The Importance of Asking Good Questions – Episode 048

This transcript was auto-generated and may contain errors.

[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 with our resident expert and my co-host, best-selling financial author, Kim Butler. Welcome, Kim. Thank you, Todd. Good to be here today covering one of my most favorite subjects, which is asking good questions. And I think you’ve got one for us. Super. Well, we are going to be focusing on one question in particular, and that’s as compared to what? And any time that you are analyzing one investment or one possible decision, I guess

[00:58] you could use it really in any decision. You have to compare both what you have your money in along with all of the potential choices. It’s really not fair to compare, say, putting your money in a savings account versus investing in a stock versus investing in a life insurance policy. If you can find good and bad in each of those investments. I have yet to find a perfect investment for everyone. But if we ask that question as compared to what, it allows us to put those factors into a way that we can compare them and make what is potentially or at least what should be the best decision for us. Yes, this question, and it’s actually even smaller than that. It’s compared to what was put forth by Daniel Pink in the book To Sell is Human,

[01:58] which is a wonderful read. It’s been out a couple of years. Really insightful book. I love his work as a general rule as an author. He’s got other good books out. But his To Sell is Human book just indicates that we are all as human beings selling. And so it’s To Sell is Human. I really wasn’t pronouncing that very well. And what he’s saying is that you’re selling your spouse somewhere you want to go to dinner that night. You’re selling yourself on an idea that you want to actually implement. You’re selling yourself on getting up and working out in the morning. You’re selling your boss on the idea that you want to implement at work. You’re selling your assistant on the idea that you want her or him to implement at work.

[02:41] I mean, it’s constantly something that goes on in our lives all the time. And I will admit, I was one of those people that came out of school with my nose turned up at the idea of sales. I did not want to get into sales. And in theory, that is what we all do every single day. It’s definitely what I do every single day. Some of the times I’ll change my language. I’ll say I’m not selling things. I’m helping people buy things. But it’s basically the same. And the other thing that’s funny to me is my parents were both teachers and I didn’t ever want to be a teacher. But in actuality, that’s what I do all day long also. So we could say selling is teaching and teaching is selling. Those teachers are definitely selling those kids on the idea that it’s fun to

[03:23] learn and good for them to do. You are so good at coming up with examples to illustrate our points. Can you come up with one for us here? Absolutely. I had a conversation with a person on the phone just this week. He is a brand new client looking at life insurance. And he kept making statements that led me to say, what are you comparing this to? Or if you will, compared to what? And as is so often the case, he was comparing the actual owning of life insurance to investing in the stock market. And so I helped him see that that was an invalid comparison. Those two are completely separate things. It’s the old, you could say it’s apples and oranges. I think it’s apples and beans. I mean, these are not even in the same category at all.

[04:19] Like you would say apples and oranges are in the fruit category. So that’s an example where you’ve got life insurance that, by the way, should be compared to a savings account. And I even go so far as not letting clients use the word invest in life insurance. I know you said that earlier, and it’s just a comment. But it’s become more and more clear to me over time the critical distinction between savings and investments or investing. And savings are what is liquid money, and investing is what is not. So another example, when we talk about the life settlements, that’s a seven to nine-year investment time frame. And so when somebody says to me, well, that’s not liquid. And again, we’re talking investing here.

[05:05] We’re not talking savings. And I’ll say, you’re right, it’s not. What are you comparing it to? Well, my 401k plan. And this is maybe a 35-year-old. Well, your 401k plan’s tied up for 20 years. So let’s get our comparison clear. So compared to what or as compared to what helps people really bring it down and get that old statement of oranges to oranges instead of oranges to apples or apples to beans or whatever you have, where you can truly make a valid comparison. Super. And maybe if you would just kind of elaborate on, just briefly, our process is cash flow builds savings, builds investments in the long term. So these all have a place in somebody’s daily lives or habits or however you want to define that.

[05:58] Absolutely. When I look at somebody’s finances, I think it breaks down into three pretty simple areas. And the first is savings. It is liquid dollars that are available for emergency slash opportunity. And hopefully, we can focus more on the opportunity. But either way, people need savings. And frankly, the older they get, the more liquid savings people tend to want. And I’ve quoted this many, many times. But every family tends to have their own number that they are comfortable with for liquid savings. Now, I know that the powers that be, the press and whatnot, say, six to 12 months. But some families are comfortable with much, much less than that. Other families need much, much more than that to sleep at night.

[06:44] And I know Oprah Winfrey’s number, and gosh, this is a statistic that’s probably five or even 10 years old, was $7 million. That was her emergency opportunity fund. So it’s all very relative based on our family situation. But to me, that’s one simple thing. And of course, we feel that the bulk of our emergency slash opportunity fund should be stored in the cash value of whole life insurance because of its liquidity, but also because of its safety inside the life insurance industry. So then we have the second area, which is cash flow. And there’s a great question to think about, which is, why are you investing? And most people don’t have a real good answer for that. They’ve been told to. They want to save for the future.

[07:29] They have this idea that they’re going to retire someday and not work, and I won’t get on that soapbox today. But the general idea is that you should know why you’re investing money. And in my opinion, one of the main, main reasons that we should invest money is for cash flow. The problem is people don’t know how to invest money for cash flow. We’ve all been taught that the stock market is a great place for investing. And yet we can all realize pretty quickly and easily that the stock market is not a good place to create cash flow, to create income, to create a paycheck back to you. And so we provide investments. Bridge loans are our favorite that provide cash flow. And we do have them available for both accredited and non-accredited investors.

[08:19] And it is a place where you can get a monthly paycheck. One company pays on the seventh of the month. The other company pays on the 20th of the month. And at decent rates of returns, too, 7, 8, 9, 10 percent. And of course, we’ve talked about peer-to-peer lending. That can create cash flow. So that’s the second thing that money should be doing. And then the third is growth, because inflation is going to be our biggest enemy challenge, whatever word you want to use going forward. And that is because inflation is what erodes the power of money and the capability of money. And taxes, of course, are a big, big part. But we really can’t do much about the taxes. The inflation, we can do something about to a certain degree.

[09:04] And what we do is make sure that our investments are growing greater than inflation and not shrinking. So here’s where the life settlements come in, because those have the good low double-digit returns with potential opportunities for more on occasion. And they’re in an environment where they will not shrink. You will not see principals get cut in half in the life settlement arena because they’re literally a payment of a death claim from an insurance company. I’m not sure I can think of anything else that money should be doing. I mean, yes, we have our day-to-day cash flow. That’s a completely separate subject. But do you think there’s anything else other than savings, provide cash flow and provide growth?

[09:45] Absolutely not. But we have so many investors that we meet with on a regular basis that have the all or nothing mentality. So everything is in cash or everything is in the market or everything is in a savings account. And when you start comparing these things, you realize, OK, I’m 100 percent in cash. So you have an average of a negative five percent rate of return after you factor in inflation. You’ve just built in a guaranteed loss. Now, should part of your money be in cash? Yes, absolutely. You need to have liquidity. So you don’t take all of your money and put it into a nine year investment so that, you know, if the car gets wrecked or the furnace goes out, you literally have to borrow money now

[10:30] in order to meet your daily cash flow. So, again, not all not or nothing. I love the fact that we’re looking at these comparisons and saying, OK, here’s my liquid money. I’m willing to forgo and maybe get a lower interest rate. And by lower interest rate, we didn’t mention this, but on life insurance, we’re still seeing that four to five percent rate of return, which is certainly better than you’re getting in the bank and you’re keeping up with inflation. So the money you have today will at least still by a year from now, what it will now. That’s the only thing I would add. Absolutely. It is so important to realize that you can’t have one product to do all the jobs. And it is where people get stuck with their financial pictures because they’re trying to get their money

[11:21] to do all three things for them in the same product or the same group of products. And so getting off the fence and getting clear, asking yourself the question, why am I investing? What is this money for? And the money that’s for cash, put it in the cash value of life insurance and the money that’s for investing, put it into something that’s really going to grow for you and then further define it as either a growth oriented or an income oriented investing and stop looking at the products that are on the fence because annuities and a lot of the stock market and the mutual funds and even the 401k plans. Did you know that 401k used to be called 401k savings? And yet somehow we’ve turned it into 401k investing.

[12:12] And yet even nobody knows what they’re doing within it. So we have this environment where we’re sitting on the fence. We’re trying to get our dollars to do all of the things. And consequently, they’re not really doing any of the things very well. Take a hard line and split up the money and say, I want this for liquid cash. I want this to create cash flow. And I want this to create the opportunity for growth. And I believe that even the younger set, so our clients that are 30s, 40s, 50s, it’s okay for them to start to generate cash flow now from their investments because then when it does come time to, for example, roll over a 401k and it’s a big decision, they already have the whole cash flow game figured out and they’re not having to make

[12:57] this huge decision with a large lump of money. All of a sudden, oh my gosh, what am I going to do with it? It needs to create cash flow for me now. And so that’s scary. And we are big, big believers in taking baby steps, getting small accounts open and growing into them as your confidence rises and always asking the questions. Asking questions is a great way to learn. So whether your question is compared to what, whether your question is what am I investing this for, two additional questions that I really like are what’s working. And then the alternative to that, which is what’s not working. So take a look at the places that you have money today and say what’s working about this particular environment and what’s not working about this particular environment.

[13:48] Those two simple questions combined with the as compared to what question can really get at the heart of the matter of what’s going on within your financials. And that can then help you make better decisions about those monies because you can take what’s not working and get it fixed and you can keep the what’s working part. Let’s say that you absolutely love your 401k and you’re thrilled with the results and you’re okay with the tax law that it creates. Then you can keep going forward with that with confidence. It shouldn’t matter to you what the press says or what the media is saying, differentiating the, you know, the printed press versus the TVs and the YouTubes and whatever else we’re seeing in media.

[14:36] It shouldn’t matter what they’re saying. What matters is that you are confident with it. Now you can be wise to learn, but still in the end, it’s your money. You’re the one that needs to make the decision with it. And you’re also the one that’s going to either benefit or have detriment because of that decision. Super. Well, again, your money is your money. What worked for your parents or grandparents or the guy down the street or the talking head on TV is probably not necessarily relevant to your situation. So if you have the need for additional information, Kim, anything you’d recommend? Absolutely. Read, listen, or watch whatever is your style of learning. There’s lots of material on our Partners for Prosperity website.

[15:20] If you would like an audio book, we have one available for you. It’s partnersforprosperity.com slash ebook. There’s about, I think it’s a couple hours of a recording on the book called Financial Planning Has Failed. And so I’m reading that book and it is our gift to you. It’s a great way to learn about prosperity economics, which is our alternative to financial planning. You know, financial planning existed starting around the 1970s, I believe, in its real current form. And it has failed. And I was a certified financial planner. And I do not agree with what the College of Financial Planning puts out. And I’m always happy to discuss why not with anybody that has questions. So that would be the second thing I would recommend is if you’re interested in

[16:12] a consultation, no obligation, and certainly no money changes hands on the initial one, we can take a look very briefly at your situation and lay out some alternatives for you, whether they be for that liquid cash or to create income or to provide you some growth. And a lot of things are for accredited investors only. But we actually have solutions for each of those three categories that are not for accredited investors. There’s an interesting distinction amongst the accredited investor arena called a suitable investor, and that’s technically a net worth of 250,000. It’s called a suitable investor. Now, please don’t get that confused with suitability, which is not how our company operates. We’ve talked about this before.

[17:02] But Partners for Prosperity is a registered investment advisory firm which operates under the fiduciary capacity of being required to tell you what is best for you, irregardless of what products we offer. And so that fiduciary requirement is opposite what’s called the suitability requirement that most stock brokerage firms have and most banks and most broker dealers. So there’s fiduciary capacity versus suitability capacity. And then completely separate from that is an accredited investor and then a suitable investor. So though that word suitable is used in two different instances there, it has completely different meanings, completely different definitions. Suitable underneath the accredited definition is for you, the client.

[17:55] Suitability versus fiduciary capacity is for us as investment advisors. And again, at Partners for Prosperity, we operate from the fiduciary standard. And that, again, causes us to have to literally by law tell you what is best for you, irregardless of what we offer. You think there’s any questions around any of that? I would imagine we could probably do five hours worth of questions off of what you just said in the last three minutes. But for now, I would say whether you have a lot of money or you’re on your way to having a lot of money, because if you’re listening to this podcast, chances are that is you. I would encourage you to interact with partnersforprosperity.com, whether that be on the web or via phone call, whatever’s most comfortable for you.

[18:43] The education that you’ll get from working with those materials is worth a great deal. It is an alternative view on an alternative investments that you absolutely need to know about, even if it’s just to confirm that you don’t want to invest in them and you want to stick with what you’re currently doing. So this is No BS Money Guy Todd Strobel for the Prosperity Podcast. Once again, special thanks to Kim Butler. And we’ll see you all again real soon.