Shifting Investing Away From The Market – Episode 036

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[00:01] Welcome to the Prosperity Podcast, fresh alternative personal finance talk for independent thinkers who prosper outside of Wall Street. Here’s your host, best-selling author, Kim D.H. Butler, and No BS Money Guy, Todd Strobel. Hey everybody, welcome to another edition of the Prosperity Podcast. This is No BS Money Guy, Todd Strobel. Once again, we have our best-selling financial author and co-host, Kim Butler, with us today. Welcome, Kim. Hello, Todd. Happy to be here today. We’re going to be, once again, addressing a listener’s concern, asking about why, when people talk about investments, do they automatically assume we’re talking about the stock market? You know, that is a really good question, and it’s something that bugs me, and it’s

[00:50] so interesting. Anytime, anywhere in the media, you read about investments, you read about the stock market. And even when the media uses the term alternative investments, they still mean things that are in the stock market. For example, they’ll talk about a REIT, a real estate investment trust, as an alternative investment, but it’s still closely related to the stock market. It may have some basis in real estate, but it still is a bit of a gambling environment. And you know, the stock market didn’t used to be used. Financial planning started in the 70s. I think it was shortly before then that people started really being involved in the stock market on a 401k basis, because that’s about the same time the 401k came out.

[01:38] And prior to that, nobody invested in the stock market unless they were very, very large net worth people or people possibly living in New York. You know, it’s funny. I have a lot of friends that live in New York and work with all of the traders and people on Wall Street, et cetera. Most of the people that live there, in theory, have their thumbs on the hot button. Most of them don’t actually invest in the stock market either. But somehow in our society, we have begun to equate the word investing with the stock market. In fact, you saw something just the other day that talked about a portfolio review or something. What was that? It was an automated system where you could go online. Basically, there’s an app for that was the answer that is supposed to take over the

[02:30] role of financial advising. And we’re not big fans of paying huge fees for financial advising. We’re huge fans of making sure you get what you pay for. And if you pay nothing, in my opinion, after reviewing the program, that’s about what you’re getting is nothing. Absolutely. And it assumes that your only investments are in the stock market and a portfolio that they can review with a whole bunch of statistics about the past. And so here we are in an age when things are changing so incredibly fast and we’re still using the past to make all our decisions about our investments as if that’s the only thing that matters. Now, clearly, when we look at our truly alternative investments, we use the past

[03:25] too, because that is how we make judgments. But it’s so important to understand that when you use the word investments, you do not have to only be talking about the stock market. You could be talking about life settlements. You could be talking about direct ownership of real estate. You could be actually even talking about a business. You could be talking about bridge loans or mezzanine financing. You could be talking about peer-to-peer lending. Those are all fabulous examples of truly alternative investments that are not tied up in the stock market. And here as we record this in the summer of 2015, we are headed into another potentially scary time with the stock market. Everybody is talking about what’s going to go on this fall.

[04:14] You’ve got the Fed doing things. You’ve got the various countries out in the other places of the world doing things. And so, so many times, clients on the phone will express concern about, well, what do I do about the stock market? Or what do I do about China? Or what do I do about all these various things that we have absolutely no control over? And it’s one of the things that bothers me so much about the word investing being automatically linked to the stock market because it just helps people become helpless. And that’s not what we’re interested in. We’re interested in giving people more control. So whether it’s control over your income, like having a business or starting a business or adding a business to the picture or adding some type of way to

[05:04] earn income other than a job or control over your investments, whereby you have life settlements or bridge loans or real estate or peer-to-peer lending where you can pick and you can control a little bit more of the investments, that is the kind of control that makes people sleep at night. Everybody that has the ability to have some aspect of control over their income and their investments sleeps better at night than those that don’t. Don’t you think? Or is that a point of contingent? No, I think we agree on that. And as a student of the stock market, I have to admit that it is an auction process and there is so much money right now still sitting in cash. And with most of the people choosing between stocks and bonds, anytime that

[05:57] money moves, there’s going to be an overvaluation in either of those markets. And we’ve done a whole show on bonds and the default rate on bonds is higher than it ever has been before just simply because the municipalities aren’t collecting enough money. Their pension plans are underfunded. Again, we flip back to the stocks and these pension plans have so much money stored in them that when they purchase a stock, they actually what they call make a market and cause profits to be increased inside that company, whether or not the company is profitable or not. So it’s a scary environment. So non-correlated investments is the new buzzword. You might want to just kind of explain what that is and how we address that.

[06:45] Absolutely. So I guess you have to say I love non-correlated investments, largely because typically you have more control and you don’t have to put up with the 2008-9 environment that we dealt with and possibly could have here again in 2015 or 16. So non-correlated just means disconnected or unconnected from the swings of the stock market. And it can also mean that it doesn’t matter who is the United States president, it doesn’t matter what China is doing, it doesn’t matter what is going on in the various other things that we cannot control. The rule of thumb for us as prosperity economic advisors for investments is double digit return, no loss of principle. Now those are two pretty strong statements.

[07:37] And I’m not saying that we always, always get the double digit returns. And I’m not saying that we ever, never, ever lose principle, but if those are our goals, we’re going to have a lot more success in actually finding an investment that can get us double digits, no loss of principle, then if our goal is to put up with the wishy-washy, well, the stock market might earn an average of eight or 10 or 12, but it could go down and are you comfortable losing 15 or 20 or 30% or, you know, historically we’ve done this, but that’s no projection on the future. If you’re okay with that kind of wishy-washy statement and that’s what you’re looking for, then that’s what you’ll find. But if you truly start looking for double digit, no loss of

[08:26] principle environments, you’ll find them. And again, life settlements, bridge loans, peer to peer lending, direct ownership of real estate. These are all environments where double digit, no loss of principle can occur all the time. Now, of course, some of those investments are for accredited only, but some of them are for the little guy. My 18 year old son does peer to peer lending on Prosper and there’s Lending Club and there’s some other ones out there. That are fabulous little places to put a hundred bucks a month or, you know, a little $500 gift that somebody gave you that you want to invest or something like that. Now there are some limitations across the States and I really hope that’s going to change as we go forward.

[09:09] In fact, Todd, do you have an update on that at all? Have you heard anything with the accredited investor change or the, um, the limitations on peer to peer investing? Is there anything in the news that’s new on that? It’s all negative. So we’re probably stuck with the, we’re, if nothing else, there’s going to be more proof required, um, that an investor is accredited. So it’s not going the way we want it to at all. Um, quick question, and this is very important for our listeners. Did partners for prosperity invent these investments or have they been around and you’re just trying to make, uh, investments that other people, the few have that have known about available to the many? It’s definitely the latter.

[09:59] That’s a great question. I had a client ask me the other day, where are you going to be in 20 years? And I said, well, I hope I’m still right here talking to clients Tuesday, Wednesday and Thursday. And I hope that we are still on this farm and living the life that we live and not retired and still helping other advisors do their work. And we can do that because all of the investments that we recommend exist in other places. We’ve just found them and we’re doing the best we can, getting the word out to every possible person as a client and individual as an advisor so that they too can share it with their clients, the life settlements to be specific have been in the tax code since 1911. Bridge loans, hard money loans, that kind of thing as an investment.

[10:47] Those have been around for as long as people have been moving money. I mean, that’s an age old source of financing and investing for people. Um, the peer to peer lending, of course, is newer, but not really. It’s newer on the web, but peer to peer lending and family banking. That was done also way, way back in the test of time. And then of course you have other things like real estate and businesses. Those have been around forever and ever. And gosh, how wonderful that we have the rule of law around private property ownership in the United States, just the ability to own real estate is something that not everybody in every spot in the world can do. And it’s a fabulous environment that is very, very beneficial

[11:37] for those of us in the United States. We have a real estate calculator that can identify how well your investment real estate is doing. And that’s a tough thing for a lot of real estate owners to put their fingers on. But no, we didn’t invent any of this and we didn’t even invent prosperity economics. The seven principles of prosperity that we espouse, sure, we may have put them on a piece of paper, but they’ve existed since biblical times. If you go back and read books like The Richest Man and Babylon and do some research on some other long-term biblically based or other inspirational book based thinking around money, the seven principles of prosperity are all in there. And did you bring our listeners something today?

[12:24] Absolutely. We have an ebook called Financial Planning Has Failed, and it talks about the four main aspects that we’ve covered here today. The idea of financial planning and how wrong that is, that’s again, only been around since about the seventies and it has failed our society. And then it talks a little bit about the cash value of life insurance as a place to store cash as a vehicle for savings. We don’t really look at life insurance cash value as an investment. I know some advisors do and some clients do, but to me it’s liquid. It’s a place to store cash. Completely different from the two investments that we talk about in the Financial Planning Has Failed ebook, which are our life insurance,

[13:11] sorry, our life settlements. I even get the words mixed up sometimes. So life insurance place to store cash, life settlements place to invest. And then of course the bridge loans. We talked just a little bit about the peer to peer lending, but again, if your goal is to get an investment that’s double digits, no loss of principle life insurance cash value is not going to average double digits. It might get up there in the seven, eight, nine range. It might even hit 10% one year as a dividend, but as a rule of thumb, your life insurance cash value should be compared to cash and then your investments, your IRAs, your long-term money, your medium-term money, those that you want invested, those should be in the life settlements, the bridge

[13:56] loans, the peer to peer lending, direct real estate, that kind of thing. And I would encourage our listeners, you know, whether you’re an accredited investor or not, there is nothing wrong with educating yourself and learning about the different options that are out there. Again, we don’t know what the laws are going to do as far as who can invest in what, but definitely would recommend the education, wouldn’t you? Absolutely. It’s so wonderful to learn about because it gives you hope and it gives you peace of mind to know that, Hey, when I do roll over my 401k or Hey, when I do hit that million dollar net worth number, or Hey, when they do change the law, maybe someday there is specific places that I can invest

[14:40] money to get double digits, no loss of principle. And you may know somebody else that is looking for that type of environment that does meet that requirement. We’re happy to help. We have super quick emails that we can shoot out with this information. So if you’re curious about it, bug us and of course, do your research on the internet, the funny thing about the internet is because media and our society is so tied up in the definition of an investment being the stock market. You’ll find massive negative information about bridge loans, owning real estate, life settlements, even the peer to peer lending environment, because our society is so caught in the definition of an investment only being the stock

[15:26] market. And of course the media supports that a hundred percent because the Wall Street’s paying the media’s bills. Another quick question that just came in. I tried to talk to my banker and my stockbroker about life settlements and they were not aware of what I was talking about and said that they were not available. Why would that be? And what can you do about that? Yeah, that’s an excellent question. So the bank are no surprise. The banks are just not going to be involved in anything other than maybe an annuity as an investment, but the investment arms of banks. So Wells Fargo, very well known investment arm of Wells Fargo Bank. And of course, there’s many other examples like that. And of course, the brokerage houses, those are tied to the stock market.

[16:11] They truly believe the only definition of an investment is the stock market. So they’re either not going to know is in this case about life settlements. Literally they don’t know it exists. And quite frankly, most life insurance agents do not know that it exists. I want to come back to that in a minute, but if they do know that it exists, they’re an immediate going, they’re immediately going to have a negative perception of them because they can’t invest in them. They literally are not allowed to, they don’t offer that product. And most of those people operate from the suitable environment. In other words, they can sell any investment that’s suitable, that’s on their list, not the fiduciary environment where they have to tell you about

[16:55] what’s best for you, regardless of what they can sell. Now, as I was saying earlier, it is interesting because there is in some states laws now that as a life insurance agent, you must tell your older clients about life settlements from the sell side. In other words, you have a client that’s in their seventies, eighties, nineties, maybe they’re not healthy. They want to cash out their life insurance because they feel like they need the cash and that’s more important to them than the death benefit, nevermind. That’s not the best strategy to get the cash. That’s just often what people think of immediately. And by law in some states, you are in, you are supposed to tell them about a life settlement.

[17:37] Now, of course, we’re talking about life settlements from the buy side, from the investment side, and we typically don’t have a lot of clients that are actually selling their policies. And furthermore, we know about ways to sell policies or to get the benefit of the death benefit while you’re living that might be more effective than selling policies. We should do that as a podcast sometime about how to spend or use your death benefit while you’re living. But nevertheless, if you are a client that is in your eighties and you bring up your life insurance policy to your agent or your broker, or even attorneys and accountants get involved in this sometimes, you will want to know about life settlements and as an investor, you’ll want to know about

[18:26] them because they’re such a win-win. They’re great for the seller. They’re perfectly fine for the insurance company. They were planning on paying that death benefit and they still get the premiums while that policy stays on the books and you as the investor get a great double digit return with the loss of principle. That’s one of my most favorite things about the life settlements and the bridge loans and the peer-to-peer lending is it’s a win-win for every single person involved and it enables us to continue to think from a prosperous mindset, which is one of the principles of prosperity and mindset matters. It’s so helpful to think from a prosperous mindset as often as you can. I’m guilty. I fall into scarcity mindset thinking sometimes too.

[19:11] But if you can do investing from a win-win environment, then everybody benefits and I have to admit that inside the stock market, it’s pretty tough to view that as win-win. I would encourage anybody to request the information on the bridge loans or on the life settlements. Kim has done a wonderful job of putting some information packets together that are very non-salesy is how I would describe them. Wouldn’t you? They are in formation without a doubt education and information and as black and white as we can make it. Super. Anything else you want to say before we wrap up? Just welcome people to grab the ebook. Financial planning has failed. That is a 60 page, two hour recording, either way you want to

[20:01] read it or listen to it. Financial planning has failed is available at partners. The number four prosperity.com slash ebook. Super. Well, this is no BS money guy, Todd Strobel for the prosperity podcast. Once again, special thanks to Kim Butler. Take care of everybody. Thank you for listening to the prosperity podcast to take control of your money and have it work for you. Visit us at partners for prosperity.com. If you liked this episode, make sure you subscribe and leave a review.