Zero Risk Tolerance for Losing Money – Episode 015

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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, bestselling 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. Today we’re kind of doing something different. We’re actually going to be playing a recording that our resident financial expert and bestselling author Kim Butler made with the Expert Showcase. This is a show that showcases expert financial advisors as well as other fields by a gentleman by the name of Mark Cosman. So Kim, why don’t you just kind of give us a little idea of what we’re going to

[00:48] be talking about today. Sure. Well, it was fun. Mark and his team reached out to us and wanted to hear some information about how we work with clients and what we help them with. And of course, the difference between typical financial planning and prosperity economics. So we laid out three different problems that clients have. And the first is they don’t know where to store their cash. The second is they have a hard time creating growth that they can count on. They often will have their money get cut in half instead of grow like it’s supposed to. And then the third problem, of course, is creating income. And by that, I mean cash flow from their investments. That’s a tough challenge for people to transition from growing their wealth to essentially

[01:36] shrinking their wealth when it’s time to create income. So with those three problems, we addressed each of those areas and gave some great solutions for each of them. Super. Well, we really encourage you to listen to the following interview and also to visit the website at partners, the number four prosperity dot com. Anything you’d like to add, Kim? Well, I sure appreciated Mark and his team at expert showcase. They did a good job giving us some information and the recording that is available to our clients is an audio version. The video wasn’t that great, so we thought we’d spare you the detail of the picture and just go for the voice. Well, super. We’ll jump into that interview now. Again, it’s Mark Kospin and Kim Butler at the expert showcase today on expert showcase.

[02:25] We have Kim Butler talking to us about what to do if you’re working harder than your money. Well, Kim Butler, welcome to expert showcase. How are you doing today? Very fine, Mark. Happy to be here and looking forward to the conversation. Excellent. Well, you’re down in Texas. We’re up here in the Philadelphia area. So the marvels of internet connectivity here. So Kim, tell me a little bit about what we’re talking about. I mean, this sounds really kind of fascinating. I know quite a few people who are working harder than their money. So give us a quick overview of where we’re going to go. Absolutely. Well, it’s a joy to share this wisdom because people should work hard. It’s good for us as human beings, but their money should work hard too.

[03:17] And they shouldn’t be set up for loss. There are so many places where people are losing money, and we can give some examples today. But when we can get our clients’ money working harder, then it enables them to feel more confident, have a better life because they’re happier, because money affects everything, whether we like it or not. And if we’re going to be working hard, our money should be too. Excellent. Well, I love this topic. You know, I’m hoping to get some really good takeaways myself on a personal note. Maybe the audience will as well, but I’m a selfish guy, so as long as I’m getting what I need, I’m happy, right? So we like to do things in threes on the show, and so we’re going to focus on the

[03:57] three main takeaways for people. So let me do a quick rundown and we’ll dig into those. So we’re going to talk about finding alternatives to just storing your money in banks and money market accounts. We’re going to talk about creating a more consistent investment income, and then we’re going to talk about how not to lose your money. That sounds very important. So Kim, let’s take that from the top and tell me a little bit about your work when it comes to really just not just storing your money. Absolutely. So every family has an emergency fund, an opportunity fund, whatever you want to call it, cash, liquid cash. This is not an investment. This is dollars that they have available to go on vacation, to take care of the

[04:39] air conditioning or the heater when it breaks, et cetera, et cetera. And of course, you can have a hundred dollars in there or a hundred million in there. I mean, it just depends on your family situation. But the typical problem is that people are storing this cash in banks and in money market accounts at brokerage houses. And as we all know, those accounts are paying less than 1% these days and they’re taxable. And that is not beneficial. The bank and the money market brokerage house are earning more money on that money than you are. In other words, you’re working way harder than your liquid money and you still got to have that emergency opportunity fund. So we talk about how detrimental that is, how the taxes impact it, how inflation

[05:24] impacts it. And inflation, as you know, is a stealth tax. You know, we go along two, three, four years, we don’t feel it. All of a sudden, 10, 20 years, oh my gosh, loaf of bread, a house, a car, whatever costs so much more money. So this is a real problem that people have is they don’t have an alternative place to store their cash where it is growing at a rate that will at least keep pace with inflation and even better, it’s not taxed. That sounds awesome. So are you willing to reveal at least, you know, kind of a secret? So what’s an example, though, of a better alternative where I’m not just, you know, having it shrink basically, if nothing else, purely to inflation, right? Sure. I’m delighted to reveal the secret because it’s over 200 years old.

[06:11] It’s been around forever and it’s whole life insurance. And I know there’s a lot of people that just immediately want to shut the off button and not even listen to the rest of this conversation. Don’t do that. Listen, there’s good advice coming right now. Well, whole life insurance is not an investment. Whole life insurance is a great place to store cash. And right now in today’s marketplace, 2015, it earns around four or five percent without taxes. So I’m talking about whole life, the kind that’s been around forever, typically from a mutual insurance company. So the type of company that’s not a public company, but is mutual, meaning it’s owned by its policyholders and the net, net, net internal rate of return after the cost of insurance, after the cost of the

[07:00] commission. Everybody’s all concerned about the commissions the sales agent gets after the cost of running the company. Because again, these are mutual companies. The client still gets a net, net rate of four or five percent. Wow. And that is a better place to store cash because you get a higher interest rate so you can keep pace with inflation and the growth is not taxed. That is awesome, Kim. I mean, so that is obviously way better than the fraction of a percent that a savings account is going to give you if they’re not hitting you with a penalty for such and such, which they invariably do. And then, of course, as you said, you’ve got the hole in the bucket that’s draining called inflation.

[07:39] So your money’s shrinking even if you’re breaking even, if you miraculously had a savings account that could match inflation, you’re just breaking even. So that sounds absolutely fabulous. So all right, let’s move on then. So we’ve revealed one secret. You know, we’ll talk to people in a few minutes how they can get in touch with you to learn many, many more secrets about these things. But let’s talk a little bit about creating cash flow. You know, what are some of the things that you recommend that people understand better about that and look at about that? So cash flow or flow, as we shorten it, is our fourth principle of prosperity. We think that people should be building assets for cash flow all

[08:24] along the way. And a lot of financial advisors talk to clients about this only when they’re getting ready for retirement. But we believe that you need to practice. You need to have investments that are cash flowing along the way because cash flowing investments can create car payments. It can create life insurance premium payments. It can create income to do things that you want to do as a family like go on vacation, et cetera. So when we can involve ourselves in a place that gives us a consistent cash flow, and I cannot emphasize that enough, it’s very difficult in the typical stock bond mutual fund arena to get consistent cash flow. We have the worry of the market crashes. We have the up and down nature of those investments, et cetera.

[09:08] So we like to seek out investments that provide a monthly income and also are at a decent interest rate on that monthly income because that’s the other challenge you have. The typical problem of monthly income is solved by an annuity. And you’re looking at maybe six percent or five percent even in terms of a cash flow provider. But we like to get that up there in the seven, maybe even eight percent range. Some of ours are even closer to the ten percent range. That’s per year. But then it’s paid monthly. And that is what people want when they have a cash flow. Absolutely. So they’re in retirement or not. Yeah, I mean, I always remember the light bulb going off many years ago when I read Robert Kiyosaki’s book and his

[09:58] his enlightening fact that most people in the middle class think they’re investing in assets when really they’re investing in liabilities and that an asset has to give you money back. Otherwise, by definition, it’s not as like, wow, duh. But yes, I actually never quite thought about it that way. So, again, let’s let’s reveal at least one secret here, Kim. So what’s an example of a monthly cash flowing investment that’s going to make sense? I mean, I can think of one that I’ve been involved in. But, you know, what do you recommend to people? So these go by a variety of different names, but they basically all mean the same thing. Sometimes they’re called a bridge loan. Sometimes they’re called a first deed of trust.

[10:39] Sometimes they’re called hard money loans. They’re also called mezzanine financing because they’re designed to be between things and they’re backed by a particular piece of real estate. And that term first deed of trust means that there is security or collateral in the form of a piece of real estate that supports that cash flow. So it’s very, very difficult to lose principle. It can happen, but it’s pretty rare and you get the consistency because it’s somebody’s mortgage payment. Now, we don’t like to do these with primary residences. We typically do them with commercial property or investment property. And that’s really important because if the borrower that’s providing the cash flow doesn’t make their payments, we can

[11:26] go in and quickly solve that problem because on commercial property, you can foreclose very quickly and we use very low loan to value ratios. So we have the ability to get out of those properties and they provide consistent monthly cash flow, which is what people are looking for when they want that kind of consistency and income and to be confident in it. Right. So instead of directly investing in the piece of real estate and being the landlord and all the nightmares that people can have doing that here, you’re, you’re investing funds in a real estate structure with a real protected cushion of value in there. So, you know, as you said, yes, of course there’s always risk you could lose, but you’ve structured the

[12:07] situation so that there’s a lot of safety baked in and you know exactly what that is heading in. So I love it. That’s great. Well, I think that’s a great segue then to your third point, which is of course, don’t lose your money. So that would be a very bad outcome if this is my rainy day, my safety money, my money that I want to protect and grow. So what are you talking about in terms of warning people not to lose their money? Well, losing money is one of the biggest problems people have with investment. So I want to separate out that discussion from the cash and storage discussion that we had in our first point, because you don’t want to lose that money either, but typically people don’t. They just lose it due to inflation and taxes.

[12:52] So now we’re talking about investments and the typical person is going to invest in the stock market with mutual funds or what have you, even though all the exchange traded funds and the index funds and the target date funds and all the various hybrids that are out there, the potential is to lose money. You know, 2008 was not that long ago. I’m amazed at how many people have forgotten it. They’re right back to their old tricks, aren’t they? They are. There’s even studies that show that we have a seven year financial memory and we’re right at that point now. So it is so important that people do not lose money in their investments and advisors talk about it all the time, like it’s normal to be

[13:33] that is not normal. I have a zero risk tolerance. I have zero tolerance for losing money, mine or my clients. And most advisors want clients to create a risk tolerance questionnaire that has numbers on it way above zero. And I do not agree with that. So we provide investments that do not lose principle. And again, the typical reaction to that is, oh, they must be boring and not earn any money. But to me, the definition of an investment is at least double digit returns. Well, that sounds anything but boring is, you know, safe and double digit return sounds like something I want to pay attention to and learn an awful lot more about. That sounds really fascinating. So, yeah, I mean, you’re right.

[14:19] I mean, when you meet with your typical financial person, they have that questionnaire. And, you know, I mean, they’re talking about, you know, how do you feel about losing 30 percent of your investment portfolio? Oh, sure. No problem. It’ll come back over the 10 or 15 year horizon, right? That is not OK. I like the way you think, Kim. I really do. So, Kim, I’m going to wrap us up at this point and I’m going to tell people how to get in touch with you, because, I mean, clearly you very much are the experts. You know, you’re rattling these things off as if they’re everyday because they are everyday to you. And that’s what people need to get connected with so that it becomes everyday thought process to them as well.

[15:02] So we’ve been talking with Kim Butler about what to do if you’re actually working harder than your money is, because obviously you want to get that money doing something for you, not just kind of sitting there. So we talked a little bit about not just parking it in a bank or in a CD or in something that’s giving you almost no return on your investment, that there are way better ways to do that. We talked a little bit about creating consistent cash flow and really doing that in a safe way, but in a way that gives you a much better return than most people think they can get. And then, of course, not having to have any risk tolerance, or at least very, very minimal risk tolerance, rather than what you’re typically being kind

[15:38] of level set when somebody’s kind of planting that number in your mind. Kim is here to tell you that she’s got a zero risk tolerance. So if that resonates with you, here’s how you get in touch with Kim. Kim, you have a website, it’s called partnersforprosperity.com, right? And we’re going to have that up on screen for people to have a look at. And when people go there, they can download your Prosperity Accelerator Pack. Can you tell me just real quick what that is? Sure. So there is a e-book in there available via opt-in, just name and email only, that is about 60 pages of why financial planning has failed. And I am a former certified financial planner and dropped that designation because I so disagree

[16:24] with the typical methods that financial planners use. So they can get the e-book and then, of course, there’s a series of emails that they’ll get over the course of time that actually go into these three things that we’ve talked about today quite thoroughly. And we’re happy to share that information. We do work in all 50 states. We do all of our work over the phone and the web, and that enables us to help anybody. We do not have a minimum. A lot of advisors have a certain minimum of assets for management, and we do not. So we’re able to help people if all they can do is save a little bit of money per month. And sometimes we can’t help people, and we’re very quick to identify that and try to get them some help

[17:03] somewhere. But we help everybody that we can and we can do that efficiently because of our phone and web work. Excellent. So you want to get connected with Ken Butler if you want to get your money working at least as hard as you are and not being lazy sitting there and losing its value. So go to Prosperity Partners for Prosperity dot com. Download that e-book. Just put your name and email address in there. It’s totally painless. We all know in this day and age that, you know, that’s a totally safe thing to do when you’re dealing with somebody with integrity. And we only have people with integrity on this show. So get connected with Kim Butler. Get that free report that Prosperity Accelerator pack

[17:41] and then get in touch with with Kim and see if she can actually help you make your money grow. Kim, it’s been a very enlightening but pleasurable experience having you as our guest expert today on the Expert Showcase. Thank you so much. Thank you. I enjoyed it. 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 dot com. If you liked this episode, make sure you subscribe and leave a review.