StackedLife - Authorized Infinite Banking

025 The Myth of Investing for the Long Term
===

John Perrings: [00:00:00] Investing for the long term is kind of like one of those golden rules of Wall Street, but what if it really ends up just being nothing more than a justification to cover for the volatility and risk you're taking on by buying into the stock market? Today we're gonna talk about the difference between investing for the long term and actually thinking long term because there is a big difference.

By the end of this episode, you're going to understand why the conventional invest for the long-term approach is really kind of a trap and why it doesn't even really solve the problem it claims to solve.

You'll know why average rates of return don't really mean what you think they mean, what sequence of returns actually does to your retirement, and how The Infinite Banking Concept, of course, gives us the structure to truly plan for the long term while still maintaining control and liquidity so that we can navigate all the bumps in the road and take advantage of opportunities as they come along.

This is StackedLife, the podcast that teaches you everything you need to know about The Infinite Banking Concept, [00:01:00] whole life insurance, and the strategies that make it all work. And I'm John Perrings, an authorized Infinite Banking practitioner. I've implemented IBC for hundreds of clients and educated thousands more via my top rated podcast and financial resources at StackedLife.com.

Okay. I've told this story before, but it's relevant here. Again. I changed careers into from tech into financial services, and I was really only able to do that because I had a bunch of money saved up. And a lot of that was in whole life insurance, and I used the cash value of my whole life insurance to help pay the bills while getting started in a new career.

The whole time while using that cash value via policy loans, I never lost the growth on my whole life insurance cash value. If that money had been in a 401k or some other type of an account, I couldn't have gotten to it without paying taxes and penalties, and losing the growth on that forever. Having that liquidity and control is really what gave [00:02:00] me options.

And having options is really the one of the big points of what we do with IBC. So we're talking about this idea of investing for the long term to get a high average rate of return. That's kind of what we're told to in, you know, conventional financial planning.

As long as you invest for the long term, you'll get a high average rate of return. And investing for the long term can be good. Compounding over the long term is good, but with conventional investing because of the volatility and risk, you're really, you really have to invest for the long term or it doesn't work.

So investing for the long term really just ends up being an excuse to cover for the volatility and risk that you're taking on. With the conventional financial planning approach, you almost always lock your money away. You either hard lock your money away in the case of a 401k or IRA where you can't get to it without paying taxes and [00:03:00] penalties, or you lock it away in effect because you can't get to it without interrupting that averaging effect that we're told protects us from market volatility. So you're sort of locking it away regardless.

And because of that, you end up with money that can really only do one thing at a time. If anything comes up, and obviously things always come up, you know, job loss, a medical emergency, or on the opportunity side and investment, starting a business, a career change. You either can't handle those things or you have to interrupt the growth on your account to deal with whatever it is. You lose the use of your money in the near term only for the hope of something good happening over the long term, and you have no idea of course, whether or not that's actually gonna happen.

And that's the real problem, you know, investing for the long term, again, it's real, it's kind of a trap because it demands that you do it. It's required in order to overcome all that volatility. [00:04:00] But the real problem with it is, is it doesn't even solve volatility. You know, people invest for the long term and then, you know, the DotCom Bubble happens, or 2008 happens. Those things still happen and it really, really matters when they happen. Which kind of brings me to what we call the Four Rules of the Financial Institutions. And this comes from the LEAP system, the Lifetime Economic Acceleration Process, and with status quo financial planning, financial institutions, they really have four rules.

Number one. They want us to contribute money to them. Number two, they want us to contribute money on an ongoing basis. Number three, they want to hold onto that money for as long as possible. And number four, they want to distribute that money back to us in a limited manner. And all you gotta do is take a look at your 401k and you know that these four rules are true. That's exactly what's going on.

And when we put money into the stock market, or even worse into 401Ks and other qualified [00:05:00] plans, we're just completely giving up control over that capital for literally decades. You know, we can't get to it without paying taxes and penalties. We have no idea what's gonna happen with it. We don't know what it's going to grow to. We don't know how much we'll be able to contribute over the years. We don't know how much we'll need in retirement. We have no idea what the taxes are gonna be by the time we have to pay them, after deferring for decades. So we're basically entering into this agreement where we're agreeing to take all the risk and provide all the capital for literally nothing in return.

We're, we're trading all of that for a complete unknown. And so I'm always curious as to what exactly about this people think is some kind of a plan. Let's talk about average rates of return.

Again, the trope is invest for the long term to get a high average return. You'll get whatever they, what they tell us these days, 10, 12% average rate of return, and there are just a lot of [00:06:00] problems with this assumption. Number one, the average return, everybody needs to understand that is just the arithmetic average of the actual rates themselves.

Those numbers. It really does not have anything to do with the actual return that you'll experience, assuming you're making regular contributions, the only time the average return actually equals the real return is if you don't put any money in or take any money out.

Like you just have one, uh, lump sum kind of sitting there and doing whatever it's gonna do. And that case, the average is actually are true. But if we're talking about like, you know, the accumulation years, the years where we're working and contributing to an account, the averages have nothing to do with what's actually happening.

If you go back and look at the entire history of the S&P 500 and you look at rolling 30 year periods, for example, 1930 to 1959, then the [00:07:00] next rolling 30 year period, 1931 to 1960 and so on, there are 67 of those 30 year periods in the history of the S&P 500. And something interesting to know about this, the average return over any of those 30 year periods, which is a, we use 30 years.

'cause that's typically what's used. It's kind of like the typical working life, the average return or over any of those 30 year periods is significantly more than the real, the actual return 75% of the time. Which sounds crazy when I, when I say that, but. And we're not talking about a little bit different here.

On average, it's about 135 basis points per year difference, which can add up, you know, over 30 years to millions of dollars. And, and this is the real problem that people I don't think really get where they're just told they'll get this average return of whatever it is, 10, 12%. And those numbers are just [00:08:00] completely made up numbers in terms of what you're actually going to end up with.

And, and here's another thing about the long term. The long term eventually becomes the short term.

The, the long term will end. And you know, as you start to approach retirement or you, you get to a place where you wanna start getting to that money, that timeline starts to shorten. And the sequence of the returns you get really starts to become a factor. And this is called sequence of returns risk.

Sequence of returns risk can be a problem if you get. Low and negative returns in the early years of your accumulation phase, you know, during your working years. And if this happens, you'll end up with significantly less than the average return, but it's even worse during your distribution years in retirement.

You know, if you're retired in pulling money out to get income to live on and the market goes down, your income needs, they don't typically change. So you have to sell more shares to [00:09:00] get the income you need to live on and pay your bills. And what happens is because you cannibalize more shares, your account can never bounce back even when the market does go back up.

You can do all the best long-term investing and if 2008 hits the year after you retire, you know you've got a big problem on your hands. You know, 30, 40% of your money is gone in one year. And this is a huge risk because when it comes to planning for your retirement, you know, you only get one shot at it.

Right there, there aren't any do-overs. So what ends up happening is we end up living what I call a save-up-spend-down lifestyle. We give up control of our money. We try to save as much as possible when we give up that control, but we have no idea how much we'll actually end up being able to save or spend.

And so we're in this kind of constant state of worry over, you know, what the markets will do and, and how it'll affect our plans. And so a question to ask [00:10:00] yourself. How many things have to go wrong for the save up, spend down strategy not to work? You know, all it takes is one thing. If one thing goes wrong, it can throw the whole deal off. And then now ask yourself how many things have to go right? Everything has to go right in order to live the life that we want.

Everyone in theory knows we should, you know, make our plans on the, you know, using the worst case scenario. But in practice, when it comes to our finances, everyone is literally planning on the best case scenario. They're all planning on those 10, 12% average returns. And it's all based on arithmetic averages that don't mean anything.

And those arithmetic averages are all based on historical market data that we know will never be repeated again.

And so I, I just view this as a huge problem out there that people really aren't paying enough attention to. Um, and I think if they, you know, really saw how the numbers work, they, they'd start paying attention. [00:11:00] And so now that we've talked about the problem of the idea of investing for the long term, what does actually, thinking long term, what does that actually look like?

Before we get into that, if what I've been talking about is something that's been on your mind or, or maybe now it is after listening to this, get in touch with me, you can schedule a free 30 minute consultation directly with me, right on my website at StackedLife.com. Alright. So true. Long-term thinking.

Let's talk about that. True long-term thinking requires a foundation that works in the short term as well.Becasue if we don't n't have the structure to handle short term needs, it will inevitably require us to use money that was supposed to be used for the long term. And that alone can have a catastrophic effect on what we actually end up with over the long term.

So with The Infinite Banking Concept, we're planning for 70 years or more, you know, whole life insurance policies, go to age 121, then they get passed along to [00:12:00] the next generation guaranteed. On an income tax free basis. So we're planning for generations. But in our format, we're still maintaining control and liquidity today so that we can navigate all the bumps in the road, roll with the punches, and take advantage of opportunities that come along.

So we have that long-term approach that still gives us control and liquidity in the short term, rather than only hoping to get whatever rate of return we end up getting in a market-based account. Whole life insurance is an asset that gets better every single year. You know, no matter what happens in the market, whole life insurance is guaranteed to only go up, never down.

You know, it's designed for the ultra long term and yet it provides liquidity when it's needed today, no questions asked. You can, you can use the money today for emergencies or opportunities, and it does not interrupt the compound growth on the cash value and the death benefit.

This is a key concept: [00:13:00] uninterrupted compounding. With Infinite Banking, you can use money in the short term via policy loans without sacrificing long-term growth. You know, the underlying cash value continues to compound as if you never touched it. Because, in fact, you did not touch it. You borrowed money from the insurance company using the insurance company's money, and that was just collateralized by your cash value and you get this access to loans, no questions asked, no financials or underwriting of any kind, and with no payback terms.

You know, I have a client who is doing this another way. They were using margin on their brokerage account to do other investments, and he started facing margin calls and liquidity crunches because his money was not in his control.

And the reason using money or other market correlated leverage is dangerous is that. Things can go south very fast. You know, in a total market correction, like we've seen, I don't know what, three times in the last 25 years, if an asset [00:14:00] you bought using margin starts having trouble, well the likelihood is high that the value of your margin account is also seeing some trouble.

And this is where, you know, that domino effect really starts kicking in, and people start having big, big problems. And that's one of the reason he, and. That's one of the reasons he implemented The Infinite Banking Concept to ensure that he had a capital base that was not subject to market whims. And no matter what was happening in the market, he knew his cash value and any policy loans that he had outstanding were, were gonna be just fine. And. So it's, it's important to understand that policy loans are really nothing like margin loans.

You know, the underlying collateral is guaranteed by the insurance company, which by the way is also the lender. So that starts to become interesting to think about. And so there are no margin calls and the loan itself cannot be called. And so, what can we actually do with policy loans? Well, we can go buy an investment. That's the, probably the highest [00:15:00] and best use. You know, we can buy real estate, commercial notes, we can start a business, you know, whatever it is. And when you pay the loan back, the whole life insurance cash value grew the entire time.

This is why whole life insurance is sometimes called The "And" Asset.

You can buy whole life and buy investments like you were going to do anyway. You don't have to choose instead of, instead of the "either/or" mindset, it's "both/and," right?

So the strategy is you strategically capitalize first, which is just a fancy way of saying saving money. Which saving money is long-term thinking. But we're doing it in a way that gives us some strategic advantage. So we're gonna capitalize. We're gonna save.

Then when you have the ability to use a policy loan to deploy that capital to do all your investing.

That's really what creates the growth. We use whole life insurance as our cash asset, and then we use policy loans to deploy that cash and create the [00:16:00] returns that we all want, create that growth side of things. The idea isn't to get a higher rate of return inside the whole life insurance. The idea is to create a very respectable return, better than anything else that you could do that's a cash equivalent, but then we use that cash value.

To create our rate of return outside the policy. So whole life insurance is the foundation, and this foundational asset does like 5, 6, 7 jobs all at the same time. It gives us liquidity through cash value. It gives us guarantees, it provides the death benefit if anything were to happen to us too soon.

It provides chronic illness and terminal illness protection through the accelerated death benefit riders. It gives creditor protection in most states,

and it never goes down. There's no volatility. You know, again, it gives us that liquidity to act in the short term. And then on top of all that, it gives us the strategies that we can use to create more income for [00:17:00] retirement or for whatever reason we want to have income over the long term. You know, the, the best planners out there are planning decades in advance.

They're not planning just for themselves. They're planning for their kids, their grandkids, their great grandkids. And, and with The Infinite Banking Concept, we can make all those plans and still have access and liquidity today to handle all the things that we know are coming around the bend. And so, you know, I try to talk to people about.

Instead of that, you know, save up, spend down life that I mentioned earlier. Instead of that, we can create a life of ever expanding income. And if you capitalize first with whole life insurance, then use policy loans to buy income generating assets. By the time you get to retirement, you'll probably have so much income coming in.

From outside sources, you know, like outside of your job that you won't even need to spend anything down. You'll just have all the income you probably need, and you'll probably have more income than you could ever get by spending down [00:18:00] any of your accounts. All right, so,

here's my final thought on all this. Don't let investing for the long term be the excuse that you kind of end up falling for, for losing control of your money. You know something that's a hundred percent true, you'll never be in a worse position by having access to cash. So. Think long term plan generationally, but never give up control in the process so that we can always handle the short term.

And if we can handle a bunch of short terms in a row, guess what? That actually takes care of the long term on your behalf. So if you find these principles are resonating with you and you'd like to learn more about how they might apply in your life specifically, again, schedule a free consultation with me.

I'll take you through a short assessment to see if and how IBC might benefit you, and if so, what the next best step you can take. Thanks.