I recently watched the movie, “The Greatest Showman” with my family, and I loved it. I know it was inspired by a true story and I don’t know how accurate the movie reflects the reality at that time, but certain themes in the movie got me thinking. The movie was a great example of a pivotal concept: we are only limited by our imagination. This idea was instrumental in transforming my mindset around decision making. I first came across this idea when I discovered the “mastermind” about 20 years ago.
At that time I had just read the book, “Think and Grow Rich” by Napoleon Hill. I was fascinated by the ideas presented throughout that book.
A mastermind group–for those of you who like concrete definitions–is a peer-based mentoring group that allows people within common interests, goals or career fields to share advice and solve problems together.
A mastermind is an indispensable tool when you desire something bigger than yourself (or simply the support to do what you keep putting off). This week I want to discuss how you can apply the mastermind concept to your financial goals.
But it’s so much more than that. The consistent support from brilliant peers often leads to groundbreaking aha! moments. It’s amazing what a group of people with similar ambitions can achieve together.
My First Mastermind
When I made the big commitment to walk away from good income working as an engineer, my mastermind consisted of just me and my wife. She knew of my strong desire to do something special for others with their finances and she knew of my potential and what I taught was unique to the industry.
My wife and I had two important things in common (and still do!): the desire to do something extraordinary with our goals and the understanding that we are only limited by our imagination. Being on the same page as my wife helped encourage me to go from decisions based upon fear to decisions based upon doing something great.
My Current Mastermind
My current mastermind as a financial advisor includes some of the top financial advisors in North America. We meet about once a week and focus on topics and ideas that will create significant value for our clients and in turn our businesses. It is a positive environment focused on a common goal:
To improve ourselves and our companies to be the best at serving our clients in finances.
This mastermind has helped me provide better insight to my clients, and as a result my clients do extraordinary things with their finances that separate them from the majority of households in this country.
Want to start a Mastermind? Here’s How.
There’s this quote that has stuck with me since I was a kid. I don’t know where I heard it and I don’t know who said it, but here it goes, “Show me who you hang with and I know who you are.” To me this means when you put yourself in a certain environment, decisions and thoughts (good and bad) can be strongly influenced by that environment.
This leads me to the first step for creating a mastermind: audit your current environment. The people within your current environment are influencing your behaviors, whether you realize it or not.
Let me be clear, I am not advising that you only hang out with people that think like you all the time–that would be a small world. I am specifically talking about the environment where you choose to work on your goals. That environment should be selective.
Let’s say you want to create a finance mastermind specific to achieving financial freedom. Start with an observational checklist:
What circle are you going to create around you to make this happen? This is where you can be selective. Are you going to randomly seek guidance from your neighbor, your parents or friends you’ve had since college? If so, how successful have they been with their finances? Excellent? Good? Okay? Bad? If you did not answer “excellent”, why are they part of your financial decisions? Enjoy them for who they are, but don’t seek guidance on money. They should not be part of your financial freedom mastermind.
Find several good friends and peers that have the same vision of financial freedom (financial independence) as you. It’s that simple.
Meet with your mastermind consistently. Once a week or once a month, meet to discuss what you have done and what you are doing to put yourself in a better position financially. Some discussion topics for your mastermind include:
What you have done for protection
What you have implemented to create savings and liquidity in your household.
What you are investing or considering as an investment to help achieve those goals.
My clients that have created a mastermind have made great accomplishments. As their financial advisor, I have helped with unique ideas and concepts, but they did the work and ran different ideas past each other to best implement new ideas for them and their families. They have common goals and dreams. They call me to discuss ideas they have come up with to get my thoughts. They consistently encourage each other to take the next step and celebrate in each others accomplishments.
When I was getting my electrical engineering degree in my early 20’s at the University of Nevada, I landed an internship at Mallory Ignition over in Carson City, NV. I actually told them I’d work for free and they still paid me. I had the opportunity to design electronic ignition systems for race cars, drag racing cars, sports cars, top fuel drag racers, and more. It was awesome. When I graduated I started working there full time and I was living the dream. I was surrounded by brilliant engineers and fabricators learning the industry. I met some of the fastest drivers in the world.
I became good friends with a driver named Sam, a champion in Formula Ford open wheel racing. He was a phenomenal driver, and I had to know what he did to become so fast. I asked him how to become a great racer and he said, “If you want to go fast, go slow.” This was the consensus among all the drivers.
They told me if I wanted to learn to race, I should buy a Miata roadster. For those of you who aren’t car people, a Miata is consistently mocked for being a slow sports car. So why were they telling me I should buy a friggin’ Miata to learn how to race?
Because you can’t learn to go fast until you learn to go slow.
They told me you have to learn the fundamentals. The Miata is a well-balanced sports car. It’s way underpowered which means you can’t rely on the horsepower and torque to go fast. You need to learn when to brake, when not to brake, when to accelerate, how to turn left AND turn right–all the tricks.
Find The Racing Line
Learning the fundamentals helps you find the Racing Line: the optimum, most efficient way to get around the race track. When you buy a fancy sports car out of the gate, you will drive faster than you’re ready for, and you will crash. People always do.
The Miata teaches you how to maneuver the car effectively, it helps you tap into that inertia, the key to finding the racing line.
Find Your Mr. Miyagi
Sam also said it was extremely important for him to hire an incredible mentor. He could learn from his mentor’s experiences, follow his training habits and develop a routine of perfect practice. He hired a former champion, someone who has done it and won over and over and over. The more you engage in perfect practice, the more you win. Mentors can help you find that racing line more effectively and show you what to do once you find it.
Enough about me and my racing dreams …
These principles (go slow to go fast, find a mentor) also apply to building significant wealth, or accomplishing anything of significant value for that matter.
Ever wonder why lottery winners, celebrities, athletes, and heiresses are broke typically several years after their financial peak? Get-rich-quickers don’t have a budget or system in place to manage their wealth. They tripped and fell into a pit of money, so the funds appear to be pretty darn close to infinite–until it’s gone quickly after.
Getting rich quick is not sustainable, because your old money habits don’t just disappear when you find a fortune.
The first steps are the slowest.
Want to run a marathon but the most you’ve ever run is to the mailbox and back? You’re looking at six months to a full year of training.
Want to play Mozart Symphony No. 41 but have never touched an instrument in your life? Learn the scales.
You want to create real wealth? It’s simple. Spend time learning how to build it.
Most famed billionaires took things slow and steady, committing to consistent saving practices and financial habits. It’s not rocket science, but it does take patience and consistent contribution.
Ready To Race? Let’s Apply This to the Financial Arena.
So I’ve sold you on the idea that slow is the way to go for sustainable wealth building. If you’re starting from square one, use these methods to re-engineer your cash flow so you can build wealth like the billionaires (slowly).
Know your “why”. This isn’t one of those yuppie, “What does your spirit want?” questions. Building wealth is as much about the why as it is about the how. It is essential that you know why you’re building wealth and what you will do to achieve your goals.
So ask yourself: where are you today? Where do you want to go? What do you want to accomplish in terms of money? Do you want more money or do you want less? Do you want to pay more taxes or less in taxes? Schedule an appointment and we can talk about other options.
Create a CFO Model – Your CFO (cash flow optimization model) trains you to live within your means and build a wealthy mindset. It creates your liquid savings vehicles. The CFO also helps you stay accountable for your goals.
You don’t need to reach a certain income to put a CFO in place. In fact, it’s better to start immediately and plan to progress and update it as you go. The simplest way to kick off your CFO: save a minimum of 10% of your income per month. Once you get your CFO in line, you can create a Bankosaurus™ around this design.
Embrace Your Beginner Status. You don’t have to have it all figured out before you see me, and that is how a mentorship should work. Take advantage of the fundamentals and reach out to a mentor. All you need to bring is your “why” and your financial adviser should bring the “how”. Don’t be hesitant to shop around for the right financial adviser, either. You might find the majority of advisers push financial plans that depend on Wall Street. If you’re looking to ditch Wall Street and big banks or expand your options, find a mentor that has successfully done that. Or you can skip the search and schedule an introductory meeting with me. When you find the right kind of mentorship, strategy template and guidance, you’re destined to win.
Focus on Growing Net Income, Not Gross. When we gasp at our bank account and think, “I need to make more money”, we’re typically thinking about gross income. Forget gross, net income is where it’s at. Lowering your taxes will result in the same outcome as negotiating a raise (and it’s much more satisfying).
Live off the Spread andBe Your Own Bank. Banks use what is known as the spread, a clever little term for taking your money and loaning it to someone else at a higher interest rate. Banking is a process, and it’s completely possible to do this yourself through the Bankosaurus™ method. The Bankosaurus™ is a unique design/strategy that uses dividend-paying whole-life insurance to create your own personal bank and change the flow of your money. Interested? Schedule a call to learn more.
What Not To Do
For the last time, you don’t need to be on Wall Street. (Disclaimer: that definitely won’t be the last time.) You don’t need to be tied up in the qualified plans that are controlled by the financial industry and the government. You own it but they control it. There’s a different way to play the financial game. Find a mentor that can show you how to play that game.
We all love to watch those YouTube videos where crazy people do remarkably stupid things and it’s all caught on video for the world to see. From miscalculated BMX stunts to those awful backyard trampoline accidents, they’re painful to see, but somehow we can’t help watching.
In YouTube lingo, these filmed stunts-gone-bad are called epic fails.
For what I’m about to explain to you, I’d like you to capture and hold onto the feeling of an epic fail… the cringe, the groan, the face plant.
But there’s another fail that comes quickly to mind, and you’ve probably never heard of it. You should know about this type of financial epic fail because there are people committing this terrible error every day and losing thousands—sometimes hundreds of thousands of dollars.
So, what is it? It’s the terrible mistake people make when they let their life insurance policies lapse.
A Lapsed Life Insurance Policy is an ‘Epic Fail’
People pay premiums year after year—usually decades— only to give up and stop making payments when they face tough times. When they do this, they forfeit their benefits, namely, the ‘death benefit’, or the big payout at the end.
The sad part is, some pay hundreds of thousands of dollars into permanent life insurance policies and never get a penny back, simply because they can’t keep up the payments and nobody told them they have other options.
In fact, people are letting over $100 billion in life insurance lapse every year.
So you can see that many financial advisors are letting their clients down by not educating them on how to properly use their policies. I find it shocking and upsetting. Why does it happen?
Bob is 85…
Let’s take hypothetical Bob. He doesn’t have any adult children or a spouse relying on him for his income anymore so he no longer needs his life insurance. The premiums may be rising, as they often do with age. He’s feeling the financial strain.
Like a lot of older adults, those rising premiums combined with the fact that they no longer need the policy… well, it all seems like good reason to just abandon the policy: let it lapse. This makes no financial sense, and I always advise my clients strongly against taking this route.
Bob’s policy has cash value, so what are his smart options if he no longer wants to keep the policy?
Surrender his policy. He could just give the policy back to the insurance company in exchange for a payout. Let’s say he gets $200,000. That’s far less than the death benefit would have been, had he kept the policy until he died.
Sell his policy. Bob could also sell the policy to a big institution or a suitable investor. He’ll get more than $200,000. It won’t be as much as the death benefit, but it will be more than the cash value the insurance company will give. This is called a “Life Settlement.”
With those other options available, it’s hard to imagine why people don’t take them.
Now for the shocker: 90% of all life insurance policies lapse!
This is a terrible thing to see happening. For a financial advisor, it’s the equivalent of watching a kid on a BMX bicycle wreck his leg during an epic fail stunt gone wrong. So preventable! So painful to watch!
Thankfully, more policy holders are tuning into the fact that lapsing is a bad idea and they’re taking option #2. This is where we come in. This could impact your investing decisions in a big way and here’s why.
Insurance Companies Make Massive Profits When Lapses Occur
When life insurance policies lapse, who benefits? The life insurance companies! If a policy holder stops making payments, there’s a grace period, but after that, the policy is canceled and the insurance carrier is no longer on the hook to pay the death benefit.
But the insurance companies don’t have to be the only ones who win when people no longer want their policies. People like Warren Buffet and big institutions have been winning at this game for a very long time. In 2013, the last year for which we have these stats, total life settlement transactions were $2.57 billion.
Why can’t we win, too?
What We Have Here is a Win-Win
The winners like Warren Buffet are winning because they are the investors and institutions who buy those policies that people no longer want. They buy the good ones, keep making the payments, and then collect the death benefit when the original policy owner passes away.
It’s a win for Bob because he gets to stop making those monthly premiums on a life insurance policy he no longer wants. He also gets a lump sum of cash that’s greater than the cash value he’d get from the insurance company. He now has money that he can use and enjoy today with his family and friends before he passes away.
It’s a win for the investors because when Bob passes away, the death benefit will pay the investors a LARGE sum of cash.
I Cannot Think of a Safer Investment
Stocks and bonds are subject to volatility. There’s economic risk. Economic risk affects the real estate market too.
There are numerous variables (interest rates, labor report, taxes, …) that can send returns flying all over the board on traditional types of assets like stocks, bonds, and real estate. For example, what if the US has a conflict with North Korea, Syria, or Iran and it escalates into a war? Geopolitical events can have devastating effects on traditional investments.
Life settlements are different because they are sheltered from most of those risks. They don’t carry the same risks that traditional investments carry because their returns are correlated to entirely different factors (actuarial science, which can be very predictable).
Of course, investments always carry some risk, but here’s some food for thought: what type of investment would you expect for an asset that has the following characteristics?:
No stock market risk,
No bond market risk,
No economic risk,
No real estate risk,
No political risk,
No geopolitical risk,
No interest rate risk and,
No terrorist risk.
Sounds like a savings account, right? Safe, but probably terribly low returns, if any? So maybe you’d expect something like 1% or 2% at best? Nope. Typically, there’s an expected annual NET return of at least 6-8% with investments in life settlements. A report from the AAP Life Settlement Market Update indicated the life settlement rate of return percentage could be in the high teens.
A Comparison With Traditional Assets
A lot of people love the S&P 500. But look at the internal rate of return (IRR):
Since inception, without dividends: 5.5%
Since inception, with dividends: 9.47%
Since 1997, without dividends: 5.69%
Since 1997, with dividends: 7.65%
Pretty modest returns. And take into account these returns are factoring in the red-hot stock market that’s been blasting off since 2009! There has not been a correction since 2009, and history shows the stock market has a tendency to crash at least once every 7-8 years. Aren’t we due? I don’t know. I don’t have a crystal ball. The market could be on a tear for another 30 years. Or it could crash! That type of uncertainty scares a lot of investors. If you have a low tolerance to losing a lot of your money in Wall Street, why leave it there?
Now also take into account that those S&P 500 returns aren’t showing net. They’re showing gross. That means all the expenses charged by the brokers and Wall Street haven’t yet been figured into those returns. It means the actual net returns can be much lower.
Bottom line: there’s a lot of risk for modest returns.
Death Benefits Always Pay Out
An investment in life settlements does not mirror traditional assets in any way. Even more important, a life settlement transaction always ends with a death benefit. Investors are always paid from the death benefit, it’s just a matter of when. Yes, you’re hedging your bets by risking how long someone might live after you purchase their policy. That’s why we call it a growth strategy. Your investment is typically tied up (not liquid) for about four to ten years. It can be a great option for the accumulation of cash in a regular investment account or a qualified plan, such as an IRA.
The potential is massive. It’s estimated that between 2014 and 2023, there’s $180 billion in market potential for life settlements with an average volume of around $3 billion annually. See where this is going? It’s a mature industry that’s regulated by 42 states.
Years ago, you probably learned that one of the best deals out there is the IRA/401(k). If you have a job where the employer will match a percentage of what you invest, it seems downright crazy to bypass this amazing form of retirement savings.
Put away enough each month to trigger the maximum match amount, and it’s free money ’til retirement.
Or is it?
To be fair, if you are currently employed and your employer is matching the money you put in then continue to take advantage of that. You can’t move it now anyway. The intent of this article is to help you discover a whole world of opportunities waiting for you that you may have been unaware of.
One more point. If you’ve been investing in the stock market with your IRAs and 401(k)s for years, it’s not the intention of this article to make you feel like you’ve made a mistake. You’re investing and taking advantage of tax incentives. We just want to show you that there are other ways to play the game Off Wall Street.
There are some incredible investments with less volatility than Wall Street with potentially bigger returns. If you’ve recently left or lost your job and suddenly find yourself with an IRA/401(k) you don’t know what to do with, you’re about to learn about some outstanding options!
Are IRA/401(k) Plans Really the Ideal Retirement Vehicle?
If you are reading this article, you probably have begun to take an active interest in how your investments have been performing and discovered the adverse impact (lag) from expense ratios, portfolio-management fees, and plan operating expenses. These are essentially the fees you pay to have your money invested in a plan like a 401(k).
Investment firms, including the one managing your IRA/401(k), charges fees.
Fees vary across the board and can vary depending on which type of investment you’re holding.
IRA/401(k) plan fees can run from around 1% to over 3%. Over a working lifetime, that adds up to paying tens of thousands (even hundreds of thousands!) of dollars more than you would with low-cost investments, just for FEES! (Over 40 years at 2% takes more than half your wealth. And that’s before taxes!)
That’s a good reason to wonder if IRA/401(k) plans are really so ideal after all.
But the real disadvantage of these retirement savings plans is the fact that it puts your money under lock-and-key for years, even decades. You’ve probably been taught to implement the “buy and hold” strategy. The big, glossed over problem is you end up losing tremendous flexibility and are unable to respond to opportunities when they knock.
Not to mention that most IRA/401(k) plans offer participants very little choice in how their money is invested. You’re pretty much stuck with whatever your employer has set up for you and your co-workers.
Those choices are typically limited to various funds comprised of stocks and bonds.
For the Most Part, You’re Stuck in the Stock Market with an IRA/401(k) Plan
What’s wrong with being stuck in the stock market? Volatility. Fluctuating economies. Uncertainty. Potentially much lower yields than the sales guy (I mean advisor) is showing you. And your money is locked away under the “buy and hold” strategy.
If you’re at all distrustful of the stock market or if you’re at all worried about global markets, you might be happy to know that there are alternatives.
Did You Know There are Alternatives?
The last few years have been marked by a large and vibrant crop of alternative investments. As people learn about them, their eyes are being opened up to the idea that these investments can oftentimes make good financial sense.
You don’t have to keep your IRA/401(k) investments all tied up in the stock market.
If you’re employed you can’t yet move that employer’s IRA/401(k), but you have some tantalizing options for any additional money you want to invest. And if you just left your job for a new job and now find yourself with an IRA/401(k) on your hands, you are about to discover a potentially big opportunity!
If Not Stocks, Then What?
For people who want a possible higher level of certainty than what’s offered by the stock market, there are a number of attractive options.
We call these Alternative Investments. They offer not only an alternative to the stock market but also the possibility of higher yields.
Perhaps it’s time to take your investing strategy up a notch.
Why not have safer investments and pursue higher yields than what you often get in stocks and bonds?
Advisors talk about creating a diverse portfolio in the stock market. How diverse are the investments if they are all in Wall Street. When the stock market crashed in 2008 – 2009 almost all funds were severely impacted.
If you want diversity, use alternative investments Off Wall Street.
Very often, alternative investments do not rise and fall with the stock market. They can provide nice returns without the potential chaos and volatility of investments that inflate and deflate with every national or global event.
What are Some Alternative Investments?
Here some examples of alternative investments available to today’s investors:
You may not be familiar with some (or all) of these investments. So let’s give you a brief summary of each just to whet your appetite a bit to the possibilities.
Life Settlements: An Excellent Investment for Growth Non-correlated with Stocks
For accredited investors looking for excellent asset growth with minimal risk, life settlements are very attractive options, offering investors a way to participate in the secondary market for life insurance policies.
Life insurance has been considered an asset class since a Supreme Court ruling in 1911 judged that life insurance policies are private property that can be assigned or sold to others at the will of the policy owner.
Life settlements invest in life insurance by purchasing policies that have become unwanted, unneeded, or unaffordable to elderly policyholders.
Life settlement investments are not correlated to interest rates, housing prices, stock prices, political events, or any outside influences. They have very limited downside risk. Life settlements are based on actuarial math, not stock market speculation. As policies are purchased for a discount and costs such as future premiums are factored in, losses are unusual.
Commercial Bridge Loans: A Top Investment for Cash Flow
Bridge loans on commercial and investment property can be an excellent choice for investors looking for immediate, steady, substantial income. Bridge loans allow investors to capitalize on real estate without the hassles of being a landlord.
No flipping, no plungers, and no buying a duplex and renting out the other half. It can be a great way to simplify your life and enjoy nice returns.
Investing in carefully screened commercial mortgages and bridge loans can provide you with reliable monthly income with high single-digit and even low double-digit returns, with low risk… provided that the loans are properly vetted.
Commercial Real Estate Investing:Proven High Yield Investments
Accredited investors will find an opportunity to invest directly in commercial real estate by becoming private lenders for commercial projects, typically cash-flowing apartment buildings.
This option provides investors with an opportunity to invest in secure cash-flowing real estate without the hassle of finding, acquiring and managing the day-to-day operations of the property.
These types of investments offer qualified investors cash flow as well as equity, and help real estate investors avoid the most common (and most costly!) real estate investing mistakes, such as limiting themselves only to properties in their local area, not evaluating enough properties before purchasing, not forecasting future costs accurately or managing the properties effectively.
How Do You Invest in Alternatives?: Enter the Self-Directed IRA
For investors who’ve been disappointed with typical Wall Street offerings and want more control over their investments, the Self-Directed IRA is a great solution.
Unlike IRA or 401(k) plans, the self-directed IRA allows the freedom to invest in alternatives like you’ve just read about.
The best news is that people who lost or left a job can simply roll their IRA/401(k) from their previous employer right over into a self-directed IRA! That means direct and immediate control over your funds, and you’re free to pursue higher yields through alternative investments.
If you have an active IRA or 401(k) with your employer, begin to think about the possibilities of investing funds “beyond the match” so that you can take full advantage of the incredible opportunities Off Wall Street!
Want to learn more? Greene offers expert guidance in language you understand. If you’d like to learn more about getting ‘unstuck’ from stocks, a self-directed IRA might be for you. CLICK HERE and you can download our 1-page, “quick-start” guide or, if you want to know more right now and get your questions answered,