Alternatives to Cash – Episode 453

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[00:00] Welcome to the Prosperity Podcast. Prosperity thinkers, welcome to the podcast. Today we’re going to be talking about alternatives to cash. And the reason why we’re doing that is because one, you’re probably hearing about it in the news. And two, the more knowledge and wisdom that you have, the stronger that you’re going to be. Kim, take it away for us. Well, this is such a fun discussion because it cracks me up when I read article after article of people lamenting the fact that they have no good place to store their cash, their liquidity, their emergency opportunity money, whatever you want to call it. And they’ll scramble about and say, well, I did find this one money market account and it’s turning 1.2% or well, I could do bonds and then there’s a whole list

[00:56] of issues with bonds or well, I found this one thing. And it’s kind of working, but it’s not really great. And they’re scrambling and scraping and digging for a good place to store cash. And they never mention whole life insurance. Yeah. As if they have those blinders on the carriage ride and this carriage ride is like follow what everyone else does instead of doing the thing that actually makes sense. So why is it? Well, it is mind boggling to me and I think about it a lot. Why is that? Especially when we acknowledge the fact that the whole life insurance product, be it the redheaded stepchild, black sheep of the family, whatever you want to call it, has been around for 150 to 200 to possibly even four to 600 years,

[01:51] depending on when you actually say that it started. But let’s just go with 150 plus years. So here we have a product that has been essentially the same for 150 plus years and it’s so out of favor with the financial personalities that are on the web and talking heads that are jabbering about this lack of position of cash that they don’t slash won’t bring it up. What is up with that? And part of what I think the issue is that it’s not a Wall Street darling. It’s as boring as can be, and it just doesn’t have any of the sizzle that they want to talk about. And then furthermore, it comes from this, in their mind, weird structure of a company called a mutual life insurance company. And I even saw something just recently that said life insurance companies are

[02:53] doing well, so now is a good time to buy stock in a life insurance company. And when you understand the space, which we’ll get into here shortly, of a mutually owned life insurance company, which is essentially private compared to a public owned life insurance company, which is the kind that you would buy stock in, it’s laughable. That was their suggestion. Yeah, that’s strange. I want to break it down almost like a math formula for a moment, because this may be helpful for one, historical thinking, principal thinking, and then for some of our analytical thinkers. So the variables, and I’m going to make some broad general statements. The variables of this are the economic cycle that we’re in, meaning

[03:41] if the economic cycle is at a time where it’s really difficult, it may be more obvious of places to store cash. But when it’s frothy and it’s like how it is right now, it may not. The other happens to be the other variable I’m going to add in is the wealth class, meaning if you’re just starting or if you maybe at the very beginning or in the middle or at the end, there are different alternatives out there. So where do those two variables fit in what we’re explaining today? Well, I do think you’re right. The economic environment causes us to be horribly distracted. And I get it. People are concerned about Ukraine as an example right now today. Yes, I am too, and there’s really nothing that I can do about it.

[04:35] I can pray, I can get into a spiritual space and that’s helpful, but financially there’s nothing I can do about Ukraine unless I want to donate some money and that’s helpful too. Nevertheless, I could be very distracted by all of the things that go along with the fact that Russia is doing what they are to Ukraine. OK, that is not helpful to us as individuals on a daily basis as it relates to our personal finances. So focusing on what you can control is critical. And even if the Ukraine issue is not going on right now, there will be something else that is going on. Washington’s this or Washington’s that, New York’s this, New York’s that. All things that we really cannot control. Inflation is another one that’s in the conversation these days.

[05:18] Nothing you can do about inflation except for keep working and save more money. And so that then does maybe beg the question, well, where would I save it? Save as a verb as well as save as a noun. But I think it is very important to understand that we need to focus on what we can control around our personal finances and end it there. So we’re going to get to the second, but there’s one piece that I’m trying to kind of crack the nut and it’s up here in my brain. So for listeners, this may be helpful. We’ve got a lot of other distractions. Call it NFTs. We’ve got crypto stocks that are doing really well or we’ve got a bubbling. I use the word bubbling meaning some areas it’s pushed over, some areas it’s still going real estate market.

[06:00] Yeah. And so if you have capital, you can sit there and say, well, why life insurance when I could just get another multifamily or when I could just put it into this fund? Talk about that. Well, it’s a really critical distinction. And that is and thankfully easily made all of those other things that you brought up fall into the investment category. Good investment, bad investment, helpful because of taxes or not. Doesn’t matter. It’s investment and life insurance is not whole life insurance is a savings vehicle. Savings is a verb savings is a noun. That’s why it’s boring. That’s also why it’s effective. It’s not a darling of Wall Street nor is it a whatever the opposite of darling is bad thing on Wall Street.

[06:51] It’s not an investment period. And I did not used to make this distinction in my own head. Sometimes I would cause life insurance to fall into the investment space and it’s categorically not accurate. And over many years, I’ve really learned and seen the distinction of savings as a verb, meaning putting money away consistently and savings as a noun, meaning the place that we store said savings, how valuable that is to families and how important it is that we keep that area separate from all of the investment discussion that we have, which I would also include all kinds of retirement plans, right? Self-directed IRAs and 401ks and et cetera, et cetera, et cetera, all investments, savings, whole life insurance.

[07:38] I think you could maybe argue that savings would also be like a savings account, a money market account. You could maybe argue that it’s Bitcoin, but not crypto. And it’s actually interesting just to segue super fast on that. Although I know we don’t want to get too far down the road. I’ve heard other people identify Bitcoin as savings and all other crypto as investments. So I think whole life insurance has that same distinction. It is a savings vehicle, saving into it, as well as storing the wealth once it gets there. But to play devil’s advocate with that. So what that means is if we agree it’s a savings vehicle, savings instrument, the big picture, the goal that many of us will have, not everyone, but many, is to be able to use that so that we can become our

[08:29] own bank, which we’ll talk about in other episodes. So now we’ve got this timeline that we’re dealing with. Oh man, like I could make a ton more on these investments and this life insurance thing isn’t like the most sexy thing right now. It’s further out. Talk through that because I know that’s an issue. People say all the time. Absolutely. And we have to acknowledge the fact that frankly, life insurance is the one product that we may not be able to buy tomorrow. We can buy an apartment building tomorrow. We can buy a CD next year. We can put money in our 401k the following year, but we’re not guaranteed the ability to buy life insurance tomorrow. Now, thankfully most of our clientele are young and healthy and

[09:13] absolutely we’ll be able to buy life insurance tomorrow. But there are a small percentage of the people in America that either will have a health issue tonight or potentially die and not be able to buy life insurance tomorrow. And thankfully I’m really grateful that I rarely even say that in my practice. Like I would never want to say that to an individual on a meeting. And the fact is it’s an accurate statement. So I don’t mind saying it publicly. So let’s set that issue aside and just acknowledge that every single person has what’s called a compound interest curve over their entire life. And it is only one curve and it starts on the bottom left of a piece of paper and it goes up to the bottom of a piece of paper and the younger you get

[10:03] your savings track on that curve, the better off you’ll be. So 20 is better than 30, 30 is better than 40, 40 is better than 50, 50 is better than 60, 60 is better than 70, 70 is better than 80. And you want to do investments too, even to quote my friend, Vince Dodona, who you’ve met and we were recently talking about. Each person is actually on two parallel curves, or you could say two parallel paths and the savings component must go along with the investment component, the investment component, of course, is more interesting. People want to go there first. That is the problem that we have in America is people have all this money tied up in real estate and retirement plans and other facets of investments

[10:53] that are not liquid, that are not savings, that are not available for emergencies and consequently, they are taking on credit card debt. And sure, you could argue in any single year that an investment could outrun credit card debt, but not over a lifetime and the real estate investors, the business owners, the young kids that are building their houses and their families are going to have a more stable and secure and certain financial environment if they will also build savings at the same time they’re building their investments. And yes, what that may mean is a slight detour for a year or two where they buy the life insurance and they install the life insurance as the foundation in their overall financial house and that foundation term, I

[11:50] mean that a hundred percent so that they can then build that house on a strong foundation and as high as they want, whereas if they don’t have that cash and liquidity, which is what life insurance enables them to buy. So life insurance buys you liquidity when you’re buying whole life and the death benefit and the protection side, but that liquidity is what enables the strength of that foundation to support the rest of the real estate and investments and all the other stuff that they want to do, which is often illiquid, that then they still need that savings, that liquidity to turn to, to solve emergencies and take advantage of opportunities. Yeah, that’s a really good point. I think what you just said there, I’m going to summarize what the word

[12:40] wisdom and what I mean by that is this, if you go to Reddit on Wall Street Bats where the GameStop and the other stuff happened and sure, that was an amazing roller coaster. The problem with that is, and I’m generalizing, a lot of those investors are teens like 18, 19 up to like maybe up to 30 and they didn’t experience the longevity and the cycles and the importance of having that parallel path, as you mentioned, and having the access to capital and so on paper, as you mentioned, looking at it for one year, you can justify looking at over a decade, decades, centuries, insurance wins. It wins as the position of cash. Absolutely. The second piece that we were covering at the beginning of my question thread, I had two of those, was the different levels or

[13:39] we’ll call it stages of wealth. You’ve got someone that’s just starting out, you’ve got the middle of the road and then you’ve got the end. So how does that affect your alternatives to catch? Well, it’s interesting. I love helping the people that are just starting out because it’s so simple to get them started and with very little money, they can make a huge difference in their entire life. Whole life is named whole life for a reason. It absolutely affects you your whole life. I also love the let’s call it, you know, 40 to 55 to 60 year old space. That’s probably because that’s where I reside and I absolutely positively know that person can have a more certain financial environment if they will pause just for a minute and focus on building up that cash and

[14:28] liquidity and then interestingly enough, the 70 and 80 year olds are fun too, especially if they have a little bit of capacity. Now I’ll be very frank, if you’re in your seventies and eighties and you just don’t have any extra cashflow and you just don’t have much whole life is not a place for you at all unless you want to do a little tiny policy for a grandchild or something, but if you’re in your seventies and eighties or even sixties and you have a bit of assets, let’s, I don’t know, just draw a line at a million or 2 million, then absolutely positively we can prove, numerically prove that the presence of whole life insurance in your personal economic environment will benefit you. And yes, it will pay a beneficiary when you die, but the fact is it

[15:13] will benefit you and human beings as they should be are selfish creatures. I mean, if we don’t take care of ourselves, then we’re not going to be able to take care of anybody else. So it’s okay to be selfish. It’s okay to learn how whole life can benefit you in your later years. And it’s okay to pause for a year, if you will, and install that. Now I actually liken it to jacking the house up and installing the foundation underneath that should have been there all along. Nevertheless, better late than never, which at some point it will become never either because of a health issue or because of death. So it’s really an accurate statement. And I think this would surprise most people that in most cases,

[15:57] 5% exception without a doubt, but in most cases it’s never too late to buy whole life insurance. Oh, interesting. So you just packed on the wisdom piece from our earlier thread. And then now you just brought in a timing piece and that the timing is really helpful. So I think this was one of those episodes where we went a little bit deeper into the reasons why. And this is an episode for, I would say probably for a lot of people that are on the fence that just aren’t clear enough and they’re wanting to know what they should do with some of that capital. If you do have those questions, send an email in to helloatprosperitythinkers.com. Do you have any last words, maybe a common question that you see that

[16:42] maybe one of those things you could fire off that would help a listener before we turn off? Absolutely. Well, the age old saying of the best time to plant a tree was 20 years ago. And the second best time is today, I think is very relevant in this space. And I think one of the biggest questions that I do get is how quickly can I benefit from this? And the answer truly is mentally, you can benefit from it right away. Like the peace of mind of knowing that you have that area of cash handled, you can benefit from literally the day you sign the check. Financially, it takes one or two years. And that’s the timeframe that we’ve been talking about. So if you think of a typical life of at least a hundred years, I think taking

[17:29] one or two years out to really shore up that foundation is worth the time. Now, some people don’t. And so if you don’t think that taking a year or two out from your investment space to shore up your liquidity, let me say it again, to shore up your liquidity, if you don’t think that’s a good use of a year or two, then we’re not a good match and I’m okay with that too. Wonderful. I’m going to do one extra plug. If you’re on the fence and you don’t think it’s a good choice right now, run the numbers, go to truthconcepts.com and the numbers will not lie to you. Sound good? Yes. So full disclosure, that’s my husband’s software that advisors all over this country and in Canada purchase to prove numerically, factually, that

[18:20] life insurance is a fabulous alternative to cash and they use it to prove the efficiency and the presence of the death benefit and the good job that can do in a person’s life as well. Pretty good software, me thinks. Yep, absolutely. Thank you for listening to this episode. Thank you for listening to the Prosperity Podcast. To take control of your money and have it work for you, visit us at partnersforprosperity.com. If you liked this episode, make sure you subscribe and leave a review.