will do the work for you.
Control works in just the opposite way. Control is about doing
things. Control is about doing everything you can to affect the
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external ROR. This is the rate you actually end up with after taxes,
fees, inflation and opportunities are taken into consideration.
Because control is an active not a passive investment strategy,
there is no real way to chart its effectiveness. It doesn’t follow an
incremental or exponential curve.
The better you become, the more mastery you gain, and the greater
return you can produce. That can happen in large leaps and bounds.
The potential growth of your investment is not just exponential but
explosive. For example, a person might invest in a property, make
improvements to it, exercise control to increase its value and then
sell it for a multiple of what they invested into it. Flipping a house is
admittedly an active investment strategy; it takes some thought and
work. But, if you know what you are doing (you’ve gained mastery
over the elements you can control), it can be very profitable in a
relatively short amount of time.
If you look at your money through the lens of control, you won’t
just see your money as savings. You will see it as capital. It is not
just savings sitting there growing, waiting to be used sometime in
the future. It’s capital that represents your greatest opportunity for
reaching your highest potential and accomplishing your Why.
Remember what I said earlier about your greatest financial need?
Your greatest financial need is to use your money. You will use far
more money than you save, so learning how to use money will have
a greater effect than saving more money. Use of money or access to
capital is your greatest financial strategy. Yet, few people out there
are teaching their clients about the very best and most efficient way
to control and use their capital.
When was the last time someone showed you an effective strategy
to use your money?
Compounding may be, as Einstein is credited with saying, the
eighth wonder of the world. But, as a principle of building wealth,
the control of capital blows compounding out of the water! Which
is why I consider “unhindered control” to be the ninth wonder of
the world!
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MASTERING CONTROL
One step away from the center there are relatively few direct
investors.
Early on, they contributed the capital necessary to develop and grow
Facebook. As initial investors, these individuals have some control
over the direction of the company. But, their ability to influence
is certainly less than Zuckerberg’s, and their profit, while very
significant, is less than his as well.
If you take another step away from the center, there are
shareholders or people who own Facebook stock.
Since Facebook went public, a large number of people have
purchased stock in the company. While it is true that Facebook has
a responsibility to produce returns for its shareholders, this group of
people has very little control over the workings of Facebook.
They can do very little to affect the return on their investment.
They are simply betting that those closer to the center will do
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their job well. Their portion of the profits is significantly less than
the initial investors and far less than Zuckerberg’s.
Taking yet another step away from the center, there are people who
invest in mutual funds.
These mutual funds hold Facebook stock. Mutual fund owners have
the least influence over the profitability of Facebook. They have very
little control over increasing the return of their investment. The
fund manager ultimately decides whether to hold onto the stock
or liquidate it. People who invest in mutual funds have the least
control, and by far, have the smallest ROR from their investment.
Can you see the progression?
Every step you take away from the center gives up a measure
of control to the people closer to the center. With diminished
control come diminished returns.
Can you see the problem?
Most people are investing in mutual funds, where they have the
least control and make the smallest portion of the profits. When
you acknowledge the explosive power of control, you can learn
to exercise it. When you begin to exercise it, you will find yourself
pulling away from doing what everyone else is doing on the less
profitable edges and leaning in toward the more profitable center.
When you master control over your capital, you don’t have to go
looking for profitable investment opportunities. When you control
your capital, opportunities will be more available to you.
Mastering Control Over “The Big Nine”
There are nine elements over which you need to gain control. These
elements are the things you can do to maximize the efficiency of
your financial plan. All of them affect your external (or actual) ROR
and all of them are worth your attention.
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MASTERING CONTROL
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MASTERING CONTROL
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as collateral. Think long and hard about this question. What’s the
value of being able to leverage your money? All things being
equal, what value is added if you can use leverage to gain higher
returns, control larger assets or reduce your liabilities?
4. Keep Your Money Private.
Unfortunately, we live in a lawsuit-happy world in which there
are many people who want to get their hands on your money. For
any number of reasons, you may find yourself in a situation where
someone may make an attempt to get a judgment against you and
take your wealth. Keeping this in mind as you master your financial
plan is key. Some of your money is easily available to creditors. It
is low-hanging fruit. The garnishing of wages is one of the most
simple, straightforward things they can do to get their hands on
your money.
But, there are places you can save and grow your money which are
much better protected than others. You owe it to yourself to take
a good, hard look at where you put your funds and choose places
where your money is safe from potential creditors. What is it worth
to you to know that your money is really yours, private and not easy
for other people to access?
5. Protect Your Money from Taxes.
Gaining control over the money you lose to taxes is so important
that I devote an entire chapter to this issue. At this point, I just want
to say that there are entities that intend to get at a portion of your
wealth. Their assumption is that a portion of your money belongs to
them (or for them to use for the common good).
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MASTERING CONTROL
them to the legal extent possible. You can have significant control
over the amount of taxes you pay. You can manage your tax liability
in the present in such a way that you get free of it in the future.
Qualified plans with a match can be a good place for someone to
put some of their money for retirement. It’s good to know how these
matches work, how they affect your money and how they perform
over the short and long-term.
But, individuals that invest above the company match could incur
some very costly wealth transfers depending on what the future
holds. Protecting your money from the eroding influence of taxation
is, by its very nature, an ongoing process. There is a high-stakes game
going on and the rules are always being tweaked. You’ll need to get
savvy in order to win. Your best bet is to accumulate your money in
places where it can grow and be accessible without any exposure
to taxation at all. What is the value of having your money growing
tax-free and coming to you tax-free?
6. Protect Your Money from Fees.
Administrative expenses, advisory fees and load fees (front-end
and back-end) are some of the more easily identifiable fees you
may encounter as you evaluate various financial vehicles. However,
many fees can be difficult to uncover. Technically, they are probably
enumerated somewhere in the fine print, but they are seldom
articulated clearly or prominently disclosed.
If you look for them carefully, you’ll find fees everywhere. A financial
advisor might charge a fee each year that is based on a percentage of
the money being managed. Mutual funds may charge a fee at the time
of initial investment or when the investment is sold. One method to
generate revenue is to charge marketing fees which get wrapped up
into the expense ratio so they don’t appear as management fees.
Retirement accounts often have built-in management fees. All of
this means that you are most likely paying appreciably more in
fees than you think you are. Assuming you’ve picked up a recurring
theme in this book, you know that the effect of even small fees may
cost you dearly.
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MASTERING CONTROL
At the end of the day, there is little you (or I) can do to stop those who
are in control of our monetary system from using their inflationary
power. What you can do (and should do) is factor the effects of
inflation into your financial planning. It is important to ensure that
the actual ROR is positive even after factoring in inflation.
It is also important to keep an eye on inflation because it can get
out of control. Historically, there have been some pretty devastating
periods during which inflation rates soared. In that type of an
environment, the people who had control over their money could
turn their dollars into real property (precious metals, real estate,
fine art, etc.) which also inflated in value. Those who did not have
control simply had to stand by as inflation eroded the purchasing
power of their wealth.
Whether it involves negotiating the known effects of low level
inflation or being prepared for the unknown turbulent possibilities
of runaway inflation, protecting your money from inflation is a
responsibility you should take seriously.
8. Protect Your Money from Restrictions and Compulsions.
There are a number of financial vehicles which put restrictions on
the amount of money you can put into them. These vehicles often
have compulsions such as deadlines by which you must take your
money (distributions) out of them. You don’t have control over putting
as much as you want into them, and you don’t have control over
leaving your money there to grow as long as you want. Restrictions
and compulsions are indications that these vehicles don’t have your
best interests at heart. Whenever there are restrictions involved,
those restrictions tend to limit your potential ROR. Whenever there
are compulsions, those too, will tend to work against you.
If you recognize that you are in control and exercise that control
effectively, you’ll be looking for places where you can deploy as
much of your capital as you see fit. Money can work profitably for
you as long as you choose to let it do so. Remember, you want to play
“the game” your way. There are many financial vehicles available
that don’t place limitations and demands on your money. You are
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free to politely pass on situations that corral your money and cause
you to give up control. With the knowledge you have gained, you
can set your money free.
9. Protect Your “Human Life Value.”
I am going to finish this list of “The Big Nine” with what I believe to
be the most important element. “Human life value” is a term used
to describe your maximum, financial potential. I’ve said it before;
“you are your greatest asset,” and I consider it my true life’s mission
to help as many people as possible see and reach their highest
potential.
With your highest potential in mind, not only do you need to put
your wealth in a place that you control today, you also need to
insure that an unexpected or even tragic incident doesn’t eliminate
that potential in the future. The reality for most people is that their
ability to earn an income today and in the future is their greatest
financial asset. Many people do not insure that ability, and the ones
that do may be doing so inefficiently. They may be incurring some
unnecessary wealth transfers in the way they protect themselves.
There are four things that may affect human life value. They are
health problems, disability, long-term care and death. In most cases,
insurance is the most efficient way to protect and cover your human
life value in each of these areas. Think of insurance companies as
professionals that manage risk. However, just because insurance is
the most efficient way to protect your human life value, it doesn’t
mean all insurance is good. There are striking differences between
companies and between insurance products. You need to do your
best to maximize your efficiency by properly managing your risk.
Be careful not to over insure or overpay for insurance. Doing so,
amounts to wasting money that could be utilized elsewhere.
While only one of the four things that affect human life value is
certain (death), making sure you efficiently protect and plan for all
of the four is vital. From a purely monetary standpoint, it will cost
you much less to insure yourself against these possibilities ahead of
time than it will to navigate them if or when they occur. Remember,
you are your greatest financial asset! You want to ensure that your
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MASTERING CONTROL
future goals and your Why happen. You also want to put every single
one of your dollars in a place that helps optimize your human life
value today and maximize its potential in the future.
The ROI of a Golf Club
I want to end this chapter with a not-so-simple question. What’s
the real value of control? How can you put a numeric value on the
elements of control? Return-on-investment (or ROI) is a term those
in the financial industry use to reflect the value of something. What
is the true ROI of taking risk off the table and having your money
available for key opportunities? The answer is that it fundamentally
depends on your mastery. It depends on how well you control it.
If you’re a very average golfer like me, the ROI of a golf club is
zero. Actually, it’s less than that because every time I play golf, I pay
money to do so. The return on my investment is a negative. However,
if you’re Phil Mickelson, the return on that same golf club could be
over a million dollars!
Even though I am not a great golfer, I could take the game of golf
and make it ROI positive by how I intentionally use my time. For
instance, I could spend time with a potential client, and while
golfing, develop a close business relationship which would easily
pay for the time and cost of golfing. The ROI a golf club produces
is dependent on how good of a golfer you are or how you use your
time while on the course.
It’s the same with money. Control might be the ninth wonder of the
world, but it’s nothing special if you don’t learn how to master it and
use it for your benefit. If I am going to help you see and reach your
highest potential, it’s imperative that I show you how to exercise
control over more and more of your wealth.
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6
Taxes
Let me give you an example of a hypothetical financial situation.
The situation I’m thinking of involves a person who earns $35,000
per year but spends $40,000. As a result of the income/expense gap
they have been incurring for some time, they have over $200,000 in
credit card debt. You would probably agree with me that they are
in poor financial shape. In order to get to a better place, they would
either need to dramatically increase their income or dramatically
reduce their spending in order to aggressively knock down that debt.
Let me ask you a question. Would you take investment advice from
this person or hire them as your financial advisor? Would it make
sense to have this person give you counsel on how you should
structure your money so that it works most effectively for you?
I can almost hear you screaming, “NO WAY!”
Let me ask you another question. How would you respond if this
person invited you to go into business with them? Would you enter
into a partnership with them in which you put up all the money,
took all the risk and paid all the fees while they retained the right to
change their ownership-stake in the business and change the rules
at any time? Not likely.
No one in their right mind would ever consider this! Yet, millions
of people are putting their hard-earned money in this type of
partnership every single year.
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If you add eight zeros to the numbers I gave you, this example turns
into a snapshot of the U.S. Government’s financial situation. At the
time this book was written, the U.S. was earning almost $3.5 trillion,
spending about $4 trillion and is roughly $20 trillion in debt.
At usdebtclock.org you can see what these numbers are currently.
These numbers are only getting worse as our national debt increases,
and they don’t include national, unfunded liabilities.
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TAXES
in life, the front-end may look good. The back-end, however, can be
particularly unattractive.
There are two important things people are unaware of or ignore
when they put money into these plans. First, their money is not
very liquid. It is locked away and, in most cases, can’t be accessed
without a penalty. Second, they will have to pay taxes on both the
original contribution and the growth at some time in the future. The
opportunity cost of relinquishing your money into these financial
vehicles is enormous.
I want to cover several compelling reasons for you to take tax-
deferred plans off of your investment options list. What follows are
three ways in which these plans actually hinder you in your attempt
to reach your financial goals.
1. The Unknown
Earlier in the book, I mentioned that there are two things that go
into the amount of taxes you pay. One is the rate you pay and the
other is the threshold (or bracket) you are in when you pay them. It
can be tempting to believe that you don’t have very much control
over the rate you pay or the bracket you are in. The government sets
those numbers, so they are out of your control, right?
Not necessarily. Working with good data you can create an effective
tax plan. You can influence both the tax rate you pay and your
bracket. This is how businesses routinely make a lot of money but
pay a minimal amount in taxes.
Profitable businesses employ tax code experts that know very clearly
where the lines are drawn, where the thresholds lie and what the
rules are that go into the algorithm-like calculations that generate
the dollar amount they need to pay in taxes. Because they know
what the rules are and how the playing field is set up, they can work
the numbers in their favor to reduce the business’ tax burden (both
legally and ethically).
But what does a business fear? In what environment do businesses
least like to be? When do the markets and investors get jittery about
their ability to survive and make a profit?
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TAXES
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factors involved. You may not come to the same exact conclusion I
do, but at least you’ll know what the potential impact may be.
To see an example of how the tax rate and threshold can be changed
in order to cover what the government needs to fund, consider
this. In 1941, the top individual tax rate was 81% and the highest
threshold was $5 million.
A person in 1941 who made $200,000 could be reasonably confident
that they didn’t need to worry about being in a higher tax bracket
or paying a higher rate. Unfortunately for them, one year later, the
government raised the top tax rate to 88%, and the threshold was
lowered down to $200,000. Not only did the top wage earners have
to pay more in taxes, but the threshold was lowered, so considerably
more people were added to that bracket. Why did the government
make those drastic changes in the tax code? The answer can be
boiled down to one word – math.
Leading up to 1942, war had been spreading throughout Europe, Asia
and other parts of the world. The mantra for the U.S. Government
was “preparedness.” Beginning in 1939, a number of preparedness
agencies were created to mobilize resources. This included: supplies,
food, military hardware and most importantly, money that would be
needed to finance the war effort. Military planners calculated how
much money would be required to win the war. The calculations
revealed an astronomical number. Having done everything that
could be done to retool the economy to support the war effort,
there was simply no way to pay for the war with the funds at hand.
The only way to fund the war effort was to exercise the power of
taxation. Americans who earned as little as $500 per year paid
income tax at a 23% rate, while those who earned more than $1
million per year paid an all-time high 94% rate!
I’m not promoting any sort of conspiracy theories, making any moral
judgments or railing against a greedy government who wanted
to plunder and pillage your wealth. I’m just following the math
involved. This led me to conclude that, in the long run, taxes will
be going up.
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TAXES
EVERYTHING ELSE
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66
7
Controlling Your Money Like
a Banker
Banks are the masters of control. The business of banking is
essentially taking other people’s money (sometimes called OPM)
and controlling it for profit. Banks have figured out that they don’t
have to own capital; they just have to be able to control it. Banking
is one of the most profitable industries in the world because they
have the best processes for controlling capital. If I’ve learned
anything on my journey, it has been this:
Find those who are having the most success and learn how to
do what they are doing.
Instead of resenting how banks are profiting off of your money, you
should study them and learn their secrets. This way, you can better
control your own capital and even benefit from knowing how to
use OPM.
If you can begin to think and act like a banker, you will find yourself
experiencing the same type of success that the banking industry
does. Thinking like a banker means taking a different view than
the one you are used to having. It involves a shift in mindset. Banks
think about and use money in a way that is completely opposite from
most people. For example, depositing money in a bank is considered
an asset by most people. Banks see it as a liability because that
money is owed back to the customer. On the flip side, many people
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see loans as a liability, but the bank sees loans as an asset because
money is owed to them by their customers.
1. Flow
Banks direct the flow of money better than other businesses by
offering direct deposits. Your money flows through them first before
it gets to you. Because of direct deposits, your money sits in the
bank and is available for their use until you need access to it.
Wall Street financial institutions figured this out as well, and that’s
why they did everything they could to facilitate the introduction
of 401(k) plans. Money now automatically flows to them from your
employer before you ever touch it. The U.S. Government also figured
this out many years ago. This is why employers are required to
withhold a portion of your gross income to pay taxes, before you see
a penny of it. Banks, Wall Street financial institutions and the U.S.
Government are all trying their best to get as much of your money
flowing to them before it goes to you. They don’t need to own it
outright, they just need to be able to control it before you do!
You need a process where you can maximize the flow of your money
towards you, not away from you.
2. Leverage
The root of leverage is the word “lever.” With the use of a lever,
you can accomplish vastly more than you can without it. Financial
leverage is the act of using OPM to gain a higher return or to control
a larger investment than would be possible with your own money.
Banks leverage the money deposited to them by turning around and
lending it out to others. Let’s say you deposit $100 and the bank
pays you 1% for the use of that money. The bank’s liability is that
$100, plus the interest they owe you, which is an additional $1, so
their liability is $101.
For the bank to be profitable, they need to loan your money out at a
higher interest rate than they are charging you. So let’s say they can
earn 4%. They take your $100 and loan it to someone else and get
back $104. After they pay off their liability to you of $101, they end
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CONTROLLING LIKE A BANKER
up with a profit of $3. This $3 may not seem like much of a profit.
Remember, bankers have perfected the art of getting your money to
flow through them first before it gets to you.
The bank spent $1 to earn $4. While a $3 profit may not seem like
much, it’s actually a 300% ROI!
BANK $1 $3 300%
They don’t have to make a huge profit. They just have to make a
little profit on the huge amounts of money that flow through them.
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CONTROLLING LIKE A BANKER
5. Velocity
Velocity describes how the other four concepts (flow, leverage,
liquidity and collateral) all work together. The velocity of money
is the rate at which money is exchanged from one transaction to
another. A high velocity means that your money is turning over
often. It means your money is working harder and producing more.
When your paycheck is direct-deposited into your bank, the bank
doesn’t just let it sit there. It puts the money to work. They loan
it out. This allows your money to be doing more work for them. In
effect, it is in more than one place at a time. When a bank receives
payments on the loans they make, they can also turn around and
lend that money back out. It’s an efficient process creating more
velocity, and ultimately, earning an ever greater return for the bank.
The initial deposit can earn multiple times its original value.
A banker’s goal is to take every dollar that comes through their door
and squeeze as many benefits out of that dollar as possible. While
you can’t use OPM to the extent that banks do, you can use it more
effectively than you may think. You can also adopt some of their
best practices and create your own system for controlling money.
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Section 3
The Controlled
Compounding StrategyTM
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8
Controlled Compounding
Previously, I explained both of the “c”s in the wealth equation:
compounding and control. If I did my job correctly, you now have
some appreciation for both of them and the role they can play in
helping you craft an efficient and profitable financial plan.
The first “c,” uninterrupted compounding, involves harnessing the
exponential power of a passive investment strategy to maximize
internal ROR. The second “c,” unhindered control, involves gaining
mastery over the explosive power of an active investment strategy
to maximize external ROR. I will now bring these concepts together
and show you how to take full advantage of them.
The Big Dilemma
As I moved along in my financial education journey, I became
convinced of some bedrock realities. I knew some of the intricacies
of how money worked. I knew that I was my greatest asset. And, I
knew that my greatest financial need was to use my money. It was
obvious that if I was going to reach my highest potential, it was
going to require money for education, business, travel and investing.
I also understood the principle of compounding. I knew that if I saved
my money instead of using it, my money would grow exponentially.
Every dollar that I would spend, even on good things, would interrupt
the compounding process.
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They use up their money to fund their lifestyle. They do not save
money, and as a result, if there is an emergency, a necessary major
purchase or an investment opportunity, they feel they can’t pass up,
they borrow. Then, they pay interest and principal until the debt is
paid off. When the next financial need presents itself, they repeat
the cycle. Debtors take out loans and then pay them back in steps,
over time, until they are back to where they were before they took
out the loan.
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CONTROLLED COMPOUNDING
2. Savers
They save up their money so that they do not have to pay interest. If
there is a financial need, they simply spend to cover the expense from
their savings. Then, they save more in steps over time to replenish
their savings. If the situation reoccurs, they repeat the cycle.
Savers avoid paying interest, but they also lose out on earning
interest during the period in which they have drained their account
and are paying themselves back. However, there is a third way to
approach your financial needs.
3. Maximizers
Just like the saver, a maximizer saves in steps. But, if money needs to
be spent, they borrow the funds they need using their saved money
as collateral. Remember the example of using a car for collateral on
a loan? The car continues to be yours. You don’t lose the use of the
car at all. The same thing is true when you use money for collateral
on a loan. Your money never leaves your account; it’s unaffected. You
continue to earn uninterrupted compound interest while you pay
the loan back with amortized interest.
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CONTROLLED COMPOUNDING
1. Your money
You need to have your money saved in a place that is earning
compounding interest, but it also needs to be where it has the
ability to be leveraged (collateralized). I’m going to call this place
you are holding your money, your “Master Account.”
2. The entity you borrow money from
The entity needs to be willing to negotiate favorable terms for the
loan and accept your money in your Master Account as dollar-for-
dollar collateral. I’m going to call this your Lender.
3. What you want to purchase or invest in
The benefit you receive from what you purchase must be greater
than the control cost that you pay the lender. If you pay 3% to the
lender, you need to get a benefit greater than 3% in order for the
deal to be profitable. If what you purchase is a liability (like a car),
you have to value that purchase more than the control cost you pay.
The process of controlled compounding is fairly simple:
1. You place funds into your Master Account where your money
will earn uninterrupted compound interest;
2. You identify what may be an asset or an activity that will
produce a good ROR for you;
3. You approach the lender and determine the potential terms
for a loan;
4. You use the lender’s money in the form of a loan, leaving
your money in your Master Account; and
5. Over time, you pay back the loan with amortized interest
while collecting both the compounding interest in your
Master Account, and if applicable, any investment gains.
Controlled compounding can be incredible if used for ROI positive
activities like investing in assets or business endeavors. At the end of
the investing process, your Master Account has grown, the loan has
been paid off and you now have an additional asset working for you.
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W
O
GR LOAN REPAYMENT
U ND
M PO
CO
LOAN
*LIEN
And you can do it again, and again and again. You’re only limited by
the amount of money you choose to put into it. An amount which is
continuing to grow exponentially for the rest of your life.
80
9
Creating Your Master Account
As I set out in pursuit of a better way for my clients, I encountered a
dizzying array of principles, opinions, products, strategies and tactics
which seemed to make a lot of promises. They promised to protect
money, grow money, generate a return, recoup a loss or guarantee
success. I proceeded to uncover the fatal flaws in those which fell
short of their claims and to identify the strengths of those which
were able to fulfill theirs. And the simple truth is that there was a
golden thread running through every strategy that delivered on its
promises. It was efficient in doing whatever it was doing. It minimized
a loss, maximized a gain or controlled something to improve it.
There was a corresponding consistency between those things that
over-promised and under-delivered. They were inefficient in doing
whatever it is they were doing. I could identify places that were losing
money unknowingly or unnecessarily. I could define opportunities
for gain that were being left on the table. I could see issues that, by
applying a little control, could be adjusted and improved. There was
no silver bullet. Instead, it was all about efficiency! It’s not about
any individual product: remember club vs. swing? It’s about the
necessary process in building wealth most efficiently.
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CREATING YOUR MASTER ACCOUNT
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The more you learn about this agreement, the more evident
it becomes that it is designed with a deep respect for private
ownership.
The assumption is that your money is your money and rightly should
serve your interests.
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CREATING YOUR MASTER ACCOUNT
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CREATING YOUR MASTER ACCOUNT
have a vested interest in both parties. You are, at one and the same
time, the contract-holder and a company owner. You are at a double
advantage because you sit on both sides of the negotiation table.
You can ensure that the contract maximizes the benefits to you
and delight in the knowledge that a portion of any benefits the
company receives will make its way into your pocket as well. Talk
about a win/win situation!
The alternative to being a mutual company is being a stock company.
Life insurance companies that are not mutual-owned are owned by
their stockholders. They issue stock and trade in the market like
any other public company. Stockholder-owned companies have the
best interests of their stockholders firmly located before the best
interest of their contract-holders. Their operations and bottom line
are to serve the needs of the stockholders.
Mutual companies, however, have undivided and unconflicted
interests. They serve the needs of one, and only one group of people,
the contract-holders.
4. Dividend-Paying
Of all the strong, stable insurance companies out there, only a
portion of them are mutual-owned. Of those mutual companies,
only a segment of them offer generous dividend-paying contracts.
It is these exclusive few that you want to select from in choosing
your Master Account partner.
I just explained that a mutual-owned company has an obligation
to pass on any profits it generates to its contract-holders. There are
several ways a company can pay their contract-holders, and all of
those ways are not created equal. The three primary ways this can
be done are through dividends, interest or market-based products.
Of those three options, dividends are the most preferable.
Let me explain why.Another word for dividend-paying is “participating.”
Dividends are a way to, “participate in the profits of a business.” I’ve
already shown that historically, life insurance companies have proven
their ability to be reliably profitable. When you have a dividend-
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88
CREATING YOUR MASTER ACCOUNT
MAXIMUM $$$$
MASTER ACCOUNT
Safety
Liquidity
Growth
Death Benefit Leveragable
Inflation-Protected
LIVING BENEFITS
DEATH BENEFIT
Gauranteed
Free of Fees
Free of Regulation
Flexibility
Requires Minimal Time
Passive Cash Flow
Privacy
Protection
Tax-Free Growth
Tax-Free Distribution
Tax-Deductible
MINIMUM $
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know what the rules are, smart people and savvy business owners
can turn a regulation into an advantage.
When designing your contract, you want to use the 1988 guidelines
to your advantage. Conceptually, you want to maximize the living
benefits early in your life (providing you the biggest impact) and
die with the maximum amount of death benefits (ensuring that
people you love and the things you want to accomplish are amply
provided for). When designing and managing your contract, this is
probably the most complex and technical issue you will want to
watch carefully. Optimizing is all about getting the greatest, fullest
and most complete mix of benefits possible. There are literally an
infinite number of ways to structure your contract so that the mix of
living and death benefits is optimized for you.
“Specially designed” means a whole lot of things but here is a quick
summary:
The goal is to design a life insurance contract that will accept the
largest amount of money you can manage to contribute and buy the
smallest amount of insurance for which you qualify. Doing this will
maximize the number and extent of the benefits you can squeeze
out of it. Using the 1988 guidelines, various elements are tweaked
to optimally provide for your life while preparing for your death.
AMOUNT OF INSURANCE
LIVING BENEFITS
And there you have it. If done properly, you’ve created an account
which is as close to the ideal as is possible. You have your Master
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Account. The only financial vehicle you can use to gain control over
your financial life today and maximize your future wealth potential.
Where This Strategy is Known
The wealthy and well-connected have known about these specially-
designed contracts and special life insurance companies for decades.
Many prominent individuals and corporations have taken advantage
of these strategies.
• Walt Disney used money from his contract to finance the
opening of Disney World.
• J. C. Penney tapped into the massive reserves he had
accumulated in his contract in order to keep his company
afloat through the Great Depression.
• When Ray Kroc bought McDonald’s, he used his contract
to pay his employees and create the successful Ronald
McDonald marketing campaign.
• You might be surprised to know that every major bank uses
this strategy to one degree or another. Bank of America holds
roughly $19 billion of its assets in these types of contracts.
Where This Strategy is Unknown
Despite the fact that it’s a common practice and recognized staple of
banks, corporations and the wealthy, this strategy is relatively unheard
of by people on the street. The next time you visit with someone who
is connected with the insurance industry, or a financial investment
advisor, ask them if they can explain how a specially-designed,
dividend-paying contract with a mutual-owned life insurance
company works. Don’t ask them if they’ve ever heard about it or what
they think about it. Ask them to explain how it works.
As a result of reading this book, you probably already understand
it better than they do. If they bluster and bluff, you’ll know it. And,
if they say that somebody is just trying to sell you an insurance
product that they can make an inflated commission on, you’ll know
for a fact that they don’t know what they are talking about.
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CREATING YOUR MASTER ACCOUNT
I never thought that I would discover that the better way was
utilizing life insurance.
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10
Controlled Compounding
StrategyTM
Let’s face it. I’m tired of writing out “specially-designed, dividend-
paying contract with a mutual-owned life insurance company” every
time I want to refer to that vehicle. And, you’re just skipping over
the words, anyway. So, for the remaining chapters, I’m just going
to use the term “Master Account.” Whenever I use the term “Master
Account,” I am referring to the most ideal financial vehicle which
I’ve devoted a lot of time to describe to you.
You certainly can try to use a savings account, or, more appropriately,
a properly-designed Roth IRA as your Master Account. But, it won’t
perform as well. That would be like perfecting your golf swing while
using an inferior club. Both a savings account and a Roth IRA have
their good points, for sure. They could work, but they’re inefficient.
Hopefully, by now, you share at least a portion of my passion for
efficiency. From this point on, I’m going to assume your Master
Account is going to be utilizing the preferred product. You have your
eye on your Why and you have your Master Account which is the
ultimate wealth building tool. Now you need to know how to use it.
Controlled Compounding – With Your Master Account
You’re already aware that there are two things you want to do with
your money.
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CONTROLLED COMPOUNDING STRATEGY
Banks make money off your money before you use it. This is what
you want to do as well. When you set up your Master Account, set
it up so that as much money goes into the account to be saved and
compounded as possible. But, in addition to your savings, put as
much money as you are going to use (money for major purchases
and investment) into it too. All of that money will be available to
use (via a collateralized loan), but it will also compound, without
interruption for the rest of your life.
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CONTROLLED COMPOUNDING STRATEGY
Imagine if your bank would give you (an account holder with them)
a collateralized loan with the most favorable terms and allow you
to pay it back in whatever way was most advantageous to you. Your
bank won’t do that, but your Master Account partner will!
Remember that life insurance companies have been profitable
through any number of sticky economic situations for a couple
of centuries now. Actuaries have finely-tuned algorithms in place
and know with a high degree of certainty what their income and
expenses are going to be. The life insurance company knows how
to make a profit. The amount of interest they need to charge you on
your collateralized loan is completely adequate for them to realize
that profit. The way in which you pay it back is also completely
adequate for them because they are playing a long-term game.
You can see that they can realize their profit if you pay the loan back
ASAP, in regular payments or in lump sums. What if you don’t pay it
back at all? How can they offer you a loan that you never pay back?
The answer is, again, in your contract.
Technically, there are three ways that a policy loan and accrued
interest can be paid back:
1. Surrender
At any time during your life, you can surrender your contract. When
you do, you essentially cancel the contract, “surrender” the death
benefit and walk away with any money (over and above what you
paid for your death benefit) in cash. This is also called “cashing out”
your contract. You release the life insurance company from their
obligation to pay anything to your beneficiaries at your death. The
insurance company returns the “cash value” to you that is in your
contract at the time you surrender it.
The problem with this is that once you surrender your contract,
your money stops compounding. You lose those potential dollars
and what they could have earned over your lifetime. You also lose
all of the benefits of collateralized loans and all the other as close
to ideal as possible benefits that your Master Account is providing.
Efficiency requires that you say, “no thanks” to surrendering your
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G
D IN
O UN
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CO
T IME
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CONTROLLED COMPOUNDING STRATEGY
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CONTROLLED COMPOUNDING STRATEGY
well choose not to repay the loan. It is costing you 5% to earn 13%
so you are effectively making 8%. But, remember that your ROI is
actually 160%!
If you are wondering why the ROI is so high, go back and reread the
chapter on “Controlling Your Money Like A Banker.”
The oversight that can cause problems with not repaying the loan
is related to the power of compounding. You need to remember
that the 5% interest you are choosing not to pay on the loan is
compounding. If someone borrowed 5% to make 13%, but they did
not reinvest the profits, the compounding interest they are paying
on the loan could outgrow the simple interest they are making on
the investment. In some cases, a contract could be overleveraged
causing you to lose your Master Account. Unfortunately, it’s a
common error and a very costly way to learn a lesson.
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11
The Only “And Asset”
The Master Account is the only financial vehicle available today
that allows your money to grow AND be used at the same time.
SAVE
USE
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THE ONLY “AND ASSET”
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THE ONLY “AND ASSET”
more money if they know they can have access to that money for
vacations, buying cars or preparing for college.
College Planning - Unlike other college planning financial
vehicles, you won’t get penalized if you decide not to go to
school. You can use your Master Account for various other things
like buying a car, wedding planning, house down payment and
even a retirement supplement plan.
Debt - Many of you reading this book have debt. Some have a lot
of debt. Using the Controlled Compounding Strategy™, you can
start saving today and get lifetime compound interest. Then use
those savings to pay off your debt.
At the end of chapter five, I discussed the ROI of a golf club. I love
using this example because I believe I have given you the very best
golf club (ideal financial vehicle). Now, you also have an idea of
how to perfect your swing (using the concepts of the Controlled
Compounding Strategy™). Saving your money in a tax-free manner
while having access to capital is a tremendous asset. Cash is king.
Now, you know how to save more of it and have access to it.
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12
Summing It All Up
Let’s review the key concepts that I have shared with you in this book.
You are your own greatest asset! Your ability to think and then act
is one of the greatest qualities you have as a human being. You also
have another great asset that can work for you – time. Your ability to
think and act in a strategic manner can lead to tremendous wealth
accumulation over time. Whatever your age and stage in life, you
can make solid progress toward building a passive income stream
that will finance your life and your Why at a level beyond what you
currently may think is possible.
Whatever your current financial plan is, you are likely losing money
unknowingly or unnecessarily. Finding those losses and putting an
end to them is crucial to maximizing the efficiency of your wealth
plan. The significant financial expenses you have may include
buying homes, paying taxes, fees, education, investing and major
purchases (like vacations, cars, etc.). Wealth transfers can happen
during any of these transactions and without you knowing. Any time
a wealth transfer occurs, you lose more than you think. As you have
learned, wealth transfers cost you significantly more than just the
initial loss. When you lose a dollar, you don’t just lose that dollar,
but you also lose the opportunity of what that dollar could have
earned you over your lifetime. Opportunity costs are a fundamental
truth about money. They are the loss of potential gain from other
alternatives when one alternative is chosen. All of your decisions
have secondary effects, either positive or negative.
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Efficiency, the “E” in E=mc2, will only make whatever you are doing,
better. It will make it better through all the stages of your life.
Whether you are an entrepreneur, investor, employee or retiree,
maximizing the efficiency of your financial strategy from beginning
to end is sure to enhance whatever you are doing.
Compounding, if left alone to work its magic over time, will always
produce an exponential yield. Albert Einstein has been credited over
the years in various financial publications as stating: “Compound
interest is the eighth wonder of the world.” Another statement often
attributed to him declares: “He who understands it, earns it. He who
doesn’t, pays it.”
Control might be the ninth wonder of the world, but it’s nothing
special if you don’t learn how to master it and use it for your benefit.
A banker’s goal is to take every dollar that comes through their door
and squeeze as many benefits out of that dollar as possible. While
you can’t use other people’s money to the extent that banks do,
you can use it more effectively than you may think. You can also
adopt some of their best practices and create your own system for
controlling money.
Controlled compounding can be incredible if used for ROI positive
activities like investing in assets or business endeavors. At the end
of the investing process, your Master Account has grown, the loan
has been paid off and you now have an additional asset working for
you.
When properly designed so that it minimizes the death benefit
and maximizes the living benefits, your Master Account can get
everything associated with the “ideal account” except for tax-
deductible contributions.
Your Master Account is an AND Asset. It enables you to earn
uninterrupted compound interest for the rest of your life and utilize
your capital for other things. You can earn uninterrupted compound
interest and buy your vehicles, and buy real estate, and trade stocks,
and invest in private placements, and start a business, and engage
in any profitable activity that you can dream of!
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For more information, visit us at
www.betterwealthsolutions.com or contact us at
info@betterwealthsolutions.com!
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Epilogue
What I live for is to see and reach my highest potential.
It’s my personal mission to help as many people as possible
see and reach their highest potential.
The most meaningful word in my mission statement is the word
“see.” My life radically changed when I started seeing for myself
the potential I never thought I had. If I could only do one thing
through this book, it would be to show you how you can start
“seeing.” Grasping the money truths and the concepts involved in
the wealth equation is essential to help you see and reach your
highest potential.
It was only a few days after I first considered the idea of a book
that I finished the earliest outline of it. It has gone through a lot of
addition, deletion and revision since then, but it represents my very
best effort at helping you to see and reach your highest potential. It
is my attempt to show you a better way, financially.
I want you to know how excited I am that you have read all the way
to the end. Not only because of what it says about you, but what
it means for you. It says that you are diligent, inquisitive and an
active learner. It means that you now have a working knowledge of
the most powerful financial concepts and the most ideal product
available today. I’ve done the work I need to do. Imperfectly, I’m sure,
but as fully as I am able. I can only hope that it is of as much benefit
to you as I intended it to be.
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DISCLAIMER: This book is presented solely for informational and educational
purposes. The author does not offer it as individual-specific financial or other
professional service advice. While best efforts were employed when writing
this book to include accurate, verifiable content, the author, or anyone else
that may have been involved in any way in preparation of this book make no
representations or warranties of any kind and assume no liabilities as related
to the accuracy or completeness of the information presented. The author
shall not be held liable for any loss or damages caused, or alleged to have been
caused, directly or indirectly by the information presented. Every individual’s
financial situation is different, and the information and strategies described in
this book may not apply to your unique situation. You should always seek the
services of a competent professional before attempting or utilizing any of the
strategies described in this book.