Financial Mentor Thu, 13 Dec 2018 21:36:39 +0000 en-US hourly 1 Todd Tresidder from the blog reveals unconventional wealth building advice and advanced investment strategy tips. Discover the next step in retirement planning and personal finance from a former professional hedge fund manager turned financial educator.<br /> <br /> If you are tired of the same old “buy, hold, and pray” and worn out frugality tips then this show is for you. Each episode teaches financial freedom for smart people by revealing what works, what doesn’t, and why. Todd has walked the path to wealth himself and coached hundreds of clients just like you to prove out every principle taught – no ivory tower theories or worn out platitudes.<br /> <br /> He’s organized the entire wealth building process into a cohesive, step-by-step system complete with specific action steps so you can produce measurable results. This isn’t just another “get-rich-quick” or “get out of debt” show. This is about carefully engineering your finances to take charge of your life so you can live the adventure you always imagined life could be. Todd R. Tresidder: Financial coach, wealth building strategist, author, investor clean episodic Todd R. Tresidder: Financial coach, wealth building strategist, author, investor ( Todd R. Tresidder: Financial coach, wealth building strategist, author, investor) Copyright CreateCorp Business Solutions Inc. DBA All Rights Reserved Worldwide. Take your retirement planning and wealth building to the next level with unconventional investment advice and financial planning tips based on proven research. Financial Mentor Todd Tresidder from the blog reveals unconventional wealth building advice and advanced investment strategy tips. Discover the next step in retirement planning and personal finance from a former professional hedge fund manager turned financial educator. If you are tired of the same old “buy, hold, and pray” and worn out frugality tips then this show is for you. Each episode teaches financial freedom for smart people by revealing what works, what doesn’t, and why. Todd has walked the path to wealth himself and coached hundreds of clients just like you to prove out every principle taught – no ivory tower theories or worn out platitudes. He’s organized the entire wealth building process into a cohesive, step-by-step system complete with specific action steps so you can produce measurable results. This isn’t just another “get-rich-quick” or “get out of debt” show. This is about carefully engineering your finances to take charge of your life so you can live the adventure you always imagined life could be. Reno, Nevada U.S.A. Bi-Weekly Expectancy – Millionaire Math That Converts Uncertainty into Profit Tue, 11 Dec 2018 21:52:19 +0000 How To Take Control Of Your Financial Future And Engineer Your Success

Key Ideas

  1. Discover how mathematical expectancy converts the uncertainty of an unknowable future into a planned process that’s scientific.
  2. Surprise! How often your investments win is not the most important factor to your financial success (but this is…)
  3. 7 ways you can use expectancy to profit more consistently in your financial plan.

How can you reliably profit from investing when the future is unknowable and the markets appear to be random?

How can you consistently grow your career and improve your earning capacity when office politics and industry change get in the way?

How can you reliably grow your wealth so that your financial goals are simply a question of “when”, not “if”?

The answer to all of these questions is mathematical expectancy.

(Don’t worry if you’re math-phobic because the principles are what matter – not the math – and the principles are simple to understand.)

Mathematical expectancy gives you a set of proven rules that guide your plans and actions so that you can dramatically improve both the reliability and quality of your results.

It works in investing, career planning, health, finance, and much more. In fact, it’s such a fundamental truth that it’s hard to find any aspect of your life where expectancy analysis can’t improve your results.

Mathematical expectancy is how you convert an unknowable and uncertain future into statistical confidence. It’s how you convert doubt into a predictable outcome.

When you understand how mathematical expectancy works, it will change how you play the wealth building game forever.

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Small bag of money with text overlay - Expectancy - the millionaire math that converts uncertainty into profit

It’s All About Expectancy

Expectancy and the closely related principles of risk management and leverage are the three most important factors determining your future success.

In this article, I’ll explain expectancy using financial terms (since this site is “FinancialMentor”, after all), but please understand that what you’re learning is equally applicable to most other areas of your life. The financial world is just an obvious example because it can be easily quantified and proven.

That’s because all wealth is math, and there are two equations that govern how your wealth grows.

The mathematical expectancy equation determines your compound growth rate, and the future value equation determines what it will grow to, and by what date.

When you combine these two equations, you have a complete framework for understanding your wealth growth process. This applies to both your investing, and the comprehensive wealth plan that your investing fits into.

Unfortunately, most people have only a vague understanding of how expectancy works or what it means. Most people are turned off by math, so the topic is rarely discussed in the press or in bestselling business books (except my books here).

This is unfortunate. Readers are missing out, because mathematical expectancy proves that wealth planning is a rational, duplicable science that can be reduced to equations and principles that are safe and smart to use.

These equations define the scope and shape of the process by forming boundaries around the knowledge required, which then provides a clear direction for best practices.

More importantly, mathematical expectancy is particularly interesting because it converts the uncertainty of an unknowable future into a plannable process that is clear and scientific, and that has predictable outcomes.

How Expectancy and Probability Interact in the Real World

Expectancy goes by many names, including expectation, mathematical expectation, EV, average, mean value, mean, or first moment.

What it tells you is how much you can expect to make, on average, per dollar risked.

That definition clearly connects expectancy to your wealth growth, so let’s look at the formula:

Expected Value =

(Probability of Win * Average Win) – (Probability of Loss * Average Loss)

While that’s pretty straightforward, let’s make it even simpler and more intuitive by reducing it to just two variables: probability times payoff. It’s the probability of something occurring multiplied by the payoff when it occurs.

In other words, you already understand probability, which is the odds of something occurring. Everybody gets that. A fair coin has 50% odds of heads coming up on any flip.

Expectancy simply adds one more dimension by multiplying the probability of something occurring times the payoff you get when it occurs. That difference is critical.

For example, what happens if heads pays $5 and tails loses $2? And how does expectancy change when heads pays $7, but tails loses $8?


Those questions are answered by expectancy, not probability.

So what you should notice is how probability is the odds of something occurring, but expectancy tells you the financial impact those occurrences have, and that’s where leverage and risk management come into play.

The key thing to notice is how the payoff dimension completely changes the math. It converts the already intuitive odds of something occurring into something different – something that eludes most people, because we’re not trained to think in terms of two dimensions with a payoff variable.

Expectancy is the result of how much you make when you’re right, minus how much you lose when you’re wrong, multiplied by how frequently you’re right or wrong.

That net number is the average amount you expect to make each time you put your capital at risk, which determines your return on investment in your future value equation.

How To Convert Uncertainty into Opportunity!

Now that you know how expectancy determines the growth of your wealth, let’s switch gears and connect all the logic blocks I’ve shared so far into a single picture that shows you how it all fits together and ties both leverage and risk management as essential disciplines in your wealth planning strategy.

(Note: The analysis below, while complete, is a high level overview (by necessity) so that it can fit in an already too-long article. For full development of each idea and the actionable steps to apply in your wealth plan, please see the full Expectancy Wealth Planning course here.)

  • Expectancy analysis is how you estimate outcomes that are uncertain. The fact that all your investments, business, and life plans are a bet on an unknowable future is, by definition, an uncertain outcome. That’s why expectancy analysis is required. It’s the scientific, reliable way to manage the risk of the unknown.
  • Expectancy analysis is how you make smart financial decisions when all outcomes are uncertain. It gives you a scientific, rational way to reduce risk and maximize reward using leverage that converts unknowable outcomes into the closest thing to certainty you can get (without a crystal ball).
  • The formula is really nothing more than probability times payoff. This stuff isn’t complicated, but it’s counterintuitive because we all think in terms of the odds of something occurring. Introducing payoff to the equation literally changes how you plan your investments, your life, and your financial future. Yes, it’s that important. It becomes a two-part, dynamic equation where unlikely events with very large payoffs, either negative or positive, have a disproportionately outsized influence on results.
  • Disproportionate results have make-or-break impacts on the compound growth equation. The key principle of risk management is to control your plans so you can control outsized negative payoffs, commonly known as losses, from destroying your expectancy, and consequently, your wealth growth. Leverage is how you maximize the gains from your winning decisions.
  • Designing your wealth plan to maximize gains through leverage while minimizing losses through risk management is how you tilt the payoff portion of the expectancy equation. If you can favorably tilt the payoff portion of the equation enough, then you can still profit even if you lose more often than you win. That’s how you create reliable profits out of unreliable, unpredictable future outcomes.
  • Seek large, positive investment returns using leverage so you can win big when you succeed; but learn how to control risk for adverse losses during the inevitable failures by using risk management strategies. When you shoot for large positive outcomes when you’re right, while controlling risk to small negative outcomes when you’re wrong, you effectively tilt the expectancy equation to result in wealth (financial wealth, life “wealth,” time “wealth”). It’s literally as simple as that. Of course, the devil is in the details, which is what I explain in The Leverage Equation book. Your overriding goal for leverage is to tilt the payoff dimension of the expectancy equation, which is the dimension you have the most control over.
  • Understanding all the implications of expectancy, and mastering the required skills of leverage and risk management as implied by expectancy analysis, are central to your success in all aspects of life, including money. It’s the single best way to take back control of your financial life from all the uncertainty inherent in putting capital at risk in an unknowable future.

I’m sure that’s a mouthful if you’re not familiar with these ideas. Again, the full course and the leverage book excerpted from that course develop these ideas fully.

However, I wanted to give you a step-by-step flow of how the logic connects – from uncertainty about an unknowable future to risk management and leverage strategies that control losses and maximize gains, thus tilting the payoff part of the equation to result in positive expectancy, or wealth growth.

Again, here’s the equation:

Expected Value =

(Probability of Win * Average Win) – (Probability of Loss * Average Loss)

Manage Your Payoff To Master Your Wealth Growth

The counterintuitive realization is that disproportionate payoffs can make you rich if you maximize gains through leverage when you’re right and manage the risk tightly when you’re wrong.

Even if you’re wrong 9 times out of 10, or even 99 times out of 100, you can still profit by tilting the payoff portion of the equation. This is how you can reliably achieve your financial goals when facing an uncertain future.

(In case you’re skimming, please stop and really think about the above paragraph before reading on. The implications are a complete game-changer to all of your life plans – financial and personal – when fully understood. The importance can’t be overstated.)

Equally as important, you’ll want to realize how a strategy that produces mostly winning outcomes can still be a loser with negative expectancy if the average loss is larger than the average win. In fact, many investing strategies are notorious for that problem.

Calculator, cash, cell phone, keyboard on desk with text overlay Expectancy: Millionaire math that converts uncertainty into profit

The Trap of Needing to Win

But focusing on payoff is counterintuitive to most people because it’s not how we’re trained to think. I believe it’s a major reason that wealth eludes most people. We all have a natural bias toward winning with high reliability.

You want to be right. It feels good to win, and nobody likes to lose. We’re taught in school that high accuracy gets an A, and mediocre accuracy equals failure. Nothing below 70% correct is even acceptable, which is absurd. Even worse, many people mistakenly view failure as a measure of self-worth.

Everyone is looking for high reliability because we’re trained to think in terms of probability, but the percentage of winners versus losers is not the most important factor to your financial success, and it’s the thing you have the least control over.

The real key to expectancy is how you control losses and maximize gains – through risk management and leverage.

It’s irrational to focus on winning versus losing because, as I said earlier, the future is uncertain, so it’s not really within your control.

You should always try your best to win, but the reality is: if you play the game, losses are inevitable. It’s just a fact of life when the future is unknowable.

For example, I lose all the time. It’s a regular part of every week of my life. I never really get used to it because I’m human like everyone else, but I’ve trained myself to accept that putting capital at risk into an unknowable future means that losing is an inevitable part of the investment process, and I have to accept that.

But payoffs are different. I actively manage my payoffs because that’s the part of the equation that’s controllable; and fortunately, the math is clear: if you do a good job of controlling losses, you can get rich relatively easily. It’s just a question of sample size.

The bottom line is: successful wealth builders are fine with losing more often than they’d like, but they’re very attached to the relative size of those wins and losses because that’s what’s most important to your financial outcome in life.

Think of risk management as the defensive half of your wealth plan to tilt payoff in the expectancy equation, and think of leverage as the offensive half of your wealth plan to tilt payoff. They each tilt payoff favorably, but in opposite directions.

When you put both leverage and risk management together in your wealth plan, the net effect is to radically tilt your payoff to such an extreme degree that your success becomes a matter of sample size. It’s not a question of if; it’s a question of when. All you have to do is implement both disciplines with persistence.

In Summary

Mathematical Expectancy can be somewhat counterintuitive because most people are conditioned to think in terms of probability, not expectancy.

Expectancy is probability times payoff, and adding that payoff component to the equation changes everything.

Your wealth compounds according to expectancy, not probability. Introducing the payoff component to the equation emphasizes the essential role that risk management and leverage both play in your wealth growth.

Risk management minimizes losses, and leverage maximizes gains. Together, they can create positive expectancy and wealth growth even if you lose far more often than you win (low probability of success).

Payoff is particularly important because the future is unknowable, so controlling probability is difficult. You can guesstimate probability, but it’s ultimately unknowable. However, you can control payoff.

Smart wealth builders focus on those things they can control so they can produce a predictably profitable outcome regardless of circumstances. Mathematical expectancy gives you the framework to achieve that objective, and leverage is the tool that you use to create large wins, thus tilting the payoff equation to create positive expectancy.

If you found this analysis interesting, then the low-risk next step is to purchase a copy of The Leverage Equation book so you can learn how to apply expectancy analysis to produce large wins. The price of the book is small, but the value of the information makes it a no-brainer risk-versus-reward investment.

Additionally, if you can see the importance of this strategy to all your future plans, then consider leveling up to the full Expectancy Wealth Planning course that The Leverage Equation (and this article) were excerpted from.

It’s fully guaranteed because it’s knowledge that pays.

]]> 2
FM 025: FIRE Case Study with Chris Mamula Tue, 12 Jun 2018 05:16:00 +0000 FM 25 - FIRE Case Study with Chris Mamula

Click here to download the transcript of Chris's best tips for FIRE!

I love sharing FIRE case studies to inspire you.

They prove the dream really is achievable for normal people with no extraordinary financial skills.

They also unmask the dream to show how the reality of financial independence and early retirement differ from your idealized vision.

The truth is everyone hits potholes, makes mistakes, and questions if it’s worth all the hard work.

Our guest, Chris Mamula, is no different.

He candidly shares his FIRE story in this interview – warts, blemishes, and victories as well.

Despite several costly errors he managed to achieve financial freedom in just 5 years.

  • Chris paid excessive fees to a financial advisor
  • He bought a variable annuity within a 401(k)
  • He felt “less than” when comparing himself to other FIRE success stories
  • But he got several critical factors right like keeping expenses low and saving a high percentage of his income, and that proved to be good enough.

Financial freedom isn’t about luck, brains, or a single great investment. It’s about having a valid plan based on proven principles and taking sufficient action with enough persistence to reach the goal (exactly as taught in my Expectancy Wealth Planning course here).

Anyone can do it, and these case studies prove it.

I hope you enjoy the example Chris has shared.

And if you got great value from Chris’s story then please check out the other FIRE success case studies on this podcast.

In this episode you’ll discover:

  • What inspired Chris and his wife to become financially independent
  • Why Chris is so debt-adverse, and how it worked to his advantage
  • How Chris adopted the term “dirt bag millionaire”
  • The important role values play for achieving financial independence (they matter way more than you think)
  • Chris’s personal definition of financial independence
  • How the 25x Rule, Rule of 300 and 400, and 4% Rule can give you a rough benchmark of how much money to aim for in retirement
  • The mistake that occurs when you get overly focused on retiring early
  • How to balance spending now versus saving for the future
  • What Chris did once he realized how unhappy he had become on this journey
  • How to avoid the insidious trap of “I’ll be happy when I’m retired”
  • The benefits of continued work after financial independence
  • How to redefine what early retirement and financial independence mean, and why it matters
  • Abundance versus scarcity in early retirement
  • How Chris’s plan reflects the “new retirement
  • The surprising reason why most people pursuing financial independence will continue to work
  • Risk management for early retirement
  • The key to understanding mathematical expectancy
  • Why it’s paramount to become your own financial expert, lest you get taken for a ride by your financial advisor
  • The danger of financial advisor fees. Chris was paying over $8,000 every year!
  • The tax consequences Chris and his wife faced for not doing their due diligence quickly enough
  • Why it might make sense to select a fee-only financial advisor instead of one paid via commissions
  • How the pursuit of financial independence changes your thinking at a fundamental level
  • Why learning to be happy and present is the key
  • The resources that were most helpful to Chris for investing without any prior knowledge
  • Other sources of income that Chris and his wife are looking into
  • Why Chris doesn’t feel like he really paid a price to become financially free
  • How living in alignment with your values creates happiness
  • and much more….

Resources and Links Mentioned in this Session Include:

Financial Mentor podcast - How Chris Mamula achieved financial independence in 5 years

Help Out The Show:

Leaving a review and subscribing to the show on iTunes is the best way to support this show.

I read every review, and your support helps the show rank so more people find us and benefit from the message.

If you could spare a minute to leave a review on iTunes it would mean a lot to me. Thank you so much!

Click here to subscribe to the show on iTunes and leave a review…

Alternatively, this link below will help you subscribe and leave a review on your device…

Click here to subscribe and leave a review from inside your iTunes account…

]]> 0 Get FIRE! Discover Chris Mamula's failures and wins to achieve financial independence early retirement in just 5 years. It's easier than you think.

I love sharing FIRE case studies to inspire you.
They prove the dream really is achievable for normal people with no extraordinary financial skills.
They also unmask the dream to show how the reality of financial independence and early retirement differ from your idealized vision.
The truth is everyone hits potholes, makes mistakes, and questions if it’s worth all the hard work.
Our guest, Chris Mamula, is no different.
He candidly shares his FIRE story in this interview – warts, blemishes, and victories as well.
Despite several costly errors he managed to achieve financial freedom in just 5 years.

* Chris paid excessive fees to a financial advisor
* He bought a variable annuity within a 401(k)
* He felt “less than” when comparing himself to other FIRE success stories
* But he got several critical factors right like keeping expenses low and saving a high percentage of his income, and that proved to be good enough.

Financial freedom isn’t about luck, brains, or a single great investment. It’s about having a valid plan based on proven principles and taking sufficient action with enough persistence to reach the goal (exactly as taught in my Expectancy Wealth Planning course here).
Anyone can do it, and these case studies prove it.
I hope you enjoy the example Chris has shared.
And if you got great value from Chris’s story then please check out the other FIRE success case studies on this podcast.
In this episode you’ll discover:

* What inspired Chris and his wife to become financially independent
* Why Chris is so debt-adverse, and how it worked to his advantage
* How Chris adopted the term “dirt bag millionaire”
* The important role values play for achieving financial independence (they matter way more than you think)
* Chris’s personal definition of financial independence
* How the 25x Rule, Rule of 300 and 400, and 4% Rule can give you a rough benchmark of how much money to aim for in retirement
* The mistake that occurs when you get overly focused on retiring early
* How to balance spending now versus saving for the future
* What Chris did once he realized how unhappy he had become on this journey
* How to avoid the insidious trap of “I’ll be happy when I’m retired”
* The benefits of continued work after financial independence
* How to redefine what early retirement and financial independence mean, and why it matters
* Abundance versus scarcity in early retirement
* How Chris’s plan reflects the “new retirement
* The surprising reason why most people pursuing financial independence will continue to work
* Risk management for early retirement
* The key to understanding mathematical expectancy
* Why it’s paramount to become your own financial expert, lest you get taken for a ride by your financial advisor
* The danger of financial advisor fees. Chris was paying over $8,000 every year!
Todd R. Tresidder: Financial coach, wealth building strategist, author, investor; clean 1:00:31
Bubbles, Bubbles Everywhere – How To Protect Yourself Sat, 27 Jan 2018 18:30:13 +0000 All Major Asset Classes Are Crazy Overvalued. It’s Time For Risk Management

Key Ideas

  • How to identify a financial bubble before it costs you money.
  • Why Bitcoin is a symptom of the problem, but not the problem itself.
  • The one missing ingredient for a historic, final, market top of epic proportions.
  • Specific risk management strategies that will protect your portfolio.

It’s time to get concerned.

It’s not natural for the U.S. stock market to march relentlessly higher into extreme overvaluation with almost no volatility. It’s one sided. It’s abnormal.

A healthy market rotates up and down within an overall trend because there’s a balance of buyers and sellers.

It’s not natural for bonds to trade at negative interest rates in many parts of the world with U.S. interest rates approaching zero. It’s also not natural for the yield curve to invert (hasn’t happened yet, but very close) where the short end has higher interest rates than the long end.

A healthy credit market pays interest for the use of money and charges a premium for the extra risk of lending over longer periods of time.

It’s not natural for people to exchange the equivalent of a new car for bits and bytes in the internet ether (otherwise known as cryptocurrency) created out of thin air by some unknown guy in the dark recesses of his computer. Nor is it natural for any sound “currency” to rise by thousands of percent in a year, or for common citizens to “mine” thousands of new “currencies” in a year to cash in on the crypto-mania.

Even worse, I can’t show you what a healthy currency looks like because all currency today is “fiat” explaining the unhealthy economic backdrop that gave rise to Bitcoin (and all of these other financial bubbles) in the first place (more on that below…).

I could add real estate to this list of speculative frenzies because it certainly qualifies, but everything else is so crazy-extreme that it makes the real estate bubble pale in comparison. Obviously, that fact isn’t healthy either.

Something is wrong today (Editor’s Note – This was published January 27, 2018 and remains unchanged from the original).

Seriously wrong.

As Warren Buffett said, “be fearful when others are greedy, and be greedy when others are fearful”.

Greed is in all the major asset classes.

It’s time to be fearful.

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Financial risk management for bubbles: learn how to protect your portfolio in volatile times

I Didn’t Want To Write This But…

This bubble bothers me more than the last three (stock market in 2000, real estate in 2007, bond market from 2013 to current).

This one is bigger, badder, and disturbingly different.

I provided written warnings to subscribers about each of the last three bubbles prior to bursting. In the past, I welcomed them as government manufactured buying opportunities for smart risk managers.

But there’s something wrong with today’s bubble that makes me more cautious than usual (not that asset bubbles should be “usual”, but that’s the reality of the government manipulated markets we live with today).

Until now I’ve been passively observing the escalating overvaluation in all the major asset classes enjoying the increase in values like other investors. It’s been an amazingly profitable ride.

I even ignored the Bitcoin speculative mania as an interesting sideline – a curious, little pet-bubble if you will – until I had a disturbing realization during December as prices pushed the $20,000 per coin level that prompted this article (Yes, I’ve been sitting on publishing this for two months because it bothers me so much).

Something very important is happening, Bitcoin is a symptom, and the conclusion is not what you would expect. Let me explain…

How To Identify A Financial Bubble As It Peaks

I get interviewed by various media channels a couple times a week. For the past three months, every interviewer asks my opinion about Bitcoin. Also, my coaching clients and course clients are all asking me about Bitcoin.

This has only happened twice before in my career…

  1. The first time was the two years leading up to the 2000 final valuation top in the U.S. stock market. Every client wanted hot stock tips for the dot-com bubble. Companies with no business model and no clients were being valued in millions. The NASDAQ sold for an insane 200 times earnings. Everybody involved in tech stocks was getting rich, and it was a “new era” because the internet was going to change all valuation rules for business (sounds a lot like the blockchain and cryptocurrency today, doesn’t it?). I started getting cautious in 1998 (two years too early), sold my hedge fund investment management business to manage risk exposure, and wrote public warnings (before this site was a blog, it had a newsletter). Typical of all true manias, the emotion was so strong and the beliefs so deeply entrenched that people literally can’t see the obvious. In this case, the canary in the coal mine was when one of my early coaching clients, who built his fortune in tech stocks, fired me in frustrated anger when I had the gall to advocate risk management to preserve his fortune in preparation for the bubble bursting. He believed tech stocks were in their infancy and disliked my message, so he killed the messenger. Unfortunately, he suffered life-changing losses when the bubble burst.
  2. The second time it happened was during the two years leading up to the 2007 top in the U.S. real estate market. Every new coaching client wanted to get rich in real estate. People were so blinded by the consistency and reliability of the gains that the conventional wisdom was that real estate never went down. Seriously! Nobody believes that today, but that was investment truth back then. My wake up call for that bubble was when tenants for my C-class apartment buildings with credit history so bad they didn’t even qualify to rent a $600 per month apartment were buying $300,000 houses with no down payment loans (they were called “liar loans” back then). I began the process of liquidating all of my investment real estate in 2005 to manage risk and it took 2 years to unwind the portfolio before the eventual decline. The canary in the coal mine demonstrating the emotion driven blindness of the time was when I was publicly ridiculed for my decision to sell and pay the taxes rather than 1031 the gains to newer, bigger properties. I’ll never forget the verbal abuse by certain real estate professionals calling me “stupid” with one in particular so emotional that he was yelling at me with spittle coming out of his mouth. The subsequent decline cost many of his clients their entire life savings.

The Bubble Du Jour

I share those stories so you can see what investment bubbles look like as they occur and how people invested in those bubbles emotionally react to warning signs of problems when the bubble is in late stages. The setup in order of occurrence has been:

  1. Extreme overvaluation sets up the condition for extreme downside risk.
  2. Next, a speculative mania causes a final price acceleration phase resulting in an emotional peak as participants get rich. This attracts media attention and crowd psychology results.
  3. Third, participants who are financially committed to the bubble become emotionally irrational and aggressive to contrary opinion.
  4. And finally, certain technical indicators break down (specifics depend on the market that has bubbled), signaling the decline has begun.

I have been getting progressively more cautious over the past few years based on cycling overvaluation extremes in different markets (since all the major markets except commodities are overvalued now), but I’ve continued to dance while the music played because the other three warning signs weren’t in place… yet.

My first word of caution came via this post announcing the bond market bubble back in early 2013. I declared in that post there was no positive mathematical expectancy (net of inflation) remaining in the bond market, and that the only sensible decision from an expectancy investing framework was to exit the asset class. While some embraced the idea, others ridiculed it because it violated firmly held tenets of asset allocation/diversification. They were blind to reality, even though the math behind the conclusions was obvious, provable, and has stood the test of time.

Overall, the response to that article was muted. The negative comments were rational indicating no emotional extreme had been reached even though the math was unequivocal. Subsequent market movement have proven the thesis (so far) with interest rates remaining today in the range where they were back on publication date, supporting the best case scenario conclusion in the article (so far) and proving investors would have been better off to reallocate to competing assets and away from bonds.


The longevity and depth of this credit market bubble reaching a 5000 year extreme is the key to understanding why all asset classes are at a price extreme now. The credit boom is what’s driving the equity and real estate booms because investors are forced to chase risk assets in search of yield, resulting in risk being mis-priced.

That’s why the stock market has continued marching to new all-time highs with the most amazing, record low volatility. As of this writing, the only time the U.S. market has been more overvalued as measured by the CAPE ratio is the narrow window of months preceding the final 2000 top. Other measures of valuation besides CAPE are reaching new all-time highs. Worse yet, valuation levels lower than today’s comprise a Who’s Who of the worst times to invest in stocks.

Not only that, bonds, as already stated, are in uncharted territory after years of ZIRP (zero percent interest rate policy). This is important because conventional asset allocation relies on bonds moving opposite to stocks during a decline as the Fed lowers interest rates in the face of economic turmoil, but that may be difficult to achieve from the currently low interest rates.

Additionally, real estate has risen to extreme bubble valuations (but remains beneath the 2006-2007 record valuations).

Finally, commodities are hitting record low valuations relative to equities. This is also extreme, and rare, but in the opposite direction of all the other asset classes.

The point is that all major asset classes are at (or near) an extreme in valuation at the same time. That’s important.

Three Ways To Value Any Asset

To understand the implications of that statement, let’s first establish a common base of understanding by looking at the three ways to value any asset:

  1. The Greater Fool Theory: In real estate they call it “comparable sales”, and in paper assets like stocks and bonds it’s the most recent transaction. The implication is the current market price represents fair market value because it’s the price willing buyers and sellers are trading at. The problem is it’s absolutely useless for indicating bubbles because it really only tells you what other fools are willing to pay for something.
  2. Assets: In real estate this would be replacement cost analysis, or how much it would cost to rebuild the structure net of depreciation. In stocks it’s book value or Q-ratio as a measure of the underlying assets per share. This is a very important measure of risk because it tells you the premium or discount you’re paying relative to what the underlying asset is worth. Extreme premiums are associated with periods of irrational exuberance delivering high risk, and extreme discounts are associated with periods of fear, lower risk, and higher subsequent investment returns.
  3. Income: In real estate income it’s measured as NOI (net operating income), or in retail residential it’s often measured as gross rent multiplier. In the stock market it’s the P/E or price earnings ratio, commonly measured through CAPE, or cyclically adjusted price earnings ratio. Income is my favorite valuation measure for indicating risk because ultimately the value of any asset is the discounted present value of its cash flows. That’s fancy economic jargon for saying an asset is worth what it earns. It measures present worth based on the future benefits of ownership.

Each of these three methods separately provides a different objective measure of valuation for any asset. Interesting conclusions develop when you compare and contrast all three together.

There are two key points to keep in mind with valuation analysis:

  1. Extremes in valuation provide the most information value. Strong statistical significance occurs that effects mathematical expectancy at valuation extremes (like today).
  2. The second important point is that price and investment value are two separate and distinct things that should never be confused. Failure to make this distinction will eventually cost you money.

Despite academic rumblings about Efficient Market Hypothesis and other theoretical frameworks supporting buy and hold philosophy, statistically valid investment opportunity occurs when price and investment value diverge in an extreme way. This has occurred at selected times throughout history, and more importantly (and the reason for this article) is occurring again now.

Today’s Investment Bubble Revisited

And so that long-winded analysis of valuation methods sets the context for understanding our current asset bubble.

I safely call it an asset bubble because none of the major assets classes (stocks, bonds, real estate) make any investment sense when judged against the only two valuation criteria that matter – assets and income – as described above. They’re all priced at or near an extreme risk premium relative to both underlying assets and income, implying several important conclusions:

  1. Expected returns over 7-15 years will be lower and more volatile than historical averages. That’s politically correct language for saying something unthinkable to the buy and hold crowd. We have entered a period where the risk of owning the U.S. stock market over the next 7-15 years does not justify the reward over the same time period.
  2. The only thing supporting the current bull market in the major asset classes is momentum and “Greater Fool Theory” valuation metrics as described above. As long as momentum prevails the market can still rise dramatically over the short term. Momentum is a powerful force. However, mean reversion assures that all short term gains between now and the final top will be given back abruptly… and then some.
  3. A smart investor should be on the lookout for the remaining bubble conditions (as described above) to be satisfied, thus indicating the final turning point because valuation and anecdotal evidence are very blunt-edged tools that can be wrong by years. Overvaluation is a necessary precursor for a bubble, but it’s not sufficient. Notice how each of the previous bubble top descriptions in 2000 and 2007 discussed a 2 year window. The same is true with this analysis.

So while item 1 states unequivocally that we’ve already entered an unfavorable intermediate term investment horizon of 7-15 years, items 2 and 3 tells us the short term remains indeterminate until the remaining factors narrow the time window.

Stated another way, we are close to the end of this historic bull run resulting in an asset bubble of epic proportions that will ultimately result in life-changing losses to investors, but certain puzzle pieces have been missing… until recently.

The window is getting much closer to closing…

Learn risk management for financial market bubbles so your portfolio stays safe in a time of uncertainty.

There Was No Mania… Until Now

The most disconcerting aspect of this entire bubble has been how calm it is. That’s not how bubbles blow up.

Most bubbles finish off the overvaluation phase with a rapid price acceleration phase that causes sudden riches for investors, resulting in mass media attention and a polarization of public opinion. However, this final acceleration phase usually begins from lower valuation levels than we have today and usually occurs in a single market, not all major markets simultaneously. It’s where all the symptoms of excess appear.

In other words, even though all three major markets have relentlessly marched to record price highs (and record low yields) creating historic overvaluation, there’s been no clear indication of a speculative fever to create a vacuum underneath prices resulting in a collapse. Instead, there’s record low volatility, no animal spirits, no asymptotic growth curves, no crazy stories of sudden riches. In short, until recently we’ve seen none of the circumstantial evidence supporting insane animal spirits taking over the market in a fit of speculative greed.

Every bull market top has its poster child of irrational exuberance where proven economic common sense was tossed out the window because “this time is different”.

  • The 73-74 bull market had the “Nifty Fifty”
  • The 2000 top was marked by the dotcom bubble and the internet revolution
  • The 2007 top had insane real estate valuations supported by a belief that real estate never went down.

Which brings us full circle to today – Bitcoin – and the reason for this article warning you that we’ve finally entered the window of time to take risk management seriously.

BitCoin Fulfills The Speculative Mania Criteria

There is a long history of bubbles being marked by the issuance of a new “type of currency” that catches public imagination resulting in feverish trading.

Bitcoin has delivered one of the key indicators of important market tops – an irrational, speculative fever based on “this time is different”.

  • Bitcoin has an asymptotic price climb.
  • Stories abound of ordinary people getting instant riches from Bitcoin.
  • Bitcoin is everywhere in the financial press. I can’t be interviewed without being asked my opinion about it. My friends and clients are all asking about it.
  • Bitcoin completely fails the two primary valuation criteria listed above for analyzing an investment – it has no intrinsic value, and it yields no income.
  • Therefore Bitcoin is purely a speculation and not an investment, just as Tulip Bulbs and Mississippi shares were in years gone by. It could go to a million per coin, or it could go to zero. There is no intrinsic value except what human minds decide to give it.
  • Bitcoin is rallying under the “this time is different” moniker. It’s a new currency, free from government manipulation, limited in supply, and part of the digital revolution. It’s different this time, because every bubble is always different every time.

But there’s one problem with this analysis…

The important overvaluation we need to worry about is in stocks, bonds, and real estate; however, the bubble has occurred in a totally unrelated market – cryptocurrency.

That difference bothers me.

If the collapse were to occur in stocks, then the normal order of events should be to inflate the bubble in stocks to set up the vacuum under prices for the ensuing decline. That hasn’t occurred yet, which makes this particular bubble so disconcerting.

In other words, you have bubble valuations in stocks, bonds, and real estate right now (February 2018), but no final price acceleration phase that polarizes public emotion. The extreme overvaluation level sets up the necessary condition for the subsequent price collapse, but historically that hasn’t been sufficient alone. Also, the fact that all three markets are extremely overvalued at the same time is unusual and risky.

The point is there’s usually an acceleration phase and public mania in the market that collapses. We’ve seen it in Bitcoin, but not in the other major markets.

What Scares Me About Bitcoin

I believe Bitcoin is a symptom of the real problem. It won’t be the cause.

Let me be clear. I believe the blockchain is 100% the revolution that proponents claim it will be. It’s going to change life in ways we can hardly imagine, just as the internet was 100% the revolution it was claimed to be back in the 1990’s. That part of this story is likely real.

But just as investors in the dotcom bubble got wiped out despite the internet fulfilling its destiny, investors in the cryptocurrency bubble will face a similar fate despite blockchain fulfilling its destiny.

So the scary part is not the cryptocurrency bubble. That’s too small, too obvious, and too disconnected from important economic fundamentals to be anything more than an interesting distraction.

What worries me is the premise that’s driving the cryptocurrency bubble. It’s anti-government. The speculative fever is driven by the masses distrusting all government economic manipulation and fiat currency. If you aren’t clear about this premise then just try to imagine Bitcoin gaining speculative interest in a hard currency world backed by gold where no inflation existed, a dollar would have the same buying power 3 generations from now as it has today, governments balanced their budgets, and there was no looming debt crisis. When you wrap your head around this strange world order you realize there’d be no crypto-mania because there would be no problem for cyptocurrency to solve.

Stated another way, the string of financial asset bubbles over the past 20 years all owe their underpinnings to fiat currency and government policy manipulation in the economy. The current cryptocurrency bubble is the most overt example.

The fact that the current bubble-du-jour is a new age currency outside of government policy delivers a disturbingly poetic reference to all that is economically wrong today with government policy and the resulting mass psychology driving the animal spirits.

In a perverse way, Bitcoin has become a positive bet against continued government success at fabricating stable economic growth through financial manipulation.

I say perverse because the normal loss-of-faith bet would be to sell risk assets and/or the domestic currency itself (the dollar).

But today’s speculative bubble is so persistent and pervasive across all asset classes that it managed to create a new “long” speculative bubble that’s essentially a “short” position against all the other speculative bubbles happening at the same time.

Worse yet, the public “gets it”. Disbelief in our fiat financial system is now so widespread that it resulted in an anti-government speculative fever among the masses.

Meanwhile, risk assets relentlessly march to new highs like lemmings to the sea.

I’ve never seen anything like it. This time really is different (sort of). But in all the wrong ways.

And now the dollar is finally breaking down, which is what you would normally expect for this emotional back-drop.

Not good…

The Other Missing Ingredient

Another aspect of bubbles that I’ve learned to expect is being personally attacked near the top for advocating contrary opinions that include prudent risk management. It has happened every time and marks the emotional peak where public opinion is so one-sided that the idea of managing risk invokes an emotional, irrational response. Until a few weeks ago it was missing from this bubble, but that changed as well…


I was recently interviewed for a podcast (not listing the name because nothing is gained from pointing fingers) targeted at the FIRE (financial independence retire early) community. In that episode I pointed out how the conventional investment approach to FI (low cost passive index asset allocation in paper assets) lacked adequate investment risk management for the current market environment.

Surprisingly, it was the most controversial and polarizing interview in the show’s history, garnering more comments in the Facebook discussion group than any other show. Listeners either loved it, declaring it the best episode yet, or they hated it. I was called a “scum bag”, my professional reputation was questioned, and I was personally attacked. People were so emotional that several said they had a hard time listening and others commented how it was “a sucker punch to the gut”.

Seriously? It’s an audio interview where I discussed financial topics including risk management. What gives?

I’ve been on 200 podcasts and never got a reaction like that. The normal response is listeners appreciate an interesting conversation where different ideas are shared. It’s just a conversation.

However, this interview was different because I made a crucial mistake. I failed to reconcile the fact that the market had reached an extreme overvaluation, thus polarizing sentiment with the fact that this community was fully invested in this bull market with no serious risk management discipline. Their own survey shows the vast majority hold 90% (or more) of their assets in stocks. Many have recently gained early financial independence, or expect to retire soon, based on their stock portfolios.

In hindsight it’s obvious they’d respond emotionally and aggressively to alternative viewpoints! Dohh! Their financial security and future life plans depend on buy and hold working in the future like it has in the past.

As it turned out, this polarized emotional response was identical to other market tops where in 1999, my coaching client that made his fortune in tech stocks got aggressive and fired me because I advocated risk management to protect his fortune. And the real estate pros in 2006 cussed me out and called me “stupid” for cashing out all of my investment real estate and paying taxes to manage the downside risk. In each situation these people were invested. Their financial security is dependent on the bubble du jour continuing.

That makes their emotional response a key contrary indicator.

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Financial risk management for bubbles is essential in today's market. Who knows when the bubble will pop?

The Final Missing Ingredient

And so that leaves us with everything in place (almost) for a historic, final market top of epic proportions (measured in terms of a decade, or longer), except for two things…

    1. We have extreme overvaluation. (Worse yet, the overvaluation is in all major asset classes at the same time, except commodities, which are the polar opposite.)
    2. We have a speculative mania that has captured mass psychology. (Worse yet, this speculative mania is anti-currency and anti-government, implying loss of confidence in the system that supports the bubbles in all the other asset classes.)
    3. We have an emotional peak demonstrated by aggressive behavior to contrary opinion advocating risk management.
    4. ?????

But there are still two things missing to make this analysis rock solid.

The first factor missing is for the major markets to actually break down.

Analyzing the “break down” is beyond the scope of this already-too-long article because it encompasses market internal indicators like credit spreads, divergences between equity indices, yield curves, investor sentiment, price momentum, quality indicators, economic indicators, M&A/IPO indicators, and more. However, it’s worth noting that this article is being published at the beginning of February, 2018 rather than months or years ago when valuations were already high, implying the market internal indicators are getting “warmer”.

But “warm” is not “rolled over” yet, so until various internal indicators fail, we still lack clear evidence of momentum failure. That means the animal spirits remain in control. The clock is ticking, but it hasn’t struck midnight quite yet.

The second thing that’s missing is how the acceleration phase causing sudden riches resulting in mass media attention occurred in an unrelated market – cryptocurrency. None of the major markets (stocks, bonds, real estate) have gone through the sudden price acceleration phase that typifies a final top… yet. That leaves open the possibility for that sudden acceleration phase to still occur.

However, your key takeaway should be how all the other evidence makes it clear how this party can only continue for the short term (from now to less than 2 years on the extreme high side, probably less). We’re now at the point where this is a bubble looking for a pin. Any continued rise just gives further to fall, and any new gains should be rapidly reversed once the downturn begins. This party is on borrowed time, which is why I wanted to give this warning.

Yes, it’s still possible for one (or more) of the major markets to run through a final price acceleration phase to cap things off, which is what would cause the longer time horizon pushing 2 years. But overvaluations are already high enough and there’s enough anecdotal evidence in place that it’s prudent to ring the warning bell and call in the defensive team (risk management) to protect against excessive loss.

How Risk Management Works

Risk management acts like insurance. It’s a complete waste of money when there’s no problem, but when disaster strikes it’ll save you from suffering a life-changing loss.

You intuitively understand how this works with homeowners insurance where you hope that every renewal is a small waste of money, but when that rare fire strikes, insurance will be the only thing that saves you from financial disaster.

Smart investors who practice risk management have been renewing their policies without so much as a spark (market volatility), not to mention a fire (bear market), for years. It’s been a complete waste.

That’s about to change.

Nobody has a crystal ball so I can’t tell you exactly when mass psychology will sober up, or if we’ll go through a final acceleration phase in the major markets before they collapse, but mean reversion assures it’s far closer and will be far uglier than any investor wants to endure on a buy and hold basis.

There’s enough evidence in place that it’s prudent to get cautious. Yes, it would be normal to experience price acceleration from here first before collapsing which could extend the time frame up to a maximum of 2 years, but the breadth and depth of the overvaluation is already abnormal. This isn’t just one market that’s overvalued. It’s all the major markets (except commodities).

And the cryptocurrency mania reaching mass consciousness is a warning of possible loss of faith in government economic policy solutions (“The Fed Put”), which is particularly worrisome because belief in omnipotent Fed policy is the only thing that’s shortened each of the prior collapses resulting in ever increasing bubbles.

For these reasons, it now makes sense to err on the side of caution by getting your risk management strategies in place. Proper risk management will allow you to still participate if the party continues, but give your portfolio downside protection when the bubble bursts.

To help you I have a 100% free mini-course on investment risk management coming out in a few months. I’m working on it right now and it’s my top priority. I’ll announce it in this newsletter when it’s ready. However, if you don’t want to wait that long you can get all of that instruction (and a lot more) in my advanced wealth building course here. It will show you how to structure your portfolio to better manage risk, including extreme event risk.

While I can’t explain all the risk management strategies that are possible a few actionable ideas include:

  • “Deep diversification” (where you diversify by strategy and source of return, not just asset class, by identifying sources of return that inversely correlate with the stock market)
  • Diversify into certain business and real estate assets where the outcome is driven by a micro-economy
  • Diversify into alternative assets
  • Switch to an investment process that includes an exit discipline
  • Increase allocation to cash
  • Switch from high volatility, high beta assets to low volatility assets
  • Diversify into favorably valued assets that might include domestic value plays, certain emerging markets, commodities, and commodity producers
  • And much, much more

There are many risk management strategies to consider that can help you protect your wealth, but you can’t wait until everything rolls over before you put them in place. Once the tide goes out, everyone can see who’s standing naked.

The current extreme in valuation (and other anecdotal evidence) makes it clear that an equally extreme mean reversion is a fait accompli. It’s only a question of “when”, not “if”. You don’t have to predict the final outcome to benefit; you just have to prepare in advance.

I hope this warning (and this course) help you think through the issues so you aren’t caught by surprise.

[how-much-money-do-i-need-to-retire-footer] ]]> 54
FM 024: How To Pay For College When You Don’t Qualify for Financial Aid, with Brad Baldridge & Jocelyn Paonita Tue, 28 Nov 2017 03:16:40 +0000 FM 24 - Paying for college when the cost of college is ridiculous

Click here to download the transcript of Brad & Jocelyn's best tips on making college affordable when you don't qualify for financial aid!

The cost of college is ridiculous.

You can give your child a top quality education or s/he can have a home free-and-clear plus retirement fully funded instead.

That trade-off doesn’t make any financial sense.

Sure, I’m a huge fan of education. I believe in the importance of the college experience as a valuable launch-pad into adulthood, but the cost of college shouldn’t be so outrageously high that you’re literally making a decision between higher education versus a debt free home plus retirement security.

That’s outrageous.

Adding insult to injury, college education is the only business that demands all your financial statements before deciding what they’re going to charge you. Just imagine buying a car from a dealer who demands full disclosure of every detail of your net worth and personal finances including tax statements before deciding how much he should charge you for the car.

Absurd? Yes! But that’s exactly how the college business operates.

Even worse, the system is rigged against most of my readers.

For example, some quality schools are running $70K per year for all-in costs meaning $280K total if you child graduates in 4 years, and $350K if s/he takes 5 years. Even if you round that number down to $250K to be conservative that’s still $500K total if you have 2 kids. That’s a big nut to swallow for anyone, even if you’re reasonably successful. Only the very wealthy can afford to be cavalier about such a large number, and only the very poor qualify for enough financial aid that they don’t have to worry about how to pay for college.

So the purpose of this podcast is to help you figure out how to afford the high cost of college when you don’t qualify for need-based financial aid. It’s a tremendously important subject because paying for college is one of the biggest financial issues you’ll face – right up there with buying a home and funding retirement.

I invited two experts in back-to-back interviews that will share two different perspectives on how to pay for college. The goal of this podcast episode is to provide you with a complete education in college affordability for the affluent all in one podcast episode.

My first guest is Brad Baldridge, a CFP specializing in helping middle and upper-middle class families afford college.

My second guest is Jocelyn Paonita, who secured over $126,000 in scholarships to cover her tuition and graduate debt free. She will teach her complete system for getting enough scholarships to pay for college without ever borrowing a dime.

In this episode you’ll discover:

  • The six different categories of schools and the financial advantages and disadvantages of each.
  • Why college is just a business, like any other, so you can properly assess the costs vs. benefits of different school offers.
  • How you can attend certain out-of-state schools at in-state tuition rates.
  • Why you have a better chance at scoring merit aid at a private school than a state school.
  • The critical difference between merit and need-based aid.
  • How your children can get free scholarship money even when they’re not academic or athletic rockstars.
  • A behind-the-scenes peek at colleges marketing strategies so you don’t fall for their tricks.
  • How the bottom 25% of an incoming class pays for the top 25%  of students.
  • The four dimensions of paying for college.
  • Brad’s favorite strategies for reducing the burden of paying for college, including business and tax strategies.
  • How to figure out your Expected Family Contribution (EFC)
  • What you need to know about FAFSA and the CSS Profile.
  • Why you must complete the FAFSA and CSS Profile even if you think you’ll never qualify for need-based aid.
  • How to use net price calculators that colleges must provide (and their downsides).
  • How to set expectations with your child so you’re not footing an enormous bill.
  • The formula for how income versus assets are weighted in financial aid calculations.
  • How to negotiate with schools to lower tuition or obtain better aid packages.
  • Why it’s important to begin this process sooner than later – as early as sophomore year in high school.
  • Jocelyn’s entrepreneurial strategy to pursue scholarship revenue as an alternative to a job.
  • The exact system Jocelyn used to win half the scholarship applications she submitted.
  • What it means to get into a “money-making mindset” before applying for scholarships.
  • How to separate legitimate scholarships from all the scams.
  • How to use mathematical expectancy principles to pick the most lucrative scholarships.
  • The surprising reason you’ll want to pursue smaller scholarships over the large ones.
  • The unfortunate truth of how college financial aid offices deal with merit and need-based scholarships.
  • How storytelling and structure are critically important to your college essays.
  • How to use events and accomplishments to ‘sell’ a story in an application.
  • The 529 loophole every parents must know.
  • and much more….

Resources and Links Mentioned in this Session Include:

Financial Mentor Podcast - How to pay for the high cost of college

Help Out The Show:

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I read every review, and your support helps the show rank so more people find us and benefit from the message.

If you could spare a minute to leave a review on iTunes it would mean a lot to me. Thank you so much!

Click here to subscribe to the show on iTunes and leave a review…

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Click here to subscribe and leave a review from inside your iTunes account…

]]> 5 Paying for your kids college is one of the biggest expenses you'll face. Many schools are so expensive that you could give your child a paid-off home and a secure retirement for what the education will cost. To make matters worse,

The cost of college is ridiculous.
You can give your child a top quality education or s/he can have a home free-and-clear plus retirement fully funded instead.
That trade-off doesn’t make any financial sense.
Sure, I’m a huge fan of education. I believe in the importance of the college experience as a valuable launch-pad into adulthood, but the cost of college shouldn’t be so outrageously high that you’re literally making a decision between higher education versus a debt free home plus retirement security.
That’s outrageous.
Adding insult to injury, college education is the only business that demands all your financial statements before deciding what they’re going to charge you. Just imagine buying a car from a dealer who demands full disclosure of every detail of your net worth and personal finances including tax statements before deciding how much he should charge you for the car.
Absurd? Yes! But that’s exactly how the college business operates.
Even worse, the system is rigged against most of my readers.
For example, some quality schools are running $70K per year for all-in costs meaning $280K total if you child graduates in 4 years, and $350K if s/he takes 5 years. Even if you round that number down to $250K to be conservative that’s still $500K total if you have 2 kids. That’s a big nut to swallow for anyone, even if you’re reasonably successful. Only the very wealthy can afford to be cavalier about such a large number, and only the very poor qualify for enough financial aid that they don’t have to worry about how to pay for college.
So the purpose of this podcast is to help you figure out how to afford the high cost of college when you don’t qualify for need-based financial aid. It’s a tremendously important subject because paying for college is one of the biggest financial issues you’ll face – right up there with buying a home and funding retirement.
I invited two experts in back-to-back interviews that will share two different perspectives on how to pay for college. The goal of this podcast episode is to provide you with a complete education in college affordability for the affluent all in one podcast episode.
My first guest is Brad Baldridge, a CFP specializing in helping middle and upper-middle class families afford college.
My second guest is Jocelyn Paonita, who secured over $126,000 in scholarships to cover her tuition and graduate debt free. She will teach her complete system for getting enough scholarships to pay for college without ever borrowing a dime.
In this episode you’ll discover:

* The six different categories of schools and the financial advantages and disadvantages of each.
* Why college is just a business, like any other, so you can properly assess the costs vs. benefits of different school offers.
* How you can attend certain out-of-state schools at in-state tuition rates.
* Why you have a better chance at scoring merit aid at a private school than a state school.
* The critical difference between merit and need-based aid.
* How your children can get free scholarship money even when they’re not academic or athletic rockstars.
* A behind-the-scenes peek at colleges marketing strategies so you don’t fall for their tricks.
* How the bottom 25% of an incoming class pays for the top 25%  of students.
* The four dimensions of paying for college.
* Brad’s favorite strategies for reducing the burden of paying for college, including business and tax strategies.
* How to figure out your Expected Family Contribution (EFC)
* What you need to know about FAFSA and the CSS Profile.
* Why you must complete the FAFSA and CSS Profile even if you think you’ll never qualify for ne...]]>
Todd R. Tresidder: Financial coach, wealth building strategist, author, investor clean 1:52:09
5 Rules For Getting The Best Financial Advice For Your Money Mon, 07 Aug 2017 19:37:33 +0000 Learn Five Rules For Getting The Best Financial Advice For Your Investment Dollar

Key Ideas

  1. Discover how a financial adviser’s pay structure influences the advice you receive.
  2. The four different compensation plans and how each impacts your portfolio.
  3. Five valuable tips that will keep more money in your pocket when dealing with salespeople.

Quick – tell me the difference between a broker and a financial adviser.

If you’re not really sure, then you’re not alone.

Multiple studies show investors are confused – and for good reason. The formerly clear lines of demarcation have been blurred in recent years.

Both offer services that are becoming more similar than different, so why should you care?

The reason is compensation structure – how you pay for the financial advice you receive, and the conflicts of interest it causes.

How your financial adviser is compensated effects the financial advice you’ll receive.

For example, back in the heady days when investment banks still called themselves investment banks, Merrill Lynch settled a $100 million dollar multi-state settlement for alleged wrongdoing and conflicts of interest regarding biased financial advice.

I mention this case not to pick on Merrill, but because it was a high profile, landmark settlement demonstrating a fundamental conflict of interest with brokerage advice.

Every year the financial periodicals report on similar problems with brokers accused of recommending stocks to the public when their firm has an investment banking relationship with the company, and recommending stocks that the analyst owns or the brokerage firm holds a large position in.

The list of wrong-doings also includes churning accounts, recommending inappropriate investment products, and much more.

“History shows that where ethics and economics come in conflict, victory is always with economics. Vested interests have never been known to have willingly divested themselves unless there was sufficient force to compel them.”– B.R. Ambedkar

The motivating cause for each ethical violation is rooted in compensation incentives. Brokerage firms wear too many hats and serve (get compensated by) multiple masters.

How can you possibly be an investment banker to a company and sell that same company’s stock to your retail clients while representing your organization as an unbiased fiduciary giving impartial financial advice? Sorry, but it doesn’t work that way.

It’s the equivalent of your personal physician writing prescriptions for drugs while being employed by a drug wholesaler and getting paid a commission for his recommendations. Would you trust your health to a doctor with those financial incentives hiding behind his recommendations?

I doubt it, yet people do the same with their financial security every day.

I encourage you to confront every source of financial advice in your life with this question: “Is this person an adviser or a salesperson?” Nobody can be both at the same time.

If they’re an adviser, then they’re paid a fully disclosed, up-front fee for their time and advice. If they’re a salesperson, they’ll be compensated for their advice in other ways. It’s just that simple.

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5 Rules for Getting the Best Financial Advice for Your Money Image

The Business Reality Of Financial Advice

The sad reality is most investment brokers, financial planners, financial advisers, and financial consultants are euphemisms for the word “salesperson”. They’re paid to either sell investment products or investment management services.

Their business model is driven by gathering client assets under their umbrella and then selling investment products. The more assets under management, the more product that gets sold. They aren’t paid for the ability to make money with money even though that’s the very skill you want from them. Time spent developing investment expertise is a distraction from what puts money in their pocket: selling.

In other words, your best interest isn’t the same as your adviser’s best interest, and there isn’t a compensation structure in existence that can motivate them to care more about your money than their own.

They make money from their business, and you make money from your investments. That’s a critical, fundamental difference.

“The popularity of conspiracy theories is explained by people’s desire to believe that there is some group of folks who know what they’re doing.”– Damon Knight

This isn’t some grand conspiracy theory against the financial adviser community; it’s a natural result of division of labor in business. Brokers are in the sales department and their job is to sell. Management does the managing and research does the research.

Each department’s function is specialized for business efficiency. A broker is no more responsible for investment skills than a secretary is responsible for sales calls. Each cog in the wheel has its function, and the broker’s function is to sell.


This wouldn’t be a problem if brokers and financial advisers represented themselves as marketing professionals with a product or service to sell, but they don’t. They represent themselves as fiduciaries and investment experts, which is where the problems begin.

Anytime financial advice comes from someone with a product or service to sell, treat that advice as if it’s coming from someone peddling used cars, computers, sofas, or any other product or service.

You wouldn’t view a used car salesman as a fiduciary representing your interests, so why is your financial adviser any different? They’re both salespeople who must get in your back pocket to fill their own back pocket.

I know that sounds harsh. There are many financial advisers furious with that statement, but it’s true nonetheless. Their advice is impacted by how they get paid. It’s not a grand conspiracy theory. It’s the inherent nature of the business.

How Compensation Biases Your Financial Advice

The choices for compensation in the financial advice business are varied with no perfect solution. Every compensation package creates incentives that affect the quality of financial advice you receive.

Below are the four most common compensation structures and how they bias financial advice:

1. Commissioned Sales

Transaction commissions motivate the sales person to create transaction activity and to concentrate activity on high commission products.

It’s all too common to hear about brokers being sued for churning accounts and selling high commission investments to their clients regardless of suitability to capitalize on graduated commission incentives.

Commissioned sales have the greatest conflict of interest of any compensation structure. The incentives created for the broker have no congruence to the client’s interests and can sometimes be diametrically opposed.

“Fortunately for serious minds, a bias recognized is a bias sterilized.”– Benjamin Haydon

2. Percent of Assets Managed

An alternative pay structure for financial advice is “percent of assets” management fees. This is a superior alternative to commissions, though it’s not without its own flaws.

When I ran a successful hedge fund under this compensation structure, our motivation was to maximize consistency of returns rather than profits. The reason was simple: consistent returns maximizes client retention, which maximizes the investment adviser’s profits.

Volatility scares clients away, even if it might put more profit in their pockets.

3. Profit Incentive Fees

Under this arrangement, the adviser is paid a percentage of profits from your account. This sounds great on the surface because the adviser is only paid when you make money, implying congruent interests. Unfortunately, that’s a half-truth.

The adviser shares only in your profits, not the losses. This motivates the adviser to take greater risks in hopes of creating larger returns so he can get paid more.

Why? Because the capital he’s risking is yours – not his. However, the money he’s earning is both yours and his. From the adviser’s standpoint, it’s a risk-free return because the loss is yours to bear, but the gain is shared.

You may or may not end up with more profit, but you’ll likely get more risk with this incentive structure.

4. Fee-Only Advice

Fee-only financial advisers are paid by the hour for financial advice. They shouldn’t receive any other reward such as transaction commissions, residual trailer fees, or back end revenue.

Paying by the hour is probably the closest you’ll come to getting financial advice that isn’t biased by compensation. However, you should be aware that your financial advice will still be biased by the limitations of the adviser’s experience, education, skill, and intelligence.

Examples of fee-only financial advice include fee-only financial planners and my educational coaching services. The sole motivation of a true fee-only adviser is to give you as much valuable financial advice as possible for the dollars you spend so you’ll continue to purchase more services.

But beware of people who hang their hat as “fee-only” because few are truly fee-only financial advisers (watch for back-end kickbacks!). The reason is because “fee-only” isn’t the most profitable business model, so few actually operate in its true form.

In fact, that was one of the challenges I faced in becoming a financial coach. I could make more money if I sold financial products or managed money directly, but I believe the client is best served by separating the financial advice function from the investment product sales function.

“Reality leaves a lot to the imagination.”– John Lennon

In short, there’s no perfect solution that motivates your adviser to stand in your shoes and want what you want with your money.

There’s no compensation structure that can make someone else care about your money more than his own. I know that isn’t what you want to hear, but reality is reality regardless of our desires.

More Evidence Against Biased Financial Advice

In case you might be thinking I’m Chicken Little claiming the investment adviser sky is falling, let me present you with a random selection of quotes from numerous investment periodicals.

The conflicts of interest inherent in financial advice are well-known by industry insiders. Only the investing public is generally in the dark on this issue.

For example, Smart Money magazine published an article titled “Ten Things Your Financial Planner Won’t Tell You”, by Oluwasanmi. Below I’ll quote several interesting points regarding biased financial advice taken directly from the article.

“Anyone can hang out a shingle and call himself a financial planner: there’s no required training or experience.”

“‘The bulk of people who market themselves as financial advisers are salespeople,’ says Consumer Federation of America’s director of investment protection, Barbara Roper.”

“When Irvine, Calif.-based CFP Scott Dauenhauer worked as an adviser at a few big name brokerage firms during the 90’s, he says he was constantly being pushed into selling the firms proprietary and often poorly performing mutual funds, variable annuities or wrap accounts. ‘We got pressured to sell them because the pay out was higher,’ says Dauenhauer.”

“A 1997 survey by National Association of Personal Financial Advisers and the Consumer Federation found that three out of five ‘fee only’ planners actually earn commissions or other financial rewards for their services.”

And if that weren’t enough to convince you, Jane Bryant Quinn stated in a Newsweek article that “Financial planners who take commissions have a built-in conflict of interest – even with a disclosure, my choice would be a fee-only planner.”

“The most important matter is how the planner is compensated. Hire the planner who has no financial stake in (your) investments,” according to Forbes magazine.

And Money magazine stated, “Start with the general practitioner – a financial planner (whose) compensation should be from fees alone.”

Bob Veres was quoted in Financial Planning magazine: “After almost 25 years in this business, I’ve learned that you can usually find the worst investments by looking for those that people are paid – handsomely – to sell.”

Financial Planning also ran an article by Marshall Eckblad where he stated, “Because wirehouses manufacture and sell financial products, it’s hard for their brokers to claim they’re agnostic.”

Again, I’m not trying to say that all financial planners and brokers are bad.

“We’re all salespeople of our wares and things look a lot different from the other side of the counter.”– Unknown

There are some very good, honest people working in this conflict ridden profession trying their best to offer quality financial advice. However, you must use common sense because the conflicts and biases exist nonetheless.

It’s a well-known problem inherent in the nature of the money management business.

Five Rules To Maximize The Value You Receive From Biased Financial Advice

Since nearly all financial advice is biased, then what’s a person to do?

How do you still extract value in a world of conflicted communication?

Below are several tips to sort good financial advice from the bad and the useless:

1. Understand the Incentives Hiding Behind the Financial Advice

If the source stands to profit from the investment advice offered, then trash the information because it’s likely one-sided and unreliable.

2. Never Confuse Facts With Opinions in the Financial Advice You Receive

Facts are hard data and numbers. They’re true and knowable right now.

Opinions are the interpretations of those facts.

Opinions are useless clutter that cloud investment decisions.

Facts are what matter.

The salesman will blend the two together.

Your job is to extract the few facts from the myriad of opinions and disregard the rest.

3. Not All Financial Advice is Created Equal

You must know the adviser’s background, education, training, skill, and experience to decide if his advice has merit.

“If stock market experts were so expert, they would be buying stock, not selling advice.”– Norman Augustine

For example, a hedge fund manager who has completed many years of independent research with twenty years of real-time trading experience will provide higher quality advice from a better experience base than a business school graduate trained in product sales by a brokerage firm.

The sad reality is most financial advisers are trained by their parent company to promote the party line. Seldom do they know enough beyond official policy to question the validity of company dogma.

The result is they speak the company doctrine as if it were truth. In fact, they often believe it is truth.

They aren’t bad people; they’re just misinformed and don’t know enough to know what they don’t know.

You can’t understand a person’s financial advice until you know the shoes they’re standing in. Their experience and training colors their advice.

There are several levels of knowledge in the financial advice business, and the unfortunate reality is the bulk of retail financial advice comes from the ground level where too many financial advisers dwell. You want top floor financial advice.

4. You Can’t Understand a Person’s Financial Advice Until You Know How Their Pockets Are Lined

Again, compensation creates incentives that affects the quality and bias built into the financial advice you receive.

Ask your adviser to disclose every single way he can make money from your money – exclude no revenue stream, no matter how small.

Will he make more if you invest more? Are there back-end kickbacks that you never see because they don’t appear on any of your financial statements, such as 12B-1 fees and internal brokerage incentives?

5. Utilize Financial Product Salespeople as Information Gathering Tools Only

Financial salespeople are good for introducing investment products that can be used in your portfolio.

When they pitch you on their favorite “tools” it should be the beginning of an educational process, but you should never invest based on the opinions of these salespeople. Instead, separate the investment advice function from the investment execution function and pay for them separately to minimize conflicts of interest.

5 golden rules to follow to get the best financial advice for your money image

The bottom line is everything a financial product salesperson tells you should be taken with a grain of salt. Never invest based solely on their recommendations without completing your own due diligence and forming your own opinion based solely on facts.

Remember, there’s no such thing as free financial advice. One way or another, you pay.

Whether it’s upfront in fees, behind-the-scenes in commissions and kickbacks, or down the road in poor investment decisions that cost you far more than quality financial advice ever would have cost in the first place, you’re going to pay the price for your advice.

True financial advice is paid for directly by you, and not by the company offering the financial products you buy.

True financial advice results from paying a disclosed fee for a service rather than having the fees embedded in the product for sale.

It’s your money. You’re responsible, and you’re the only one that has to live with the results.

Nobody cares about your financial future more than you.

And that’s financial advice you can depend on.

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6 Disturbing Truths Your Financial Expert Won’t Disclose… But Should Mon, 07 Aug 2017 04:32:19 +0000 The Hidden Conflicts Of Interest That Financial Experts And Investment Media Don’t Want You To Know – Revealed!

Key Ideas

  1. Most experts provide inaccurate or incomplete advice tainted with bias to help them profit.
  2. All “financial experts” will be 100% wrong at some point in the future.
  3. When you defer to an expert, your ability to think for yourself diminishes.

If you think the expert financial advice you receive is unbiased then I have a swamp to sell you in Florida.

You can’t understand the advice you’re given until you know how the person is compensated and what inherent biases or beliefs taint that advice.

The problem is most people don’t understand the many problems inherent in the financial advice business. They naively trust in experts.

They’re not aware of the bias caused by the advisor’s current portfolio positions, or his need to sell products and services, or any other self-interests that might make his expert advice less than impartial.

Instead, most people follow the investment media and listen to professionals with the mistaken belief that expertise somehow ensures good results.

It doesn’t.

The truth is there are a lot of underlying problems making your financial expert’s advice less reliable than you’d like to believe:

  1. Expert advice is plagued with conflicts of interest
  2. Expert advice is often incomplete or inaccurate
  3. Expert advice can limit independent thinking
  4. Experts can be dishonest
  5. Experts can be self-deceived
  6. The whole idea of an investment expert is incongruent with the probabilistic nature of investing.

“An economist is an expert who will know tomorrow why the things he predicted yesterday didn’t happen today.”– Laurence J. Peter

In this article I’ll explain the exact reasons why there’s no real alternative to becoming your own financial expert.

Yes, investing is complex, and it takes work to become your own financial authority, but there’s no other choice if freedom and financial security are your goals.

The alternative (trusting financial experts) has too many inherent flaws to justify risking your financial future.

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6 Disturbing Truths Your Financial Expert Won't Disclose But Should Image

Truth #1: Financial Experts Provide Incomplete Or Inaccurate Advice

Webster’s dictionary defines an expert as:

“a person with a high degree of skill or knowledge about a certain subject, or one demonstrating great skill, dexterity, or knowledge as a result of experience or training.”

We intuitively believe an expert should excel in his specialized field and provide greater results than an amateur.

However, research study after research study proves the opposite is true.

For example, on New Year’s Day in 2002, the venerable Wall Street Journal published its annual survey of economists for the upcoming year. Despite the fact that the economy had already been weak for nearly a year, not one of the 55 economists believed a serious decline was ahead.

Every single one of them was wrong – 55 out of 55 experts – a 100% failure rate. Even a PhD provides zero immunity from the fallacy of expert opinion.

“An expert is a person who has made all the mistakes that can be made in a very narrow field.”– Niels Bohr

This is just one of many studies documenting the failure of expert opinion.

You can also find numerous studies published showing the under-performance of professionally managed mutual funds compared to their passive index cousins. What that means is the stock picking experts running these funds have failed to show superior performance net of fees and expenses.

I’ve documented many other studies showing the failure of financial experts in this post here. There’s no shortage of research proving the fallibility of expert financial opinion.

Not only are experts fallible, but much of the financial advice they offer is incomplete.

For example, the next time a talking head on CNBC tells you to buy his latest stock pick, make sure to ask yourself:

  • How will you know when to sell if things don’t work out?
  • How are you going to know when he’s wrong?
  • When should you add to the position if he’s right?
  • How much of your portfolio should you allocate to his great stock pick?
  • What investment goals and risk tolerances are compatible with his recommended advice?

Did he cover all that during his 60 second sound-bite where he touted his latest and greatest stock advice? I didn’t think so.

Telling you what to buy or when to buy is only one small piece of the investment equation.

For a complete method to assessing the quality of investment advice, see this article. It provides a complete solution to the problem of incomplete investment advice.

Truth #2: Financial Experts Have Conflicts Of Interest

Not only do you run the risk of receiving incomplete or inaccurate financial advice from experts, but the advice is often tainted by hidden financial incentives, causing a conflict of interest.

Always remember that you can’t judge the quality of an expert’s advice until you know the financial incentives hiding behind that advice. Consider the following questions:

  1. Does the advisor personally have a position in the security recommended?
  2. Does the advisory firm have a business relationship with the company recommended?
  3. Has the advisor been taught and trained by a firm with financial incentives to promote certain investment products?
  4. Does the advisor make more if you buy that security than competing, comparable securities?
  5. The list goes on and on…

The history of the conflict of interest in financial advice is documented with numerous examples because the economic incentive to deceive is so high. Every month, new allegations of hidden incentives biasing investment advice emerge.

One high profile case from the past is Dan Dorfman leaving his reporter job at Money magazine and CNBC after unproven allegations of behind the scenes kickbacks for promoting stock stories in the media.

Another high profile case was the Merrill Lynch $100 million dollar, multi-state settlement for alleged wrongdoing regarding conflicts of interest between the investment advice they gave brokerage clients and their investment banking relationships with the companies they promoted.

“The biases the media has are much bigger than conservative or liberal. They’re about getting ratings, about making money, about doing stories that are easy to cover.”– Al Franken

I mention these two cases not to pick on Merrill Lynch or Dorfman because these are just two examples of many similar cases.

Instead, I chose these two because they were both high profile examples demonstrating how no expert resource is too big or trustworthy to be free of bias and conflicts of interest.

If a nationally syndicated columnist and a top investment bank can’t be trusted, then who can you trust?

If you think the answer is your neighborhood broker, then look more carefully.

Every year the financial periodicals report similar problems with local brokers accused of recommending stocks to the public. This is because their firm has an investment banking relationship with the company and they’re recommending stocks that the analyst owns or the brokerage firm holds a large position in.

The list of wrong-doings by neighborhood brokers includes churning accounts, recommending inappropriate investment products, promoting high-cost products that generate fees when low cost products perform just as well, and much more.

For a complete analysis of the conflicts of interest in financial advice resulting from compensation incentives and how to protect yourself, see this article.

Furthermore, some conflicts of interest by financial experts aren’t immediately obvious. The seemingly unbiased university professor calling for the demise of capitalism may have a hidden incentive to offer eye-catching headlines to promote his latest book to the best-seller list.

High profile economists whose paychecks are supported by banking and financial institutions may be reticent to give an honest assessment about the seriousness of the latest financial downturn and how it will affect the banking stocks.

Sometimes, the expert may not even be aware how his positive opinion about a stock is largely affected by the fact that he already owns the stock and is emotionally committed to the position. This is perhaps the most insidious type of expert bias.


In fact, it doesn’t matter how prominent the expert or their pedigree – they all have bias and conflicts of interest.

When Warren Buffett provided his calming words during the peak of the 2008 banking crisis and took out full page ads, we should remember he was reported to own 300 million shares of Wells Fargo stock.

When Bill Gross lobbied the U.S. Government in 2008 to bail out Fannie Mae and Freddie Mac, it was reported that 61% of PIMCO holdings were invested in mortgage backed securities.

Were these two high profile, well-respected experts offering their infinite wisdom for our greater good, or were they using the media to sway public opinion in an effort to defend their portfolios?

The truth is the financial services industry as a whole – which includes all banks, brokers, real estate firms, lenders, and everything in between – has a massive vested interest in maintaining your confidence in the investment system they earn their living from.

They all have products to sell and will go out of business if you no longer trust them. No matter how intelligent, educated, knowledgeable, and trustworthy they may appear, they all make a living selling you a financial product or service. They’re all inherently biased, so buyer beware.

“If stock market experts were so expert, they would be buying stock, not selling advice.”– Norman Augustine

You would be wise to always ask yourself these two questions when receiving financial advice:

  • “What’s the motivation of the person saying this?”
  • “How does he get paid?”

Ask these questions whether the source is your local broker, CNBC, an investment newsletter, financial periodical, or even this website.

Remember, you can’t judge the quality of the financial advice until you know how the financial expert’s pockets are lined.

6 truths about financial experts exposed image

Don’t allow yourself to be unduly influenced by financial experts without first considering the numerous potential sources of bias and conflict of interest that might drive their public statements and actions.

To do this, you must develop some level of financial skill yourself.

Truth #3: Expert Financial Advice Reduces Your Critical Thinking

Another reason to become your own financial expert is to avoid the numbing impact of expert advice on your own critical thinking.

A recent study led by Gregory Berns and discussed in Wired, Discover, and CNN showed that when research subjects were given expert opinions, they ceased using areas of their brains associated with critical thinking.

“It’s almost as if the brain stops trying to make a decision on its own,” said Berns during a CNN interview when discussing this effect. This can be extraordinarily dangerous when investing.

For example, during the study, college students were asked to make a financial choice between a guaranteed payment or a riskier alternative with a higher payoff.

One group was left to solve the problem on their own while the other group was given bogus advice from an expert (an authority economist counseling the Federal Reserve).

The students independently thinking for themselves reasoned the probabilities using critical thinking areas of their brains, while the group receiving “expert advice” tended to follow that advice while suppressing critical thinking. Amazing!

“A great many people think they are thinking when they are really rearranging their prejudices.”– William James

What makes this study so important is most people believe they integrate expert advice with their own critical thinking to make a well-reasoned decision, but Berns believes otherwise.

“Normally, the human brain uses a specific set of regions to figure out the trade-offs between risk and reward, but when an expert offers advice on how to make those decisions, we found that activity in these regions decreases,” said Berns.

In other words, we tend to defer to experts. This makes sense because we believe they know more than us. It would be logical if the investment advice was trustworthy. Unfortunately, for all the reasons cited in this article, that just isn’t true.

Therefore, it’s essential that you avoid the problem of suppressing your critical thinking and deferring to expert opinion by becoming your own financial expert. You must learn to trust your judgement and perform your own due diligence.

You must think critically. Don’t blindly accept expert opinion.

Truth #4: Not All Financial Experts Are Honest

As if bias, inaccuracy, and conflicts of interest weren’t enough, we must also consider the potential for outright dishonesty by financial experts. As much as we would like to believe otherwise, not all people are honest – experts included.

That’s not to say everyone is dishonest, either. We’re not alarmists here at Financial Mentor. However, you can’t blindly trust someone because they’re famous, wear a suit, work for a reputable firm, or appear trustworthy for any reason whatsoever.

You must rely on your own expertise by completing your due diligence and investigating further.

For example, did their own due diligence on Pittsburgh’s top advisors as list in Barron’s annual roundup of the nation’s top 1,000 financial advisors.

You would think a reputable publication like Barron’s would include only reputable advisors in a “Top 1000” list.

Well,’s due diligence found some advisors from this list with multiple customer dispute claims, including one for losses of more than $600,000 and another for misrepresentation.

These are the nations top financial advisors? Would you trust your money to them?

Many people do because they never completed their own due diligence so they have no idea what problems exist.

Another self-proclaimed financial expert, John T. Reed, who isn’t without his own share of controversy, has assembled an interesting list of real estate experts that I’ll partially excerpt here to further illustrate why you must always do your own due diligence before trusting expert financial advice.

Please note that the authors listed below achieved notoriety and fame during the prior real estate boom by teaching you how to be prosperous:

  • Albert Lowry, author of “How You Can Become Financially Independent By Investing In Real Estate,” declared Chapter 7 bankruptcy in 1987
  • Wade Cook, author of “How To Build A Real Estate Money Machine” and numerous other money making titles, declared Chapter 7 bankruptcy in 1987 and 2003
  • Charles Givens, author of “Wealth Without Risk,” was successfully sued by a former customer for bad financial advice and filed for Chapter 7 bankruptcy in 1995
  • Ed Beckley, author of “Million Dollar Secrets,” declared bankruptcy in 1987 and was sentenced to federal prison for wire fraud
  • Robert Allen, the author of “Nothing Down” and “Creating Wealth,” declared Chapter 7 bankruptcy in May 1996

Hmmm, something just doesn’t seem right if the guys teaching you how to build wealth are declaring bankruptcy – sort of like the Lasik surgery doctor who wears glasses or the overweight guy running a diet clinic.

The contradiction undermines your confidence in the expert advice provided.

Also, it’s important to remember this is only a partial list. I chose only the big name authors, but the actual list of authors with major financial and legal problems is much, much longer.


The lesson is clear: just because someone has a book or appears in the media as an expert doesn’t mean they know what they’re talking about or can be trusted. Conversely, it also doesn’t mean all experts writing books are crooks.

What it does mean is you must always complete your own due diligence.

You must become your own financial expert because you can’t pay someone enough to care more about your money than their own.

Caveat emptor.

Truth #5: The Consensus View Expert Is Also Dangerous

Many of you may be thinking, “Todd, that’s all fine and dandy, but my broker is an honest guy and none of this applies to my situation.”

That’s probably true – most financial advisors are honest people trying to provide a genuinely valuable service. But that doesn’t mean you should trust your financial future to them.

The problem is your advisor is probably preaching Wall Street’s latest consensus wisdom to buy and hold for the long term. This has become the universally accepted truth adopted by nearly every financial advisor – including yours, most likely. (For more on the buy and hold myth click here.)

It has become the “sacred cow” of the financial world and is considered beyond reproach. Most people believe that adhering to the standard practices of the experts by buying and holding a diversified portfolio is the right thing to do.

Believe it or not, I disagree. In my opinion buy and hold is only appropriate for certain investors who understand and accept the extraordinarily high risk and poor risk to reward ratios inherent in this strategy.

Based on historical evidence, a passive buy and hold investor should expect to endure occasional 50% losses to achieve single digit compound returns net of inflation.

Why that has been accepted as the “best” investment solution for all investors at all times eludes me. It makes no sense.

With that said, however, long-term buy and hold can be a useful investment strategy when market valuations approach low levels.

In other words, buy and hold isn’t the “one size fits all” investment strategy that most financial advisors preach. Instead, it’s a special case investment strategy that should be used only when appropriate.

Please note: this position is diametrically opposed to the consensus opinion provided by the vast majority of resources giving you financial advice.

“Great spirits have always found violent opposition from mediocrities. The latter cannot understand it when a man does not thoughtlessly submit to hereditary prejudices, but honestly and courageously uses his intelligence and fulfills the duty to express the results of his thought in clear form.”– Albert Einstein

You may be tempted to criticize me for disagreeing with the consensus, but before you commit that criticism to writing, please realize I’ve successfully taken on the consensus view several times before and been right.

For example, most experts agreed up until 2006-2007 that real estate “never goes down”. The data was clear and the conclusion was obvious for everyone to see, until the real estate crash began in 2007.

I disagreed and sold my investment real estate in 2006. That sacred cow is now hamburger.

The experts also piled on the bandwagon during the 1990s run-up in technology stocks declaring a “new era” where old valuation standards no longer made sense.

The ensuing decline caused many tech investors 70-80% losses. I owned no tech stocks during the decline. (Full disclosure: I also didn’t own them during the run-up in the late 1990s because they were insanely valued long before they crashed.)

You may believe buy and hold will endure where the other consensus viewpoints failed, but I disagree. It’s the current consensus that will be proven wrong in the future, just like the previous “truths”.

For example, in 1935 Gerald Loeb published the book “Your Battle for Investment Survival”. (You can download it for free on the internet.) This books’ message reflected the investment industry consensus view following the Great Depression, which was diametrically opposite today’s consensus view. Can you imagine someone advocating buy and hold in 1935 after the major indexes endured a greater than 80% decline? The reality is today’s consensus view is as fundamentally flawed as the previous consensus views and will face the same fate. Consensus view is always a reflection of the market period that preceded it, and will have little relevance to the market period that follows it.

The reason consensus viewpoints come and go is because most financial experts aren’t deep thinkers about money and investing; they’re practical businessmen. They sell what people think they want, not what they need.

That’s why mutual funds advertise their biggest performers. It attracts sales even though every study shows previous top performing funds tend to under-perform in the future. It’s practical business, but it’s lousy investing.

Humans are social animals with a propensity toward herding. The fact that everyone believes an idea is true converts that idea into truth through the mechanism of social proof. It becomes the consensus view, and only a fool (like me) would oppose that consensus view.

A practical businessman will align himself with that “truth” because it’s easier to make the sale when the customer already believes what you’re saying, even if it’s wrong. Such is the power of consensus viewpoint.

“Few people are capable of expressing with equanimity opinions which differ from the prejudices of their social environment. Most people are even incapable of forming such opinions.”– Albert Einstein

That’s why nearly all financial planners and brokers recommend you own a diversified buy and hold, asset allocation portfolio – it’s the consensus viewpoint. The practical businessman knows it’s easy to sell. After all, everyone knows it’s “investment truth” beyond reproach, so who’s going to argue with you?

If your portfolio loses money, it was just an unfortunate, temporary setback. A brief aberration. The advisor did nothing wrong because everyone knows “buy and hold a diversified portfolio” is the right thing to do…Right?

The practical businessman sells what’s most profitable for his business even if it’s not most profitable for his clients. This isn’t some diabolical conspiracy theory, it’s the way business works.

Heck, most financial advisors are genuinely caring people who fully believe that what they’re doing is the right thing. They have great hearts and are as honest as the day is long.

However, they also believe the consensus view is correct, and that’s the problem. They’re not bad people and they’re not dishonest; they’re just part of the consensus and their expert opinion contributes to that consensus.

Let me repeat that point because it’s critical to understand. Most financial advisors are honest, caring people doing their level best with 100% integrity to serve your needs. The problem is that means nothing when their beliefs are consistent with the consensus viewpoint.

The reason that’s true is because the consensus viewpoint can never be the most profitable investment strategy for the client because security prices are determined by supply and demand.

Any viewpoint that’s consensus must, by definition, represent peak demand and premium pricing – the exact opposite of what a smart investor should be buying.

By definition, the consensus viewpoint isn’t a good value, yet, that’s what most financial experts recommend. It happened with tech stocks in the 90s, real estate in 2006, and it’s happening right before your eyes with buy and hold.

The problem is profitable opinions by definition will be unpopular due to the nature of supply and demand. That’s not what practical businessmen seeking to maximize business profits (as opposed to your portfolio profits) will attempt to sell.

Stated simply, profitable investing requires occasionally going against consensus opinion when it becomes extreme. However, a profitable investment advisory business requires support for the consensus opinion.

That’s why mutual fund companies and brokerages promoted technology stocks and funds in the late 1990s. It sells well.

I can still remember when I sold my investment real estate in 2006 and paid the taxes on the gains because I wanted to go to cash rather than reinvest.

Amazingly, not one person agreed with me (except my wife, bless her heart), and many “experts” went so far as to claim my decision was foolish. After all, the consensus view back then was real estate never goes down, and the boom showed no signs of ending.

Similarly, I can remember coaching one of my clients in the late 1990s on risk management issues because his entire fortune was invested in tech stocks. My message to develop a sell discipline to manage risk was completely out of sync with the consensus view, but also correct.

His response was to fire me as his financial coach, and he went on to lose almost everything in the market decline that followed. Such is the appeal of the siren song of consensus, expert opinion.

“The great enemy of the truth is very often not the lie — deliberate, contrived and dishonest, but the myth, persistent, persuasive, and unrealistic. Belief in myths allows the comfort of opinion without the discomfort of thought.”– John F. Kennedy

You are inundated every day by the consensus viewpoint of financial experts. It’s nearly impossible to escape the onslaught of mundane, superficial, consensus opinion masquerading as financial expertise.

Consensus view and the natural herding instinct of human beings is a dangerous factor that negatively affects the quality of advice offered by even the most honest, caring, and best intentioned financial experts.

Even if they pass every other hurdle listed in this article, they’re rarely immune from the practical needs of business and the consensus viewpoint. It’s a difficult conundrum for even the best experts to escape.

Again, your only solution is to develop your own, independent investment viewpoint and always complete your own due diligence on the financial experts you choose to employ.

At some level, you must become your own financial expert. There is no alternative if financial security is your goal.

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Truths revealed about financial experts and the industry image

Truth #6: Financial Experts Are Always Fallible – Regardless Of Their Track Record And Knowledge

Please be clear that my purpose isn’t to insult financial experts or put down the financial advice industry. That serves nobody – least of all me, since I’m part of the very group I’m warning you about. They make mistakes and I make mistakes. We’re all fallible.

“Education is a method whereby one acquires a higher grade of prejudices.”– Laurence J. Peter

What I’m trying to do is educate you on the fundamental problems underlying the financial advice business and make you aware that no expert is immune to these issues – including me.

I’m trying to help you see why there’s no choice but to become your own financial expert, do your own investment due diligence, and come to your own, independent investment decisions.

In other words, the point of this article isn’t to insult financial experts, but instead to use the inherent weaknesses built into the financial advice system to motivate you to stop trusting others and start educating yourself.

I would like to tell you there’s a viable alternative to becoming your own financial expert that’s easier and requires less work on your part, but I would be lying.

Believe me, if such an alternative existed, I’d already be using it because I always prefer easier solutions when available. Unfortunately, no such easy solution exists. There’s no royal road to consistent investment profits.

Experience has taught me the path to financial success requires independent investing, which means I must continually educate myself to improve my investment decision process. It’s not the easiest path, but I believe it’s the most effective, secure, and personally rewarding path.

If you’re not similarly convinced that financial experts can’t be relied upon to provide a financial “gravy train”, then this last point should drive the nail in the coffin.

It doesn’t matter how wise, honest, and educated your investment advisor is, you can never completely depend on his expert advice because investing is a probabilistic process where certainty is impossible.

Your chosen expert will be wrong at some point in the future with 100% confidence.

In other words, next time you watch a talking-head expert on CNBC securely proclaim how his latest, greatest stock pick will outperform the market, remember that there’s no possible way he can know with anything near the level of certainty he’s projecting that what he says is true. It’s impossible.

The reason is because investing is at best a probabilistic outcome. Nobody knows with certainty what will happen in the future because the future is unknowable.

There are too many variables and inputs affecting the ultimate outcome – many of which have yet to occur in the future.

Every investment is a bet on an unknowable future, so certainty is 100% impossible. Every investment is at best just a probability, and every expert bet can always be wrong, mine included.

We may choose to believe the education and experience of financial experts increases the certainty and accuracy of their opinions, but we have little evidence to support that opinion and lots of evidence that contradicts it.

The term “expert” implies accuracy of opinion, but the very nature of investing into an unknowable future denies that possibility.

The truth is an “investment expert” is an oxymoron like “government intelligence.” There can never be any certainty at investing, therefore nobody can truly be held as an expert (in the true sense of the word), myself included.

That’s why I always advocate risk management as the most important investment discipline. You can make educated guesses, but ultimately everybody gets to be wrong. You must manage risk to control losses when the inevitable occurs.

It’s also why my first criteria for judging anyone’s financial advice is the quality of their risk management discipline.

In Summary

The unfortunate truth is advice dispensed by financial experts faces a mountain of problems:

  1. Financial experts have conflicts of interest
  2. Financial experts provide incomplete or inaccurate advice
  3. Expert advice limits your critical thinking abilities
  4. Financial experts may be dishonest
  5. Financial experts may be self-deceived
  6. The whole idea of a “financial expert” is incongruent with the probabilistic nature of investing

When you add these six factors together, it creates an inescapable conundrum that no financial expert is immune from, and neither are you.

Yet everyday, someone will think nothing of handing over their entire life savings to a guy wearing a suit based on little more than a referral, a glossy brochure, and a standardized computer printout filled with pie charts and analyst recommendations.

Why do people do this?

It seems reasonable to believe a trained expert should do better than you at investing. You want to believe they know something you don’t, that these experts operate in a confident world of certainty different from your own confusion and uncertainty.

After all, don’t they have connections to resources you’ll never have? Aren’t they insiders with special knowledge and training?

Somebody has to be an expert at all this stuff and know what they’re doing! So we hand over the responsibility of our money to experts in the hope they’re more knowledgeable than us.

When we do this, we forget the conflicts of interest, bias, and other problems mentioned in this article that taints the expert financial advice you receive and diminishes the value of that specialized knowledge.

We forget that you can never pay someone enough to care more about your money than his own. It makes no sense to trust the experts when you know better.

“Where facts are few, experts are many.”– Donald R. Gannon

My own opinion is there’s really no such thing as an “expert” at investing. Sure, some people have more training and experience than others, but investing is different from other fields.

Investing is a probabilistic process of putting capital at risk into an unknowable future; thus, it’s antithetical to the whole concept of expertise.

In fact, what you really find with the top investment experts (as proven by their track records) is humility for their inherent ignorance and consequent reliance on risk management disciplines to protect and grow capital.

Yes, investing is complex. Yes, it takes work to learn about investment strategy. Unfortunately, if your goal is financial security, you have no choice. You must take responsibility for your financial life.

The alternative (trusting the experts) is riddled with too many problems to rely on. If you can’t trust outside yourself, then the only viable alternative is to trust in yourself. That’s the message of this article in a nutshell.

Think for yourself. Educate yourself. Be independent. That’s the path of a successful, independent investor on the journey to financial freedom.

I hope it will be your path as well.


I would be remiss to write an entire article from the position of a financial expert discussing all the conflicts of interest in advice without disclosing my own.

As stated in the article, the key to discerning an expert’s biases and conflicts is to understand how his pockets are lined. How does he make his money?

My primary source of income is my investments, not this business. However, this business does provide additional income through the sale of financial coaching services, ebooks, courses, and a small amount of advertising revenue from the calculators.

What that means to you is my investment portfolio will bias my financial advice since the beliefs expressed in my writing will be congruent with the positions in my portfolio. Frankly, I’m okay with that bias because it aligns our mutual best interests.

Regarding this website, I have an obvious bias to sell you my financial education products and services since that’s how I get paid. No mystery there.

Notice that I’ve taken great pains to not have any hidden conflicts of interest. I choose not to sell investment products or services on the same platform where I give advice.

All I sell at Financial Mentor is education. That’s because I believe investment education and investment product sales must be kept separate to minimize the inherent conflict of interest. You can learn more about my views on this subject in this article.

Hope that helps.

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3 Types of Investors – Which One Are You? Take This Test… Mon, 07 Aug 2017 00:02:55 +0000 Your Investor Type Reveals How You Can Advance Your Investment Strategy To The Next Level

Key Ideas

  1. How your financial security greatly depends on what type of investor you are.
  2. Why passive investing leads to more risk and losses.
  3. The secret to being a successful active investor.

After years of educating my coaching clients on how to properly design their own investment plans, I’ve noticed there are three distinct types of investors.

1. Pre-Investor
2. Passive Investor
3. Active Investor

So what type of investor are you and why should you care?

  • Identifying your investor type will help you know the consequences of your investment style. You’ll learn the limitations and advantages that naturally result from the way you invest.
  • Additionally, you’ll be able to decide if the opportunity available at the next level of investing is worth the effort by understanding what the next level of investing looks like.

There’s no right answer to the question, “What is the best investment type?” However, there’s a right answer uniquely suited to your situation.

Only one investment type is appropriate for your plan to achieve wealth, and your job is to determine what that type is.

The nice thing about investor types is we all start in the same place (pre-investor), and we can all graduate to the next successive level of investment skill through education and experience.

Each investment type builds on the skills of the type below it. So no matter what type of investor you are now, the next level is just a little practice and education away.

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Which type of investor are you image

Investor Type 1: Pre-Investor

Unless you were born with a silver spoon in your mouth and a trust fund to match, then you likely began life as most of us do: a pre-investor.

A pre-investor is simply someone who isn’t investing.

Pre-investors are characterized by minimal financial consciousness or awareness. There’s little thought of investing, and there’s correspondingly little savings or investment to show for that minimal thought.

Some pre-investors have a company retirement plan, but that wouldn’t exist had the personnel department not set it up for them.

“The trouble with being poor is that it takes up all your time.”– Willem de Kooning

The pre-investor’s financial world is primarily about consumption, which takes precedence over savings and investment.

As wage earners, they typically live paycheck to paycheck believing their financial difficulties will be solved by the next pay increase. When pre-investors earn more, they spend more, because lifestyle is more important than financial security.

For whatever reason, pre-investors haven’t woken up to the necessity of owning financial responsibility for their lives and their future.

This isn’t to judge all pre-investors harshly because it’s perfectly acceptable for a seven year old to live in this reality. It’s another thing for a 40 year old to never graduate beyond it.

Are you a pre-investor? How is your savings and investment plan progressing? Is your financial consciousness ruled by consumption needs, or are you prioritizing savings and investment?

What are you going to do to take the next step and begin passively investing so that you can move beyond financial dependence and get on the road to financial independence?

This course can help…

Investor Type 2: Passive Investment Strategy

As we mature and gain responsibility, most people graduate from pre-investor status and enter the investment world through the window of passive investing. It’s the most common starting point on the road to financial security.

“Whenever you find that you are on the side of the majority, it is time to reform.”– Mark Twain

Most financial institutions, educational services, and web sites support passive investing as the proven, accepted solution. Most of what you can learn from the information available in your local bookstore or on the internet is the conventional wisdom of passive investment strategies.

Passive investing is where the retail world of investing lives. While there are no hard statistics to support my claim, I believe well over 90% of all investors fall into the passive investor category.

The passive investor type usually employs all the basics of sound personal financial planning: own your own home, fund tax deferred retirement plans, asset allocation, and save at least 10% of earnings.

If you follow these foundational principles and begin early enough in life, then passive investing is likely all you’ll ever need to attain financial security.

Passive investment strategy is good for people with busy lives, families, jobs, outside interests, or entrepreneurs building businesses.

Let’s face it: most people’s lives are already full, leaving little time for developing investment skills. It’s difficult to make investing a top priority despite its financial importance.

A common result of having limited time is passive investors often delegate the responsibility and authority for their investment decisions to “experts” such as financial planners, brokers, money managers, or even newsletter writers.

Rather than become their own expert on investing, passive investors typically rely on other people’s expertise for their investment strategy.

The defining characteristic of passive investment strategies are their simplicity. They require less knowledge and skill making them accessible to the general populace.

“Buy and hold” with mutual funds or stocks, fixed asset allocation, averaging down, and buying real estate at retail prices are all examples of passive investment strategies.

There’s nothing wrong with any of these strategies, but they can have negative consequences.

Sure, it’s possible to become acceptably wealthy, but the downside is it usually requires a working lifetime combined with discipline and regular savings contributions to achieve financial independence using the passive investment style. The one exception is extreme frugality because of the high savings rates and low spending rates that accelerate the timeline.

The other downside to the passive investment strategy is you’ll take a lot more risk and can expect lower returns than investors who have reached the next level of investing.

That’s because passive investors have no “value added” or skill component to their expected return stream so they’re dependent on the opportunity in the market for investment return. Rising markets provide great returns, and declining markets provide miserable returns.

The passive investor submissively rides the market roller coaster up and down into the future and willfully bets his financial security on the hope that the roller coaster will end higher than when he started. You can learn more about the buy and hold investment approach here.

“Most people spend more time planning their vacations than their financial future.”– Unknown

While passive investing isn’t without its flaws, the advantages outweigh the disadvantages for many people, making it the right course of action for them.

Passive investing is far superior to not investing at all as it starts the process of compounding returns on invested capital and has the lowest barrier to entry in terms of time and knowledge required.

If the simplicity of passive investing is necessary to get you started, then it’s well worth the trade-offs because not getting started (pre-investor) is far worse.

The disadvantage of passive investing is the lack of control over your financial security. Because it’s passive, it lacks many risk control strategies and overlooks the value-added opportunities available only to those with greater skills.

The result is the passive investor type endures higher volatility and possibly lower returns when compared to the successful execution of an active investment strategy.

Investor Type 3: Active Investor

Active investors build on the foundation of the passive investor. They take the process to the next level by running their wealth like a business.

The primary difference between active and passive investors is the active investor not only receives market based passive returns, but he also gains a value-added return stream based on skill; two sources of return in one investment.

This allows the active investor to make money regardless of market conditions or direction and to reduce losses during periods of adversity. This holds the potential to increase returns and lower risk.

“By the time we’ve made it, we’ve had it.”– Malcolm Forbes

A primary distinction between passive and active investment strategies is passive investors work hard to acquire and save money, but spend far less energy making their money work for them.

Active investors work just as hard at making their money work for them as they ever did earning it in the first place. In other words, active investing is more work, and that’s why it is not for everyone.

The reason active investors are willing to spend that extra effort is because they understand the wealth building game is about return on capital.

Small differences in growth rates over long periods of time make huge differences in wealth – far bigger differences than could ever be realized by working toward the next pay raise.

The most important factor in building your wealth is not how much you earn, but how much your money earns and how long it compounds.

Active investors have embraced full responsibility for their financial future by not only building investment capital as passive investors, but also taking responsibility for the return on their invested capital through active strategies that add value.


How does the active investor do this? By creating a plan that follows specific rules designed to exploit inefficiencies existing in the marketplace. The term for this is known as “edge” and it’s identical to the competitive advantage an entrepreneur seeks in business. The competitive advantage must add more value than transaction costs take away or you won’t profit.

Without getting too complicated, the only way to create an investment return in excess of market rates (passive returns) with consistency is if inefficiencies exist that can be profited from in a business-like fashion.

Investment edge creates profits that are equal to the inefficiency afforded by the market after subtracting the cost to exploit the inefficiency.

Below are some examples of active investing where real people are putting this equation into actual practice.

Active Investment Strategy Explained

Warren Buffett and Benjamin Graham are excellent examples of active investors in the stock market.

They knew the stock market was inefficient and built vast fortunes applying their analytical skills (edge) to find value in securities that the market had under-priced (inefficiency).

Contrast the return from their active portfolio management with the passive return from buying and holding index funds over the same time period, and the value added from active investment strategy becomes clear.

Real estate is an active investors dream because of vast inefficiencies in price, usage, and management.

For example, I know someone who buys large homes on large lots with separate “granny quarters” and then legally separates the properties into two titles and sells them for a fat profit.

The same thing can sometimes be done with houses that are sold with additional land attached.

“Tradition is what you resort to when you don’t have the time or the money to do it right.”– Kurt Herbert Alder

Or maybe you’re a real estate investor who has an eye for mis-priced homes where you can add value with a few minor improvements. Add a few windows, remodel the kitchen, and presto – you have instant equity greatly in excess of what it cost to do the work.

Sometimes, all you have to do is clean the property and make it presentable to add value and exploit how the property’s price did not reflect its true value (inefficiency).

In mutual fund switching, I know people who have built wealth by exploiting the pricing inefficiencies resulting from GAAP accounting rules.

GAAP requires mutual funds to price every security at its last trade. The problem is many individual bonds in a bond fund’s portfolio don’t trade every day.

Or what about the international fund with securities that are trading across time zones? Many low risk fortunes have been built by trading the disparity between reported prices in mutual fund NAV’s and known values based on actual market conditions.

Whether it’s value investing in stocks like Graham and Buffett (a subset of mean reversion investing), or real estate conversion/rehab, or even mutual fund switching, these are just three examples of the many ways active investors profit by exploiting inefficiencies in a business-like fashion.

The true number of active investment strategies is virtually limitless.

In summary, the purpose of active investing is to lower risk and enhance returns by introducing the element of skill.

By developing a competitive edge that profits from market inefficiencies, the active investor creates a return stream completely separate and in addition to what the market offers. This value added return stream lowers risk and increases return.

Isn’t that what investing is all about?

The price the entrepreneurial investor pays for the extra profit and reduced risk is the time and energy required to exploit the inefficiency.

It takes effort to treat your wealth as your business and that’s why most people remain passive investors.

In fact, in a classic “Catch-22”, active investing may be valuable to attaining financial freedom because of the potential for higher returns, but it’s also the antithesis of financial freedom once you attain wealth because it can be as much work as a regular job.

Which type of investor are you? Do you seek out opportunities? image

Which Investment Strategy is Right For You?

There is no such thing as the “best investment strategy”. Each type of investing has its trade-offs and there’s no single answer that will be right for everyone.

For example, some people have successful businesses and need to focus their energy on growing their business. They shouldn’t be distracted by the time commitment necessary for active investing.

Other people with lower incomes or who begin investing later in life have little hope for a secure retirement without the benefit of an active investment strategy.

Active investing can become almost a necessity if your time horizon to retirement is only ten to fifteen years away and you’re just getting started.

“Wall Street is the only place that people ride to in a Rolls-Royce to get advice from those who take the subway.”– Warren Buffett

Each person is unique and has an appropriate investment style at an appropriate time for them. Many people naturally progress through each of the three types of investing as their skills, experience, and portfolio grow.

Sometimes successful entrepreneurs choose to become active investors as a second career later in life to enhance and secure their nest egg.

The point being there’s no single “right” answer to investment strategy, but there is a right answer for you.

Financial Mentor is dedicated to helping you take that next step to the investment level that’s right for you regardless of where you’re at now.

In fact, the Seven Steps to Seven Figures curriculum was specifically designed to offer you the next step in your financial education regardless of your level today.

We offer courses for pre-investors that help them commit to achieving financial freedom and stay with the program long enough to succeed (Steps 1-3). We offer courses that teach the right and wrong way to practice passive investing, and we offer courses that teach you the skills necessary to become a successful active investor (Steps 5 and 6).

All the steps combined provide a start-to-finish blueprint for achieving financial success.

In Summary: Three Types of Investment Strategy

There are three types of investors: pre-investor, passive investor, and active investor. Each level builds on the skills of the previous level below it.

Each level represents a progressive increase in responsibility toward your financial security requiring a similarly higher commitment of effort.

The advantage is each level offers a similarly higher level of potential reward and reduced risk for the effort expended.

“Money is better than poverty, if only for financial reasons.”– Woody Allen

Below are five questions to help you decide what type of investment strategy is best for your personal situation.

  1. Do I have the time and desire to learn the skills necessary to become an active investor?
  2. Do I have the stomach to tolerate the roller-coaster ride and potentially lower returns that come with the convenience of passive investing?
  3. What’s my primary goal from investing: to enjoy the financial freedom I already attained, or compound my savings to reach financial freedom ASAP?
  4. Do I have enough years prior to retirement and sufficient savings already put away to rely on passive investment returns for a secure retirement, or do I require a higher level of return to meet my retirement goals?
  5. What difference would it make in my financial future if I could create higher returns with less risk, thus compounding my wealth much more rapidly? What would that be worth to me and how should I prioritize it as a goal?
  6. (This course will show you how to match the right investment strategy and asset class to your personal skills, resources, and goals.)

The choice is yours. What type of investor are you going to be?

What are you going to do about it today?

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The Great Financial Forecasting Hoax: Why Stock Market Predictions Are Dangerous To Your Wealth Sun, 06 Aug 2017 22:38:10 +0000 Financial Forecasting Is Meaningless. Learn How To Invest Profitably

Key Ideas

  1. The critical difference between knowable and unknowable financial advice.
  2. How statistics prove you should never put capital at risk on a prediction.
  3. Investment strategy that works based on proven facts.

Americans pay millions every year to financial advisors, psychics, fortune tellers, forecasters, and assorted hucksters and gurus claiming to have some insight into the future.

The reason is because the essence of investing is putting capital at risk into an unknowable future so people seek financial forecasters in a desperate attempt to bring certainty to an unknowable future.

They want to believe these soothsayers have enough foreknowledge about financial events to make a meaningful difference.

Unfortunately, they don’t, and the facts prove it.

I learned this painful lesson about financial market forecasting the hard way. It literally cost me a small fortune.

The good news is market losses have a mysterious way of helping people sort right from wrong.

You only need to touch the hot stove once to learn it’s a bad idea, and investing based on financial forecasts is a bad idea.

That’s why, if you walk into my office, you’ll notice no financial media. No CNBC, no magazines, no newspapers, or other sources  for news-of-the-day “financial porn”.

You might also notice my bookcases overstuffed with investment books and the hard drive on my computer filled with academic research papers.

That’s because certain types of information help you improve your investing, and other types of information are edu-tainment (or financial porn). Understanding the difference between useful financial advice and useless market forecasting was a lesson hard learned.

Hopefully this article will help shorten your learning curve.

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The Great Financial Forecasting Hoax - Why Stock Market Predictions are Dangerous to Your Wealth image

What’s The Secret To Sorting Good Advice From Useless Financial Forecasting?

The problem today is there’s more information than anyone can consume, and much of it’s junk.

You must pick and choose what financial advice you spend your limited time and attention on if you want to be financially successful.

But, how do you do that?

The first step is to become crystal clear about the difference between what’s “knowable” and what’s “unknowable” so that you can stop wasting valuable brain space on unknowable information.

Once you know the difference between unknowable and knowable information, you’ll be amazed just how much can safely be ignored.

“Isn’t it interesting that the same people who laugh at science fiction listen to weather forecasts and economists?”– Kelvin Throop

The reason unknowable information, such as financial forecasting, should be ignored is because it confuses your decision process. It appears credible, causing you to factor it into decisions, but it has no basis in fact.

It’s fiction – a figment of the author’s imagination. Investment market forecasts are never a rational basis for an investment decision. Therefore, the only solution is to avoid unknowable information altogether so it doesn’t muddle your thinking.

That’s why I ignore CNBC and don’t read most investment periodicals. Most of the information dispensed through these media channels is either unknowable or not usable.

The primary purpose of the content is to entertain because entertainment is how the media business maximizes distribution and ad revenues.

Unfortunately, entertainment isn’t what I need to maximize my investment profits – and that’s what I care about. How about you?

What Is “Knowable” Financial Advice?

Knowable financial advice is factual, as opposed to conjecture. Market valuations, company statistics (assuming they aren’t being misrepresented), economic statistics, and market psychology are examples of current facts that are knowable and can be quantified.

“Weather forecast for tonight: dark. Continued dark overnight, with widely scattered light by morning.”– George Carlin

Another type of knowable financial advice is historical research showing how investment markets behaved under specific conditions in the past. The value of historical research is it provides a meaningful context to current facts.

It converts facts that would otherwise be dry and empty into actionable investment guidelines.

For example, you can know what the historical ten year returns for stock averages are given certain valuation and economic conditions.

You can also know if you’re currently in the upper-end of the valuation range or the lower-end of the valuation range, and what your mathematical expectation for a ten year holding period would be starting today.

All these facts are knowable based on historical precedent. The problem is that the past may not be indicative of the future. The map isn’t the territory.

“The trouble with weather forecasting is that it’s right too often for us to ignore it and wrong too often for us to rely on it.”– Patrick Young

In other words, you can’t know the future because the future is unknowable. Using the above example, financial statistics can help you know the ten year “expectation” for stocks based on history, but you must be equally clear that you don’t know what stocks will do in the next ten years.

You have an indication and a statistical expectation given certain assumptions, but don’t think for one minute that you can predict the future. You can’t. Nobody can predict the future with statistical accuracy reliable enough to invest on. The future is unknowable.

This may sound like a subtle distinction, but it’s not – it’s critical. Remember, you must be clear on what’s knowable and what’s unknowable if you want consistent profitability investing into a future that’s unknowable. (Hmmm, that’s a mouthful!)

Knowable financial advice isn’t based on someone’s judgment, opinion, or interpretation – it’s rooted in fact. This distinction is black and white, and it has the power to dramatically change your investing when you get it into your bones.

You should never put money at risk based on financial advice that’s predicated on the unknowable. The unknowable includes predictions, financial forecasting, opinions, interpretations, stock forecasts, market forecasting, hunches, beliefs, or anything else not rooted in fact.

Why Most Financial Advice Is Really Just Financial Forecasting

Study the headlines, review brokerage analysis reports, and watch the investment media, and you’ll quickly realize most of what passes for financial advice is really financial fiction.

It’s blatant, unknowable futurism. Below are several examples:

  • Ten hot stocks to own for the coming year
  • Widget Inc’s earnings are forecast to grow at 25% for the next five years
  • Overpriced Inc. should trade in the range of $40-$60 per share
  • Seven mutual funds to buy for next year
  • Stocks will outperform bonds
  • Real estate always goes up (an assumed truth prior to 2008)
  • Our research indicates the economy will…

“If stock market experts were so expert, they would be buying stock, not selling advice.”– Norman Augustine

Notice that each of these all-too-common statements in financial literature require a crystal ball or direct connection to the Higher Power for there to be any financial relevance.

They might be blindly extrapolating past numbers to create future assumptions or communicating some conjecture about future events, but all of the financial advice above is based on the false premise that the future can be predicted.

And what happens when we invest money based on false premises? Ouch!

You can save a ton of time and money by ignoring all such nonsense. They’re all statements about the unknowable because they require an accurate financial forecast to profit.

But My Stock Market Forecasting Is Accurate…

Sure, some financial analysts will make an occasional accurate call here and there, thus appearing to be great prognosticators of future events. But they can also be completely wrong the rest of the time.

The reality is a broken clock is accurate twice a day, but you would never use it to tell time. Why make the same mistake with financial advice that’s really forecasting?


Betting on someone’s belief about the future when they’re wrong will cost you money, and financial advice that forecasts the future is wrong all too frequently.

To understand how financial forecasters rise to stardom, imagine a pool of 5,000 financial experts who toss their hat in the ring declaring themselves capable forecasters.

Let’s say they’re equally divided between bulls and bears. Next year, half will be right, and half will be wrong. The right ones declare themselves certified geniuses with a “proven track record” and go on to issue their infinite wisdom for next year’s forecast and write a book.

Again, half are right and half are wrong, so we now have a pool of 1,250 financial experts with documented track records. Rinse and repeat for a few more years, and a few brilliant geniuses will bubble to the top with undeniably astounding track records and best-selling books.

The only question remaining is whether their track records are truly genius, or merely statistical anomalies?

“Thousands of experts study overbought indicators, oversold indicators, head-and-shoulders patterns, put-call ratios, the Fed’s policy on money supply, foreign investment, the movement of constellations through the heavens, and the moss on oak trees, and they can’t predict the markets with any useful consistency, any more than the gizzard squeezers could tell the Roman emperors when the Huns would attack.”– Peter Lynch

You can dismiss this oversimplified example as trite, but it’s taken from a proven model used by disreputable financial managers to build the trust of naive investors.

They start mailing campaigns sent to massive lists of investors (100,000+) declaring they know the “secret” to the markets.

Each month, they send predictions and continue to follow up only with those who received the accurate predictions. The inaccurate prediction addresses are discarded.

After enough accurate predictions are delivered, they can usually establish sufficient credibility and trust with investors to extract some money.

After all, the huckster just sent you 10 accurate predictions in a row. You read them yourself. He clearly knows what he’s talking about, right?

Relating this story back to the guru of the day, they usually follow a similar pattern before you hear about them. They usually publish books and newsletters.

In addition, they usually predict the future based on some indicator or theory that just happens to be working perfectly at the time and provides a logical reason for expecting more of the same in the future.

By the time you know about them, they have several books in print with an impressive list of documented predictions. It’s hard to deny their brilliance – until you’ve been burned a few times.

The end result is always the same: the indicator or theory that perfectly accounted for economic behavior in the past suddenly stops working in the future. Their rise to infamy goes down in flames, and a new guru-of-the-day takes his rightful place on the throne.

When I began in the investment management business, Joe Granville had everyone’s ear. He was so influential, his forecasts moved markets – until they didn’t. Robert Prechter issued an amazingly accurate forecast of the great bull market of the 80s and 90s, only to turn bearish a decade too early.

Elaine Garzarelli rose to infamy only to fall off the radar screen. In early 2009, Professor Robert Shiller from Yale University has been as close to 100% accurate as I have ever seen, and Harry Dent is attracting a lot of attention.

Out of respect to each of the above names, their mention here should be taken as the ultimate compliment. These few were the best of the best who rose to the top.

Professor Shiller has an impressive pedigree beyond reproach, and Robert Prechter is extremely well-studied, intelligent, and well-reasoned. Their brilliance is what brought them deserved notoriety. They’ve succeeded (at least temporarily) in achieving the impossible.

For a period of time, they successfully predicted the future, but that too will change. Even the best and brightest must fall because the future is forever unknowable.

Every forecaster faces the exact same fate – they’ll eventually be 100% dead wrong – and it will usually occur when they’ve attracted their greatest following.

If you bet money on their predictions, the damage to your portfolio can be devastating. You must have clearly defined exit strategies and risk control methods to protect your capital when the inevitable occurs.

It’s as sure to happen as the sun rising in the morning.

Nobody knows the future with certainty. It’s impossible because all predictions are at best probabilistic outcomes.

Eventually those probabilities must come home to roost and bite the forecaster in the backside. It has always been that way, and always will be that way.

It’s inherent to the nature of the financial forecasting business.

Statistics Prove Financial Forecasting Is A Waste Of Time And Money

In case you aren’t totally clear on the completely invalid premise behind financial advice based on forecasts about the future, or you haven’t read the many research studies proving this fact, I’ll quote directly from a transcript taken from the infamous Louis Rukeyser’s “Wall Street Week” television show where he lays to rest any doubt:

“Now, before we meet tonight’s special guest, let’s take one of our periodic looks at why every self-respecting market technician treats the sentiments of his colleagues with contempt, as we track the embarrassing record of market advisors. So come along as we are ‘Gonna Take a Sentimental Journey’.”

“An economist is an expert who will know tomorrow why the things he predicted yesterday didn’t happen today.”– Laurence J. Peter

“Our trip begins with the Dow at 689 on August 2, 1963, the first year Investor’s Intelligence conducted the poll of market newsletter writers. With 91.4% of those surveyed bearishly calling for a short or long-term decline, and outright bulls at an all time low of less than 9%, the Dow then proceeded to rise 250 points in the next twenty-one months, which represented 38%.”

“Ten years later, in a week when the Dow was moving to new highs, nearly 62% of those polled thought the market would head even higher. And what came to pass? You guessed it. Down 470 points in twenty three months. Not surprisingly, by the time the Dow slipped to a twelve year low at 577 on December 13, 1974, the mood was glum again. More than 63% of market advisors surveyed called for further declines, and true to form, the market rose 425 points, more than 70% in fourteen months.”

“On January 14, 1977, with just 21% of advisers bearish, the crowd missed the mark once more as the Dow derailed with a 235 point loss over a period of fourteen months. And with the Dow at 784, the clouds hung heavy over Wall Street in anticipation of further declines, with nearly two thirds of investors feeling bearish.”

“The market, in turn, took off with a vengeance, rising more than 1900 points in five years. On August 28, 1987, the week the Dow touched it’s then all time high at 2722, more than 60% of the advisers were, not to put a fine point to it, full of bull. Seven weeks later, the Dow, you may recall, was more than 900 points lower. On December 2, 1988, though just 21% of those polled were bullish, the lowest total since June, 1982. The Dow, then just under 2100, rallied an impressive 907 points in thirty one months.”

“If I have noticed anything over these 60 years on Wall Street, it’s that people do not succeed in forecasting what is going to happen to the stock market.”– Benjamin Graham

Has anything changed in the years since Louis Rukeyser did this study on the predictive quality of financial advice for his television show? No.

In David Dreman’s 1979 book “Contrarian Investment Strategy”, he analyzed 50 years of forecasts beginning in 1929. His conclusions were as follows:

  1. The experts dramatically under-performed the market
  2. Their forecasts outperformed only 23% of the time, meaning they were wrong nearly 3 out of 4 times
  3. As an example, the top 10 stock picks from a 1971 “Institutional Investor” magazine poll of more than 150 money managers in 27 states under-performed the market and were down 67% by the end of 1974
  4.  Another example came from a 1970 conference poll of more than 2,000 institutional investors asked to pick the stock they expected to perform best. The winner was National Student Marketing which promptly declined 95% in value. Two years later, this same group’s prediction was airline stocks, which then declined by 50% despite a general market rise.

How’s that for forecasting?

“The findings startled me. While I believed the evidence clearly showed that experts made mistakes, I did not think the magnitude of their error would be as striking or as consistent.”– David Dreman on financial forecasting

The forecasting problem isn’t limited to just the stock market, either. It doesn’t work in any investment market with enough reliability to risk money on.

For example, James Bianco studied more than 20 years of interest rate predictions made by a panel of prominent economists published in the Wall Street Journal every 6 months.

Amazingly, this group of the “best and brightest” successfully predicted the direction of interest rates just 13 out of 43 times. They were wrong 70% of the time.

“That the beginning of a historic decline in stock prices is near is the single most crucial fact facing every investor and portfolio manager today. Anyone still invested and not selling into this market rise is ignoring the most crucial message from the stock market pattern since 1929… Today, the only certainty is that a great bear market of Supercycle or Grand Supercycle degree is due to begin this year and carry the Dow to below 1,000.”– Robert Prechter from his 1995 book “At The Crest Of The Tidal Wave” before the Dow Jones Industrial Average rose nearly 200% from valuations around 4,000

These economists are highly trained and highly paid to predict the future of long-term interest rates, and their accuracy is worse than throwing darts or flipping a coin.

If people who spend their whole lives predicting interest rates can’t get it right, what’s that tell you about the reliability of your mortgage broker, financial planner, newsletter writer, or neighbor down the street?

Did your financial advisor wisely get you out of stocks near the most recent market top? Were your investment magazines filled with bearish prognostications advising you to become cautious? I don’t think so.

Did they ring the bell at the last stock market bottom and tell you to back up the truck and load up when opportunities were greatest? Not likely. Who told you to get clear of real estate before the bubble burst? Nobody! Exactly my point.

Sure, there were a handful of financial forecasters who got one or two of these calls right. But is there anyone with a proven track record of keeping you long during each of those multi-year bull markets and deftly stepping aside before the ensuing bear?

I don’t know of any forecaster reliable enough to bet money on.

So why listen?

If financial forecasters are wrong when it matters most (and it has always been that way), what makes you think next time will be any different?

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Why you need to ignore financial forecasting image

Successful Investing Is About Risk Management And Business Analysis – Not Financial Forecasting

If financial forecasting is meaningless, and the bulk of financial advice is forecasting, then how should a smart investor make investment decisions? What can you rely on to create financial security?

“Prediction is very difficult, especially about the future.”– Niels Bohr

Smart investors who want consistent profits over the long-term develop an actuarial investment approach. They recognize that investing is about probabilities, not prediction.

Their decisions are based purely on known facts with the objective of managing risk and maximizing mathematical expectancy, much like insurance companies and many hedge funds manage risk and reward.

Profiting becomes a game of statistical certainty where the odds work for you rather than against you.

“It is impossible to trap modern physics into predicting anything with perfect determinism because it deals with probabilities from the outset.”– Sir Arthur Eddington

Investing in a professional, business-like fashion has nothing to do with picking hot stocks, predicting the future, guessing, taking hot tips, or any of the other typical approaches that pass for financial advice.

Instead, it’s about following a disciplined, methodical investment strategy based on a known, positive, mathematical expectancy.

For example, Warren Buffett never knows what the market will do tomorrow and doesn’t waste any energy on such nonsense.

He also doesn’t know what stocks will outperform their peer groups over the next month or year because that’s also unknowable.

“We’ve long felt that the only value of stock forecasters is to make fortune tellers look good. Even now, Charlie and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children.”– Warren Buffett

What he does know is how to buy solid companies with valuable franchises at a fraction of their inherent value. Eventually, the market realizes the true value, and Buffett makes a fat profit.

Notice there’s nothing about this strategy that involves reading a crystal ball. He utilizes past history and proven business principles to understand reasonable standards of valuation while employing present day factual data to determine current mis-pricings in the market.

No prediction necessary – just facts.

The bottom line is successful investing isn’t about predicting the future, and any investment philosophy that requires you to predict the future is fundamentally flawed.

I repeat: any investment strategy that requires some prediction of the future is fundamentally flawed and should be avoided.

This one idea will eliminate most investment strategies and financial advice from your life.

I learned this lesson from the school of hard knocks, so please take what I’m saying to heart. I’ve left millions on the investment table and wasted untold research hours mistakenly pursuing the unknowable.

Learn from my errors and don’t make the same mistake. Avoid financial forecasting like the plague and your portfolio will be happier for it.

This Isn’t Rocket Science, But It’s Very Profitable

If you want to invest with consistent profitability, then you must become clear on what you know, and equally clear on what will forever remain unknowable.

Predicting the future is unknowable. Period!

People seek forecasters because they want to feel some sense of control over the future. It feels gratifying to study the analysts’ predictions, take action, and make things happen – even if it’s completely wrong. At least you tried and did your best (or at least, that’s what you believe).

Humans have an incessant need to control, whether it’s spouses, nature, or their finances. To accept the future as unknowable feels out-of-control to the uninitiated, and that’s intolerable.

“There are many methods for predicting the future. For example, you can read horoscopes, tea leaves, tarot cards, or crystal balls. Collectively, these methods are known as ‘nutty methods.’ Or you can put well-researched facts into sophisticated computer models, more commonly referred to as ‘a complete waste of time.'”– Scott Adams

However, when you learn to invest based on mathematical expectation and risk management, much of what passes for financial advice becomes a meaningless waste of bandwidth.

When you learn to accept the future as a probabilistic outcome, you’re suddenly free of many burdens the ordinary investor must shoulder.

You don’t have to worry about being right or wrong. Instead, just align your portfolio with current probabilities while always managing against the risk of a large outlier loss. It isn’t perfect, but it’s profitable over time. It reduces risk, increases return, and allows you to sleep at night.

Investing is about making money. It’s business.

Predicting the future is about ego gratification for the “genius” forecaster.

Never confuse the two.

Focus your limited time and resources on investment strategies that have statistical validity based on provable facts.

Nothing else is acceptable.

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The Top 16 Types of Securities Fraud You Must Avoid Fri, 04 Aug 2017 18:19:41 +0000 The Many Faces Of Investment Securities Fraud – Revealed!

Key Ideas

  1. Why you must still be on the watch for securities fraud despite rules and regulations.
  2. How to guard your emotions against these masters of deceit.
  3. The extreme price you’ll pay for not educating yourself about securities fraud.

Sixteen of the most common securities frauds are listed below.

Study this list and become familiar with the common characteristics of each fraud so that you recognize it when you see it and can avoid getting duped.

Educating yourself about investment securities fraud is the best defense against becoming its next victim.

Once your money is gone, you can’t get it back. Protect yourself starting today.

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Top 16 Types of Securities Fraud You Must Avoid image

Securities Fraud #1 – Penny Stocks

The micro-cap stock market (ie: penny stocks) has a long history of fraud, yet it attracts new investors every day.

The dream of owning the next Microsoft, Yahoo, or eBay at the start-up stage and riding it to easy riches is enough to make even a skeptic’s greed glands salivate.

The other allure of micro-cap stocks is the false feeling of big time investing that comes from buying more shares with less money.

For example, $1,000 will only buy ten shares of a $100 stock, but it will buy 10,000 shares of a 10 cent stock, and 100,000 shares of a penny stock.

Many inexperienced investors prefer 100,000 shares of dubious value over ten shares of real value. They love the idea that a single penny change in the price can double their wealth. Exciting stuff … sort of.

Unfortunately, there are two fundamental problems with penny stocks that make them ripe for securities fraud.

  • Minimal information: Many micro-cap stocks fall below minimum asset and shareholder requirements for SEC reporting. Lack of information disclosure and regulatory oversight invites fraud because the risk of discovery is lower. Additionally, there’s seldom any legitimate analyst coverage or press scrutiny for many of these stocks, which further reduces information flow and lowers the risk of discovery for scam artists. Con artists will always gravitate where the risk of getting caught is lowest – which includes penny stocks.
  • Low liquidity: The second problem with penny stocks is low prices, small daily volume, and minimal stock float, making them ripe for unscrupulous promoters to control the stock and artificially manipulate prices. See the example of “Pump and Dump” below for how this manipulation works. In addition, low liquidity can also make selling a large position without negatively impacting price a difficult task when it’s time to exit.

The two most common forms of securities fraud in penny stocks are “pump and dump” and “bogus offerings”.

  • Pump and Dump: This fraud occurs when someone acquires control of a large amount of a company’s stock and then pumps up the price. They then provide misleading and false information in press releases, spam email, internet discussion group postings, and other unverified sources. The sudden burst in promotion temporarily increases demand for the stock, causing the price to rise, which creates additional demand from momentum buyers jumping on the bandwagon, leading to further price increases. Once price momentum is established, the scam artist sells his shares and walks away from the promotion, causing the stock to tank.
  • Bogus Offerings: This fraud is sold in the form of an unverifiable breakthrough technology or forthcoming large contract announcement for some unknown company. Often, the company will have no operations, earnings, or audited financial statements, and may in fact be little more than an idea or a shell.

The general rule for penny stock investing is to avoid it unless you’re an investor with specialized expertise in the business.

“You may be deceived if you trust too much, but you’ll live in torment if you don’t trust enough.”– Frank Crane

Penny stocks have higher risk for investment fraud than conventional securities, and they require unique investment skills and experience that few investors possess in order to earn reliable profits. They’re best avoided.

Securities Fraud #2 – Prime Banks

Prime bank fraud is designed to attract conspiracy theorists who believe the Rockefeller’s, Rothschild’s, Saudi Royalty, and other members of the privileged class have secret access to highly lucrative investments that a mere commoner like you and I can’t normally invest in.

Triple digit returns may be promised for becoming a “privileged investor” with access to the world’s elite bank portfolios: “prime banks”.

The only problem is prime bank securities don’t exist.

Neither do other related forms of this type of fraud which include “standby letters of credit,” “revolving credit guarantees,” and other legitimate-sounding euphemisms for fictitious high yielding debt.

Avoid all forms of unconventional, high-yielding debt issued through non-verifiable sources. Be particularly cautious when the investment includes nonsense about being given access to something normally reserved for the privileged few.

Securities Fraud #3 – Institutionalized

Bull markets are often associated with a permissive social culture that can lead to brazen investment business practices resulting in institutionalized securities fraud.

Few investors take notice of lapses in integrity as long as everyone is making money and the markets continue to rise. When the punch bowl is removed, then the hangover that follows can reveal institutionalized securities fraud.

Examples include:

  • Accounting Fraud: Enron, WorldCom, and other big name corporations defrauded millions of investors through “creative” accounting and inadequate disclosure during the late 1990’s bull market. Under normal conditions, an entire regulatory and oversight system exists to catch these problems, but during great bull markets, the scrutiny of regulators and auditors produces insufficient results.
  • Unethical Mutual Fund Practices: Late-trading and front-running are two privileges that were granted by many mutual funds during the late 1990’s to insiders and large institutions. This gives them an unfair advantage while betraying their fiduciary responsibility to individual shareholders. The total cost of this fraud to Main Street investors will never be known.
  • Analyst Research Conflicts: A long history of investment fraud can be found in brokerage firms co-mingling investment banking to institutions with investment sales to individuals under one roof. Individual investor recommendations by in-house analysts are often tainted by lucrative investment banking relationships.

You wouldn’t trust medical advice from your doctor if he was biased by sales commission kickbacks from drug companies, so why would you make the same mistake with your investment advice?

Unfortunately, many investors aren’t even aware of the biases inherent in the investment advice they receive.

“Honesty: the most important thing in life. Unless you really know how to fake it, you’ll never make it.”– Bernard Rosenberg

For example, Merrill Lynch settled with the New York Attorney General’s office for $100 million for this misleading practice (without admitting any wrongdoing, of course). Other big name brokerage firms ran into similar conflict of interest charges.

The fundamental problem causing institutional securities fraud is the greed and easy-money character of major bull markets that can result in a promiscuous business culture.

In the search to maximize bottom line profits, there’s always the risk that one bad apple will place expediency in front of integrity, resulting in fraud.

Just because an institution is large and reputable doesn’t make securities fraud impossible.

Securities Fraud #4 – Unlicensed Sales Agents

Investment scam artists use the lure of high commissions to enroll independent insurance agents, financial advisors, investment seminar speakers, and accountants as sales representatives for securities fraud.

Independent agents are the perfect sales outlet because they’ve already earned your trust, but lack sophisticated compliance departments and due diligence procedures to uncover illegitimate investments.

The result is a trusted expert who actually knows little more than you about sorting fraud from legitimate investments.

Be wary if your agent offers high returns with little or no risk on viatical contracts, brokered CD’s, equipment leases, factoring, promissory notes, or other unconventional investments.

Just because you trust your independent insurance agent or accountant for the professional services they regularly provide doesn’t necessarily qualify them as an investment expert.

Securities Fraud #5 – Affinity Groups

Affinity group fraud is another example of mistaken trust. Investment fraudsters will exploit their victim’s age, religious, ethnic, sexual, or professional identity to gain your confidence knowing that it’s human nature to trust people who are like you.

Affinity fraud bypasses the natural distrust we have for schemes promoted by strangers.

The usual method of selling the fraud is to enroll a trusted, leading member of the group (who’s seldom an investment expert) into selling the fraud to the remainder of the group.

The lure to invest is the supposed profits that will somehow benefit the church or professional organization that you want to support.

“We have to distrust each other. It’s our only defense against betrayal.”– Tennessee Williams

For example, a respected church leader is sold an investment. The scam artist then informs this leader that if church members also purchase the investment, then profits can benefit the church or its favorite charity.

The leader unwittingly promotes the fraud to the congregation with the good intention of benefiting the church. The congregation invests based on their trust for the leader and their desire to support the church.


The con man bypasses the usual distrust he experiences by using the affinity of the group.

Senior fraud is a specialized form of affinity fraud. Seniors are natural fraud targets because they’ve accumulated significant assets from a lifetime of saving and investing.

Low interest rates, rising health costs, and increased life expectancy have forced many seniors to seek higher returns than conventional investments provide.

In addition, their age gives them a common set of interests and concerns for fraud promoters to exploit through affinity.

This is an unfortunate combination of circumstances that makes this group a prime target for investment fraud.

Securities Fraud #6 – Stock Brokers

Always scrutinize your brokerage statements for unexplained fees, unauthorized trades, or other financial irregularities.

In addition, your broker may have recommended investments unsuitable for your particular needs.

For the complete story on what to look out for, see the article in our investment fraud series titled “Stock Broker Fraud”.

Securities Fraud #7 – Promissory Notes

Promissory note fraud takes the form of short-term debt obligations issued by bogus companies. Typically, they’re sold through independent insurance agents and offer above market returns with little or no risk – “guaranteed”.

Always beware of any investment offering above market interest rates and guarantees. It’s a potentially lethal combination.

Also, beware of trusted professionals selling investment products that aren’t their ordinary field of expertise (such as insurance salespeople or accountants promoting investments).

Securities Fraud #8 – Advance Fees

The objective of this fraud is to steal the advance fees you pay to participate in some larger objective.

For example, you might be asked to make a series of upfront payments for a bargain shipment of heating oil, coal, or some other commodity that ultimately never arrives.

Alternatively, you might be offered an interest-free loan from an off-shore bank if you pay an application fee in advance.

Regardless of the service or product promised, the formula is for you to pay an entrance fee now for something you’re supposed to receive later – but never arrives. The fee paid is the scam artist’s profit.

Securities Fraud #9 – Inappropriate Investments

Certain legal investments cross the boundary into securities fraud when they’re sold to the wrong person without adequate disclosure.


The most common investment in this category is variable annuities because of their costly surrender charges, steep commissions, and high expense structures.

For the complete story on variable annuity investment fraud see the related article “Variable Annuities Explained – What You Must Know”.

Similarly, callable CD’s are higher yielding, longer-term certificates of deposit that can be redeemed by the issuing bank. The problem with these securities is the potentially high penalty fee for early withdrawal if the investor needs liquidity.

The long-term nature and high surrender charges make them inappropriate for investors needing current access to their money.

“You may deceive all the people part of the time, and part of the people all the time, but not all the people all the time.”– Abraham Lincoln

Securities Fraud #10 – Viatical Settlements

Viatical settlements were originally created to help seriously ill people pay medical bills by selling the death benefit from their life insurance policy to an investor for immediate cash.

There’s nothing illegal about viatical settlements, but when they’re misrepresented, they can become a type of securities fraud.

For example, the health condition of the seller could be falsified or even improve over time, thus impairing the return on investment.

Alternatively, the insurance could be invalid due to fraudulent applications, or there could be no actual insurance or greatly reduced benefits making the investment essentially worthless.

Viatical settlements are complicated investments requiring specialized due diligence skills. They’re not for the inexperienced.

Securities Fraud #11 – Offshore Investing

Whenever your money leaves the country, the laws that protect it don’t follow. Any investment from another country requires extra due diligence because domestic regulations and oversight don’t apply.

Few investors know the laws of their own country, not to mention the laws of a foreign country. Many of the assumptions you invest on in your own country are invalid overseas. The capability to pursue grievances may be limited, increasing your risk. Beware…

Learn the different types of securities fraud - a danger forseen is half-avoided image

Securities Fraud #12 – Bogus Business Offerings

The calling card for this fraud is an exciting, low-risk, easy money investment opportunity in an exotic sounding business. Below are certain businesses which attract more than their fair share of financial fraud:

  • Oil and Gas: Beware of “working interests” in “proven” oil and gas wells. Frauds include fake drilling equipment set on worthless land or vacant wells that haven’t produced in years.
  • Equipment Leasing: Pay close attention when a company sells you a piece of equipment which it agrees to lease back for a fee. Be certain the company is legitimate and the contract fee structures make business sense. Pay phones, ATM machines, internet kiosks, or any other consumer technologies are favorites among leasing fraud.
  • Franchise Offerings: “Get in on the ground floor of this can’t-miss opportunity.” Yeah, right! Legitimate franchises are everywhere, causing people to abandon their usually cautious nature when confronted with a bogus franchise. Over-inflated store results and phony testimonials are used to extract upfront franchise fees for misrepresented services, supplies, and goods.
  • New Technologies: Watch out for people seeking funding for a new patent or invention sure to make you rich. Similarly, beware of investment frauds designed to imitate legitimate technologies such as FCC licenses for cell phones, wireless cable, or interactive video.

Securities Fraud #13 – Precious Metals

There are several ways you can be ripped off investing in precious metals and gems. Below are the most common:

  • Grading: Coins could be falsely graded at a higher quality level than is actually the case, or a precious gem could be worthless due to undisclosed flaws.
  • Safekeeping: Bullion or coins may not exist at all when they are “kept safe” in the seller’s vaults. Adding insult to injury, not only do you pay for the nonexistent precious metal, but you pay fees on top of it all to store what never was.
  • Mining Fraud: Beware of investment offerings claiming a new technology to mine precious minerals from previously closed mines and worthless tailings.

Any time precious metals or gems are offered at below market prices, it should serve as a red flag for thorough due diligence.

Securities Fraud #14 – Abusive Sales Practices

Never buy an investment over the phone from a cold-caller and never tolerate high pressure sales tactics from your broker.

Abusive sales people use intimidation and careful scripting to rush you into a decision without first helping you fully understand all the risks and realities of your investment.

If the caller or salesperson refuses to take “no” for an answer, then just hang up or walk away. You deserve better.

Securities Fraud #15 – Internet

The changing face of communications technology provides new tools for the investment scam artist to exploit. First was mail, then the telegraph became a popular tool for investment scammers. Next was the telephone, and now it’s the internet.

“The secret of life is to appreciate the pleasure of being terribly, terribly deceived.”– Oscar Wilde

The internet has made investment fraud more efficient and effective. Con artists can purchase lists of targeted groups, use automated data-gathering tools, and post to discussion groups at almost no cost and with complete anonymity.

With a few clicks of a mouse, fraudsters can reach millions of people by building a website or entering various chat rooms. One person could use many of these web-related tools under various aliases to cheaply and easily create a virtual facade of legitimacy with little risk of detection.

Another example of internet investment fraud is online newsletter publishers who are paid cash and securities to tout certain stocks.

This isn’t illegal; however, the biased advice must be disclosed. Watch out for newsletters that bury information about who paid them, the amount, and the type of payment in fine print so you never see it.

By the way, at Financial Mentor, we never tout individual securities. Our independence and lack of bias is essential to the credibility of the educational service we provide.

You should verify all investment advice from unknown sources online by checking reputable sources offline – be skeptical. Remember, almost anyone can make himself appear to be an established and successful company for very little cost online.

Don’t be dot-conned.

Securities Fraud #16 – Ponzi Schemes

Last, but certainly not least, are Ponzi schemes. Named after Charles Ponzi, a swindler from the 1920’s, these pyramid schemes promise high returns to lure investors. It uses the money from new investors to pay previous investors.

The large payments to early investors add credibility to the fraud, which convinces skeptics to invest and further fuels the fraud’s growth.

Little or no actual investing ever takes place, and the fraud blows up when regulators step in or an insufficient number of new investors enter to pay off existing investors.

In Summary – Three Principles of Securities Fraud:

I hope you enjoyed our quick tour of the securities fraud world. It may not be a fun subject, but it’s necessary to understand.

In summary, there are three principles you should take away from this discussion…

  1. Regulated, domestic securities and dealers have a lower risk of fraud than their unregulated and offshore counterparts. That doesn’t mean you can drop your guard against fraud with regulated securities. Quite the contrary, as evidenced by the sections on broker fraud and institutionalized investment fraud. All it means is the risk of investment fraud is lower when regulation is higher, but fraud still exists regardless of regulation.
  2. Investment fraud comes in many forms and changes with the times. Con men usually attempt to sell the fraud by appealing to people’s desire for easy riches and use tools of deceit to separate you from your money. See our article “The Top 26 Warning Signs of Investment Fraud” for the complete story.
  3. Your first line of defense against securities fraud is a healthy dose of skepticism and information that educates you to recognize fraud when you see it. Your second line of defense is a thorough due diligence process that uncovers the less obvious cases of investment fraud before you ever lose a dime. For a comprehensive checklist on investment fraud due diligence, see the article “Investment Fraud Due Diligence”.

If you invest long enough to build wealth, then the unfortunate reality is you’ll almost certainly encounter securities fraud.

Educate yourself now so that you can avoid becoming its next victim.

Forewarned is forearmed…

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My Worst Investment Loss Exposed! (And the Gut-Wrenching Lessons Learned) Fri, 04 Aug 2017 02:39:36 +0000 How To Make The Best Of A Bad Situation – Lessons From My Worst Investment

Key Ideas

  1. How you manage investment losses ultimately determines your profits.
  2. 12 lessons you can apply to your investment strategy.
  3. Four questions to ask yourself so you don’t repeat the same investment mistakes.

My first investment was a complete loss.

I know that doesn’t make for ego pleasing, cocktail party conversation, but it’s the truth.

In this article, I’m going to tell you the whole story about how I lost 100% of my invested capital many years ago, and the investment mistakes I made to create this disastrous result.

But first I want to tell you why I’m doing it.

There are two points to this story:

  1. Losing investments can be great teachers. You’ll learn from every investment mistake you make, and you can also learn vicariously from other people’s investment mistakes so that you don’t have to make the same error yourself. Each investment lesson learned can help you avoid a loss in the future, which can turbo boost your lifetime investment performance.
  2. Losses are a natural and normal result of making investment decisions, and the key to long term success is what you do when they occur. You must learn from your investment mistakes so you don’t repeat them. You must also cut your losses once the mistakes are recognized so they don’t grow to unmanageable proportions.

The truth is I’ve made more investment mistakes and incurred more losses in my investment career than this website has space to share – that’s why I’m such a great teacher :-).

“The most important thing in life is not to capitalize on your gains. Any fool can do that. The really important thing is to profit from your losses. That requires intelligence; and it makes the difference between a man of sense and a fool.”– William Bolitho

It’s also why I’m a successful investor today.

Below is the story of my first investment – a total loser. Go ahead and laugh at the foolishness. We all start somewhere, and this story is proof positive that I was not born a great investor.

Investing is a learned skill, and the lessons contained in this story can help you avoid the same mistakes I made so you can become a more profitable investor.

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My Worst Investment Loss Exposed image

The Worst Investment Mistake I Made

This story begins shortly after graduating from college, when the book “In Search of Excellence” was a nationwide bestseller.

I had been hired by Hewlett-Packard (which was featured in the book) and placed on the fast track to success.

My business background was extensive for a zitty-faced college graduate, and I had aced my GMAT test scores in preparation to begin an MBA degree program at business graduate school.

In short, the future looked so bright I had to wear shades.

“Sometimes your best investments are the ones you don’t make.”– Donald Trump

While at Hewlett-Packard, I befriended someone in the credit department who knew about this “hot new tech company” that was buying HP mainframe computers to run its business.

Its stock was listed in the NASDAQ pink sheets. My buddy had the inside scoop because of his job doing all the credit analysis for financing the computer purchases.

Well, being a brand new investor with zero experience or savvy, I plunged all the money I had saved for graduate school into the stock.

This decision proved to be one big mistake from the beginning.

Below are a few of the more obvious mistakes I made with this investment:

  1. I bought on a “hot stock tip”.
  2. I risked money I couldn’t afford to lose.
  3. I had no buy or sell discipline – no investment strategy.
  4. I bought a story rather than business fundamentals.
  5. I had no risk management plan to control losses.
  6. I put money at risk without an exit strategy in place first.

From Profit to Loss with No Investment Strategy

At first all appeared well as the stock nearly doubled in price. The problem was I thought this growth in value was because of my superior stock picking skills – wrong!

I had no clue that new issues are often supported by the offering company during the initial distribution phase to attract investor interest.

I didn’t know that rising prices and hype are frequently used as tools to distribute stock to naive investors like me.

  1. Don’t play a game you don’t understand fully. I knew nothing about the new issue game and was gambling rather than investing. I had no competitive advantage and there was no mathematical expectation to my investment strategy.

“Every experience is a lesson, every loss is a gain.”– Sri Sathya Sai Baba

Soon the stock hit its all time high, and I was making good money. I had visions of becoming the next Peter Lynch or Warren Buffet as I labored under delusions of my financial intelligence.

Getting too confident was my next mistake:

  1. Don’t confuse brains with a bull market. Even the dumbest investments can create temporary gains when the wind is at your back.

Immediately following on the heels of the all time high was a rapid descent in price that swallowed all previous price gains. I was in despair as the position went from a winner to a loser in a short time.

Magically, just as I began to worry, I got a call from my broker. It seemed as though he could read my mind and knew about my worries. Duhh!!

He extolled the virtues of the company and told me all the good news about “big developments soon to be announced” and how the price was “certain to make new highs and create enormous profits.”

“If you have made a mistake, cut your losses as quickly as possible.”– Bernard M. Baruch

My greed glands began working overtime as I swallowed all of the broker’s bull – hook, line, and sinker.

Not only did I hold my losing position in the stock, but I even added to it by buying additional shares.

(The gulping sound you hear in the background is me swallowing my pride as I write this.)

Here are the last group of mistakes I made:

  1. I bought based on news.
  2. I let good money chase after bad: averaged down.
  3. I didn’t understand the incentives of the advisor and the biases it created in the advice given.
  4. I didn’t protect my profits, and I didn’t control my losses while they were still manageable – no risk management.

I could add even more mistakes to this list, but I think you get the point.

The punch line to this story is the stock never looked back and went straight to zero.

I lost 100% of everything I invested which was most of what I had at the time. Ouch!

I never did go to graduate school. I decided to get an education investing instead, and I’ve never regretted that decision.

My Worst Investment Mistake Was Cheap Tuition

This first investment was the first of many tuition bills I paid to the school of hard knocks during my journey to investment success, and it was also one of the most painful.

What made it so painful was that I had no idea what went wrong. All I knew was that all the money I had worked for and saved for graduate school was gone, and I had made the decisions that caused it to happen. I was confused and hurting.

My question for you is: how many of the above investment mistakes are you making? How much are these mistakes costing you?

“The worst mistake investors make is taking their profits too soon, and their losses too long.”– Michael Price

One of the key factors to my investment success is that I always try to learn from my mistakes.

I constantly improve my investment skills by studying each losing investment to understand what went wrong with my strategy, and then I set up disciplines to assure I never make the same mistake again.


Over time, the investment lessons learned from this process of dissecting investment losses has paid returns many times in excess of what the losses cost.

In other words, I took the pain of this financial catastrophe and used it as motivation to learn what works in the markets, what doesn’t, and why.

I didn’t just say “oh well” and write off the loss to bad luck, tough market conditions, or faulty investment advice.

I didn’t labor under the false premise that it wouldn’t happen again or the market would come back.

I never deluded myself into believing more of the same investment strategy might make me a lucky million by finding the next Microsoft or IBM.

What about you? Are you using any of these excuses to dismiss your investment losses as not reflecting a fundamental flaw in your strategy?

“The willingness to accept responsibility for one’s own life is the source from which self-respect springs.”– Joan Didion

Instead, I took responsibility for the loss. The reality is if it happened once, then it could probably happen again.

The only solution was to figure out what caused the problem in the first place so it could be avoided in the future.

Taking self-responsibility for your investment losses is the first step to improving your investment strategy so you can become a consistently profitable investor.

Nobody starts out as a great investor. Proper investing is a learned skill.

You now have indisputable, written proof that I began life as an investment idiot. Few people make more mistakes on their first investment than I did.

You can’t do any worse than lose everything. Yet, I’m a successful investor today, and it’s largely because I’ve learned from my mistakes.

Investment Risk Management is the Key

The final mistake on the list, #12, is probably the most crucial mistake to avoid. You must always invest with a risk management discipline. This is critical. Never violate this rule.

“The first step in the risk management process is to acknowledge the reality of risk. Denial is a common tactic that substitutes deliberate ignorance for thoughtful planning.”– Charles Tremper

If you make all of the other investment mistakes, you might still recover over the long-term if you don’t make Mistake #12.

The key to a consistently profitable investment portfolio is to control the losses for each individual investment.

The way you do that is through risk management. I violated this principle by allowing the stock to go from a winner to zero.

Controlling losses in each investment lowers the risk profile of your portfolio, reduces its volatility, and can increase its return.

This isn’t opinion, it’s mathematically provable. I’ve spent decades researching investment strategy and haven’t found an exception to this rule. That’s a big statement, so please read it carefully.

Controlling losses when you make an investment mistake should be your primary concern. Learning from your losses should be your secondary concern.

“Cut your losses and let your profits run.”– American Proverb

Four Questions To Ask So You Profit From Your Worst Investment

Below are four questions to ask yourself when an investment loses money so you can turn a bad situation into something that creates a long-term benefit.

  1. What flaw in your investment strategy caused the loss? (Hint: Blaming the loss on market conditions, bad investment advice, or bad luck isn’t acceptable because that’s not self-responsibility. You must determine what you did to cause the loss because ultimately you’re at fault.)
  2. How are you going to limit the amount of loss so it doesn’t become catastrophic? What’s the exact mechanism and process?
  3. What changes are you implementing in your investment strategy so that this loss serves as a springboard to greater, more reliable profits in the future?
  4. What’s your basis for believing this investment strategy change is valid? What studies, research, and market history can you cite as evidence showing your conclusions are factual and will lead to more consistent profits in the future?

My Worst Investment Loss Exposed - what I learned image

The answers to these four questions could be worth a fortune to you over your lifetime.

They can turn each temporary loss into a long-term profit as you improve your investment skills and knowledge with every mistake made.

These questions can springboard your investment performance by focusing your attention on what works, what doesn’t, and why.

It’s important that you ask these questions after every investment loss because what you do with your losses will ultimately determine your wealth.

I’m living proof of that truth.

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How To Find A Financial Advisor You Can Trust Fri, 04 Aug 2017 02:00:30 +0000 12 Questions You Should Ask Before Putting Your Hard-Earned Money At Risk

Key Ideas

  1. 6 simple rules to determine if your advisor is walking the talk.
  2. How to know if your advisor is honest.
  3. The 5 warnings signs to watch out for.

How can you tell the difference between false prophets and legitimate financial advice?

How do you know if the financial expert sitting across the desk can actually help?

Is his primary interest to pad your pockets, or his own?

Below are 12 questions to consider before placing your trust in anyone claiming to be a financial mentor, advisor, money manager, expert, or guru.

This list results from a lifelong career as both an investment advisor and financial educator. It’s a common sense, insider’s guide to financial advice so you don’t get ripped off.

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1. Is The Financial Advisor Already Doing Exactly What He Advises You To Do?

The advisor must have a successful track record practicing exactly what he preaches. Nothing less will suffice. What that means is:

  1. Don’t get your investment advice from someone who built his wealth through marketing investment advice instead of actual investing. This holds true for many big-name financial gurus, money managers, brokers, and advisors.
  2. Don’t get your investment advice from someone whose primary function is to sell investment products (stocks, bonds, mutual funds, etc.) because it’s an inherent conflict of interest that biases the advice you receive. This is especially true for most stock brokers and financial planners. Instead, separate the investment planning function from the investment product sales function. Pay for each separately.
  3. Don’t get your financial advice from academics with lots of fascinating theories but little real world experience. Real world practicalities differ from theoretical academic assumptions.
  4. Don’t get your financial advice from authors and writers who are paid to write, not invest. Their skills and experience are for writing – not investing.
  5. Don’t get your stock investment advice from someone who built his wealth in real estate or business because success in one field doesn’t necessarily equate to success in a related, but different, field. The critical issues to success in each field are subtly but significantly different.
  6. And last but not least, never accept financial advice from anyone who isn’t already financially successful because they lack one necessary qualification: proven results. That includes your Uncle Bill, parents, friends, coworkers, and anyone else you know who has an opinion (doesn’t everyone?), but no results proving the quality of that opinion.

In short, only learn from those experts who have “walked the talk” before you and can speak from personal experience with integrity.

There are many self-proclaimed gurus out there, but few have gotten muddy in the trenches at the school of hard knocks and emerged with enviable results and valuable lessons to share.

You’re better served moving on to someone who can speak from actual experience doing exactly what they’re advising you to do.

2. Is The Financial Advisor Still “Walking the Talk”, Or Is He “Marketing the Talk?”

When I became a real estate investor, I sought out experts to teach me a wide variety of investment strategies, including foreclosures and tax lien investing. What I learned surprised me.

Many of the big name gurus no longer practiced what they preached. They did the tax lien or foreclosure business years earlier, and switched to selling instructional courses about their experience once market conditions changed.

The fact was they no longer invested according to what they were teaching.

“Walking the talk” means doing the same thing with their own time and money that they recommend you do. If they recommend you invest a certain way, then it should be good enough for their portfolio as well. If not, then why?

Always act cautiously when someone is pitching an investment if their money isn’t at risk exactly like yours will be.

The fact that my tax lien and foreclosure teachers weren’t investing in tax liens or foreclosures at the time was important information. It raised a red flag and motivated greater due diligence. After a little more digging, I learned the reasons why, and it saved me a lot of wasted time and money.

Anytime someone is selling you an investment or educating you on an investment strategy, find out what they’re doing with their own money. You should be concerned whenever someone isn’t investing using their own advice.

The one exception to this rule would be when the advisor’s financial goals and needs are so different from the student’s that different strategies for each party are appropriate.

3. Will The Advisor Show You Actual Proof That His Financial Advice Works?

If your advisor is a successful investor, then they should have verifiable results to back it up. If they won’t show you proof, then you should wonder what they’re trying to hide.

For example, I have an extensive list of client testimonials for my coaching services, newsletter, and educational products providing independent testimony to their results and value.

In addition, I provide references of past and present clients to those prospective students who are seriously considering a coaching and mentoring relationship and want to verify the service quality.

The real proof, however, is in my actual financial results. I have more than $1 dollar in liquid net worth for every dollar I have ever earned in my lifetime as verified by Social Security Administration documentation.

Very few people can pass this test. Do you have more money sitting in investment accounts than you’ve earned over your lifetime?

The only way your liquid net worth can exceed your lifetime earnings (placing a zero value on your home and business assets) is if you inherited a lot of money or you’re good at managing your personal finances and investments.

Results speak the truth – accept nothing less.

4. What’s The Financial Advisor’s Background, Education, Training, Skills, and Experience?

Not all financial advice is created equal.

A hedge fund manager who has completed many years of independent research with twenty years of real time trading experience will provide advice from a higher quality experience base than a business school graduate trained in product sales by a brokerage firm.

Learn from the best and accept nothing less.

The sad reality is many financial advisors are trained by their parent company to tow the party line. Few financial advisors have completed any independent research to provide a basis for forming their own investment opinions.

Their knowledge is often limited to official policy, traditional practices, and company dogma. The result is they speak the company doctrine as if it were true because that’s all they know.

They aren’t bad people: they just don’t know enough to know what they don’t know. The net effect is you get bad financial advice.

You can’t understand a person’s financial advice until you know the shoes they’re standing in. Their experience and training color their advice.

There are several levels of knowledge in the financial advice business, and the unfortunate reality is the bulk of retail financial advice comes from the ground floor level. You want top floor financial advice.


For a complete listing of resources to investigate the background and experience of your investment broker or financial advisor, please see the related articles in this site under “investment due diligence” and “investment fraud prevention“.

5. Has The Financial Advice Been Tested Through Multiple Market Cycles?

Building and preserving wealth requires a full-cycle perspective.

You must not only make money during rising markets, but you must also preserve that wealth and control losses during declining markets. Anything less is only half of an investment strategy.

Beware of the “one-hit wonder” that gets lucky by investing in the right place at the right time and then goes on to write books about his financial expertise. Don’t be misled.

Just because someone loaded up on technology stocks or real estate before a bull market handed him sudden wealth doesn’t mean he knows anything about how to preserve that wealth during the next down cycle, or how to grow it through different market cycles in the future.

If you’re not clear on the importance of this point, then check out the legal and financial history behind people claiming to be financial experts. The internet makes the process of uncovering dirt on anyone remarkably easy.

You might be surprised to find out which “experts” have a history of bankruptcy, financial, and legal problems (their names aren’t listed here to avoid legal hassles).

They might be masters at marketing and leverage who ride high on the wave of their latest endeavor, but their checkered history shows an inability to manage risk and preserve that success through a full market cycle.

Just because someone is famous doesn’t make them immune from this rule.

Make sure the financial advice you receive has been tested through inflations, deflations, bull markets, bear markets, nuclear melt-downs, Presidential assassination attempts, and anything else you can imagine. Murphy’s Law is “law” for a reason.

Anything that can go wrong will – and at the worst possible time – so make sure your financial advice can manage risk for the worst outcome and profit under all reasonable assumptions.

6. Are You Being Told The Negative Along With The Positive?

There’s no perfect investment strategy. Anyone claiming to have one is either self-deceived, or a liar.

You don’t understand an investment until you know all the ways you can lose money with it.

“A piece of advice always contains an implicit threat, just as a threat always contains an implicit piece of advice.”– Jose Bergamin

If the person offering you financial advice isn’t forthcoming with all the potential problems (so you can make a fully informed decision), then you aren’t getting the whole picture. You need to know the risks as well as the potential rewards. Settle for nothing less.

Similarly, if your investment advisor isn’t forthcoming with his mistakes and losing experiences, then they’re either inexperienced or dishonest.

I have made more investment mistakes than I have room to share with you here, and I’ve also made enough good decisions to have done very well over time.

Every investor makes mistakes, and every financial strategy has an Achilles heel. Learn them, or risk being blindsided.

7. Does The Financial Advice Over-Simplify An Inherently Complex Subject?

Buy and hold is one of the simplest investment strategies available. You can explain how to do it in just a few paragraphs.

Yet, it would take an entire book to fully understand the risk versus reward implications of this strategy in your portfolio today.

Highly trained financial experts using identical data to prove their points can’t agree on even the most simplistic financial advice such as buy and hold, let alone more complex financial issues.

Be wary of financial advice that’s reduced to clever sound bites or appears to be cut and dry. If it’s that obvious and simple, then it’s probably wrong or incomplete.

Most financial issues, when deeply understood, are subtle shades of gray. They require a depth of understanding that leads to a well-considered decision.

“Honest advice is unpleasant to the ears.”– Chinese Proverb

When you encounter financial advice that makes the investment process sound easy, just assume it’s a sales technique.

Salespeople know the average investor is averse to complexity and wants his financial decisions handed to him, neatly packaged, on a silver platter. For that reason, they simplify the analysis to make the decision easy for the client so they can get the sale.

Building wealth isn’t easy, and investing properly isn’t simple. If it was, more people would succeed at both. However, they don’t, and the statistics prove it.

No matter what the gurus tell you, building wealth takes persistent work, well-developed plans, diligent follow-through, and involves risk.

I know financial advice like this won’t maximize my sales, but it gets results for those who are willing to follow it.

8. Is The Financial Advice Driven By Facts or Opinion?

Never confuse facts with opinions in the financial advice you receive.

Opinions are useless clutter that complicate investment decisions. Facts are what matter.

Most financial advice blends the two together, and your job is to extract the few facts from the myriad of opinions so you can disregard the rest.

Examples of opinions include:

  • A forecast for the economy
  • What price levels a stock is expected to go to
  • What a company is expected to earn
  • What industries should grow the best

Ignore all such nonsense because it requires an accurate forecast for the future, and forecasts have conclusively proven to be unreliable through multiple independent studies.

“To know the true reality of yourself, you must be aware not only of your conscious thoughts, but also of your unconscious prejudices, bias and habits.”– Unknown

Facts worth knowing include current valuations and what those valuations imply about expected returns based on historical precedent.

Other facts include what’s happening now or what has happened in the past, as contrasted with opinions about what’s expected to happen in the future.

Facts are true and knowable right now and include hard data and numbers. Opinions result from the interpretation of those facts.

Never confuse opinion with fact because it can muddle your thinking and lead to erroneous conclusions.

9. Is The Financial Advice A Complete Strategy Or Just A Half-Truth?

What good is a buy recommendation without clear criteria for when to sell? What good are sell criteria without a clear strategy for reinvestment?

Beware of any advisor providing a buy recommendation without simultaneously providing clear criteria that would invalidate that same advice and force a sell. Quality investment advice provides a complete process of buying, selling, and reinvesting.

Even more important is that all buy, sell, and hold recommendations are based on thorough historical research indicating a positive mathematical expectation.

Anything less is gambling.

In short, all investment advice must be a complete process in order to be actionable. It should be based on a proven, positive mathematical expectation to reliably profit and meet your investment objectives.

Is your financial advice providing all the information you need to take proper action? Is it based on someone’s beliefs, forecasts, or hunches rather than quantitative research and historical precedent? If yes, then it’s gambling rather than investing.

10. Is Risk Management A Primary Focus, Or An After-Thought?

Risk management is what separates professional investors from amateurs.

It’s how your investment portfolio can earn consistent returns through a wide variety of market conditions. For that reason, I would never trust a financial advisor whose first concern wasn’t managing risk and preserving capital.

“I violated the Noah rule: predicting rain doesn’t count; building arks does.”– Warren Buffett

Unfortunately, most financial advice focuses on making money – the offensive half of investing – because that’s what sells best.

Risk management teaches you the defensive half of the investment game by showing you how to control investment losses when adversity strikes.

A complete financial strategy requires both halves of the investment equation to earn consistent returns with a favorable risk to reward ratio. Anything less is a dangerous half-truth.

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12 questions to ask a financial advisor to determine their worth image

11. How is Your Financial Advisor Compensated?

You can’t determine the validity of the financial advice you receive until you know how your advisor is compensated for providing it.

For example, magazines and other media are driven by subscription and/or advertising revenues. Therefore, the publisher has an incentive to provide financial advice that maximizes those revenue streams even if it’s diametrically opposed to your best interests.

Stock brokers and financial planners are often compensated by commissions and other incentives which can affect their recommendations.

This is why their financial plans seldom include direct ownership of investment real estate or building a business even though these are two of the most common ways to build wealth (click here to see our entire wealth strategy course so you can retire earlier than old).

“Free advice is worth half the price.”– Robert Half

You should always separate the financial advice function from the investment product sales function, and you should pay for them separately. Anything less causes a conflict of interest.

At Financial Mentor, the only thing we sell is financial education to help you retire early and wealthy. We have no hidden incentives from investment product sales or advertisers to bias what we say.

We never tout stocks, mutual funds, or any other investments, and you should be wary of financial advice from anyone who does.

Our job is to help you understand how the financial world works and what it really takes to build wealth.

When you’re armed with the proper knowledge, then you can take control of your financial future and make the best decisions for yourself while ignoring all the biased and conflicted advice you receive from others.

12. Is The Financial Advice Generic, Or Is It Designed To Your Personal Needs?

One size doesn’t fit all.

You’re unique with different goals, resources, abilities, and needs compared to everyone else. Does the financial advice you receive take those unique characteristics into account?

It’s not enough for your financial advisor to type your personal information into a computer and have it spit out a pseudo-customized financial plan with glossy pie charts designed to gather dust on your office shelf.

A computer can’t know your skills, interests, and abilities, and these very attributes are what you’ll be leveraging to build financial security.

You need a personalized wealth plan that serves as a step-by-step blueprint on your journey to financial security.

Similarly, beware if your financial advice is coming from a one-size-fits-all seminar or generic “mentorship” program. The odds of it fitting your individual needs are very slim.

The same goes with newsletters and magazines that can’t possibly provide advice specific to your personal situation. After all, how can information simultaneously provided to millions of people at the same time be personalized to your needs?

That’s why I designed the Seven Steps to Seven Figures course series into individual step-by-step modules. You only have to take modules appropriate for your personal needs. You don’t have to waste time on inappropriate or unnecessary information.

You start your education based on what’s most important to you now and end where you want so you get only the information that’s right for you.

In Summary

Always remember that information from investment product sales people and the media should be taken with a grain of salt and a pound of caution.

Never invest based solely on their financial advice without completing your own due diligence and forming your own opinion based solely on the facts provided to you.

Ask first if the financial advice you receive can pass these twelve questions. Otherwise, don’t put your money at risk:

  1. Is the advisor already successfully doing exactly what he is advising you to do?
  2. Is the advisor still “walking the talk”, or is he just “marketing the talk?”
  3. Will the advisor provide documented proof that his advice works?
  4. What’s the advisor’s background, education, training, skills, and experience?
  5. Has the advice been tested and proven successful through multiple market cycles?
  6. Does the advice provide a balanced viewpoint with both positive and negative attributes, or is it a one-sided sales job?
  7. Does the advice over-simplify the inherently complex nature of investing in an effort to make the sale?
  8. Is the advice based strictly on facts or does it include meaningless opinions?
  9. Is the advice a complete investment process, or a half-truth?
  10. Does the advice focus primarily on risk management and capital preservation?
  11. How is the advisor compensated? What are his conflicts of interest?
  12. Is the advice personalized to your needs, or is it generic?

Learn how to manage all the confusion surrounding the conflicting and contradictory financial advice so you can make well-educated decisions that are appropriate for your unique path to wealth and independence.

When you know how to sort good financial advice from bad then you can make smarter, more profitable investment decisions. I hope this due diligence checklist helps.

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Warning: How Wall Street Takes Your Money – Legally! Thu, 03 Aug 2017 03:54:13 +0000 Reveals The Dirty Little Secrets That Wall Street Doesn’t Want You To Know

Key Ideas

  1. The deceptive Wall Street scam practices you must watch out for.
  2. How transactions costs could be far higher than you realized.
  3. How to solve Wall Street’s methodically planned, legal deception.

Let’s begin with a story…

In the early 1990s, I managed a portfolio for a successful hedge-fund.

We operated multiple investment systems, each with a unique risk profile. One of those systems was a long-short equity portfolio.

We hired a reputable, big-name, institutional brokerage firm to transact the trades for our account. We agreed on a commission rate to fairly compensate their services.

Unfortunately, fair compensation wasn’t enough. They wanted more.

“Fraud is the ready minister of injustice.”– Edmund Burke

How Wall Street Legally Deceived Me

The first symptom that something was wrong was when I noticed inconsistent trade execution. I tracked the market for each stock when I called in my orders (yes, we used the phone back then), and noticed most trades were well-executed.

However, an occasional trade would come back significantly out of line with market pricing at the time of the transaction. The difference was always in the expensive direction.

I questioned the broker on these trades but he couldn’t find a problem … yet the problem persisted.

To make a long story short, I did some research and determined that each of the poor executions were NASDAQ listed stocks, which this particular brokerage firm made a market in.

Apparently, the law allowed that firm to add a “markup” beyond the ordinary bid-ask spread to securities they made a market in – without disclosing it to me.

In other words, not only were they collecting the agreed upon commission on these transactions, but they were also charging an additional markup beyond normal bid-ask spreads that was diametrically opposed to the intent of our agreement.

When you’re doing millions of dollars in trades, this can take a lot of money and move it from your pocket to your brokerage firms’.

The broker feverishly denied any such allegations (he lied) until I offered the account to a competing broker in the same office if he could prove my concerns.

Believe it or not, this broker provided internal documents proving his co-worker’s misdeeds in an effort to steal the account (scumbag). I fired them all and moved the account to a competitor. There’s no honor among thieves.

The purpose of this story is to show that even knowledgeable investors can be ripped off when Wall Street is legally allowed to hide the truth.

The brokerage firm did nothing illegal and there was no basis for a lawsuit; yet, the broker knew his actions were out of integrity because he went to great lengths to hide the truth. He took money he wasn’t supposed to take and that isn’t okay.

“It turns out that an eerie type of chaos can lurk just behind the façade of order – and yet, deep inside the chaos lurks an even eerier type of order.”– Douglas Hostadter

How can both realities coexist – clear wrongdoing, yet nothing illegal?

How does Wall Street covertly take money out of your pocket without committing investment fraud, and what can you do to protect yourself?

That’s the purpose of this article.

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How Wall Street Takes Your Money Legally image

The Antidote To Investment Fraud – Full Disclosure

I believe it should be illegal for any broker, financial advisor, fiduciary, brokerage firm, salesperson, or anyone else having contact with a client’s money to receive any compensation or distribute any payment related to that account that isn’t clearly disclosed upfront and direct in the form of a financial statement.

Written disclosures in contracts aren’t adequate because few people read or understand them, and not having any disclosure is completely unacceptable. You must show the client the money – that’s the key point.

In the previous example, it should have been illegal for my broker to receive compensation on the dealer markups without my receiving the same information on my financial statements.

It shouldn’t be legal for them to hide that flow of funds from me. I never would have uncovered the fraud had I not been tracking each transaction closely and gone to extraordinary lengths to gain access to internal brokerage documents.

Few people have the time and energy for due diligence like this. When you place an order to purchase a security, you trust that it will be executed at fair market price.

Allowing additional transaction costs to get netted into the price shown on the transaction statement so it’s hidden from your view is unfair.

Why should you care? Transaction costs are a critical component of many investment strategies.

Knowing your true transaction costs can make or break some investment strategies. It’s essential information to the investment decision.

“For a manipulation to be effective, evidence of its presence should be nonexistent.”– Herbert Schiller

It’s not fair for a broker to agree to one level of commission and pocket additional compensation behind-the-scenes that the client hasn’t agreed to.

The money is flowing from your pocket to theirs and you don’t even know it. You can’t see it! That’s an intentionally deceptive practice.

Only when the client sees the money does he have the information necessary to understand what financial incentives are affecting his investment account.

In theory, regulations exist to protect you from deceit like the above example, but Wall Street lawyers are clever.

They’ve figured out how to satisfy the regulators in legalese-filled documents that few read and even fewer understand while simultaneously hiding the money trail that tells the real truth.

They’ve supplanted straightforward financial disclosure with impenetrable legalese disclosure.

I support the written language disclosures currently in use because they’re necessary and valuable. Unfortunately, they’re also inadequate.


Full disclosure should require reporting statements that show all payments and money flows associated with a client’s account. No hidden charges, no behind-the-scenes kickbacks, and nothing covert is acceptable.

The reason the money trail is an essential disclosure is because dollars and cents are intuitively clear to the average investor where legalese is not.

There is absolutely no justifiable reason for not disclosing this information. All the money is fully accounted for internally by the brokerage firm. Why shouldn’t the client see it? What are they hiding?

This one solution would unravel many of the legal yet deceptive practices that influence investment product sales. It’s a disclosure practice whose time has come.

What’s The True Cost Of Your Mutual Fund?

Mutual funds report their returns on a net basis. The NAV, or “net asset value,” represents the market value of your shares and is net of all fees, management costs, and expenses associated with your investment.

The price you see is the NAV, but what happens to all the fees and expenses you’re paying? Where do they get disclosed?

The answer is they are buried in the prospectus – that legal document almost nobody reads, but everyone should.

What you see in your account statements (the documents most investors read) are net numbers that never mention all the expenses and fees you’re paying.

NAV pricing gives the intuitively misleading impression that there’s no cost to owning your mutual funds since you never directly pay it or cut a check.

You may know those fees and expenses exist somewhere in the financial ether, but I’ve never spoken to an investor who can tell me how much they paid for the services of their mutual funds.

The fact is mutual fund expenses and fees vary widely. It’s critical information to your investment decision. To be fair, all this information is clearly disclosed in the prospectus.

Additionally, a significant advantage of net pricing is the ability for investors to compare a wide variety of fund performances without adjusting for varying expense and fee ratios.

In other words, net pricing isn’t necessarily a bad thing. There are advantages that make the practice worthwhile.

However, they should balance the practice with proper disclosure in dollars and cents in your account statements showing exactly how much you paid out in fees and expenses.

When they show you the money, there’s no confusion. Additionally, the information is readily available, so why hide it?

For example, imagine a hypothetical fund that pays 1.25% in management fees, .25% in 12B-1 fees, and .50% in expenses.

If you saw a return of 10% last year, you may be surprised to learn you actually made 12% with this fund. The rest got siphoned off behind-the-scenes in fees and expenses. You just never saw it.

“Observance of customs and laws can very easily be a cloak for a lie so subtle that our fellow human beings are unable to detect it.”– Carl G. Jung

However, if you received an account statement showing $2,000 coming out of your $100,000 investment, there would be no confusion about the cost of owning that fund.

You might start wondering if their services are really worth $2,000 each year, which is exactly the kind of thinking process they don’t want you to have.

Similarly, if you notice better performing funds in your portfolio that were siphoning off much lower fees and expenses, that would be valuable information that might affect your investment decisions – information that’s hidden from your view right now.

Staying with mutual funds, let’s look more closely at the 12B-1 fees many mutual funds pay to financial representatives as a “marketing fee”.

This fee provides an annual trailer of revenue to the advisor for parking a client’s money with that fund company.

It’s an incentive for the advisor to discourage that client from changing investments to generate another commission. It helps the broker keep “Keds on his kids” without having to make transactions.

“There is a wide difference between speaking to deceive, and being silent to be impenetrable.”– Voltaire

Again, these fees are fully disclosed in the legalese of your fund’s prospectus, so there’s nothing illegal about them.

The problem is not one investor in 10,000 can figure out how much a 12B-1 fee costs them in terms of decreased fund performance due to greater expenses, and very few even know what a 12B-1 fee is or what rate they’re paying.

Yet, if the client’s financial statements showed the payment from the fund company to the broker, virtually every client would understand exactly what a 12B-1 was and how much it costs them.

Why make it so elusive? What are they trying to hide?

This data is essential for the client to know. You need to see all funds flowing out of your account so that you have the information required to make a fully informed investment decision.

If the broker is paid based on money in the client’s account, then the client should see what gets paid. Anything less is unacceptable.

Unfortunately, I’ve never heard of those payments being overtly disclosed. Instead, they’re buried in never-read legal documents and paid covertly behind the scenes.

What are they trying to hide?

Please don’t misunderstand my point here. I have no heartache over mutual funds and my attack isn’t pointed at them. I see great value in certain types of mutual funds and utilize their services in my own portfolio.

I’m merely using them as an example of a system-wide problem of inadequate financial disclosure that negatively affects investor’s decision abilities. You must show people the money. Anything less is inadequate.

Telling someone about expenses and fees in a disclosure document is one thing, but showing them the money on their account statement so that it’s personal is something else entirely.

Disclosure documents are sterile and detached; dollars and cents in a client’s account are personal and real.

I coach clients through the process of building their own portfolios, so I’ve seen how their investment decision process is affected when they learn about all the hidden fees and covert payments on Wall Street.

It’s essential information to making well-educated investment decisions, yet it’s hidden from most investors.

Why would any company hide these details if there was nothing wrong with what they were doing?

Think about that for a minute…

Brokerage Firms Deceptions Revealed

Just so you don’t think I’m picking on mutual funds, let’s broaden the discussion about hidden fees to include brokerage firms.

Again, the problem is system-wide and isn’t isolated to any one group.

For example, did you know that investment brokers often receive graduated commission structures to motivate the sale of certain investment products over other products?

The full intention of this practice is to induce the pedaling of the more profitable goods even if they aren’t the best deal for your portfolio.

Would you want to know that your broker is getting an extra incentive to talk you into a specific investment? Of course you would.

Does that ever get disclosed to you, the client, when you’re getting pitched on the next great investment? Of course not, because it would ruin the sales pitch.

Graduated commission payments can bias the investment advice you receive. It’s valuable information that should be disclosed at the point of sale and should appear in the transaction confirmation.

But have you ever heard one example of this disclosure being made, despite the deception occurring uncounted times daily? Never.

It’s not enough to just speak the truth. It must be the whole truth and nothing but the truth. What you don’t disclose is just as important as what you do disclose.

Burying written disclosures in impenetrable documents while hiding the money trail shouldn’t be allowed.

I’m not picking on brokers any more than I’m picking on mutual funds. The problem is system-wide. It’s part of the way Wall Street does business, and it needs to change.

For example, did you know that many brokerage firms sell your trades to the highest bidder? They can shop your trade executions based on what’s most profitable to them… instead of you.

The way it works is when you enter an order to buy 100 shares of XYZ stock, there are three components to your total transaction cost:

  1. Commission: This is the one cost most people understand. It’s the most apparent component and is fully disclosed, but it’s usually the least significant component of your total transaction cost.
  2. Bid-Ask Spread: Every market has a buy and sell price – the bid and the ask. The difference between these two prices represents profit for the market makers and dealers transacting in that stock. When buying stock, you pay the premium half of the spread, and selling stock earns you the discounted half. The spread can be quite expensive in illiquid stocks, but declines as liquidity increases.
  3. Slippage: This represents the difference in price between when your order was entered and when it gets executed. For example, in fast moving markets, prices can move quite far between the time your order gets entered and the time it’s executed.

“What is the difference between unethical and ethical advertising? Unethical advertising uses falsehoods to deceive the public; ethical advertising uses truth to deceive the public.”– Vilhjalmur Stefanss

The combination of these three components represents your total transaction cost, yet most investors only pay attention to their commissions.

That’s the number they see disclosed on their financial statements. The other two components get buried in the price you pay (or receive) for the security.

That’s why many brokerage firms pad their pockets by selling your orders off to the highest bidder. It doesn’t show up on your statements. You aren’t any wiser because the money trail isn’t disclosed, and they get richer.

It’s a classic conflict of interest because your profits require best execution, but their profits require highest bidder for the order.

Given the fact that your brokerage firm controls your order flow, who do you think is going to win in this conflict of interest? The net effect is paying the lowest commissions may cost you a fortune because it may result in the highest total cost transaction.

That means you must look at total transactions costs – not just commissions.

But don’t take my word for it. According to Michigan Senator Carl Levin, “Payment for order flow is a good deal for the broker, but too often a bad deal for their clients. The SEC needs to get after this problem quickly and aggressively.”

Similarly, an SEC investigation found certain unnamed brokers “improperly emphasized payment for order flow in deciding where to send orders.”

In other words, your order was executed based on what was most profitable to the brokerage firm instead of what was most profitable to you.

That isn’t right. It should be illegal. It’s a clear break of fiduciary responsibility.


But it doesn’t stop at order flow because the investment advice you receive to place these orders is biased by clandestine financial incentives.

Merrill Lynch settled with the New York Attorney General for $100 million on allegations of recommending stocks to their brokerage clients in an attempt to garner favor in their investment banking business.

Other large-name brokerage firms have been investigated for similar allegations by the SEC.

Again, this problem is widespread on Wall Street. It’s the deceptive way business is done. According to a New York Times article, “When Hidden Fees Erode 401(k)s”, some fund companies rebated part of the administrative fees paid by employees as part of their 401(k) back to the employers or outside plan administrators who hired them.

Doesn’t that sound like a hidden conflict of interest you would want to know about? Since when should you be paying your employer out of your retirement plan assets?

And if you think these kickbacks don’t really matter, think again. According to the same article, a hypothetical 401(k) where you invest $5,000 per year for 30 years with a 10% annual return would grow to $863,594.

A mere .25% kickback will reduce that amount by $40,883. That’s nearly 5% of the compounded value of the account.

Fees matter… a lot! That’s why Wall Street aggressively charges them.

If fees were 1% (like on many smaller 401(k) plans) the reduction in account value would be $151,387. Ouch!

In short, not showing you the hidden financial incentives and behind the scenes payoffs is a widespread, very expensive problem.

What Can You Do To Solve The Problem?

The solution is simple: Wall Street needs to show all payments and flows of funds having any relation to a client’s account directly on the account statements in dollars and cents.

Net pricing and hidden payments must end, and all financial incentives that bias investment advice must be disclosed at the point of sale. Show me the money flow.

My opinion is Wall Street doesn’t disclose the money flows, biased advice, and graduated commissions for one simple reason: they don’t want you to know. They have something to hide.

Look at your own life – when you hide facts, isn’t it because you’re doing something wrong? Is Wall Street any different? This isn’t some grand conspiracy theory, but is simply common sense.

“Nothing is easier than self-deceit. For what each man wishes, that he also believes to be true.”– Demosthenes

Some might claim I’m too pessimistic about Wall Street; however, I see my skeptical stance as merely balanced.

I love the investment business, but I hate the way this industry hides its financial conflicts of interest.

If something walks like a duck, quacks like a duck, and looks like a duck, then it’s probably a duck. There’s no value in deceiving ourselves.

If a used car dealer recommended a specific car, would you trust him and blindly buy the car? No, you would get it checked out because you implicitly understand his financial incentive biases his advice.

Unfortunately, the financial incentives biasing the investment advice you receive aren’t as obvious because they’re hidden from view. That’s what must be fixed.

Investment companies are no different from car companies. Everybody has something to sell, including you and I.

Peddling used stocks and bonds is no different from peddling used cars … except people trust used stock salesman because the conflicts of interest are better hidden. This allows the veil of fiduciary responsibility to persist in the mind of the customer.

My goal is to lift the veil of fiduciary responsibility from your investment decision. You’re responsible for your investment decisions because nobody cares more about your money than their own. Believing otherwise can be expensive.

False belief in the fiduciary myth gives an unfair advantage to Wall Street. The truth is Wall Street isn’t working for your best interests.

They’re working for their own. They peddle investments to make a buck – that’s their business and there’s nothing wrong with it.

Wall Street takes your money legally - where there's a sea, there are pirates image

What is wrong is how they’re allowed to get away with an extraordinary number of deceptions in order to maintain the veil of trust, giving them an advantage over you.

When you trust, then you don’t watch carefully, and that can cost you money. As this article has shown, you need to watch your investments very carefully. You shouldn’t trust.

I tell you this information not to scare you away from investing because that won’t do you any good. Nobody ever grew wealth or preserved wealth by avoiding investing.

Wall Street may not be perfect, but it’s the only game in town for paper assets.

You have no choice except to work with what you’ve got – warts, blemishes, and all. The empowering choice you can make is to invest with both eyes wide open so the ethical shortcomings don’t cost you money.

Stop trusting and start asking hard questions. Knowledge is power.

Finally, I don’t want to give the wrong impression that Wall Street is filled with pirates. Many good people are doing their level best to provide the greatest service possible in this conflict-ridden industry.

I have friends and family members in the investment advice business who are honorable and ethical.

This isn’t an attack on all the good people in this industry, but it’s an attack on the industry-wide disclosure system that’s hiding the truth from individual investors.

My job as an educator is to help you become a more informed, educated investor.

Approaching all investment advice with a skeptical eye and carefully uncovering all the hidden costs built into your investments is part of making smart investment decisions.

I know this isn’t a fun topic, but reality is what it is whether we like it or not.

The bottom line is Wall Street has something to hide, and they prove it every day by hiding it from you and I. When they stop hiding, maybe I’ll start trusting.

In the meantime, forewarned is forearmed. Knowledge is power.

Use this knowledge to make better, more informed investment decisions so you put more money in your pocket… and less in Wall Street’s pocket.

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Due Diligence Checklist To Prevent Investment Fraud Thu, 03 Aug 2017 02:24:30 +0000 Reveals The Crucial Questions To Help Prevent Investment Fraud And Send The Con Artist Ducking For Cover

Key Ideas

  1. Why you need to operate under the assumption that fraud is always a possibility.
  2. 4 key questions to ask a potential con man to assess the risk of an investment.
  3. 15 due diligence checklist questions to help you weed out investments that are too good to be true.

Investigators and prosecutors can’t protect you from investment fraud.

Even with secured, regulated investments, you should always assume fraud is a possibility.

The front-line of defense against investment fraud is an educated and skeptical consumer. You must protect yourself. That’s why due diligence is necessary.

The reason investment fraud succeeds is because people are lured into emotional decisions by con artists without first completing their due diligence.

Due diligence is what forces you to look behind the façade, uncover the facts, and make a well-reasoned decision.

Unfortunately, due diligence also takes time and effort, and the sad reality is most people spend more time planning their vacation than they spend on investigating their investments.

“Let the fear of danger be a spur to prevent it; he that fears not, gives advantage to the danger.”– Francis Quarles

Con artists are different. They do their homework first. They learn persuasion techniques designed to convince you to buy on faith without investigating.

They study the characteristics of affinity groups to create a sense of trust and common bond. They have well-rehearsed answers to common questions.

In short, they’re professionals out to get you.

If it’s worthwhile for the con artist to spend so much time and energy preparing a strategy to scam you out of your money, wouldn’t it make sense for you to spend a little effort to prevent his success?

Below is a step-by-step due diligence process to help protect your portfolio from investment fraud.

Each step in the process becomes increasingly difficult for the investment to pass and increasingly more cumbersome for you to apply.

For that reason, start at the beginning, because few investment frauds can pass even the most basic tests.

This will keep things simple and only require you to implement the more detailed due diligence questions on rare occasions.

Get This Article Sent to Your Inbox as a PDF…


Due Diligence Checklist to Prevent Investment Fraud image

Investment Fraud Prevention – The Business Common Sense Test

The first thing to notice about investment fraud is it’s usually promoted by promising a high return on your investment.

Easy money, get-rich-quick returns are almost universally appealing to less experienced investors.

It’s a powerful sales tool. But do returns in excess of market rates pass the business common sense test – our first test for investment fraud?

The reality is investing is nothing more than the application of capital to business.

As a result, your return on capital must be consistent with the laws of a competitive business environment. The high returns must make business sense.

“Nature never deceives us; it’s we who deceive ourselves.” – Jean-Jacques Rousseau

Above market returns only make business sense if a competitive advantage exists that you can exploit, but other potential competitors can’t.

The reason is because excess return on capital (above market rates) will always attract sufficient new capital to lower those returns back in line with the expected risk.

It’s called competition, and the only time it doesn’t hold true is when artificial barriers limit capital inflows, or a proprietary investment edge exists that can’t be exploited by competitors.

Below are two questions to help you apply the business common sense test for any investment:

(1) How exactly does this investment strategy create above market returns? What is the competitive advantage?

Ask yourself if the answer you’re given is complete, thorough, and makes business sense. Is the answer glib, laced with jargon and techno-babble, or is it simple and straightforward?

Do you understand the competitive advantage well enough to explain exactly how it works to someone else? If you can’t explain it, then you don’t understand it.

(2) What are the barriers that will lock out competitors so that additional capital and supply doesn’t force returns down to market level?

There must be a legitimate business reason that returns will remain excessive. Again, does the answer pass the common sense test or does the explanation sound like something from the Top 26 Warning Signs of Investment Fraud? Can you explain the reason why to a friend in every day language?

Fully exploring these two questions should help prevent investment fraud right from the beginning. In order for an investment to pay you above market rates of return it must have a competitive advantage and barriers to competition.

If it doesn’t, then it can’t pass the business common sense test for legitimately offering above market rates of return.

How The Sales Person Reacts To Your Due Diligence Questions Is An Important Clue

As you begin asking due diligence questions, it’s important to notice the quality and tone of the sales person’s response. This can provide you with vital clues to the quality of the investment he’s peddling.

Serious questions are a symptom of a serious buyer, and honest salespeople know it, welcome it, and respect it. They have nothing to hide and they’ll attempt to simplify their answers so you can understand the investment and make an informed decision.

Buying investments should be a professional, businesslike experience – not warm and fuzzy like a trusted friend, nor too cold and abrasive like a distant competitor – but just right, like a professional you respect.

“Never value the valueless. The trick is to know how to recognize it.”– Sidney Madwed

Watch out for the “Friendly Fred” fraud sales tactic where you feel too guilty to ask pointed questions because he’s such a nice guy. After all, how could you not trust such a charming person?

Alternatively, the salesperson might become cold and use intimidation tactics to make you feel stupid and derail you from getting the answers you deserve.

Excessively warm and cold sales tactics are designed to bring emotion into the sales decision and derail common sense. That’s a key point.

Another tactic sometimes used by investment fraud promoters is to respond to your questions with techno-babble terminology so you become too confused or intimidated to ask more questions.

They might claim the investment is too technical to understand or get irritated with your questions. The purpose is to keep you from looking behind the façade and finding the truth.

What you want is a professional sales environment where a rational, fully informed decision can be made. You want to ask your questions and get straightforward answers.

Never allow trust, friendship, or emotion to get in the way of that task. It’s your money, and investing is serious business.

When you don’t understand an investment, it doesn’t mean you’re dumb, it simply means the investment doesn’t make sense.

If they make you feel dumb, then go ahead and be dumb and get your questions answered anyway. Be like “Columbo” from the TV series and be dumb like a fox.

“Blinding ignorance does mislead us. O! Wretched mortals, open your eyes!”– Leonardo Da Vinci

Never be intimidated or allow the con man to sidetrack you with flippant answers that lack substance. Con artists are second only to politicians in evasion and double-speak.

Don’t allow their manipulative tactics to derail you from getting behind their façade. Never settle for anything less than a complete and detailed understanding that allows you to make a fully informed investment decision. Drill them on the details until you get the answers you deserve.

It’s your money. You’re taking the risk. You deserve to know what you’re getting involved in. Accept nothing less.

Investment Fraud Protection: How Can I Lose Money?

If the proposed investment passes the business common sense test and your sales person is providing reasonable answers to your questions, then the next step in due diligence is to understand all the ways you can lose money with the investment.

Why? Because you can’t understand an investment until you know the risks. Investment fraud is often sold on the basis of high returns with little or no risk, but this sales appeal is pure nonsense.

“Approach each new problem not with a view of finding what you hope will be there, but to get the truth, the realities that must be grappled with. You may not like what you find. In that case you are entitled to try to change it. But don’t deceive yourself as to what you do find to be the facts of the situation.”– Bernard M. Baruch

Every investment includes risk of loss and anyone who tells you otherwise is either a liar or self-deceived. There’s no such thing as a perfect investment.

The investment business is a constant battle between risk and reward. You can’t have one without the other.

I’ve detected investment fraud in hedge funds just by noting track records that were too good to be true. Later discoveries by regulatory authorities verified my suspicions.

I’ve researched thousands of investment strategies and never found an exception to the rule that every investment has risk, either in terms of purchasing power loss, opportunity cost, or outright capital loss. There are no exceptions. All investments have risk.

To discover the risk of loss, ask the promoter the following questions, and don’t be surprised if you have to press hard to get thorough answers:

  1. What are all the conditions under which this investment will lose money?
  2. What’s the worst market environment for this investment strategy?
  3. What assumptions or correlations must remain valid for profits to continue?
  4. What crazy, impossible to imagine situations would result in losses if they actually occurred, no matter how remote the possibility of their occurrence?

Until you uncover the risk inherent in the investment strategy, then you don’t understand the deal. If the risk doesn’t appear, then the investment probably isn’t legitimate or you don’t understand it well enough.

Additionally, be wary of guarantees. The more an investment is touted with a guarantee, the more I want to know what I am being guaranteed against.

Guarantees are frequently marketing tactics designed to make you accept claims at face value, invoke trust, and make your decision easy so you don’t look deeper into the issues. Don’t fall for it. There’s no free lunch in the investing game.


Because investment fraud is often sold as low or no risk, one of the primary tasks in due diligence is to uncover all the ways you can lose money on the deal. You must know the risk because your objective as an investor is to balance risk with reward.

The only way to do this is by fully understanding the risk before ever committing a dime.

Investment Fraud Prevention: Selling To Individual Investors

As a former money manager, I can tell you that selling to many small investors is the most difficult way to gather capital.

If you’re an individual investor being sold on the next great investment, then ask the promoter why he’s trying to attract capital from “the little guy” rather than large institutions.

Underlying this question is the logic that it doesn’t make business sense for a legitimately great investment organization to bother with all the marketing costs and headaches of many small investors.

They can attract all the capital needed (with a lot less hassle) by doing business with institutional investors.

“Integrity is the recognition of the fact that you cannot fake your consciousness, just as honesty is the recognition of the fact that you cannot fake existence.”– Ayn Rand

This may not sound nice, but it’s the business reality of money management and investing. Great investments will be marketed to large investors because it’s the most cost efficient way to raise capital. The little guy is left with the retail level stuff.

The primary reason investment fraud is marketed to individual investors instead of institutions is because individual investors rarely do their due diligence, and institutions nearly always do their due diligence. That makes small investors easier prey.

For that reason, be extra careful when non-traditional investments are marketed to individual, non-accredited investors in denominations under $100,000.

It’s another warning sign that should prompt you into even more detailed due diligence as shown below.

Due Diligence Checklist for the Promoter

If an investment made it this far in the due diligence process, then it probably merits investigating the background of the promoter as follows:

  1. Verify that the person and company offering the investment are registered with your state’s securities regulator. You can contact the North American Securities Administrators Association ( / 202-737-0900) for your local securities regulator’s contact information. Request a copy of the offering from the regulator and determine if there are any complaints or actions recorded.
  2. Contact FINRA (the Financial Industry Regulatory Authority: /301-590-6500) and the Securities and Exchange Commission ( / 800-732-0330) to determine if the company and promoter are registered. Request a copy of their offering and check for complaints and actions filed.
  3. Determine the state in which the company is incorporated and use the National Association of Secretaries of State to find the contact information for the appropriate Secretary of State. Some state’s information may be limited to officers and directors lists, and other states may offer more complete information such as annual financial statement filings or business plans.
  4. Check with the Better Business Bureau and state attorney general to see if there are any complaints filed against the company.
  5. Verify all claims of patents, trademarks, and large contracts. Large contract claims can be verified with the counter-party and intellectual property claims can be verified whether completed or pending at the U.S. Patent and Trademark Office.
  6. Search Google by trying keywords such as the company name, promoter name, investment name, and anything else you can think of. What’s the buzz? Your goal is to find negative or contrary postings that might refute the promoter’s claims or make you aware of previously unforeseen problems.
  7. What are the track records, backgrounds, and histories of the person and company soliciting the investment?

Due diligence checklist - know what to believe and what to be skeptical of image

  1. How long has the company been in business?
  2. Verify the company offices and address by physically inspecting for existence. Prestigious addresses can turn out to be little more than a mail drop location.
  3. What background information can you obtain about the officers, directors, and other key personnel for the investment?
  4. Review recent financial statements for the company. Have they been independently audited by a reputable accounting firm, or are the statements self-prepared?
  5. Can you obtain a contact list of other investors for further due diligence? Be wary of handpicked reference lists. Determine the credibility of the references by discussing their background, knowledge, and level of due diligence. Just because they’re happy investors doesn’t mean the investment is legitimate. They could be self-deceived.
  6. Are there any current or pending lawsuits or bankruptcies against the company or any of its officers or directors?
  7. Determine exactly how the promoter will be compensated by the company if you purchase the investment. How does this compensation compare to competing investments? Above market sales compensation is a symptom of potential fraud.
  8. Your local library can provide many other resources for researching companies and investments. For example, you can learn about the company, credit reports, lawsuits, judgments, liens and much more. Resources vary widely depending on your library so check with your local librarian.

Due Diligence Checklist for the Investment

Very few fraudulent investments should make it this far in the due diligence process. Most should be weeded out by now. However, here are a few more actions to add to your checklist to flush out the remaining few bad apples.

  1. Verify that the investment offering is registered with your state securities regulator and/or the Securities and Exchange Commission. Depending on capital and shareholder requirements, it may be exempt from SEC registration, but should still be required to register with the state. Get a copy of the offering document and read it.
  2. Beware if the only written material you receive is a glossy brochure. Demand a prospectus and/or other legal disclosure documents as required by law.
  3. Make sure you’ll receive regular written reports updating the investment. Review past issues of investor reporting for completeness, accuracy, and disclosure.
  4. Determine how the funds solicited for investment will be used. Will the funds be segregated from other accounts available to the business?
  5. What’s the basis for the purchase price of the investment? Does it represent fair value?
  6. What does it cost to own this investment? Are there any annual fees, holding charges, custodial fees, or hidden charges? Let the promoter know you want a complete disclosure of every last penny required to own this investment.
  7. What is the liquidity of the investment? Can you sell it whenever you want to? Is there a ready market of buyers? What are the expected transaction costs when selling? What are the restrictions to selling?
  8. If you’re not confident or lack experience in a particular investment, then consider consulting with a third party such as your attorney, accountant, or registered investment advisor for a second opinion before investing.
  9. Maintain a file with all correspondence and notes from conversations. Print a hard copy of all online solicitations noting the URL, time, and date. Get all claims, guarantees, and terms of the deal in writing. If it’s not in writing, then it’s not real.

Due Diligence Checklist Summary

The con artist’s biggest fear is an informed investor. He doesn’t want you to ask detailed questions; therefore, asking questions is exactly what you should do. Be a cautious and skeptical investor by investigating before you put money at risk.

If all of this sounds overwhelming, don’t despair. Rarely will you have to complete the entire due diligence checklist to flush out an investment fraud. Most frauds won’t make it past the first couple of tests.

However, if you’re suspicious, then this checklist will help you find the information the con artist doesn’t want you to uncover.

“We are never deceived; we deceive ourselves.”– Johann Wolfgang von Goethe

When asking your questions, never allow a salesperson to rush you into a decision. Don’t be influenced by the charisma, kindness, or enthusiasm of the salesperson.

Additionally, don’t take everything you read and hear at face value. The wise investor goes slow enough to ask their questions, reflects on the answers, and gets written confirmation of verbal statements. Don’t be afraid to sleep on your decision for added perspective.

Remember, an ounce of prevention is worth a pound of cure. Due diligence may be a pain in the neck, but it’s also necessary. It’s simply a part of investing. Accept it, or pay the price.

Remember, once a con man gets your money, it’s gone forever. The only solution is to do your homework upfront so the con man never gets the money in the first place.

This article may not be uplifting, but the unfortunate reality of investing is you must be skeptical because fraud does exist. People get cheated every day.

“You may be deceived if you trust too much, but you’ll live in torment of you don’t trust enough.”– Frank Crane

Likewise, there’s no value in paranoia because most regulated investments and dealers are honest.

It won’t serve you well to walk through life believing there’s a con man lurking around every corner ready to steal your money. However, you should be cautious and realize you’ll eventually turn the corner and stand face to face with a con man.

You must be prepared when that day occurs, and this due diligence checklist will provides the answers you need.

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The One Thing Stopping You From Creating Wealth (It’s Not What You Think!) Wed, 02 Aug 2017 23:30:14 +0000 Reveals The Easy-To-Understand But Hard-To-Live Idea That Keeps You From Creating Wealth

Key Ideas

  1. Discover the biggest obstacle most people face to achieve financial independence.
  2. How to know if you’re more driven by lifestyle than freedom, and why you should care.
  3. The 3 paths you’ll cross in pursuit of wealth, and which one you must follow to achieve freedom.

Most people want wealth, but few will do what’s necessary to create it.

Why do people want certain things, and never take action to achieve them?

What subconscious thought process causes a disconnect between desire and doing what’s necessary to fulfill the desire?

The reality is almost anyone regularly employed, from ditch-digger to doctor, can achieve financial freedom with relatively minimal effort.

Surprisingly, almost nobody will.

All you have to do is start living by specific, proven financial habits early enough with sufficient consistency. The result will be financial freedom with almost total certainty.

Anyone can do it, yet studies prove fewer than five percent actually reach the goal. It’s absolutely amazing.

Why do so few people succeed at creating wealth when so many desire it… and it’s not that hard to do? It makes no sense.

After all, financial freedom can have a powerfully positive impact on the quality of your life. You can live your dreams unencumbered by the shackles of financial constraints. You can eliminate money worries and stop spending so much of your lifetime working to earn it.

Instead, you can travel, play golf, relax, read, or do whatever you most enjoy. Wealth is a very alluring goal.

Yet, while most people dream of financial freedom, very few will turn those dreams into reality by taking the necessary action. Why?

This question has been one of the great mysteries of life for me. It ranks right up there with Black Holes, the Pyramids of Egypt, and “what is electricity”. (Frightening to know what financial coaches think about, isn’t it?)

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The one thing stopping you from creating wealth image

The Problem People Face When Creating Wealth … Solved

The mystery of why people don’t take action to fulfill their dreams was finally put into perspective when I read a statement from heart surgeon Christian Bernard.

This doctor claimed to have no sympathy for people who lacked the will power or commitment to stop smoking.

At first, this might seem like a heartless statement (pun intended), but you should pay close attention because his observation is very important.

What he observed is that he never had a heart transplant patient who couldn’t stop smoking on the spot once they faced surgery. This is a critical and very telling point!

Faced with a massive coronary, surgery, and possible death, people were suddenly able to give up smoking. However, if you tell them about the health benefits of not smoking, you get nothing.

Until the client looked death right in the eye, he would just keep the habit up knowing full well that it was slowly killing him.

Dr. Bernard’s insight on smokers teaches us several lessons about human behavior that explain why most people are so amazingly unsuccessful at creating wealth.

First Principle For Creating Wealth

The first lesson we can learn from Dr. Bernard is that people are generally more motivated to avoid pain than seek pleasure.

“What we pleasure, and rightly so is the absence of all pain.”– Cicero

In the smoking example, the patient would continue smoking because stopping was painful. However, smoking gave immediate pleasure.

The health impact wasn’t as compelling to the smoker as the transient pleasure of the next cigarette, and the immediate pain that would result from not smoking it.

Once the heart surgery became imminent, the health impact was undeniable, painful, and very much in the patient’s face.

At this point, the smoking ends because the dramatic pain of surgery and possible death greatly outweigh the lesser pain of quitting smoking, or the transient pleasure of another cigarette.

People smoke because it gives them pleasure and quitting is painful. They stop smoking only when forced by a more compelling pain: surgery or death. That’s very important to understand.

The exact same issue occurs in creating wealth.

I can lecture on the benefits of saving and investing until I’m blue in the face, and people still won’t do it.

It’s a pleasure goal in the future that requires you to endure minor pains and inconveniences right now to achieve.

“The same refinement which brings us new pleasures exposes us to new pains.”– Edward Bulwer-Lytton

To get someone motivated enough to overcome lethargy, take risk, and confront the fear of change necessary to create wealth, there would need to be an immediate and substantial pain greater than the alternative of doing nothing.

Unfortunately, not building wealth won’t cause you any pain – at least not today.

There’s no motivator like surgery to force you into action. Because of that, few people proactively take action.

Let’s face it, the consumer lifestyle (which is antithetical to creating wealth) isn’t that bad on a day-to-day basis. You pay your bills, drive an acceptable car, take a vacation, eat good food, and go out once in a while.

Your life is full and so is your tummy. Your pain threshold hasn’t been reached or you would do something to solve it.

The rule is simple: you’ll do what it takes to create wealth when the pain of your financial reality exceeds the price you’ll have to pay to do something about it.

You know you should save, invest, and learn about personal finance, but it’s nebulous, and the consequences of putting it off aren’t immediately painful.

Like the smoker who slowly but surely inhales himself to poor health, the typical consumer slowly but surely spends himself into financial emphysema.

The reason is because wealth and financial security has no immediate call-to-action until it’s too late. In fact, not building wealth today gives you more time and money for other activities (pleasure).

Where’s the pain to motivate you into action now? It doesn’t exist… until it’s too late. And that’s the problem.

Second Principle For Creating Wealth

The second lesson we can learn from smokers about human nature is we’re more interested in preserving our current comfort than maximizing our future comfort.

We prefer to have our transient pleasure now, even if it implies substantially negative long-term consequences in the future.

For example, every long-term smoker alive is aware of the significant, negative health consequences of their actions. Yet they go right on puffing away because the health consequences are in the future and unknown. The pleasure is present and known.

They’re more driven by present, known pleasure than future, unknown pleasure. This is a key point!

The same thing occurs when creating wealth. It requires you to make known, short-term sacrifices (pain) to reach an unknown, long-term goal.

This isn’t an easy sell, and it’s one of the major reasons why fewer than five percent ever retire with financial security.

Below is a sampling of comments I’ve heard reflecting this dilemma:

  • “Retirement is so far in the future that it’s like another lifetime. Why bother with all the hassle right now when there are so many other urgent issues competing for my limited time and money? I’ll get around to it someday. There’s plenty of time.”
  • “I’m afraid to take on investment risk because it could result in losses. I don’t like to bet my hard earned money on an uncertain outcome. Who knows what will happen? I worry about investing.”
  • “I don’t understand investing and don’t like all the math and numbers. Learning about it makes me uncomfortable.”
  • Living on less than I earn so I can save and invest the difference means sacrificing lifestyle today. I really want the new car, new outfit, or swimming pool now. Maybe I’ll begin investing next year.”
  • “Learning about investing and personal finance means spending time today for a future benefit tomorrow. I have other things that are bigger emergencies like work, phone calls, television, soccer practice, and making dinner.”

“The world is so constructed, that if you wish to enjoy its pleasures, you must also endure its pains. Whether you like it or not, you cannot have one without the other.”– Swami Brahnmananda

How many of these examples can you relate to? Each illustrates how proactively building your wealth requires you to regularly seek out and tolerate short-term pain and discomfort.

This creates resistance because we’re motivated to seek immediate pleasure now. Pain and discomfort demotivates us.

The reality is life will always provide you with alternatives to building wealth that bring more immediate pleasure.

Similarly, there will always be a more pressing emergency or fire to put out in the short-term than building wealth today.

Wealth is a long-term goal that will never appear important in the short-term – and that’s a problem.

If you want to succeed at creating wealth in your lifetime, then you need a different paradigm than most people typically live under.

You need to find immediate and deeply gratifying pleasure in the act of building wealth. You need to change your viewpoint from sacrifice to satisfaction if you ever want financial freedom.

But how do you do that?

Short-Term Thinking Kills Your Chances Of Creating Wealth

What gets people into trouble with smoking (and wealth building) is short-term thinking. You give greater priority to what’s most immediate rather than what’s most important.

That’s a critical point, so read it twice. Wealth is important, but it’s never urgent.

If you want to create wealth, you must prioritize your life in a different way. You can’t prioritize according to urgency or you’ll never succeed.

Imagine what would happen if you began prioritizing how you spend your time and money according to a long-term perspective.

It would turn every example in this article on its head and reverse the outcome.

In other words, short-term thinking is our automatic mode of operation. We deal with what’s immediate and compelling because it’s a survival mechanism hardwired in our DNA.

However, modern society has advanced to the point where this survival mechanism is more harmful than good. Your life could be greatly improved if you learned to balance short-term decisions with a long-term perspective.

If the smoker prioritized the long-term, she would never take another puff. The short-term pleasure from the nicotine would pale in comparison to the long-term health consequences of smoking.

Similarly, if you prioritized your long-term financial health, then your spending, saving, and investing patterns would completely change.

The short-term pleasure of the expensive new outfit or car would pale in comparison to the long-term pleasure of financial freedom.

“Lost wealth may be replaced by industry, lost knowledge by study, lost health by temperance or medicine, but lost time is gone forever.”– Samuel Smiles

The reality is most people make daily decisions based on daily concerns. If you want to create wealth, you need to make daily decisions based on long-term concerns.

This may sound like it requires super-human discipline, but that’s not my experience (or the experience of my coaching clients).

It’s really just a change of perspective that results in changed priorities. It’s easier than it sounds.

Your objective is to get into balance by emphasizing your most important, long-term goals in every daily decision you make.

You don’t need to worry about emphasizing short-term concerns because the outside world will automatically take care of that for you.

Your consumer desires will be well-nurtured by advertisers, and other relationships in your life will all demand their needs be met.

The short-term urgent stuff takes care of itself, so you must take care of the long-term.

Only you can prioritize what’s most important to you by balancing your long-term needs with all the urgent matters of the day. If you don’t do it, then nobody else will.

The unfortunate reality is your long-term goals will never happen unless you proactively make them happen.

The Illusion Of Short-Term Pain

The truth is saving, investing, and learning about personal finance is inconvenient.

It requires you to take time and money away from other activities that provide immediate gratification.

Most of us are busy, and the last thing we need is something more to do. This is a primary obstacle to creating wealth.

The problem is if you don’t overcome this obstacle, then you set yourself up for even greater pain in the long-term.

If your goal is to minimize the total pain in your life, then it’s much easier to confront mole hills of short-term inconvenience than it is to dig out of a mountain of long-term pain.

If you want to retire early and wealthy, you have to stop thinking short-term and start thinking long-term.

Satisfying every short-term need will crowd out the ability to satisfy long-term goals like wealth, health, and fulfillment. This is a critically important concept.

For example, you may prefer to read the latest bestselling novel instead of a book on investment strategy.

There’s nothing wrong with that unless that’s all you read for twenty years. After twenty years, most of the fun reading will be long forgotten, and the price you’ll pay for prioritizing entertainment over usefulness will be a lower financial intelligence.

The consequence of low financial intelligence is reduced investment performance, more mistakes, greater losses, and less wealth.

“There is no expedient to which a man will not go to avoid the labor of thinking.”– Thomas A. Edison

Similarly, you may desire a pint of gourmet ice cream more than a little exercise, and there’s nothing wrong with that in the short-term.

However, if you make it a regular habit, then there’ll be health consequences to pay over the long-term.

Additionally, there’s nothing wrong with driving a nice car and wearing fancy clothes that fill the closet of your expensive home.

However, after twenty years of prioritizing current lifestyle over wealth, the compound effect is staggering.

Your easy opportunity for creating wealth through long-term compound returns will be wasted, while all those coveted consumer items will be worn out and gone.

The point is that what appears to be the least painful solution in the short-term is usually the most painful alternative when viewed from the perspective of twenty or forty years.

This is a key point! There’s nothing wrong with giving yourself a treat occasionally; the goal here isn’t austerity.

The focus is creating long-term habits that take you toward what’s most important in your life.

Your regular habits are what matters because your health, wealth, and happiness are largely a result of your daily habits.

“Do something every day that you don’t want to do; this is the golden rule for acquiring the habit of doing your duty without pain.”– Mark Twain

If you want to solve the problem of short-term thinking, just begin habitually making your decisions from the perspective of twenty or forty years.


It will dramatically change your decision-making process, and it’s at least as valid as the alternative.

After all, what could be more painful than working all your life only to retire in poverty?

That’s the long-term consequence of poor financial habits.

Do you think it’s easier to deal with the relatively minor inconveniences of saving and investing now, so you can comfortably compound those assets into a secure retirement? Or would you prefer a little cushier life now at the expense of desperation and fear as you approach your golden years?

What seems more painful to you?

Long-Term Wealth Is The Least Painful Alternative

What’s it going to take to motivate you into action so that you can retire early and wealthy?

Are you going to be the financial equivalent of the cardiac patient who lives for transient, short-term pleasures, only to wake up at fifty or sixty years of age when the long-term consequences are undeniable?

Or are you the rare individual who can see the writing on the wall and proactively balance the long-term consequences with short-term realities by taking action now?

I emphatically encourage you (picture me pounding my fists on the table and screaming at the top of my lungs) not to procrastinate.

Financial freedom will not magically take care of itself no matter how much you trust in the future and believe in the abundance of life.

You must proactively create it. Period. Don’t live in denial.

I’ve been coaching clients on this transition from short-term to long-term thinking for years and the process follows a typical pattern:

  1. The first 90 days are difficult. You’re fighting all of your old habits and support systems that reinforce your old behavior. An initial period of self-discipline, accountability, and support is required to get you over the hump. (That’s what Step One and Step Two of Seven Steps To Seven Figures helps you with.)
  2. After the first 90 days, your new support systems and habits are in place and your commitment to the process is ingrained. It becomes much easier, but you’re still subject to potential backsliding.

What's stopping you from creating wealth? You need to develop the habits first. image

  1. After the first year, the rewards of your new behavior become self-evident and reinforce the validity of your new habits. Your bank account is growing and your knowledge about investing and finance is improving, which gives you positive feedback. More importantly, you begin to feel different. You feel stronger, happier, and more fulfilled as you begin living in congruence with what’s most important in your life. You’ve made the transition.
  2. The final stage is when you can look back on your old way of living with dismay. Just as a non-smoker has difficulty understanding why anyone would voluntarily pollute their system with toxins, the wealth builder can’t understand why anyone would voluntarily choose to set themselves up for long-term financial difficulty. It just doesn’t make sense when the alternative is so easy. Your new patterns are now part of you and the process of building wealth isn’t only enjoyable, but the rewards make it positively addictive.

Ultimately, the whole process of creating wealth changes over time. You transform your focus from the superficial and immediate to the deeper and longer-term.

Where you used to be in love with your actions, you instead learn to love the results of your actions.

In other words, people smoke because they love to smoke. The action of smoking gives them a warm-fuzzy. They don’t love the long-term effect of smoking.

“The victory of success is half won when one gains the habit of setting goals and achieving them. Even the most tedious chore will become endurable as you parade through each day convinced that every task, no matter how menial or boring, brings you closer to fulfilling your dreams.”– Og Mandino

Similarly, people don’t save because they love to not consume. Instead, they save because they love the long-term effect of financial freedom.

Their passion for the long-term effect over the immediate action is what allows them to build wealth. It’s all about what you focus your attention on.

You can either look at short-term actions or long-term effects. Neither is right or wrong, but the difference in results is transformational.

Once you’ve made the change, actions that used to feel inconvenient or painful such as saving, controlling spending, investing, and growing your financial intelligence now become enjoyable.

Your long-term context and the obvious benefits of your regular actions have transformed inconvenience into desire. You no longer require discipline because you’re merely doing what you want.


In the end, what you learn from the process is that pleasure, like beauty, is in the eye of the beholder. It all depends on your frame of reference.

The key is to choose a frame of reference that best serves you. Financial coaching and the Seven Steps To Seven Figures courses can help you make that change.

You Must Make One Of Three Choices

In summary, there are three paths you can choose from:

  1. No action. You do nothing now and you’ll do nothing later because what looked difficult now will become overwhelming later. You never prioritize wealth and financial security because you don’t take self-responsibility. The result is you rely on Social Security, family, charity, and local social services for your subsistence in retirement. You become dependent rather than independent.
  2. Long-term pain. You procrastinate on building wealth by prioritizing short-term needs until you reach your pain threshold in your later years. By then, the alternatives available to create wealth are limited because compounding your way to wealth requires time, which is now gone. Leverage and/or extreme austerity become the primary paths to reach your goal. You may still achieve financial security, but the actions required will be more drastic, the risk will be higher, and the outcome less certain.
  3. Short-term inconvenience for long-term freedom. You start building wealth today even though it’s a hassle at first. Over time, you notice fulfillment and satisfaction from honoring what’s important in your life. As your wealth grows, you find enjoyment in continuing the habits that are in alignment with your deeper values and commitments. You look forward to your future with confidence and security because you acted with self-responsibility by creating wealth and independence.

Every day in every way you’re making one of these choices whether you consciously know it or not. Every action and decision either moves you closer to wealth or farther away.

Choosing one of the life scenarios above isn’t optional. One of them is already your reality.

“Good habits result from resisting temptation.”– Ancient Proverb

When you live choices one and two, you’re violating the wealth creating principles discussed earlier. You’re more motivated by avoiding short-term pain than seeking long-term gain.

You’re also more motivated by transient, immediate pleasure than future, unknown pleasure. You haven’t equated how small daily actions cause long-term results.

You’re prioritizing what’s immediate over what is important. You need steps one and two of Seven Steps To Seven Figures.

If you aren’t sure which choice you’re heading toward right now, then just look at your financial results over the last three to five years. They’ll show you with absolute certainty which choice you’re currently living. Results never lie.

But your past is only history. It merely points the direction of your future by showing the results of your current habits.

You can choose to change those habits right now, thus creating a new future. You’re responsible. You can change.

“Men’s natures are alike; it is their habits that carry them far apart.”– Confucius

You don’t get lung cancer in one week and you don’t achieve wealth overnight. Cause and effect are linked by habits repeated over long periods of time.

You don’t have to do anything extraordinary to quit smoking or build wealth. You just have to do ordinary things consistently and habitually well.

It requires persistence over time and that’s why it’s hard to live even though it’s easy to understand. It defies the basic human desire for immediate gratification.

It’s why so few people achieve wealth even though it’s relatively easy to do. It requires discipline and a different way of thinking.

The choice is yours. You can choose daily habits that take you toward your long-term goals, or you can choose daily habits that provide transient gratification.

You can pursue long-term pleasure, or you can choose to avoid short-term pain.

Which is most important to you? What are you going to do about it?

The choice is yours.

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Preparing For Retirement – The 5 Essential Questions Fri, 14 Jul 2017 15:34:09 +0000 Knowing How To Ask The Right Questions Is Half The Battle When Preparing For Retirement

Key Ideas

  1. Why dreams and goals matter more than money when planning retirement.
  2. Six steps to knowing how much money you need to retire.
  3. Don’t make this critical mistake when planning for retirement.
  4. Five ways to boost your income and seven ways to slash expenses so you can afford your dream retirement.

Traditional retirement planning has it all backwards.

You know the drill…

You sit down with your broker or financial advisor and plan your retirement on the assumption that having enough money is all that matters.

Sure, it’s important, but it won’t create a fulfilling retirement. You need to start the process somewhere else.

What’s the most effective way to transition from career to retirement?

How do you make plans that are more significant than just money?

In this article, I’ll give you a five question process that takes you step-by-step from fulfillment through finances so that you not only learn how much money is enough to retire, but you also connect your retirement savings to a plan for a fulfilling and happy next stage of life.

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Preparing For Retirement – The 5 Essential Questions

How To Prepare For Retirement: What And Where?

There are tons of retirement planning books and courses, but very few focus on setting dreams and goals for retirement (the “what” and “where” questions). Instead, most of the information is about getting your finances in order (the “how much” question).

Yet, fulfilling your dreams and goals is what a healthy retirement is all about. It provides direction and connection, gives a sense of purpose, develops creativity, brings satisfaction, and builds a sense of fulfillment during retirement.

In other words, it’s critically important. After all, who cares how much money you have if you aren’t living the life of your dreams and excited to be alive each day?

“To accomplish great things, we must dream as well as act.”– Anatole France

Even though most books downplay the “what” and “where” issues as secondary, we bring them front and center stage when it comes to preparing for retirement because these two issues play a doubly critical role.

They not only determine how fulfilling your retirement will be, but they also influence (to a large extent) when you will retire and how much it will cost. In short, you can’t do serious retirement planning without first answering the “what” and “where” questions.

You’ve probably already taken baby steps with these questions by forming a vague vision for your retirement. Now it’s time to fill in the missing pieces by getting detailed.

Sure, you intend on reading more and playing more golf during retirement, but take it a cut deeper. What are you going to do with the 2,000 hours a year you used to spend working?

You can only read so many books and play so much golf. How are you going to create a life filled with meaning that extends beyond tomorrow’s tee time?

The important point is to be excited by what you’re heading toward – not what you’re leaving behind.

Yes, it’s good to be done with “workin’ for the man”, but that excitement is only going to last for a month or two before the reality of a retired lifestyle settles in.

If you don’t have something worth waking up for each morning, then you’re setting yourself up for disappointment – a disappointment that’s all too common for many new retirees.

Dreaming and planning for the next phase of your life can be exciting. It’s like turning the clock back on your golden years to early adulthood where the world was your oyster and the possibilities were limitless.

Recapture that youthful spirit of adventure because you’re freer now than you were back then. Your retirement is limited only by your creativity.

This is the time to rekindle forgotten dreams, long ignored values, and passions suffocated by career responsibilities.

Many people mistakenly envision their retirement as a winding down period, which is fine, if that’s your preference. But the likelihood is reasonably good that you’ll be spending 30 years or more winding down, which isn’t everyone’s cup of tea.

One alternative is to consider your retirement as the opening chapter in a whole new life adventure and see where that takes you.

Make a list of all the things you would like to do once you have more time:

  • What new contributions can you make?
  • What passions can you develop?
  • Where would you like to volunteer?
  • What new things would you like to learn about?
  • What new places would you like to see?
  • Where would you like to live?
  • What experiences would you like to have?

Now is the time to do these things, because if not now, then when? You’re not going to get many more chances.

“You see things; and you say, ‘why?’ But I dream things that never were, and I say, ‘Why not?'”– George Bernard Shaw

A key point during this brainstorming process is to refrain from editing your thoughts. Don’t mortally wound them with practicality before they take their first breath. Just dream and trust where it takes you.

You’ll have plenty of time later for the dream-stealers to re-organize and rationalize your dreams, so don’t make the mistake of editing your dreams with rationality now.

No harm ever came from letting ideas take life, so accept them as they flow out of your head without any judgment and write them all down – no matter how zany and impossible.

You don’t have to act on them, and you can always edit later.

After building your list of dreams, gather up your spouse and a favorite bottle of wine and share your dreams together.

One coaching client did this exercise and was shocked to learn that his visions of cross-country travel in a motor-home with a fly-fishing rod and backpack didn’t blend well with his wife’s dream to live in a downtown high-rise condominium near shopping and restaurants.

It’s better to negotiate these issues now rather than after you’ve emotionally and financially committed to a certain path.

Don’t be surprised if you find it hard to conjure up a new vision for your life after decades of career dominating your personal identity. I run into this obstacle frequently with my financial coaching clients, so don’t feel alone.

Go easy on yourself and work with the process. Even when you imagine new roles in life that sound satisfying, it may be daunting to figure out how to get started and make the transition. Don’t worry.

This is a perfectly natural response because you’re entering uncharted territory. It’s okay if the water appears murky at first. You have 30 years to grow accustomed to it, so just get started. Dream your ideal retirement lifestyle and write it down.

Figure out a reasonable next step and start there. Fine-tuning can happen later. The key is to work at it until you have something so compelling, you can’t wait to get started. That’s how you know you’re on track.

“If one advances confidently in the direction of his dreams, and endeavors to live the life which he has imagined, he will meet with a success unexpected in common hours.”– Henry David Thoreau

Places to look for clues to your passions include current hobbies and recreation, fantasies, and dream careers that you always thought sounded ideal. Consider looking in the “help wanted” section to see what grabs your interest.

Go to the bookstore and spend hours browsing for the sole purpose of noticing what interests you.

  • Where do you spend your free time now?
  • Where do you spend your extra money?
  • What are your strengths that might be fun to develop?
  • What weaknesses would you like to overcome?

Talk to existing retirees who seem to be having a ball to get more ideas.

In short, make it fun and instill a sense of adventure. It’s your life, and now is the time for you to live it.

The important point of this discussion is to have interests you’re passionate about. Ending a career is going to leave a big void in your life to fill. You want interests that absorb you and motivate you to wake up early and stay up late.

For some, it could be volunteer work. For others, it might be a second career or serious hobby, and still others might discover their passion in foreign travel. The key is to find what it is for you.

If you would like help, then consider how our retirement coaching might be the perfect support system during this transitional period to sort out the issues.

Preparing For Retirement: When Is The Best Time?

Once you have a vision so compelling you can’t wait to get started living it, then pick a date for when you’ll turn this dream into reality.

Picking your retirement date is the “when” part of retirement planning. It’s a necessary precursor to running the cash flow and income projection scenarios required for the “how much” part of retirement planning.

When you retire will affect how many more years you can save, how much longer your savings can grow, your expected pension benefits, and your Social Security benefit.


In short, much of your financial situation (“how much”) hinges on your answer to “when”, and also on the answers above to “what” and “where”.

Only after you have answered the when, what, and where questions will you have built the proper foundation to accurately determine how much it will cost.

Preparing For Retirement: How Much Money Do I Need?

You’ve probably built a rough guesstimate of your projected retirement financials in the past.

Now that your retirement vision and date draw closer, it’s important to put a fine pencil to tightening up the calculations.

You must determine how much your clarified vision for retirement will cost and how you’ll afford it.

Completing a final check is important because pension plan rules, Social Security, and asset values have a remarkable tendency to change (usually in the wrong direction).

The last thing you want to do is quit your job and lock in your Social Security and pension benefits only to find out you were actually a few years and a few dollars short of achieving your goal.

What follows is a simplified version of the “how much is enough for retirement” question. For a thorough analysis covering all facets of “how much,” read my book titled How Much Do I Need To Retire?

Below is a brief overview:

1. Budget:

Now that you’re close to retirement, the “spend 70-80% of current income” rule of thumb should be replaced with real numbers.

Dig into your current spending and get real about how your spending will change based on your answers to the “what” and “where” questions.

Are you going to travel, play golf, and dine out frequently, or do you have some inexpensive hobbies that will absorb the bulk of your time? Are you going to downsize your home, move to Belize, or stay put?

Once you’ve estimated a retirement budget, you may be concerned if it’s actually workable. Can you live comfortably on it? If you’re not sure, then try test-driving it.

Now is a great time to practice organizing your life, downsizing, and living within the lower budget constraints if that’s the direction you’re heading. You still have the income from your job to bail you out if the whole plan is a mistake.

Not only will you build confidence in your budget when retirement day comes, but you’ll also increase your savings for retirement due to the reduced spending.

“How much time he gains who does not look to see what his neighbor says or does or thinks, but only at what he does himself.”– Marcus Aurelius Antonius

2. Consolidate:

Now is the time to round up all your 401(k)s, pension benefit statements, retirement plans, savings accounts, insurance statements, and other financial documents into one pile.

If this proves to be an onerous task, then it’s telling you something.

You may want to consolidate some of these accounts for greater efficiency and arrange them into a methodical system. Consider automated deposits, electronic bill paying, and look into services that allow you to view all accounts from one location.

By simplifying and automating your assets and record-keeping functions, you’ll gain greater control, simplify the financial process, and free up time for enjoying your retirement.

3. Social Security:

Request a statement that shows how your monthly benefit is affected based on your expected retirement date. The general rule of thumb is the earlier in life you lock in benefits, the lower your monthly payment will be.

You may choose to wait longer to increase the monthly income, or you may have more than enough right now to begin living your dreams. Just make sure to research the alternatives before you commit.

Regardless of your chosen retirement date, it’s a good idea to apply for benefits three months before you expect to begin collecting so you don’t miss a payment. Mark the date on your calendar.

Also, consider using direct deposit so you don’t miss a check while out traveling through the Amazon jungle or climbing the Himalayas.

4. Defined Benefit Pension Plans:

Now is the time to get intimate with all the nitty-gritty rules, timelines, and options affecting your pension plan benefits.

Similar to Social Security, your monthly benefit will be affected by when you begin. The longer you wait, generally the greater the monthly benefit.

However, an additional layer of complication exists in pension plans because you may have a choice between taking the money over time or in one lump sum.

Deciding which is best for your situation is a complicated formula involving expected lifespan, expected investment returns, personal goals, and other issues that may require the support of a financial coach or a fee-only financial planner.

5. Savings Withdrawal Rate:

Total all your retirement savings accounts including your 401(k). According to the experts, you can theoretically spend 3-4% of that total in the first year, and adjust for inflation thereafter.

There is much well-reasoned and well-supported disagreement on this subject. For the complete explanation, read “How Much Do I Need To Retire?” located elsewhere on this site, or you can use the 4% rule as a rough and dirty guideline for now.


6. Gap Analysis:

After completing steps one through five above, your answer to the “how much” question is simply a matter of adding up your income sources from items 3-5 and subtracting your proposed expenses from item 1 to see if there’s enough.

If there’s a surplus, then congratulations – you’re a retirement planning genius and ready to embark on the next phase of your life secure in your income needs.

You can afford to chase your dreams assuming your budget calculations are reasonably accurate.

However, if you’re like many who have more dreams than income, then this course can help you close the gap and secure your financial future.

Do the calculation now before continuing to read so that you know where you stand.

How Can I Boost Retirement Income?

Many people find calculating their retirement number a sobering experience. How much turns out to be not enough.

If you came up a little short, then fear not. There are many ways to close the savings gap and find that missing money, but it all boils down to two things – increase retirement income or decrease expenses.

Let’s begin with strategies to grow the income side of the “how much” equation first, and then we’ll examine the expense side of the “how much” equation in the next section.

1. Delay Retirement:

Every additional year you work is another year of earnings that can add to savings, and one less year of living that is paid for out of savings.

Additionally, delaying your retirement date could increase the monthly benefit you receive from both Social Security and your pension plan, further adding to retirement income.

Put all four of these factors together and the financial effect can be dramatic.

Try running various scenarios on your retirement income using later retirement dates to determine if this strategy can help fill the retirement savings gap.

2. Phased Retirement:

Maybe an encore career is in the offing for you. There are many social, emotional, and (of course), economic benefits to continuing to work after retiring.

The added income can go a long way toward lowering the savings burden required to make ends meet, and if you choose new work that you truly love, you might find it beats 30 years of endless free time.

Look at your income gap and decide if there’s a way to earn the missing money that would also be rewarding and fulfilling for you.

Preparing for retirement is much more complex than you might realize. There's more to it than simply trying to figure out how much money you'll need to save. By asking yourself these five questions before you retire, you'll be well on your way to enjoying your golden years worry-free.

3. Savings Withdrawal Rate:

Just because the expert consensus on first year savings withdrawal rates is 3-4% doesn’t mean it’s right for you. It’s a generalized standard that by definition isn’t personalized for your situation.

You might have a family history of early death, poor health, or an unusual skill for growing your investment portfolio at higher rates of return. See the book How Much Do I Need To Retire for alternative formulas, or take the complete wealth planning course here that includes alternative asset classes and strategies.

The difference can be significant and possibly enough to make up that shortfall in retirement income.

4. Convert Other Assets To Savings:

The diamond ring from your ex-husband that you never wear, the mink fur coat from Grandma, the boat that was used once in the last two years, and other valuable assets that are seldom enjoyed can all be sold off to boost your savings.

What valuables do you have that you don’t need or use?

5. Convert Home Equity To Savings:

For many people approaching retirement, their home equity can exceed their savings. Converting a chunk of that equity into income producing assets by downsizing, moving, getting a reverse mortgage, or using various other strategies can close the gap between income and expenses.

For a complete listing of strategies to convert home equity into income producing savings, read 27 Retirement Savings Catch-Up Strategies For Late Starters. You’ll also find many more tips in that article not mentioned here that can help you close the savings gap.

Each of these strategies alone, depending on your personal situation, has the potential to increase your retirement savings enough to solve the “how much” problem.

When you put them all together, however, they’re a powerful set of tools that can substantially change the income side of your financial picture.

Now we’ll look at the expense side of the “how much” equation.

How To Prepare For Retirement: How Can I Reduce Expenses In Retirement?

There are two sides to the “making ends meet” equation, and so far we have focused only on income. The other side, expenses, is at least as important, and often easier to solve.

The reason is because it’s often easier to figure out how to live on $1,000 less per month (1,000 * 12 months = $12,000 per year) than it is to find an extra $300,000 in savings (300,000 * .04 percent savings withdrawal rate = $12,000 per year).

The two scenarios are mathematically equivalent in terms of balancing a retirement budget, but there are many more fun and creative solutions to reducing spending by $1,000 per month then there are ways to surface $300,000 to $400,000 in savings.

Yes, spending just $1,000 per month is roughly equivalent to the $300,000 in assets required to support that spending. Shocking, but true. It’s known as the “Rule of 300”.

Let’s look at a few possibilities to chip away at the expense side of your monthly budget without diminishing lifestyle.

1. Move To A Lower Cost Area:

For people living in high cost areas where housing prices have soared, think about relocating to a lower cost housing market. Consider moving out-of-state or possibly to a new country.

The price differentials between certain housing markets can be enough to fund a significant portion of some people’s retirement needs.

For example, $300,000 of equity harvested from your home reinvested at 7% produces $21,000 per year in income, and your expenses such as insurance, maintenance, property taxes, medical, and food will likely drop as well.

The savings can be substantial, and the new location could be even more enjoyable than where you currently live.

“The real measure of your wealth is how much you’d be worth if you lost all your money.”– Unknown

2. Downsize Your Home:

For those who love where they live and want to stay in the same area, consider harvesting some of your home equity by scaling down to a smaller, low-maintenance, less expensive house.

This creates a double-win for your savings because you increase investment income while simultaneously reducing or eliminating certain expenses such as mortgage payments, utilities, maintenance, property taxes, insurance and more. Not to mention having less house to clean and care for.

3. Pay Off Your Home:

Retiring your mortgage before you retire from work can significantly improve cash flow and lower your risk of failure if your financial situation takes a turn for the worse.

One strategy to achieve that objective during the pre-retirement phase is to refinance your mortgage or increase your payments so the payoff date is the same as your expected retirement date.

4. Low Cost Leisure:

Golf and travel can be expensive (or affordable) depending on how you plan these activities.

You could spend an entire summer touring Alaska in a car or camper for the same cost as a two week cruise.

You can golf or ski for an entire season on bargain senior passes for the same cost as a few days at a high-end resort.

You can travel full-time, year-round, throughout the world for less than it costs to live an ordinary lifestyle in some areas of the United States.

Get creative and stretch those leisure dollars because recreational fun has little relationship to how much it costs.

5. Become Debt Free:

Interest paid is money wasted, and it’s antithetical to your retirement lifestyle. You should be collecting interest as a retiree – not paying it.

Prepare for your retirement by paying off higher rate, non-deductible debts like credit cards and automobiles. Get in the habit of only buying what you can pay for right now.

Eliminating all debt is a simple strategy to lower your expenses without lowering lifestyle. Debt makes the banker rich – not you.


6. Eliminate Unnecessary Expenses:

Professional affiliations, second homes, sailboats, and extra cars are all examples of things that might not be necessary for your retirement plans and could reduce your expenses if they were eliminated.

Consider cutting the financial cord on adult children that are out of school and not disabled. They should no longer be financially dependent on you after their education is complete.

If your retirement budget is tight, then there’s no room for excess of any sort. Eliminate all those unnecessary expenses now.

7. Revisit Your Insurance Needs:

As you prepare to exit the work force and enter retirement, your insurance needs will change. Things like disability insurance and life insurance may no longer be relevant and could save you money if eliminated.

Alternatively, you may decide to re-purpose your life insurance away from income protection and toward estate planning.

Similarly, to protect the assets you’ve accumulated, you may consider raising the liability limits on your homeowners and auto policies. Examine umbrella, long-term care, and supplemental health insurance policies.

In short, revisit your insurance needs to determine what’s really necessary and appropriate. Your life is changing, and so should your insurance coverage.

In summary, there are many ways to reduce expenses without reducing lifestyle. The joy you experience in retirement is more a function of your attitudes and interests than your budget. It’s about experiences, not stuff.

Get creative in how you reduce spending and you may find that “how much” is more than enough.

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Discover the five questions you must answer when preparing for retirement so you can get on the right track from the start. Are you ready for retirement?

What Else? Bonus Pre-Retirement Ideas To Consider:

Once you’ve solved the “what”, “where”, “when”, and “how much” questions in preparing for retirement, there’s one final thought to consider: what else?

What other strategies should you consider that can make a positive difference as you enter the home stretch to a life of freedom, fulfillment, and financial security?

1. Estate Planning:

If you die without proper estate planning, it could create unnecessary heartache for those left behind and needlessly waste a significant portion of your assets on taxes, attorney, and probate fees.

Have your lawyer review your will, trust, estate and gifting plan, account titling, powers of attorney, and beneficiary designations to make sure everything is up to date and appropriate for your stage in life.

You want to be certain that you and your beneficiaries are properly protected. Death is an absolute certainty with the only question being when. Best to get it done now, and get it done right (estate planning that is – not death).

2. Organize Necessary Documents:

When that fateful day arrives and you’re incapacitated or dead, someone has to complete your affairs. Do them a big favor and organize all the necessary documents in one place so they don’t have to stress about missing anything.

“Don’t agonize. Organize.”– Florynce Kennedy

If you choose to keep the documents in a safe deposit box, then keep a duplicate file at home for accessibility and an additional set with a trusted family member or attorney.

Below is some of the information that should be contained in this file.

  • Location of safe deposit box key and listing of what’s inside the box
  • A master list of all financial accounts with account numbers, contact information, and addresses. Include everything on this list that produces at least one statement annually such as annuities, life insurance, investments, loans, etc.
  • Wills, Powers of Attorney, Medical Directive, Trusts, and other Estate Planning documents
  • Marriage certificate
  • Burial paperwork
  • Property deeds and automobile titles
  • Military discharge paperwork
  • A list of valuables and collectibles

3. Health Care Insurance:

U.S. Government Medicare doesn’t kick in until age 65, so you may need to consider self-insuring if you retire before 65 and your employer doesn’t extend health insurance coverage to retirees.

Even after Medicare begins, there are many costs not covered. For that reason, you’ll want to investigate private “Medi-Gap” policies and build that cost into your retirement budget. You may also want to consider long-term care insurance and decide what’s appropriate for you.

Learn the rules for Medicare and Medi-Gap applications and mark the necessary dates to begin on your calendar. Applying late may cause delayed benefits or increased premiums, so make sure you know the rules for your situation.

Health care is an extremely dangerous area of retirement planning because the cost of betting wrong can be catastrophic. Proper insurance devours retirement income, but no insurance runs the risk of destroying retirement assets.

If you underestimate health expenses, you may not be able to afford the quality care you desire, or you may use up a lifetime of savings in the process. There’s no easy answer, so budget liberally in this area and hopefully you’ll be pleasantly surprised.

In the end, always recognize that your future health and associated health care costs are unknown – and there’s nothing you can do about it. Every retirement plan is fundamentally incomplete because of it.

4. Get Healthy:

There’s no point in working a lifetime to save for your golden years only to die of a heart attack or other debilitating disease before you have a chance to enjoy it all.

The reality is you no longer have the advantage of youth to offset bad habits, so you must work hard to make up for the difference.

The human body is amazingly resilient and can bounce back from years of abuse when given proper diet, exercise, and rest. A strong health regimen can save you big bucks in health care costs, and it can add more years to your life while adding more life to your years.

5. Borrow Now:

While debt is best avoided for most retirees, there are rare circumstances where new debt can make sense, such as financing a downsized home or a new RV for traveling.

The reason it can make sense to do it now (before retiring) is because it will be easier to qualify while you still have earned income. You may be able to negotiate lower interest rates and better terms than if you wait until after retirement.

In other words, the general rule is to avoid debt, but special exceptions can apply.

6. Vacations:

Make a list of the areas you might consider moving to during retirement and use your vacation time while still working to visit them. Take the area for a “test drive” so you can see how you like it.

If you enjoyed it in the winter, go back in the summer as well. Who knows, it might end up becoming your future home.

7. Prepare Your Home:

If you’re thinking of moving or downsizing your home during retirement, then get it ready now. Clear the clutter, complete the repairs, and update whatever is necessary to optimize the sales process to your advantage.

8. Second Opinion:

Retirement planning is complicated, so get a second opinion from a fee-only financial planner. Heck, the stakes are high enough, you may want to also get a third or fourth opinion.

You may be surprised by how much expert opinions vary depending on background and assumptions (and the financial incentives of the advisor!!). You can learn more about our group retirement coaching services here.

The reality is you’re making critical decisions that will impact your financial picture for the remainder of your life. The stakes are too high to rely on any one person’s judgment – including your own.

The fact is there are more questions than answers:

  • Should you take monthly payments from your pension, or a lump sum distribution?
  • Should you take Social Security now or later?
  • Should you buy long-term care insurance or accept the risk?
  • Should you buy Medi-Gap coverage or self-insure?
  • What order should you begin withdrawing from your various savings accounts to maximize tax advantages?
  • Should you convert savings to an annuity? If yes, then how much?
  • Should you follow traditional asset allocation models by ratcheting down risk and focusing on income investments, or should you accept market risk in pursuit of growth by remaining invested in equities? How much, and for how long?
  • Can you use alternative assets like real estate and business entrepreneurship to close any gaps or increase income for any given amount of equity?
  • What percent of your savings can you withdraw every year? What are the assumptions behind that calculation?
  • How should your estate be organized for maximum benefit to you and your heirs?

There are many more questions to consider, but this should be enough to motivate you in seeking professional help. The issues are so complex and the consequences of a mistake are so serious that an experienced planner and tax expert can be worth every dollar you pay them.

This isn’t a situation where you want to cut corners. Educate yourself first, then get a second opinion to make sure you didn’t miss anything critical. It’s cheap “insurance”.

In Summary

Retirement is something you worked your entire life for. As you enter the home-stretch make sure you complete this final checklist of preparations so you know you’ve got everything ready.

These final working years offer a unique opportunity to prepare. A few carefully chosen last-minute strategies can make a big difference.

If you’ve made it through this article, then you’ve already separated yourself from the masses. Numerous studies show most workers haven’t estimated their retirement expenses and income needs or put together any sort of retirement plan at all. You’re a cut above.

By beginning with the “what” and “where” of retirement planning and determining the “when”, you set the stage for not only creating a fulfilling retirement, but also accurately estimating the “how much” so you’re not faced with fiscal surprises.

Don’t be misled by traditional retirement planning literature that overemphasizes the “how much” of retirement savings.

Sure, it’s an important part of your retirement plan, but as you saw above, proper life planning, goals, connection to others, appropriate insurance, home ownership, and being debt free are all similarly important.

There’s a much bigger picture to planning a fulfilling and financially secure retirement, and this step-by-step course provides an exact road map so you can get there. Enjoy the process and enjoy your golden years. You deserve nothing less.

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Average Savings By Age: How Do You Rank? Tue, 11 Jul 2017 00:52:19 +0000 Find Out How Your Net Worth Ranks Compared To Average Savings By Age And How To Grow Your Money Faster

Key Ideas

  1. Two quick ways to determine if you’re building enough wealth.
  2. How your “why” makes or breaks your wealth growth.
  3. 12 essential questions that reset your financial priorities.

Are your plans for wealth and financial freedom on target, or behind schedule?

Below is a quick and dirty self-test that will show you, at a glance, how your wealth building measures up.

I also include a few tips to improve your future results.

But before we can start, we must first agree on the best financial measuring stick to use.

The obvious answer is net worth, but it’s not that simple. There are some nuances that must be considered…

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Average Savings by Age How do You Rank image

Average Savings By Age: A Quick Way To Measure If You’re On Track For Building Wealth

Is a 30 year old with a $50,000 net worth necessarily less successful at building wealth than a 60 year old with $200,000?

The 60 year old has a lot more money, but a lot less time.

How do you take into account age differences, inheriting money, lifestyle differences, and lifetime earnings differences?

In “The Millionaire Next Door” by Stanley and Danko, the authors provided a reasonably workable formula for judging your success or failure at building wealth. The formula is as follows:

“Multiply your age times your realized pretax annual household income from all sources except inheritances. Divide by ten. This, less any inherited wealth, is what your net worth should be.”

This formula is hardly revolutionary because it’s little more than a twist on the classic 10% savings rule. It’s a tried and proven formula based on sound mathematics.

While it isn’t perfect because there are many additional considerations such as inflation, taxes, and interest rates to factor in, it does provide a useful approximation that serves as a quick, simple, and easy-to-calculate snapshot of how well you’re progressing toward financial freedom.

For example, if you were a 35 year old earning $100,000 per year with no inheritances, then you should have a net worth of $350,000 because ((35 x 100,000) / 10) = 350,000.

A person in this situation would be considered “on track” for reasonable wealth accumulation. He isn’t a super achiever, but he isn’t lagging either.

Now it’s time for you to calculate your number using your age and earnings.

Have you calculated it yet? If not, please do it now before reading on.

Are You An Exceptional Wealth Builder?

Stanley and Danko went on to create two variations to their basic formula.

People whose net worth is twice as large (>2X) as the formula would indicate they are prodigious accumulators of wealth (PAWs).

People whose net worth is less than half their expected number (<.5X) are considered under-accumulators of wealth (UAWs).

These two benchmarks are as good as any at cutting to the chase and telling you how your personal financial management skills and investment skills are measuring up. Are there valid criticisms about the accuracy of the analysis? Absolutely yes! However, they are useful benchmarks considering it’s a simple rule-of-thumbs.

Remember, judging by results is often harsh, but always fair.

“It is the sign of a weak mind to be unable to bear wealth.”– Seneca

How are you doing? What were your results? Are you a PAW, a UAW, or are you stuck somewhere in between?

This is your wake up call. You’re being given a health check-up on the journey to retire early and wealthy. Is your financial strategy sick, or are you looking like a world class runner?

Are you on track or behind schedule?

I’ve run quite a few scenarios using Stanley and Danko’s formula, and I’ve concluded being a PAW is a very realistic, if not conservative, standard for satisfactory progress toward achieving normal financial security and retirement.

I encourage you to test this formula yourself and run your own scenarios. It doesn’t take long to figure out how anything less than a PAW is living on financially shaky ground.

Why? Because true financial freedom results when your passive income exceeds your expenses.

If you look at the results of PAW status and apply current interest and inflation rates, you’ll quickly see that for many situations and assumptions, you wouldn’t want to retire with anything less than PAW status.

For example, a 60 year old married couple with $100,000 annual salary would need to have $1.2 million or greater to be PAW’s.

Not a bad sum, but take out home equity and multiply the remainder by the current interest rates. You’ll find you’re getting pretty thin for someone accustomed to living on $100,000 per year. (See the How Much Do I Need To Retire ebook for a complete analysis)

They aren’t going to starve, but abundance wouldn’t accurately describe their situation, either.

In other words, PAW status is a reasonable minimum threshold of wealth building you should aspire to.

“Early to rise and early to bed makes a male healthy and wealthy and dead.”– James Thurber

It’s worth taking the time to evaluate your progress. You’re being given a sneak preview into your future while you still have time to take corrective action to improve your situation.

If you’re a PAW then congratulations, you’re doing great.

If you’re less than a PAW, then this course will show you exactly how to play the wealth building game smarter in the future and improve your status.

How To Accelerate Your Wealth Building

Avid readers of this site already know I diverge from conventional financial experts when teaching you how to accelerate your wealth building.

The reason is simple – the traditional approach rarely works.

Stanley and Danko make the classic mistake of immediately focusing on the “how-to’s” to help people understand what it takes to get wealthy.

They teach you how the millionaires became millionaires. That’s the focus of the bulk of their book.

In fact, that’s what most wealth educators focus on. They teach you how they achieved financial freedom and which particular path to wealth worked for them.

The focus is on the mechanism – not the cause. Below are some common wealth building themes taught by popular gurus.

  1. Leverage is the key to building wealth.
  2. Wealth exists within the tax code.
  3. You must develop your competitive advantage.
  4. Find your niche and your passion: your wealth will follow.
  5. Invest in the stock market.
  6. Invest in real estate.
  7. Build your own business.

The assumption in most wealth building courses is that the path is the key – not the person.

Teach any student how you did it and they’ll duplicate your success. Give them the tools and they’ll have what they need to put them to good use.

Sorry, but I’ve coached many clients to financial success over the years, and that’s a fatally flawed assumption. It just doesn’t work that way.

The reality is humans aren’t computers. You can’t input X and get a predetermined output of Y.

Just because one person followed a particular path to wealth doesn’t mean anyone else can duplicate their success using the same strategy. Humans aren’t that simple.

“All prosperity begins in the mind and is dependent only on the full use of our creative imagination.”– Ruth Ross

If it was that simple then everyone who wants wealth would already have it. The internet and your bookstore are filled with more “how-to” courses on investment strategy and wealth building techniques than you could consume in a lifetime.

Everything you need to know already exists in print, yet you aren’t wealthy. Something besides “how-to” knowledge must be necessary since there’s no shortage of it. But what’s missing?

The reality is learning any particular path to wealth won’t do you any good until you first learn how to get on the path and stay on the path in the first place.

You’re the cause of your wealth (or lack thereof) and getting clear on your commitment to building wealth is the critical first step that will make or break your success.

The how-to mechanism will naturally follow when your commitment is clear.

Without a clear commitment, no amount of “how-to” can help your success.

In fact, when I first began coaching clients, I made the exact same mistake as everybody else. I naively believed that teaching people the “how to’s” of building wealth would work for them just like it worked for me.

Just show people the tricks of the trade and they’ll emulate the success of the teacher.

Needless to say, it didn’t work. What I learned is that “how to’s” aren’t what most people need to succeed.

What separates people who achieve wealth (PAWs) from those who don’t (UAWs) is the “why”. You must get crystal clear at a deep, emotional level what this journey to wealth is all about for you.

Here are 12 questions you can ask yourself to gain clarity.

  1. What does building wealth mean to me?
  2. What will I get by becoming wealthy?
  3. How will financial freedom positively impact my life?
  4. How can I build wealth congruent with my deeper values?
  5. What price will my family pay for not building wealth?
  6. What price am I paying today because I’m not financially free now?
  7. What will my life look like once I have financial freedom?
  8. What are the obstacles that have kept me from building wealth up until now? How am I going to overcome them?
  9. Why should I prioritize my time, energy, and money to make financial freedom happen above other activities competing for my limited available resources?
  10. Why go through all the effort? Why not just relax and enjoy the day?
  11. How can I build wealth and still lead a balanced and fulfilling life?
  12. What’s wealth building really all about for me and how does it fit into my life?

“Wealth is the slave of a wise man. The master of a fool.”– Seneca

Clarity around questions like these will strengthen your commitment to building wealth. This will motivate you toward consistent and persistent action.

Your drive for wealth must become deep enough to prioritize the actions necessary to reach the goal.

If your “why” isn’t strong and clear enough to make building wealth a priority, then it won’t happen.


Life will always distract you with something else more important. It’s as simple as that.

Having the “how to’s” without the “why” is like owning a car without gas in it. You won’t get very far or go very fast because the “why” is the fuel that creates action.

Without fuel, the vehicle is a motionless, clump of metal.

When you get the “why,” then the “how to’s” will follow. That’s the great, unspoken secret that I learned in coaching people like you to build wealth.

The “why” is what drives you to take action, and the “how-to” is the tool or mechanism by which you implement the action.

A tool without the impetus to use it is useless. A driven person will persevere until he finds the right tool – and that makes all the difference.

That’s why successful people persist in their success despite changes in market conditions that might force them to abandon or replace their “how-to” strategy.

They just correct and adjust their plans because the “how-to” is merely a mechanism or tool, and their drive is the real reason for their success.

The drive that results from their commitment to financial success causes them to find solutions no matter what gets in their way.

Conversely, you can give a proven formula for building wealth (perfect for current market conditions) to an uncommitted coaching client, and they’ll still fail.

Again, the “how-to” strategy is just a mechanism or tool. It’s not the critical element that leads to wealth.

PAWs choose many different paths to financial freedom, but the common denominator they share is a strong “why” that firmly commits them to building wealth.

Stanley and Danko missed that essential point, but that’s why they’re wealthy.

How To Find Your “Why” For Building Wealth

Many people are fortunate and find their “why” on their own. No course is required.

I discovered my “why” when I was in high school, and I’ve coached others who were equally clear about their “why”.

Unfortunately, this is the exception rather than the rule. They’re the lucky few who can build wealth using how-to information.

The rest (likely you) get stuck in a frustrating loop where they learn great information but fail to implement successfully.

They know what to do, but they just don’t do it “for some strange reason”.

That’s why commitment based on a compelling “why” is the make or break step to financial freedom. Unfortunately, it’s a step that’s seldom completed.

Average Savings by Age - How to find your why for saving image

The reason it’s the make or break step is because life is filled with distractions, and most people have conflicting values and desires that muddy the process of gaining clarity about building wealth.

While the information necessary to complete the process on your own is available, it’s spread out among various sources and disorganized, making it hard to assimilate.

That’s why I wrote a step-by-step system that walks you through the process of developing your personal “why” so you can successfully build wealth.

It’s a complete course of instruction showing you everything you need to know, and it includes the support systems you need to put it into action and produce tangible results.

Remember, this self-test is your wake up call. Are you on track to financial security? Either you’re a PAW, or you’re not. The results never lie.

Anything less than a PAW means you’re behind the curve which puts financial security for you and your family in jeopardy.

Don’t take my word for it. Run the numbers yourself. The results will speak for themselves.

If you keep the financial habits you have now for the next three years, where will you be three years from now? Five years from now? Ten years? What are you going to do differently?

When you get clear on your commitment to building wealth by knowing your “why,” then you’ll transform the results you produce.

I’ve done it with numerous clients, and it can work for you too.

You can learn more in this course here.

[how-much-money-do-i-need-to-retire-footer] ]]> 12
FM 023: Get Your Financial Goals Faster In Business With Brennan Dunn Tue, 27 Jun 2017 16:04:50 +0000 Reach your financial goals faster in business, with Brennan Dunn, founder of Double Your Freelancing

Click here to download the transcript of Brennan's smart business advice for aspiring or stuck entrepreneurs!

The business entrepreneur path to financial freedom has many advantages over real estate and paper assets.

  • You can grow your wealth faster in business than any other asset class.
  • You can achieve personal freedom, the real goal of financial freedom, long before you’re actually rich because your passive income is not connected to equity. It’s driven by business systems instead.
  • You get personal benefits besides just financial wealth including purpose, community, contribution, and a creative outlet.

Unfortunately, the business asset class is the least-discussed path to wealth, even though most people who make the Forbes 400 list are there because of it. The same is true for people profiled in The Millionaire Next Door.

If you want financial independence earlier than old or you need to catch-up on retirement savings because you don’t have enough, then this episode is for you.

However, there are risks to growing a business as well. That’s why it’s important to choose the right business model congruent with your values. The right model will support your success, but the wrong model will leave you feeling stressed and resentful.

To show you how fulfilling business entrepreneurship can be, along with the upsides and downsides, I invited Brennan Dunn, owner of Double Your Freelancing, to the podcast.

Brennan has a long entrepreneurial success streak. He dropped out of college, freelanced as a web designer, started his own agency, then started a SaaS (software-as-a-service) business, and now has a very satisfying lifestyle business.

While Brennan loves his business now, he had to learn many lessons the hard way. These lessons are typical of what most entrepreneurs go through, which is why it’s better to learn vicariously through Brennan’s experience rather than reinvent the wheel.

So if you’ve been interested in starting your own business, or you want to accelerate your journey to financial freedom, then this podcast is for you.

In this episode you’ll discover:

  • How Brennan went from being a college dropout to having a six-figure business, to ultimately having two seven-figure businesses.
  • What drives Brennan’s entrepreneurial streak.
  • The idea of community and why it’s so important to a fulfilling life.
  • Why being an employee wasn’t satisfying to Brennan, despite earning six-figures at the age of 21.
  • How employment limits your creativity and how more possibilities open up when you’re a business owner.
  • How freelancer’s blow it by not viewing their work as business ownership.
  • How freelancer’s and business owners undercharge by using the wrong pricing model.
  • Why you need to view your business as a solution to a problem, rather than just a job.
  • How to make the service you’re offering more valuable by digging deeper into what your potential client actually wants.
  • How Brennan re-positioned his marketing to get more clients than he could handle… at higher rates also.
  • The valuable lesson that drove Brennan to sell his successful 11 person agency business serving big-name clients around the world.
  • Why business owners need to focus on recurring revenue rather than one-off projects.
  • The difficulty in productizing a service business and creating uniformity, especially with employees.
  • The essential role of business systems automation to scalable growth and freedom.
  • How a buyout offer can make you re-think your business model.
  • Why Brennan’s dream business model required total strangers paying him.
  • How to not end up being an employee in your own company.
  • How a SaaS (software as a service) business ended up being the opposite of what Brennan wanted, even though it looked great from the outside.
  • How to achieve exponential success by listening to your clients.
  • The reason why Brennan’s lifestyle business is so much more satisfying than his other endeavors.
  • How your values determine your business model.
  • The Socratic Method Brennan uses to set his business apart and serve his clients better.
  • Brennan’s tips on how to price services so clients can’t say no.
  • Why Brennan wouldn’t stop working on his business even if he received $50 billion.
  • How a lifestyle business can give you the freedom you’ve always wanted, even before you get rich.
  • …and much more

Resources and Links Mentioned in this Session Include:

Financial Mentor Podcast Image

Help Out The Show:

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I read every review, and your support helps the show rank higher so more people find us and benefit from the message.

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]]> 0 Business entrepreneurship is the most common path to wealth, but also the least discussed. It gives you many unexpected benefits including community, connection, contribution, a sense of purpose, and a creative outlet.

The business entrepreneur path to financial freedom has many advantages over real estate and paper assets.

* You can grow your wealth faster in business than any other asset class.
* You can achieve personal freedom, the real goal of financial freedom, long before you’re actually rich because your passive income is not connected to equity. It’s driven by business systems instead.
* You get personal benefits besides just financial wealth including purpose, community, contribution, and a creative outlet.

Unfortunately, the business asset class is the least-discussed path to wealth, even though most people who make the Forbes 400 list are there because of it. The same is true for people profiled in The Millionaire Next Door.
If you want financial independence earlier than old or you need to catch-up on retirement savings because you don’t have enough, then this episode is for you.
However, there are risks to growing a business as well. That’s why it’s important to choose the right business model congruent with your values. The right model will support your success, but the wrong model will leave you feeling stressed and resentful.
To show you how fulfilling business entrepreneurship can be, along with the upsides and downsides, I invited Brennan Dunn, owner of Double Your Freelancing, to the podcast.
Brennan has a long entrepreneurial success streak. He dropped out of college, freelanced as a web designer, started his own agency, then started a SaaS (software-as-a-service) business, and now has a very satisfying lifestyle business.
While Brennan loves his business now, he had to learn many lessons the hard way. These lessons are typical of what most entrepreneurs go through, which is why it’s better to learn vicariously through Brennan’s experience rather than reinvent the wheel.
So if you’ve been interested in starting your own business, or you want to accelerate your journey to financial freedom, then this podcast is for you.
In this episode you’ll discover:

* How Brennan went from being a college dropout to having a six-figure business, to ultimately having two seven-figure businesses.
* What drives Brennan’s entrepreneurial streak.
* The idea of community and why it’s so important to a fulfilling life.
* Why being an employee wasn’t satisfying to Brennan, despite earning six-figures at the age of 21.
* How employment limits your creativity and how more
Todd R. Tresidder: Financial coach, wealth building strategist, author, investor 23 Get Your Financial Goals Faster In Business With Brennan Dunn clean 1:14:22
The Smart Way to Buy Life Insurance Online Mon, 06 Mar 2017 02:59:10 +0000 13 Little-Known Life Insurance Buying Tips That Save You Money

Key Ideas

  • Reveals life insurance company sales tricks, and how to protect yourself.
  • Warning! Your best deal won’t come from a simple price comparison. There’s one more thing to know…
  • 7 key factors to accurately calculate how much life insurance you need so you don’t overpay.
  • 13 bonus tips to save you money

Life insurance should be a simple, straightforward financial decision.

Unfortunately, the insurance companies love to make it complicated so they can increase their profits at your expense.

The key to a smart decision is to ground yourself in the correct principles from the beginning so you don’t get led astray.

In a nutshell, you want to buy only:

  • The amount of life insurance coverage you need,
  • To insure only those risks you can’t afford to accept,
  • For the minimum time required,
  • From a reputable firm,
  • At the best price possible.

I’ll show you exactly how to accomplish these five objectives by following these 4 key principles:

  • Don’t get confused by the salesman’s pitch. Focus on the one thing that matters – insuring your life. That means not getting distracted by complicated insurance products with bells and whistles. If it’s complicated, then it’s probably the wrong choice.
  • For that reason, don’t buy life insurance as an investment or as a retirement planning vehicle (except in extremely rare situations explained elsewhere in this smart consumer’s guide).
  • Instead, buy life insurance to protect your dependents from lost income if you die. Leaving your family indigent is a risk you can’t afford to accept, so transfer that risk through life insurance.
  • The way you accomplish this is by buying life insurance from an experienced, independent agent because there’s more to getting the best deal than just getting a cheap quote online. An experienced, independent agent costs you nothing and knows how to qualify you for the best rate class resulting in the overall lowest price.

That’s it! As I said, it’s a simple decision when you know what to do and have proper guidance.

But many life insurance salespeople don’t want you to hear that.

Instead, they want to up-sell you on the many features and benefits of their complex investment alternatives. These sales tactics are intended to confuse you into overpaying, buying features you don’t need, or buying the wrong type of life insurance altogether. In fact, research shows that if you already own life insurance, there’s a 2/3 chance you’re paying too much!

This smart consumer’s guide will arm you with all the knowledge you need to make a smart decision. I’ll also give you some uncommon savings tips that most agents won’t tell you, so you know how to get the best deal possible.

Let’s begin…


Get This Article Sent to Your Inbox as a PDF…


The Life Insurance Company Has An Unfair Advantage

The starting point to making a smart decision is to first understand life insurance sales from the other side of the transaction.

That’s because life insurance is an unfair game where the insurance company holds all the cards.

  • They have teams of actuaries armed with reams of research based on mountains of data identifying risks and costs with great precision. It’s their profession to know exactly how to price risk so they profit. You have none of that knowledge.
  • They have marketing experts who research all the latest consumer hot buttons and carefully craft features and benefits into their policies to motivate you to part with your money. It’s their profession to know the psychological triggers that get a person to buy, not yours. You have none of that knowledge.
  • They have teams of lawyers who carefully craft the terms and conditions of those fancy policies with carve-outs and special exceptions to limit payouts. You probably wouldn’t recognize the relevant issues buried in the legalese even if you read every single word of the policy. Again, they have the knowledge advantage there as well.

In short, life insurance companies aren’t dumb.

They know how to define and price risks in ways you’ll never understand, and they’re in business to maximize their profits, not yours. This is not a conspiracy theory, and there’s nothing unethical about it. It’s just smart business.

However, you need to be an equally smart consumer by carefully defining the role life insurance will play in your financial plan so you buy on your terms, not theirs. That’s the key to how you get a great deal.

For the overwhelming majority of buyers that means buying life insurance focused on the death benefit (without bells and whistles) because it’s a competitively priced commodity product allowing you to compare apples to apples and make a smart consumer decision. It provides the essential risk management function you need in your financial plan at a fair price. It’s the level playing field you want to operate on.

Conversely, the playing field you want to avoid is complex life insurance policies filled with multiple riders, special terms, or contractual investment and retirement planning benefits that attempt to differentiate the product from the competition. That game gives the insurance company the advantage because each product is specialized, making it nearly impossible for the consumer to compare and price accurately.

The key point is there’s nothing inherently wrong with life insurance as a financial product. It’s been around longer than you and I, and it will be around long after we pass because it serves an important, legitimate consumer need. It’s an indispensable financial tool for the right situation (explained below…).

However, you must be a smart consumer and educate yourself to buy it right so you don’t get tricked by the sales tactics.

3 Rules For Buying Life Insurance

Life insurance bought right is an expense – not an investment. That’s because the smart way to buy life insurance is for risk management, not investment return.

Always remember that all forms of insurance, including life insurance, are negative expectancy bets (pays less to the average consumer than it costs net of investment opportunity cost).

Again, this is not a conspiracy theory. It’s inherent in the nature of all insurance businesses. The insurance company must take in more value from consumers than they pay in benefits so they have enough money left over to pay the salespeople, company overhead, and leave a profit for investors.

The consumer, on average, loses with all forms of insurance.

But that doesn’t make life insurance bad. Quite the opposite is true.

Life insurance provides an essential risk transfer function in your financial plan. You want to insure away those risks that would cause losses you can’t afford to accept. If your family relies on your income and would face financial difficulty should you unexpectedly die, then properly purchased life insurance is the best solution to managing that risk.

Yes, it’s a negative expectancy bet, but when you’re that exception who dies during the policy period, then life insurance will be the single best “investment” you ever made with a payoff that dwarfs anything else you could do with your money. The value of the death benefit will provide a lasting gift that your family will always thank you for, making it an essential purchase in the right situation.

So the fact that it’s a losing bet (on average) for most buyers doesn’t mean you don’t buy life insurance. Instead, it means you buy it the smart way with these four clear objectives in mind:

  • Purchase it only for the valid financial purpose of transferring risk you can’t afford to take. (i.e. don’t buy it for investment or other reasons except in extremely rare special situations as described in other articles here.)
  • Buy the minimum amount you need.
  • Buy it for the minimum time required until you accumulate sufficient assets to self-insure, or until you no longer have dependents that need the benefit.
  • Hope that you flush 100% of your premium money down the toilet because that means you lived a long, healthy life and never needed the risk transfer… and that’s a good thing.

In other words, life insurance bought right is no different than buying any other type of insurance. It’s protection from disaster because it’s irresponsible to burden your family with unmanaged risk. You hope it’s a complete waste of money because it sucks to die early.

If that confuses you then it’s only because you’re confusing life insurance with investing (which makes unethical life insurance sales people very happy). Life insurance bought right is not an investment. Instead, you want to pay the company a fee to accept a risk. The company pools that risk and earns a fair business profit for the service.

That’s the smart, cost-efficient way to buy life insurance.

What Type Of Life Insurance Policy Should I Buy?

There are two types of life insurance:

  • The simple type of life insurance that satisfies the valid risk transfer function described above.
  • The complex type of life insurance where companies exploit their unfair advantages described earlier to create product differentiation designed to confuse the consumer so they can suck money from your pocket into theirs.

The sad truth is the life insurance marketing game has morphed from a simple risk transfer sale into a complex puzzle where savvy companies design complex investment and retirement products under a life insurance wrapper with carve outs and riders that consumers have difficulty understanding or pricing correctly. These riders provide a complex array of benefits designed to hook consumer hot buttons motivating a buying decision that, more often than not, is not appropriate.

The absurdity of mixing insurance with investing should be intuitively obvious:

  • You don’t buy health insurance as a profitable investment, do you? Of course not! You buy it to transfer the risk of huge health care bills if you get sick or injured.
  • You don’t buy fire insurance on your house as an investment, do you? It’s a risk management tool in the event your house burns to the ground so you can rebuild it without going bankrupt.
  • The same is true with auto insurance, disability insurance, and every other type of insurance you can imagine. They’re all risk management tools in your financial plan.

So why is life insurance the one exception that’s sold as an investment?

Answer: It isn’t.

You would laugh at your auto insurance or health care insurance company if they tried to double your premiums by tacking on some sort of contractual investment product with complicated pay off terms. It’s not why you buy those insurance products. It wouldn’t make any sense.

Think of life insurance the same way and you’ll make a smart decision.

Let’s get more specific with examples…

The Right Reason To Get Life Insurance

The starting point of the discussion is to decide if you need life insurance at all.

According to LIMRA’s Insurance Barometer, the top 3 reasons people buy life insurance are:

As stated earlier, if you don’t have sufficient assets to allow your family or business to pay their bills in your absence, then you need life insurance. Simple enough.

Yet, here are some disturbing statistics…

  • Half of Americans say they would be adversely affected by the death of their family’s primary breadwinner in 1 year or less. (Source: LIMRA Study)
  • 40% of households with an annual income of $100,000 or more also report they would feel significant impact within 6 months of the primary breadwinner’s passing.
  • Combine this with the fact that the majority of Americans (54%) say it’s unlikely they’ll purchase life insurance in the next 12 months (according to a study by LIMRA) and there’s an obvious problem.

A large segment of the population has a legitimate financial need for life insurance. Their dependents or business would suffer due to lost income or services if they died. They need financial protection in the form of a death benefit. But they don’t have life insurance.

Why does this happen?

Nobody wakes up in the morning contemplating their unexpected death. Nobody wants to spend money on an insurance product they hope never pays off. Basically, the whole life insurance topic isn’t fun. The result is the blissful pursuit of avoidance through one of the following three flawed rationalizations:

  • The most common reason people fail to buy life insurance is because they’re oblivious to their need and never really think it through. (That probably doesn’t apply to you since you’re reading this article.)
  • The second reason is you falsely believe “it can’t happen to me”. That’s obviously nonsense since people die without warning every day so it’s totally possible that it just might happen to you. Improbable, yes. Possible? Absolutely!
  • You confuse probability with expectancy. In other words, the probability of you dying prematurely is crazy small, but that doesn’t matter. Expectancy should drive all your financial decisions (not probability) and expectancy is probability multiplied by payoff. When payoffs are unacceptably large and negative, then the smart decision is to transfer those risks through insurance (despite the low odds of occurrence). It’s just smart financial risk management and it’s the reason you should use insurance products in your financial plan.

If the above describes you in any way (where you have legitimate need but haven’t taken action yet), then this link will get you a free quote and introduce you to an experienced, independent agent that honors the rules in this article and will help you make a smart decision.

The Wrong Reason To Purchase Life Insurance

Unfortunately, most life insurance is sold, not bought.

The reason is simple. Life insurance has limited market appeal when you only sell a death benefit. As stated earlier, nobody want to contemplate their death or spend more money. It requires a serious conversation about the risk of dying prematurely and leaving your family behind. Nobody wants to think about that. It’s not an easy sell.

That’s why life insurance companies prefer to wrap a bunch of other benefits into the product so it has more sex appeal as an investment (read my expose on whole life insurance here). It’s clever marketing to dress the death benefit up in investment clothing creating product differentiation and expanding market share into the investment industry to increase total sales and profit. It’s good business on their part, but it’s not good for your wallet.

Always remember it’s not called “investment insurance” or “retirement insurance” for a reason. It’s called “life insurance” because its proper function is to insure your life.

Don’t fall prey to those sales tactics.

Buy Term Life Insurance Online – The Best Value

What do life jackets, seat belts, umbrellas, and life boats have in common?

When emergency strikes, the only thing you care about is they do their job.

You don’t care about color, brand, or special features.

You just need the protection to work in time of danger or discomfort.

… And that’s term life insurance.

Term life insurance is a “no frills” life insurance policy that offers low-cost death benefit coverage at a guaranteed level premium for set periods such as 10, 20, or 30 years. It’s a commodity product that’s competitively priced and consumer friendly.

It’s the financial life boat your family (or business) needs if you die unexpectedly.

Other Types of Life Insurance Policies

However, there are two other major types of life insurance that outsell term 2:1 – universal life insurance and whole life insurance.

These are both forms of lifetime or permanent life insurance, which I would rarely recommend, except in specific business or estate planning scenarios. (These RARE situations are fully explained in the articles explaining each type of insurance in our Smart Consumer’s Guide To Life Insurance series.)

The underlying problem with permanent forms of life insurance is you must pay for the rest of your life.

  • The likelihood that you’ll need to protect your dependents for the rest of your life only occurs in rare circumstances. That means you’re committing to a lifetime added expense you don’t need, which then leaves less money for achieving other important financial goals.
  • Secondly, you’ll likely have sufficient assets at some point in your life to eliminate the expense by self-insuring what risk remains in your later years. Again, that means buying permanent insurance will cause you to pay an unnecessary expense for a risk transfer service longer than you actually need it.

Surprisingly, the ACLI reports that roughly 2/3 of all individual policies sold in the U.S. are permanent plans, despite these policies not being the best deal for many of those consumers.

Remember, your goal is to purchase the valuable risk transfer death benefit at the lowest cost possible for only as long as you need it because (on balance) it’s a losing bet for the average consumer.

(Sure there are exceptions to the rule, and life insurance salespeople are quick to point out those exceptions to sell the more expensive insurance. But those exceptions merely prove the rule that most consumers must lose. After all, somebody has to pay for those exceptions, the commission to the sales people, the overhead to the insurance company, and the profit to the insurance company investors, and that somebody will likely be you.)

Therefore, smart consumers should think in terms of minimizing their life insurance costs while still properly protecting their family and business relationships for legitimate risks.

That means only purchasing the coverage you need (plain vanilla life insurance death benefit – no bells and whistles) for only as long as you need it (not permanent, and not for the rest of your life, but for the appropriate term).

For example, I don’t own life insurance because my wife and I have accumulated enough assets and planned for my passing in such a way that my family can live comfortably without me. Sure, I’m irreplaceable as a father and husband, but financially, they’ll be fine without me.

I’m “self-insured” because there’s no financial risk remaining to insure.

Your goal should be similar – to use term life insurance as the lowest cost solution to protect your loved ones (and/or business) only during the time necessary so you can dedicate all remaining financial resources to achieving self-insured status as quickly as possible.

Think about it for a minute… buying permanent insurance is an implied admission that you’ll never achieve financial security, will likely fail at your financial goals, and die poor one day because you’re using insurance to inefficiently leave an asset behind that you failed to accumulate on your own. Is that really the financial plan you want to follow?

“Buy term and invest the difference” is a cliché because it’s true. It’s the smart, efficient way to allocate your scarce financial resources because you’ll spend the minimum necessary on life insurance so you have the maximum possible to dedicate to investing toward your goal of financial independence and self-insurance.

Always remember there are commission hungry (or self-deceived) salespeople that will try to divert your attention from those fundamental financial truths (it’s a negative expectancy bet where the average consumer must lose) by pitching you on more expensive products sporting features and benefits that extend beyond the purpose of insuring your life from a risk you can’t afford to take.

If you encounter a salesperson playing that game then just move on, even if it’s your brother’s-sister’s-cousin-in-law.

There are plenty of honest, reputable, independent life insurance agents who will help you find just the right coverage you need at the lowest possible cost without any of the sales games (my recommendation is here, and yes, this is an affiliate link. Just grab a free quote and they’ll follow up to answer your questions).


Insider’s Guide To Life Insurance Quotes

Buying life insurance is one place where I wouldn’t suggest relying on a referral.

Why? Because most consumers know less than you about how to buy it right, so just because a family member or church friend is an agent for a big name company or is happy with her agent means squat.

As stated earlier, you want to buy from an independent agent who can shop the policy for you and can get you the best quote from many competing firms, preferably firms known to specialize in your situation. Never buy from a captive agent.

Captive agents (or career agents) are typically only able to sell products from one life insurance company, or are highly incentivized to sell one company’s products.

For example, if you ask a Northwestern Mutual, Farmer’s, State Farm, or New York Life agent for a life insurance quote, you are extremely likely to get quotes from that particular company only. There’s nothing wrong with that since they openly and fairly represent that company’s products. However, independent agents represent multiple companies so they can “shop the market” to find the best deal for you.

Also, don’t make the mistake of thinking that “shopping the market” is as simple as getting a “price comparison” from one of those online life insurance sites. That’s not how you secure the best deal for your situation because it ignores the role that health class ratings play in the actual price you’ll pay. An online quote may have zero applicability to your unique situation.

That’s because life insurance companies will assign you to a specific rating class before they issue you a personal quote (the generic quote you get assumes best rate class):

  • Preferred Plus (PP) (the lowest rate, and what you usually see published)
  • Preferred (costs 25% more than PP)
  • Standard Plus (50% more than PP)
  • Standard (75% more than PP)
  • There are also multiple “sub-standard” classes, each 25% more expensive, usually called “Table A through H” or “1-8”.

Here’s the important point… research shows less than 20% of life insurance applicants qualify for the best rate, and different companies rate different personal conditions in different ways. There is no standard.

  • So if your mom died of cancer (family history), some companies will penalize you for this and some won’t.
  • If you had a DUI a few years ago (driving history), some companies will decline you and some will approve you.
  • If you’re 25 pounds overweight, you might still qualify for some companies’ best class, but will be priced higher for the 2nd or 3rd class at other companies.

And there’s a surprisingly long list of conditions that could impact your rate class (which explains why less than 20% of applicants qualify for the best rate!):

  • Diabetes Type 1 or 2
  • Cancer history
  • Overweight
  • History of heart disease
  • Stroke
  • High blood pressure
  • High cholesterol
  • Elevated liver or kidney numbers
  • Sleep apnea
  • Anxiety
  • Depression
  • Epilepsy
  • Tobacco use
  • Family health history
  • Hazardous occupation
  • Dangerous hobbies (scuba diving, sky diving)
  • Pilot’s license
  • Criminal history
  • Driving history (tickets, DUI)
  • Drug or alcohol history
  • Foreign travel or citizenship issues

A knowledgeable independent agent will know which company to use for your particular situation based on his/her depth of experience shopping many, many policies to these different companies.

The agent’s job is to direct your business to the company who will approve you at the best rating class, not to simply pull up the best rates from all the companies and stick you with the company offering the lowest rate online (because you might not qualify for it after you submit your application).

The way it’s done in practice is the agent will run trial quotes for you at multiple companies because even with extensive experience it’s difficult to tell exactly how different combinations of health and personal conditions will effect the rate class you qualify for at each company. The agent should shop the policy for you by composing an email listing all relevant conditions and personal history to solicit an offer for insurance from each underwriting department. The goal is to find the company that’ll qualify you for the best rate class because that’s nearly always the best price.

In other words, just because a web site quotes you the lowest priced insurance company doesn’t necessarily mean that’s the best price you could actually get approved for given your particular circumstances.

Don’t Purchase Life Insurance From Captive Agents:

The opposite problem occurs when you shop life insurance using a captive agent representing a name-brand product line. This could cost you as much as 50% to 100% more for comparable coverage.

Sure, they might try to tell you that “all the companies’ rates are within a few bucks of each other,” but the research doesn’t support that claim.

Take the example of a 50 year old male, non-smoker, in excellent health, looking for a $500,000, 10 year term policy.  Below are 4 sample quotes (taken near the date of publishing) for comparison.

  • *Protective Life Insurance Co. – Custom Choice UL, 10 Year No Lapse – $276.77/year
  • Primerica Life Insurance Co. – Custom Advantage 10 – $352.50/year (costs 28% more)
  • Farmers New World Life Insurance Co. – Value Term 10 – $416/year (costs 51% more)
  • New York Life – 10 Year Level Term – $437.50/year (costs 58% more)

*Quotes are for illustrative purposes only. This is not an offer for insurance. The quotes represent each carrier’s top tier, non-tobacco rating, and are subject to change. Source:

The first thing to notice is how the quote from Protective is the lowest price and would likely only be provided by an independent agent, but that’s only half the story because all of these quotes assume you’ll qualify for each of these companies’ best health ratings (as discussed above), which may not be true.

What if you have a minor health concern, like taking medication for blood pressure? You can still qualify for Protective’s best health rating, but there are many companies out there who don’t allow blood pressure treatment in their best health category.

So let’s say you applied to Name Brand Company A, and instead of qualifying for their best health class, you got penalized one rate class for the blood pressure treatment.  Now you’ll pay about $520 per year, an 88% increase over Protective’s rate.

Do you see the problem?

It’s not just about finding the best quote. It’s about finding the best quote from the company that will qualify you at the highest rate class given your specific life situation. The difference can be a 10%-70% savings, and no, that’s not a typo.

To find out exactly how to save the most get a no risk, no obligation quote from the experienced independent agent I work with so they can qualify you for the best rate class (click here).)

Buying life insurance is about finding the best quote from the company that will qualify you at the highest rate class given your situation.

More Life Insurance Agent Tips You May Not Know

  • Be wary of dealing with a new agent because he or she is a family member or friend. Rookie agents can cost you a LOT of money. Experience does matter.
  • Check your agent’s license status (how long they’ve been in business, complaints, and which companies they represent) at your state’s department of insurance website. For example, you might try this search query in Illinois – “Illinois department of insurance Broker/Agent search”
  • Is your agent successful? This tip is optional because it’s a bit nosy, but ask your agent, “How much premium did you place last year?”  You’re looking for an answer over $100,000, which means they’re probably making 6 digits. Sure, there are good agents making less than a 6 digit income, but the more product you move, the more experience you get with the companies, and you’ll likely get more balanced advice from an agent who doesn’t desperately need your business to put food on the table.
  • When an agent quotes you, ask if they can share their screen with you via Skype or send you a screenshot of the quotes they’re seeing. You want to be sure they are quoting you the best rate, not the 5th best because selling that particular company or product helps the agent win a sales contest.  NOTE: It’s perfectly acceptable to not quote you the best rate listed if the agent knows you can’t qualify for that rate due to some personal or medical history issue.

In summary, there are many ways to buy life insurance:

  • You can buy online from a web site quoting rates, but you won’t know which companies you actually qualify for given your personal situation.
  • Alternatively, you can turn to a captive agent specializing in a specific company product line, but that may not get you the best rate.
  • Or you can turn to an experienced, independent agent who can help you shop it out at no additional cost to you so you get the best rate for your particular life situation (click here for my recommendation. You’ll get a free quote and they’ll follow up to answer your questions.)

How Much Life Insurance Do I Need?

A life insurance agent’s commission is a function of the value of the policy they sell.

That means they have an incentive to calculate your life insurance need “generously”.

Smart consumers do their own calculation first so they have a benchmark to compare with the agent’s analysis.

For example, let’s assume you’re 40 years old, make $100,000 per year, and plan to work another 25 years.

An agent might look at that and quickly recommend $100,000 per year multiplied by 25 years resulting in $2.5 million of coverage. Unfortunately, that’s not the smart way to do it for the following reasons:

  • You probably don’t need to replace 100% of your income – Your family may spend less due to decreased living expenses once you’re out of the picture.
  • Excludes investment return – Your spouse will likely receive interest and capital gains on the assets over time, supplementing the capital provided.
  • Don’t double dip – Most life insurance calculators (mine here included) factor in the costs to pay off every debt or future obligation you’ll ever have, but your current income factored over 25 years is already paying for those debts, causing you to over-insure for a double payoff. Once those debts are paid that means your income needs will drop accordingly.
  • Your spouse can work – Most people don’t like a perpetually sedentary life. Your spouse could choose to return to the work force once the children are raised, or after a period of retraining and education. In other words, you may need to only provide for a few years of income loss as a result.
  • Short life expectancy – Not to be morbid, but if you’re a 50 year old female getting coverage on yourself to protect your 60 year old husband who is obese, has diabetes, smokes, and has had two heart attacks, it may be a reasonable bet for you to only buy a 10 or 15 year term policy.
  • Other Income Sources – You may not need to replace every nickel of your earnings. Social security often pays out to a surviving spouse, and many pensions and annuities are set up to continue paying to the surviving spouse.
  • Calculate Your Own Needs – based on your unique situation using my calculator here so you can factor all these variables in. It’s not perfect, but you’ll have a much better idea of how much you need than simply relying on a quick calculation by an agent with an incentive to sell you more insurance than necessary.

Remember, you want to buy the least amount of coverage necessary, for the lowest price, for the shortest time period required, to manage your risk. That’s because the less you spend on insurance (remember, you’re hoping it’s just a wasted, but essential, risk management expense), the more you have to invest for your financial independence.

The 10-20x Your Income Rule

For example, plugging the numbers from above in my life insurance calculator using $100,000 in income for 25 years of work yields a $1.6 million dollar need instead of $2.5 million. That’s 36% less using the standard assumptions built into the calculator without changing the “living expense” to $75,000. Obviously, additional tweaks could make that number even more affordable.

This takes us to a common rule of thumb used in the industry: your ballpark need will run between 10 – 20 times your annual income, depending on your personal situation.

But with that said, rules of thumb should generally be avoided in favor of a calculator that will take into account the exact circumstances you face to arrive at a number that best reflects your real need.

NOTE: To understand life insurance in business (and how much is appropriate there) as well as using life insurance to pay estate taxes, please see related posts in our Smart Consumer Guide To Life Insurance series here).

Where To Buy Life Insurance – Selecting The Best Company:

Another factor in your decision should be which life insurance company you purchase from because not all companies or products are created equal.

The criteria you’ll use to analyze a company are as follows:

  • Financial Health
  • Product Choice
  • Price

Surprisingly, these factors result in less differentiation than you might expect. Let’s look at the reasons why…

Financial Health

The generally accepted best practice for assessing financial health is to purchase only from a company with a rating of “A-” or better from A.M. Best.

Financial ratings matter because your insurance company must have the financial resources to make good on their promise to pay up if you die.  An “A-” rating means the company’s ability to meet its ongoing claims obligations is “excellent” in the opinion of A.M. Best. That’s a good thing.

With that said, just about all the big players are rated “A-” or better, so this is less of a factor than you might think. While you absolutely should check the insurance company’s rating before buying, it rarely becomes an issue in the buying decision.

NOTE: The only reason you wouldn’t go with a top rated company is if you have a “hard to place” medical or personal issue preventing you from being approved at other companies. You might need to do business with a “B” rated company in that instance.

In addition, there are 3 reasons to look beyond this generic rating system and dig a little deeper when assessing company financial health.

  1. Most life insurance companies do business under the umbrella of a larger financial institution or parent company that can help financially if needed. For example, Banner Life Insurance is owned by Legal & General, Reliastar Life is owned by Voya Financial, and Pruco Life Insurance is owned by Prudential (as of this publication date).
  2. Additionally, if a life insurance company isn’t doing well then its life insurance policies typically get bought out by another company. The “life insurance book of business” is highly profitable even if the underlying company is struggling. That makes your policy obligation a sellable asset that usually gets taken over by a financially stronger buying company.
  3. Finally, each state has a state guarantee association, which all the companies transacting business in that state must pay into. The association’s job is to help failing companies from going belly up, but if that’s not possible, they help to ensure the policies are bought out and claims are paid. But be careful because most states limit payouts from the guaranteed fund to $300,000 maximum for each insured. You’ll want to check your state’s limits.

To be safe, again, I would try to avoid companies rated lower than “A-“, but if tough medical conditions limit your choice to a B rated company, then just dig a little deeper to decide if it merits further consideration.

Product Choice, Availability and Options

Always remember that the commodity benefit you’re buying with term life insurance is the death benefit for a specified period of time, usually 10, 20, or 30 years.

However, as I said earlier, life insurance companies love to differentiate their products to gain a sales advantage. This practice makes it hard for you to do a straight price comparison because each policy has different bells and whistles that must be accounted for. For example…

  • Some companies might include a “Chronic Illness Rider” giving you access to some of your death benefit (while you’re still living) if you get confined to a special care facility.
  • Other companies may offer an “accelerated death benefit” rider, allowing you to take some of your death benefit early in the case of terminal illness.
  • Still other companies limit your policy choices based on the state you live in, or your age. For example, many companies stop offering 30 year term at age 50 or 55, but at least one company (as of this writing) offers their 30 year term up to age 57.

The only problem is consumers are notoriously bad at valuing these arcane benefits.

  • What is the likelihood it will pay off?
  • If it does pay off, what’s the real value?
  • Is there special language or carefully crafted legal exceptions creating narrow definitions and qualifications in the terms thus lowering the value of the benefit?

Again, the rule is simple – pay only for what you need, and for as little time as you need it.

If you have a specific condition or family history that indicates a specific rider might be important to you then consider it. But be wary of adding bells and whistles just because they sound nice because each is priced to give the insurance company more money than it costs them.

They’re in this business for a profit and they know the risk pricing game inside-out, so be careful.

The rule is simple: buy the least amount of coverage necessary, for the lowest price, for the shortest time period required, to manage your risk.


As stated above, if you have perfect health with no preexisting conditions and no family or lifestyle history to warrant concern, then company selection is primarily based on price and financial strength.

However, if you have any health, lifestyle, or family history issues then you want to seek the insurance company that’ll rate you at the lowest health rating, thus resulting in the lowest premium.

In other words, there are two dimensions to getting your best deal – price, and the health rating you qualify for.

The advantage of an experienced, independent agent is s/he can help you identify the best company that will deliver the best rating and price for your individual situation. And of course, I have my recommended resource here. Just grab a free quote and they’ll follow up with you and answer your questions.


Get This Article Sent to Your Inbox as a PDF…


13 Little-Known Life Insurance Savings Tips

Finally, now that you have the big picture on how to get the best deal in life insurance, we’ll close things out with a few less common life insurance savings tips so you have all the tools you need to make a smart decision:

1. Set Up Your Death Benefit as an Annuity Stream (10%-30% Savings) – Most people buy life insurance to replace their income if they die. However, the policies they buy are set up to pay one giant lump sum death benefit. The alternative is to give your beneficiaries exactly what they had before…a regular income. There are a few companies that’ll discount their regular premium by 10% to 30% if you set up your death benefit to be paid out over 10 to 20 years.

In other words, instead of giving your wife a $1 million dollar death benefit, why not give her $100,000 for 10 years? This is especially helpful when the beneficiary lacks financial skill or has other financial responsibility issues leading you to believe a lump sum payment may get squandered. If that sounds appealing, this agency can help you. Just get a free quote and they’ll follow up to help you.

2. Stagger (or Layer) Your Policies (10%-30% Savings) – Just as you can ladder CDs, bonds, or annuity maturities so you have money at predictable time periods in the future, you can do the same thing with life insurance and save money at the same time.

For example, let’s assume you need $1 million of life insurance today, but you expect that need to decrease over the next 20 to 30 years due to your other investment plans.  Many agents would try to sell you a 30 year term for $1 million, but it might be more cost efficient to buy two policies: a 15 year term for $500,000, and a 30 year term for $500,000. This will give you $1 million of coverage for the first 15 years and $500K of coverage for the remaining 15 years to reflect decreased financial need resulting from increased assets in your later years. This better reflects your real financial need and lowers your costs at the same time.

3. Take an Exam (10%-40% Savings) – “No exam” policies are terrific for agents. They cost 10% to 50% more, which then puts more commission in the agent’s pocket. The sales appeal to the consumer is convenience, but at what price?

The truth is there are few situations where it makes sense for you to buy a life insurance policy without taking an exam. This becomes obvious when you think about it from the insurance company’s perspective. Their goal is to write policies on people who won’t die during the term. That’s how they maximize profits.

They’ll ask personal questions on your application, pull medical records, your driving record, etc., in an effort to price your risk of death. Help them out and let them confirm that you are healthy in every way with a full exam. Consent to the blood and urine tests, a blood pressure test, and provide accurate height and weight. It won’t cost you anything but time.

Insurance companies know full well that people with pre-existing conditions will pursue “no exam” policies; thus, they price those policies at a premium to reflect the increased risk. If you’ve got nothing to hide, then consenting to all health tests will save you money by pricing your policy at a lower rate class.

4. Exercise and Eat Right for 1-2 Weeks Before Your Exam – Few people realize the health benefits of eating right and exercising, even for a short period of time like 1 to 2 weeks.

If you’re not clear about this, then just watch the Biggest Loser and notice how morbidly obese people routinely get off their blood pressure and diabetes medications within a few weeks of starting the show. reported:

“One man with a hemoglobin A1c (HbA1c) of 9.1, a body mass index (BMI) of 51, and who needed six insulin injections a day as well as other multiple prescriptions was off all medication by week 3, said Robert Huizenga, MD, the medical advisor for the TV show.”

The body has an amazing, self-healing ability. Treat it right (even for a short period of time) and it will naturally try to find homeostasis – a more balanced, healthier state.

Additionally, few people realize how stringent life insurance companies can be with their underwriting.  If your cholesterol surpasses their maximum level allowed for the best class, even by a few points, you’ll get placed in their 2nd best class.

… and that will cost you an additional 25% for 10 to 30 years!

Same thing goes for weight and many other lab levels they consider. They have strict guidelines. One extra health class can cost 25% more, so aim for the best health class possible. Give yourself the best chance to test well by exercising and eating right during the weeks preceding your exam.

  1. Pay semi-annually or annually instead of monthly (4% to 8% savings) – Paying in lump sums reduces the insurance company’s administrative costs which comes back to you in lower premiums.
  2. Bundle Policies – Usually, name brand carriers aren’t the best deal, and they can often have strict underwriting requirements for health conditions (as discussed above) further increasing costs. However, there is one exception worth looking into – some insurance companies offer multiple policy discounts. In other words, if you already have your home and auto policy with one company then it’s worth a phone call to find out if adding life insurance would qualify you for a multi-policy discount. If you’re seeking a lower coverage amount (less than 500K) then it’s possible that discount might be enough to make a difference.
  3. Break Point Discounts – Insurance companies usually charge less per thousand of coverage at specific break points. The most common break points, or “banding” discount levels, are at the $250,000, $500,000, and $1,000,000 coverage amounts. So anytime your life insurance need estimate puts you under one of these round number break point levels make sure you also get quotes at the next break point above what you actually need. There’s a reasonable chance you could get the best of both worlds – pay less money and get more coverage  at the same time – and that’s a good thing.
  4. Replace Your Mortgage Insurance – Mortgage life insurance pays off your mortgage if you die. It’s effectively a declining value term policy because the outstanding balance on your mortgage declines (amortizes) over time. A 20 or 30 year term policy will typically cost less while still providing the necessary protection.
  5. Buy A Second-To-Die Policy (10%-20% savings) – This savings strategy will usually apply to a dual-income married couple trying to provide for their children or for life insurance used in estate planning. The policy is significantly cheaper because it will only pay out when both people die.
  6. Group Insurance For Serious Medical Conditions – If you have a known, serious medical condition it can be difficult and tremendously expensive to buy life insurance. One solution is to find large group policies through work or other organizations you’re affiliated with. The underwriting is sometimes as simple as age, gender, and whether or not you smoke, making qualification easy. The savings can be extraordinary depending on your actual health condition.
  7. Free Insurance – Mass Mutual offers free 10 year $50,000 term policies to individuals between the ages of 19-42 with a household income between $10,000-$40,000 under their Life Bridge program. Check it out if you qualify.
  8. Don’t Wait / Buy Now – If you’re healthy and need the coverage then waiting can cost you. Premiums can rise by 5% to 12% for every birthday you wait. Plus, you also incur the risk of developing an adverse health condition that might increase your premium. It never gets cheaper to wait so why take the risk?
  9. Finally, consider shopping your life insurance every 2 years – Your health may have improved or new products may come to market that could reduce your premium. You don’t know unless you ask.


In summary, buying life insurance can be confusing. Smart consumers keep it simple by a following a few common-sense rules.

  • Limit what you buy to just what you need by insuring only those risks you can’t afford to take for the minimum time necessary. You do the same with every other insurance and consumption item in your life, so why should life insurance be any different?
  • Don’t confuse life insurance with investing by getting sold on complicated policies with lots of bells and whistles. Just buy it for the risk management protection. You do that with every other type of insurance in your life, so why should life insurance be any different?
  • Keep it simple, and don’t get swayed by smooth talking salespeople. Only buy from an experienced, independent agent who can qualify you at the best rate class for the best deal by selling only what fits your needs (not what gives him the best commission or sales bonus).

If you stay away from whole life and “no exam” policies and follow the rules in this guide, then you’ll be well-armed to make a smart decision on your life insurance purchase.

And if you have any questions or want a quote, then contact this recommended independent agency because they walk-the-talk with everything taught here. Just grab a free quote and they’ll follow up to help you!

Independent Agents Can Save You Up To 73% On Life Insurance

Applying to the life insurance company with the "lowest quote" rarely gets you the lowest rate.

Independent agents know which company to place you with according to your specific health and insurance needs. Click to compare rates using the agency I'm affiliated with and trust.

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Victim? How To Report Fraud and Get Help Thu, 01 Dec 2016 18:50:31 +0000 Learn The Do’s And Don’ts That Maximize Your Odds For Investment Recovery After Investment Fraud Strikes

Key Ideas

  1. Why you must speak up when investment fraud occurs.
  2. Contact information for the regulatory services that handle fraud complaints.

Prevention is your best defense against becoming an investment fraud victim, and there are numerous articles on this site educating you on how to avoid investment fraud.

However, if you’re reading this article, it’s likely too late for that message.

The typical first response to realizing you’re a victim of investment fraud is a combination of anger and embarrassment. You got a raw deal and it doesn’t feel good.

“One ought never to turn one’s back on a threatened danger and try to run away from it. If you do that, you will double the danger. But if you meet it promptly and without flinching, you will reduce the danger in half.” – Sir Winston Churchill

You may be tempted to sweep the mistake under the rug and get on with your life by putting it all behind you.

That’s a mistake…

Get This Article Sent to Your Inbox as a PDF…


How to report fraud image

You’re Not the Only Victim of Fraud

You’re unlikely the only victim, and every day the investment fraud goes undetected, more people will be hurt by it.

By complaining to authorities as quickly and loudly as possible, you’re doing your best to fight back against the con man while also increasing your chances of recovering any lost money.

It’s not a perfect solution, but it’s the best you can do under the circumstances.

You might be pleasantly surprised to learn that according to Bruce Sankin, an auditor and mediator for NASD, “91% of investors who knew their rights and first mediated and then arbitrated recovered part or all of their investment losses.”


That’s a valuable and worthwhile statistic to know. It should be highly motivating to take action if you believe you’re a victim of investment fraud.

However, to understand the above quote, it’s important to create a distinction between stock broker fraud at a legitimate firm and investment fraud by the firm itself. Each requires a different course of action to seek remedy.

How to Report Fraud

If you’re facing stock broker fraud within a legitimate firm, then your first step is to complain, in writing, to the broker first and the branch manager second.

People who follow this procedure are the ones getting the results Bruce is citing above.

However, there are times when the whole company is crooked. In that case, pursuing corrective action within the same firm is not likely to work.

It makes more sense to turn to the regulators for additional help.

Below is a list of regulatory resources for filing investment fraud complaints when your grievance with the offending firm isn’t getting resolved:

  • Securities and Exchange Commission: Email to, fill out the online complaint form, fax 202-772-9235, or mail to SEC Complaint Center at 100 F Street NE, Washington, D.C. 20549-5990. You can also call them at 202-551-6551.
  • State Securities Regulator: Visit the national web site at for local regulators and an online complaint form or call 202-737-0900. You can email at .
  • National Association of Securities Dealers regulatory branch (NASDR) now called FINRA for Financial Industry Regulatory Authority:, online complaint form, or call 800-289-9999.
  • Federal Bureau of Investigation (FBI): You can find local offices on their web site at
  • Better Business Bureau:
  • Your local District Attorney’s Consumer Protection Unit
  • Your local Postal Inspectors Office if mail was used as part of the investment fraud process

“Your only obligation in any lifetime is to be true to yourself.” – Richard Bach

Remember, con artists can’t get prosecuted and your money can’t get returned if you don’t speak up. You don’t want the con man to get away with it, do you?

The sooner you contact these resources, the greater the likelihood that you’ll stop the investment fraud from victimizing another person like yourself.

Help others while helping yourself by complaining promptly.

Who knows, you might even get some of that lost money back…

[investment-fraud-footer] ]]> 0
FM 022: The Shocking Truth About Life After Financial Independence with Tess Vigeland Fri, 18 Nov 2016 17:20:49 +0000 Surprising financial independence insights about life without a career. Case studies & research so you can prepare for career change or early retirement.

Click here to download the transcript of Tess' best tips on finding true happiness and fulfillment!

How will you define yourself after you retire?

Who are you without your career?

The unfortunate truth is most people attach their self-definition to their professional life.

This results in unexpected emotional difficulty when you achieve financial independence or retire early.

You’re not alone in this mistake. I did the exact same thing. It’s a common problem.

I incorrectly believed retiring early meant living the “pro-leisure circuit” with endless vacations and eternal bliss – no worries in the world.

I wish life was that easy, but that’s not how it works.

Tess Vigeland is the author of Leap and former host of NPR’s Marketplace Money. She lived her dream career for 20+ years, never giving thought to what might be next because she never expected to quit.

When it came time to take the leap she was completely unprepared.

Tess and I both learned the hard way what stands on the other side of career and share our research and experience so you don’t make the same mistake. It doesn’t have to be a problem as long as you know what to expect and how to prepare for it.

In this interview we give you the inside scoop from direct experience so you can avoid the obvious potholes we stepped into.

I’ve coached many of my clients through the process of financial independence, and I went through it myself. Figuring out who you are and what you stand for when your career isn’t in the picture is key to your fulfillment, and the sooner you do it the happier you’ll be.

In this episode you’ll discover:

  • How to deal with your fear of risk and uncertainty following career change.
  • How to define yourself without a career.
  • What will be your new success metric, and why does it matter?
  • The three common signs that tell you when it’s time to leave your job or make a change.
  • Why your career must honor your values, and what happens when it doesn’t.
  • The insidiously dangerous role of self-doubt when your career ends, and how to stop it.
  • How to find balance when you’re personally identified with your work.
  • How Tess coped with losing her identity as a celebrity public figure.
  • The critically important role community plays in your life, and how to find it after financial independence.
  • How career gives you a sense of purpose, and where to find that purpose after you achieve financial independence.
  • How to overcome the challenge of creating your life from a blank canvas.
  • The key differences that separate financial independence from simply making a career change
  • The one mistake you must avoid after your leap.
  • What the “adjacent other” means for your career.
  • Several case studies, including how one woman left corporate America and reinvented her career.
  • How to deal with the expected fallout from family and friends.
  • The importance of building your tribe of friends that understand and support leading an unconventional life.
  • …and much more

Resources and Links Mentioned in this Session Include:

Financial Mentor Podcast Image

Help Out The Show:

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I read every review, and your support helps the show rank higher so more people find us and benefit from the message.

If you could spare a minute to leave a review on iTunes it would mean a lot to me. Thank you so much!

Click here to subscribe to the show on iTunes and leave a review…

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]]> 0 Post-career life is not what you expect. The pro-leisure circuit of living an endless vacation in permanent bliss is a myth. Many early retirees face a rude awakening without a career that gives purpose and defines your identity.

How will you define yourself after you retire?
Who are you without your career?
The unfortunate truth is most people attach their self-definition to their professional life.
This results in unexpected emotional difficulty when you achieve financial independence or retire early.
You’re not alone in this mistake. I did the exact same thing. It’s a common problem.
I incorrectly believed retiring early meant living the “pro-leisure circuit” with endless vacations and eternal bliss – no worries in the world.
I wish life was that easy, but that’s not how it works.
Tess Vigeland is the author of Leap and former host of NPR’s Marketplace Money. She lived her dream career for 20+ years, never giving thought to what might be next because she never expected to quit.
When it came time to take the leap she was completely unprepared.
Tess and I both learned the hard way what stands on the other side of career and share our research and experience so you don’t make the same mistake. It doesn’t have to be a problem as long as you know what to expect and how to prepare for it.
In this interview we give you the inside scoop from direct experience so you can avoid the obvious potholes we stepped into.
I’ve coached many of my clients through the process of financial independence, and I went through it myself. Figuring out who you are and what you stand for when your career isn’t in the picture is key to your fulfillment, and the sooner you do it the happier you’ll be.
In this episode you’ll discover:

* How to deal with your fear of risk and uncertainty following career change.
* How to define yourself without a career.
* What will be your new success metric, and why does it matter?
* The three common signs that tell you when it’s time to leave your job or make a change.
* Why your career must honor your values, and what happens when it doesn’t.
* The insidiously dangerous role of self-doubt when your career ends, and how to stop it.
* How to find balance when you’re personally identified with your work.
* How Tess coped with losing her identity as a celebrity public figure.
* The critically important role community plays in your life, and how to find it after financial independence.
* How career gives you a sense of purpose, and where to find that purpose after you achieve financial independence.
* How to overcome the challenge of creating your life from a blank canvas.
* The key differences that separate financial independence from simply making a career change
* The one mistake you must avoid after your leap.
* What the “adjacent other” means for your career.
* Several case studies, including how one woman left corporate America and reinvented her career.
* How to deal with the expected fallout from family and friends.
* The importance of building your tribe of friends that understand and suppo...]]>
Todd R. Tresidder: Financial coach, wealth building strategist, author, investor 22 The Shocking Truth About Life After Financial Independence with Tess Vigeland clean 50:12
12 Deadly Investment Mistakes You Must Avoid Mon, 12 Sep 2016 01:00:52 +0000 Reveals The Twelve Most Common Investment Mistakes That Separate You From Financial Security

Key Ideas

  1. Discover how you can make more by risking less.
  2. Reveals the dangerous deception hiding behind historical investment returns.
  3. Shows you how “experts” can cause more harm than good.

Investment mistakes cost you money – that’s why they must be avoided.

There are only two paths to gaining the experience necessary to know how to minimize investment mistakes:

  1. Smart Path: by learning from other people’s investment mistakes
  2. Expensive Path: by making your own investment mistakes and learning from the school of hard knocks

Frankly, I’m no masochist. I prefer the more efficient method of learning from other people’s investment mistakes wherever possible.

Learning vicariously helps you avoid losses, which leaves more profits in your pocket and accelerates your journey to financial freedom.

“You must learn from the mistakes of others. You can’t possibly live long enough to make them all yourself.”– Sam Levenson

For that reason, let’s look at the top twelve investment mistakes gleaned from years of coaching experience so you don’t have to pay the price of direct experience.

Get This Article Sent to Your Inbox as a PDF…


Investment Mistakes Image


Investment Mistake Tip #1: Diversify, But Don’t Diworsefy

Diversification is a valuable risk management tool, but only when used properly. Diversification only adds value when the new asset added has a different risk profile.

For example, when diversifying a U.S. stock portfolio, you may want to consider non-related markets like gold, gold stocks, real estate, bonds, commodities, and other asset classes that exhibit low or inverse correlation.

“Wise men profit more from fools than fools from wise men; for the wise men shun the mistakes of the fools, but fools don’t imitate the successes of the wise.”– Cato the Elder

Diworsefying is adding more assets with a similar risk profile until your investment performance replicates the averages. For example, adding U.S. equity mutual funds to a diversified portfolio of U.S. stocks is di-worse-ification.

Your goal when diversifying should be to add independent and sometimes opposing sources of return. This can lower portfolio risk and possibly increase overall return when coupled with other investment techniques explained below.

Investment Mistake Tip #2: Don’t Pick Stocks – Asset Allocation Is More Important

Multiple research studies agree that at least 90% of the variance in a diversified portfolio’s returns are attributable to asset allocation.

What’s surprising, however, is that most people mistakenly focus 90% of their efforts on the remaining 10% of return by trying to pick individual securities. It makes no sense.

“The ability to focus attention on important things is a defining characteristic of intelligence.” – Robert J. Shiller

Don’t make the mistake of spending all your time on the decisions that will make little difference in your overall performance.

Don’t try to pick the next hot stock or top performing fund when the experts who live and breathe this stuff are consistent failures at the task.

Instead, spend your limited time and resources determining your correct allocation to asset classes and strategies, and you’ll be putting Pareto’s Law (the 80-20 rule where 80% of your results come from 20% of your efforts) to work for you.

Investment Mistake Tip #3: Don’t Confuse Historical Returns With Future Expectations

Just because your investment advisor told you the average historical returns from the U.S. stock market are approximately 10% annually (or 7% or 8% depending on time period and whether adjusted for dividends and inflation) doesn’t mean you should expect similar.

The future will likely be very different from historical averages, and your average holding period may not be long enough to replicate average returns.

For example, most long-term historical stock return studies use average holding periods of 30 years or more. Even if your investment career is 30 or 40 years, your average holding period will likely be less than half that length.

The bulk of your savings are usually accumulated late in your career and spent throughout retirement. Almost nobody begins investing at age 30 with a large lump-sum and retires at age 60 on that investment to create a 30 year holding period. Life doesn’t work that way.

The result is you should expect far greater variability in expected returns than long-term averages would indicate.

Additionally, average returns are a statistical fiction that seldom exist in reality. According to Nassim Taleb, author of “Fooled by Randomness,” the average return on the Dow Jones Industrial Average from 1900 to 2002 was 7.2%.

Only 5 of the 103 years had returns between 5% and 10%. Obviously, the “average” is far from typical.

“A reasonable probability is the only certainty.” – E.W. Howe

Finally, long term averages may have little relevance to your current investment situation because the current investment environment may be anything but average.

For example, few investors are taught that their holding period returns for stocks are inversely correlated to valuations at the beginning of the holding period.

In other words, if stock valuations are higher than average when you begin investing, you should expect 7-15 year returns lower than average.

If stock valuations are lower than average when you start investing, then you can reasonably expect 7-15 year returns higher than average.

In short, the investment advice you receive about long term probabilities and average returns may have little or no relevance to the actual results you get.

Don’t make the mistake of basing your investment plan on historical average returns – even if your investment time horizon is long-term.

If investing was that simple and obvious, then more people would be successful at it – but they aren’t.

Investment Mistake Tip #4: Don’t Invest Without a Plan

Don’t make the mistake of spending more time planning your vacation than planning your financial future.

Numerous studies show that people who are methodical enough to create a written investment plan can expect to outperform their peers, not by just a few percentage points, but by multiples.

You must create a disciplined plan based on mathematical expectancy because anything less is gambling and not investing.

There are many different investment strategies that honor Expectancy Investing principles, but all of them require disciplined implementation over many years to assure that you come out a winner in the end.

That means you should never “invest” (read: gamble) on rumors, hot tips, stories, conjecture, future predictions, or an expectation the market will go up.

You must have a plan based on provable positive expectancy, and none of these approaches qualifies as a plan despite their widespread use and popular appeal.

Your financial security deserves better.

“Life is what happens to you while you’re busy making other plans.” – John Lennon

Investment Mistake Tip #5: Don’t Forget to Invest in Your Financial Education

You must learn before you can earn. Every investment you make in yourself will pay you dividends for a lifetime.

I often tell coaching clients that investing isn’t brain surgery. It’s far more complicated than that.

Investing done right is both an art and a science. For that reason, you must be wary of half-truths and oversimplification that don’t respect the inherent complication of the process.

Investing is an art because we’re emotional human beings masquerading as rational decisions makers.

Our decisions are affected by our values, moods, crowd psychology, previous experience, greed, and fear. Yet, we persist in the illusion that we invest logically.

“Education is a progressive discovery of our own ignorance.” – Will Durant

Investing is also a science because it requires a proper strategy based on provable scientific principles like diversification, asset allocation, valuation, correlation, probability, and much more.

You must balance both the art and the science to become a consistently profitable investor. You must work on yourself to improve your decision-making process while also developing your knowledge of investment strategy.

That’s why’s stated purpose is to build your financial intelligence so that you can build your wealth.

There’s nothing more financially dangerous than an investor making a million dollars worth of decisions with a thousand dollars worth of financial intelligence

When it comes to investing, a little knowledge can be a dangerous thing, and a lot of knowledge can be a profitable thing.

So invest in your financial education. It will pay you dividends for a lifetime.

Investment Mistake Tip #6: Don’t Forget to Match Investment Style with Personal Goals

Don’t make the mistake of climbing the ladder to investment success only to discover it’s leaning against the wrong wall.

There’s no single right answer to investment strategy that will result in financial success for everyone, but there’s one right answer that will be true for you.

Your job is to find the path that will honor your skills, resources, goals, values, and risk tolerances so that you experience personal success and fulfillment from achieving financial success.

Just because some seminar guru made his millions doing the “blah, blah, blah” strategy doesn’t mean it’s the right strategy for you.

Also, just because your financial advisor makes money by selling you paper assets (stocks, bonds, mutual funds, insurance, etc.) doesn’t mean your personalized path to wealth won’t include alternatives to paper assets such as real estate or building your own business. One size doesn’t fit all.

Your journey to financial freedom is about discovering what size will uniquely fit you. (You can discover how to design your personalized plan for financial freedom here…)


Investment Mistake Tip #7: Don’t Place Excessive Trust in “Experts”

Everybody has a conflict of interest with your wealth except you.

Investment institutions manage your money so they can charge fees, and financial advisors sell you products so they can earn commissions.

Similarly, the investment media seeks to maximize subscription and advertising revenue thus biasing editorial policy toward sizzle that sells rather than substance that serves.

The bottom line is your investment advice is coming from sources whose business objectives are focused on their wealth. Not yours.

Don’t make the mistake of trusting the experts. You should always operate from the assumption that the investment advice you receive is biased.

“An economist is an expert who will know tomorrow why the things he predicted yesterday didn’t happen today.” – Laurence J. Peter

To understand how bias creeps into your investment advice, simply look at how the source’s pockets are lined. Know that where they stand limits what they see. We all have biases. That includes you and me.

With that said, I also believe there are many well intentioned, honest, good people doing their absolute best to work with the limited knowledge and conflicting data that make up the investment world.

Most “experts” are confused by investing just like you, or if they’re confident, it’s because they’re blind to the humbling reality that the essence of investing is putting capital at risk into an unknowable future. Outcomes are always probabilistic at best because the future will always be unpredictable. Nobody ever truly knows what will happen, including the experts.

The result is you should never mistake professional opinions for fact just because they carry an air of expertise or come from a large institution.

Most experts are trained in a specific school of thought and don’t see outside of it.

There’s no single investment truth and anyone claiming to have it is proving that they don’t.

When you learn that there are many shapes and dimensions to the complexity of investment truth and stop believing the supposed experts, your healthy skepticism will bring you closer to consistent profits.

Investment Mistake Tip #8: Beware of Low Liquidity

A liquid investment is something that can readily be converted into cash, and an illiquid investment is something with barriers that keep it from being converted to cash.

Examples of liquid investments include United States Government Bonds and large, listed corporate stocks. Illiquid investments include some partnership interests, thinly traded stocks, and most real estate.

Reveals the 12 investment mistakes that keep you from financial security and provides the tips, tools, and resources you need to avoid those mistakes...

Looking back over my investment career, nearly all of my major losses and financial setbacks can be attributed to loss of liquidity.

The reason is simple: your ultimate risk management tool is to exit the investment to control losses, but inadequate liquidity can lock you into an investment causing losses to grow to unacceptable levels.

Never make the mistake of accepting low liquidity unless the potential reward is so great as to merit the additional risk.

Only give up liquidity when you have other risk management disciplines to control risk of loss for this investment.

Investment Mistake Tip #9: Beware of Excessive Conservatism or Risk Taking

The essence of the investment game is balancing risk with reward, and the better you get at risk management, the more reward you can pursue.

The high-flying tech stock or new issue investor is making the same mistake as the guy who solely invests in C.D.’s, U.S. Treasury bills, or bonds.

They’re polar opposites of the same extreme thinking because neither has balanced risk with reward to maximize his long-term wealth.

Remember, a ship may be safest sitting in harbor, but that’s not what ships were built for. Similarly, it’s reckless to take a ship out of harbor when the “perfect storm” strikes.

You should invest aggressively when the reward merits the risk, and conserve capital by hiding in the safe harbor of cash equivalents when risk is excessive.

Always have an exit point for every investment so you can preserve capital when the perfect storm strikes.

Investment Mistake Tip #10: Don’t Confuse Brains with a Bull Market

A rising tide lifts all boats. When the tide goes out is when you see who is standing naked in the water.

Don’t mistake brains with a bull market just because you happen to be in the right place at the right time and made some good money through sheer luck.

“A smooth sea never made a skilled mariner.” – English Proverb

The ability to conserve capital and even prosper when underlying market conditions are adverse is where you separate the novice from the skilled investor.

That means having a risk management discipline to manage losses to an acceptable level.

Investment results should only be viewed over the course of an entire market cycle because short-term results in one-way markets can lead to false conclusions.

Investment Mistake Tip #11: Don’t Confuse Total Return with Value Added

When measuring investment results, don’t make the mistake of looking solely at how much money you made.

The reason is because total return is a composite of market return, style return, and management skill. Looking at total return without separating the source of the return will cause false conclusions.

The real measure of investment skill is value added return, and that’s determined by comparing total returns against an appropriate benchmark index over a full economic cycle. By doing this, you isolate style and market returns from management skill.

For example, a growth stock manager with annual compound returns of 25% could be a dud or a rock-star depending on whether the benchmark growth stock index gained 32% (value lost -7%) or lost 3% (value added +28%) over the same time period.

Conversely, your investment style might be inherently bull-biased to where you do well in risking markets but lose horribly in declining markets.

Performance over the full market cycle relative to an appropriate benchmark is how you determine investment skill and value added.

Investment Mistake Tip #12: Don’t Focus Excessively on Expenses or Taxes

“The avoidance of taxes is the only intellectual pursuit that carries any reward.” – John Maynard Keynes

Don’t make the mistake of never selling an investment because you don’t want to pay taxes or fees. Conversely, you also shouldn’t ignore the tax consequences.

Taxes and fees are just one factor (transaction expenses) to consider when analyzing how a transaction will impact overall portfolio performance.

Other factors to consider, which may take priority over tax and expense concerns, include risk control, asset allocation, expected reward, and many others.

The objective of investing is to maximize profits for any level of risk, with taxes and fees being only one component to that equation.

Whether or not you should pay taxes and fees by making a transaction will depend on how the transaction is expected to impact investment performance net of fees and taxes.

For example, many people thought I was nuts to sell my entire investment real estate portfolio in 2006 and pay a horrendous tax bill on the gains. By 2009, those same people realized the taxes paid were nothing compared to the losses and headaches avoided.

Oversimplifying the decision by looking at just one factor (transaction expenses) can lead to expensive mistakes. Balance is the key.

Bonus Tip #13 (Extra Bonus): Have Fun Investing

Have fun investing because wealth isn’t a destination to be reached, but a journey to be enjoyed. It’s a lifelong process that doesn’t end until you’re six feet under ground, so you might as well figure out how to enjoy the experience along the way.

Many people view investing as a chore. They labor over the numbers, get confused, and worry. Their investment results typically reflect this lack of enthusiasm.

I view the investment game as a big treasure hunt. It’s like playing Monopoly for adults with real, live money where you get to make your own rules.

It’s an adventure that’s mentally stimulating and creates endless opportunities for personal growth while enhancing the quality of my life.

“We struggle with the complexities and avoid the simplicities.” – Norman Vincent Peale

The truth is that neither attitude is right or wrong, but one takes you toward financial success and the other moves you away. Which would you rather have: fun or frustration?

The choice is yours…

In Summary

In summary, it’s a lot easier to enjoy the investment process when you learn how to avoid committing some of the most common and expensive investment mistakes.

Making money is more enjoyable than losing it.

Steering clear of just one of these deadly dozen investment mistakes can literally make the difference between wealth and poverty.

Direct experience has taught me each one of these investment mistakes the hard way, and I share them with you here in the hope you can take a less expensive route to the same knowledge.

If you have an investment mistake (or two) that I overlooked, please add it to the list in the comments section below.

I look forward to hearing your thoughts….

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8 Shortcuts For A Simple Retirement Plan In Record Time Tue, 23 Aug 2016 05:40:29 +0000 A Simple Retirement Plan In 8 Steps (For Those Who Want Retirement Planning Made Easy)

Key Ideas

  1. Discover how to calculate your target retirement date.
  2. Learn how to estimate and calculate how much you’ll need to retire.
  3. Two insanely simple ideas for tax deferred savings anyone can use.

We live in an increasingly complex society.

Nowhere is this more true than retirement planning.

If complication isn’t your thing, then here’s a simple overview of the retirement planning process.

This is for readers who don’t have the time or desire to become retirement planning experts.

It provides a solid starting point that beats the doors off procrastination because you don’t know where to begin.

This analysis is purposefully simple so that taking action is easy, and then you can explore the included links later when you’re ready to dig deeper into appropriate detail.

The main point is to just get started taking action now.

Get This Article Sent to Your Inbox as a PDF…


Overwhelmed by planning for your golden years? Try this simple retirement plan that will get you on the right track in just a few short hours. For free!


Step 1: Design Your Dream Vision

The first step in retirement planning is figuring out what your vision for retirement is.

Are you going to vagabond the world with a backpack, travel the open road in a motor-home, or stay at home and read novels or play cards?

Your vision of retirement is the necessary starting point because it will determine how much your retirement will cost.

You need to have at least a rough outline for your dream life in retirement, or you can’t complete the following steps, which include budgeting and planning.

“I don’t see the necessity to retire from anything unless there’s a really great alternative.”– Anjelica Huston

Step 2: Pick Your Retirement Date

Once you have a picture in your head of your ideal retirement, it’s time to pick the date you’ll start living it.

The reason this step is essential is because your pension and Social Security distributions will vary depending on your planned retirement date. Your healthcare costs will also depend on if you qualify for Medicare or not.

Additionally, the number of years you have to build your savings and the number of years your existing savings can continue growing will depend on your expected retirement date.

In short, you can’t estimate your retirement income or plan your savings until you pick a retirement date.

Step 3: Estimate What It Will Cost

Now that you have a dream vision for retirement and a date to begin, it’s time to estimate costs and revenues to see if you’ll have enough money.

The first step in this process is to guesstimate how much your plans for retirement will cost, so make a budget.

Be overly generous in your estimates because inflation and all the stuff you inevitably forget to include will cause you to underestimate anyway. Round up where you can and use your current expenses as a benchmark to adjust from.

It won’t be totally accurate, but you have to start somewhere. This will probably be as good as it gets until your actual retirement date is close.

Some financial planners suggest using 70-80% of current spending as a guideline, but I discuss the problems with that guideline and provide detailed step-by-step solutions in this book on Amazon How Much Is Enough To Retire.

Step 4: Estimate Savings Required

Now it’s time to estimate the amount of savings required to live your retirement dream.

You do this by matching your projected income to your estimated expenses following these four simple steps:

  1. Add your estimated Social Security and defined benefit pension payments together based on your projected retirement date from Step 2 above.
  2. Subtract that from your total estimated expenses from Step 3 above.
  3. The difference is your income surplus or shortfall. Any shortfall must be made up from savings.
  4. Estimate the amount of savings required to support the income shortfall by multiplying the annual amount by 25 (conventional 4% spending rule). You’ll need to build this level of savings in your retirement plans (401(k), IRA, Roth, etc.) and other accounts to retire with financial security.

Based on this step, you now have a savings goal to achieve by your retirement date. All that’s left to do is build a savings plan to achieve it.

For help implementing these steps try our free retirement calculators here and the downloadable ebook How Much Is Enough To Retire here.

Step 5: Build A Savings Plan

Take the shortfall estimate from Step 4 above and subtract your current savings and retirement plan balances to determine your current savings shortfall.

Divide that amount by the number of years until your expected retirement date from Step 2 above to give you the annual amount you must save to achieve your objective.


Conversely, you may choose to revisit your dream vision and corresponding budget if the savings goal is too daunting. In other words, the retirement savings shortfall can be made up by saving more or figuring out how to live happily on less – they’re mathematically equivalent.

Some people find happiness on $24,000 per year and need little savings while others need $240,000 per year. There’s no right or wrong answer, but it’s important to note for every $10,000 per year less that you need to spend, you lower your savings required by roughly $250,000.

Many people find it easier to reduce spending by $10,000 per year than to increase savings by $250,000.

There’s no right/wrong answer. Just decide what works for you.

For help calculating your savings needs, try our free online retirement savings calculators here. For help catching up on retirement savings, see our free guide 27 Retirement Savings Catch-Up Strategies For Late Starters here.

Step 6: Invest The Savings

This is the toughest step to reduce down to a sound-bite paragraph because a wall of books would still leave gaping holes in the knowledge required.

Highly educated professionals botch the investing process, and neophytes are at even greater risk.

With that said, the assumption of this article is that you aren’t into complication and detail and need to invest somewhere, so let’s oversimplify and at least give you a starting point.

“People are always asking me when I’m going to retire. Why should I? I’ve got it two ways – I’m still making movies, and I’m a senior citizen, so I can see myself at half price.”– George F. Burns

One reasonable place to look is the variety of target date retirement mutual funds offered. The targeted date should coincide with your expected retirement date.

If you go this route, use a low-cost provider like Vanguard, TIAA-CREF, or similar, because expenses do matter.

This option will get you professional asset allocation and portfolio selection for stocks and bonds at a reasonable cost so you don’t have to become an investment expert.

Another possibility is to consider positive cash flow, income producing real estate with the mortgage financed so you’re free and clear by your expected retirement date.

These are just two possibilities to consider that are reasonable and achievable for someone with minimal investment expertise. And of course, you should always seek qualified professional guidance so your portfolio can be matched to your personal needs.

(See Step 5 and Step 6 of the “Seven Steps to Seven Figures” curriculum for additional guidance on investment strategy.)

Step 7: Maximize Tax Deferral

When seeking to make up the projected savings and cash flow shortfalls, it’s wise to consider government sponsored retirement plans (401(k), SEP, IRA, etc.) and rental real estate. This will help you achieve two primary objectives:

  1. Tax Savings: Qualified retirement plans minimize the savings burden to you by making Uncle Sam pay part of the cost in lower taxes. You can also get your company to pay part of your savings costs when they offer a 401(k) matching contribution plan and you contribute enough to qualify. Additionally, rental real estate offers tax deferral through 1031 exchanges. It also offers immediate tax savings through the depreciation deduction while minimizing your out-of-pocket savings burden because your tenant can pay part or all of the cost. It’s another valid investment vehicle for building retirement wealth.
  2. Hard To Get At: Another advantage of qualified retirement plans and rental real estate is they make the money hard to access. The weakest link in the savings process is you. Unless you have the discipline of a celibate monk, the first place you’ll look when you need money is your nest egg. The high cost of refinancing and selling real estate along with the government mandated penalties for tapping qualified plans should slap your hands when you’re tempted to reach into the cookie jar. This will help instill the discipline and persistence needed to keep you from raiding your growing retirement assets – which is a good thing.

Step 8: Begin Now

Procrastination is wealth suicide on the installment plan.

Simple delay destroys more plans for retirement than all other causes combined. It’s the number one retirement killer.

The sooner you begin saving and planning for retirement, the easier the process will be. If you don’t start now, you’ll only make it harder on yourself. There’s no reason to wait.

Step 1 and 2 of Seven Steps To Seven Figures are all about getting started immediately and correctly so you succeed, and Step 3 is about designing your life in a way that every action you take gets you one step closer toward financial freedom.

That’s it! Retirement planning made easy – just as promised.

You now know enough to get started, and you have all the links to explore for additional information when you’re ready.

The key is to just get started now. You can perfect your retirement plan later as you learn more using the many free resources on this site.

This article provides everything you need to know to get started. You have no reason to delay. Don’t let yourself get in the way of your retirement.

Good luck, and let us know how we can support you.

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12 Dangerous Retirement Myths That Turn Your Golden Years Into Lead Tue, 12 Jul 2016 22:07:07 +0000 Which Retirement Myth Is Killing Your Financial Security?

Key Ideas

  1. Why you can’t rely on anyone else to fund your golden years.
  2. The cold, hard truth about healthcare costs in retirement
  3. How increased longevity changes everything about retirement planning.

When it comes to retirement planning, there’s no shortage of conventional wisdom – some of it dead wrong.

Beware of formulaic rules of thumb masquerading as truth because it doesn’t matter how often they’re repeated… they can still be wrong.

For example, it might be comforting to believe that investing in your company retirement plan is all you need to have enough to retire, or that Social Security will take care of your golden years, but the numbers may say differently.

Maybe you were sold a bill of goods that includes the “70% of pre-retirement spending” rule, or the “save enough to cover 10-20 years” myth.

Or could it be that you budgeted your retirement based on average market returns or the safety of an all bond/cash portfolio.

If you’re a victim to any of these myths, then it’s important you read what follows. Your retirement security could be at stake.

What you don’t know can hurt you in retirement planning. Below are twelve of the most common myths in retirement planning with the facts you need to overcome them.

If you believe any of these retirement planning myths, you could convert your golden years into lead.

Get This Article Sent to Your Inbox as a PDF…


12 Dangerous Retirement Myths That Turn Your Golden Years Into Lead image

Retirement Planning Myth 1: I’ll Delay Saving For Retirement Until Later When It’s Easier

Many people correctly determine that it’ll be easier to save money for retirement later in their careers rather than now, so they procrastinate getting started – but that’s asking the wrong question.

The real question is, “What’s the easiest and most secure path to a bountiful nest egg?”, not “When will it be easiest to save?”

In other words, it may be easier to save for retirement later, but that’s irrelevant if your true goal is to find the easiest way to a secure retirement.

A secure retirement requires you to begin saving now – whether it’s easy or not.

The old way of thinking was to pay off the mortgage, pay for the kid’s college, and then save for retirement.

That worked fine when people didn’t live as long, but nowadays you can expect to survive 20-40 years in retirement. You may spend as many years in retirement as you did in your career.

The result is you need a bigger nest egg than previous generations needed to fund those extra years. A bigger nest egg requires a more aggressive approach to retirement savings while you’re still working.

If you don’t start saving now, you’re throwing away the power of compounding returns which is one of the most powerful tools in your arsenal for achieving financial security.

The sooner you begin saving, the less you must save each month to reach any given savings goal, making the process easier to accomplish.

The longer you wait, the more you must save each month, making it harder to get started and harder to reach the goal.

“A man who makes a mistake and doesn’t correct it’s making another mistake.”– Confucius

You may rationalize not saving now because you have lots of time to do it later, or conversely, you don’t have enough time now to plan for later.

Neither of these excuses matters because the mathematics of how wealth compounds doesn’t care about excuses – it’s inviolable. When you throw away time, you throw away money. The longer you wait, the harder the goal is to achieve.

Procrastination is wealth suicide on the installment plan. The math of growing money doesn’t care about your rationalizations or excuses – it’s just math.

If you grow your retirement savings at 10% compounded and wait just seven years to begin, you’ll end up with half as much money compared to starting today.

Imagine that – half the money for just seven years of procrastination.

That can make the difference between spending your retirement greeting shoppers at Wal-Mart or playing golf at your local country club. Which would you prefer?

So are you going to start to build your retirement security now so you can take the easy and secure path, or are you going to wait until later when saving is easier, but the goal is harder to achieve?

Retirement Planning Myth 2: My Company Or Government Will Take Care Of My Retirement

The old rule-of-thumb was retirement income came from a three-legged stool consisting of Social Security, company pensions, and personal savings. All that’s changing.

Unless you’re one of the rare few with a secure pension, the new rule is that savings and pensions have been blended into one category called defined contribution plans, while Social Security has declined in relevance.

The result is the solid three-legged stool of your parent’s generation is now a wobbly two-legged stool for you.

Let’s examine the demise of this three-legged stool by first looking at the Social Security leg.

“It’s error alone which needs the support of government. Truth can stand by itself.”– Thomas Jefferson

Social Security is actuarially unsound – it can’t work as promised. The further you are from retirement, the less you should expect to receive from the system in the future.

It’s not politically realistic to forecast the system’s demise, but it’s prudent to expect diminished payouts and means testing going forward.

Depending on how conservative you want to be in your estimates, your age, and the level of lifestyle you seek, you should plan on receiving anywhere from 0-30% of your retirement income from Social Security.

What that means is it makes a nice supplement, but not a foundational pillar. So much for the first leg of the stool.

The second leg of the stool, defined benefit pension plans, is rapidly going the way of the dinosaur. According to the U.S. Department of Labor, they’ve declined more than 70% to under 30,000 plans from a peak of 112,000 plans in 1985.

Expect more of the same going forward. Even if you’re one of the lucky few with a corporate pension, it’s questionable to rely on it.

The reason is because a surprising number of retirees lose what they thought were secure benefits due to under-funding, corporate bankruptcy, reorganization, and other legal shenanigans that rip-off retirees’ earned benefits.

The one exception is government pensions, which remain reliable as of this writing, despite being under-funded and at risk.

While the old-style pension plan system has been decaying, defined contribution retirement plans grew from 12 million in 1974 to 64 million in 2005 (data from Employee Benefit Research Institute).

Most people have effectively shifted their retirement plan from defined benefit to defined contribution, which means they have similarly shifted the responsibility from the employer to themselves.

It’s a totally different ballgame. You’re now solely responsible for funding the second leg of your stool.

This change toward defined contribution retirement plans in the second leg has subsequently affected the third leg – retirement savings.

In the old pension days, these two legs used to be separate, but now they get commingled in workers’ minds because defined contribution plans are a form of personal savings.

Many people stop saving for retirement because they believe they’re already taking care of savings through the salary reduction portion of their 401(k) at work.

Where they used to have two separate and distinct legs under their stool (company pension and personal savings), they now have one (defined contribution plan). That leg usually isn’t strong enough to carry the entire burden.

This leads to the related myth where people incorrectly believe that maxing out a 401(k) is all that’s necessary for retirement planning. There’s a chance it might be true, but more than likely, it’s not.

Depending on your earnings level and the age you begin saving, many studies show required savings levels to build a secure retirement in excess of the maximum 401(k) contribution.

Because the analysis is dependent on so many personal variables including age, life expectancy, and total financial picture, you’ll need to seek individualized, professional guidance to determine the right savings level for you.

You can’t assume maxing out your 401(k) is sufficient because it may not be. You may have to build additional savings in that third leg of the stool to create a financially stable retirement.

And if that weren’t enough, we’re going to take all these changes that have diminished the three legs of your retirement income stool, and combine them with increased longevity to create a truly stressful picture.

Not only are traditional sources of retirement income drying up, but the savings pool required to fund ever longer retirements is expanding to unprecedented proportions.

Future retirees are being pulled from both directions – more assets required to fund longer lifespans, and traditional sources of income to fund that longer lifespan drying up.

The new reality is you can’t rely on the government or your employer to take care of retirement planning for you.

Instead, you must do it yourself, and plan for a much longer lifetime. If you would like to learn more about these issues and how to solve them, I highly encourage you to get my How Much Money Do I Need To Retire book for the full story.

Retirement Planning Myth 3: My Inheritance Will Take Care Of My Retirement

Some people use the potential for an inheritance as an excuse to not save for retirement.

This could be a major mistake unless your parents are extraordinarily rich and have health so bad you can rely on them dying soon. Otherwise, there are too many unknowns to plan your retirement for this outcome.

“Property left to a child may soon be lost; but the inheritance of virtue… will abide forever. If those who are toiling for wealth to leave their children, would but take half the pains to secure for them virtuous habits, how much more serviceable would they be. The largest property may be wrested from a child, but virtue will stand by him to the last.”– William Graham Sumner

You don’t know if you’re going to retire and need their money before they’re ready to die.

You don’t know if they’ll outlive their money. They could possibly spend it all at the last minute on health and nursing care.

They could also become victims of investment fraud, or a stock market crash could wipe out their fortune.

Even if all these problems are avoided, your parents may decide to encourage your independence and leave you nothing at all.

They may go on a spending spree late in life figuring this is their last chance to live it up so they might as well make a party of it.

Or maybe one parent will die and the other will remarry and leave it all to the new spouse, thus cutting you out entirely.

In short, you really don’t know what inheritance you can expect because the future is unpredictable. A lot of things can (and do!) change.

According to a report by the Federal Reserve Board of Cleveland, only 1.6% of heirs receive $100,000 or more – hardly a secure retirement.

The reality is the odds are against you. It probably isn’t too smart to bet on your parent’s wealth for your retirement. The wiser move is to be self-responsible by putting away a little yourself.

Retirement Planning Myth 4: My Spouse Will Take Care Of My Retirement

It’s a good bet to rely on your spouse’s retirement – but not a sure bet. Small details like divorce and death can get in the way.

For example, did you know that when your spouse elects for a joint survivor option on his/her pension, it will likely decrease the monthly payout during his or her lifetime?

Yet, that’s the only way to protect you in the event you outlive your spouse.

The alternative is a higher monthly payout today, but that comes at the price of a lesser or possibly zero benefit for you should your spouse die first.

Make sure to discuss the joint survivor option with your spouse so you aren’t left out in the cold.


If you have retirement savings in a 401(k), IRA, or similar account, make sure your spouse names you as primary beneficiary so the money transfers to you upon death.

If your children or someone else is the primary beneficiary, you could end up with zippo-zilch-nada.

Finally, Social Security also has a complex set of rules regarding treatment of spouses that varies based on work history, etc. Contact the Social Security Administration for more details on exactly how it might affect your personal situation.

In short, just because your spouse’s retirement was adequate while he/she was alive doesn’t necessarily mean you’ll be financially secure in the event of death or divorce.

Before you bet your retirement security on your spouse’s retirement, make sure you understand all the details.

Retirement Planning Myth 5: My Company And Medicare Will Take Care Of My Health Insurance Needs During Retirement

According to an Time magazine, the percentage of employers with 200 or more workers offering retiree health insurance dropped from 66% in 1988 to less than 36% recently.

Employee Benefit Research Institute shows only 13% of all private sector employers offering retiree medical benefits. Are you one of the lucky few?

If you are, then consider a survey by Wyatt Co. showing 38% of corporations with retiree health benefits planning to reduce those benefits in the near future.

Can you really rely on being the freak exception to a clearly developed trend?

Retiree health benefits are diminishing. Businesses are having a hard time coping with increasing health insurance premiums and are aggressively reducing retiree health coverage.

Depending on when you plan to retire and who you work for, you’ll probably be on your own for health insurance.

“A government that robs Peter to pay Paul can always depend on the support of Paul.”– George Bernard Shaw

No problem, you say, that’s why we have Medicare. Unfortunately, most studies show Medicare usually covers less than half a retiree’s medical bills.

A study by Hewitt Associates shows health care expenses can cost retirees 20% of their annual income. Expect this situation to worsen over time as Medicare’s fiscal problems continue.

What this means is you’ll need to consider supplemental medical insurance and possibly even long term care insurance as potential additional costs for your retirement budget.

Once again, you’re on your own and need to be self-responsible.

Retirement Planning Myth 6: I’ll Only Need 70-80% Of My Pre-Retirement Income During Retirement

If only life were so simple…

The truth is estimating the amount you’ll spend during retirement is complex and unique to each individual. Oversimplified rules-of-thumb like 70-80% of pre-retirement spending deceive more than they illuminate.

According to the Employee Benefit Research Institute, 52% of retirees surveyed spent 95% or more of their pre-retirement income during retirement.

That makes sense given that many retirees replace their work lifestyle with expensive, active lifestyles.

You can expect spending during retirement to decrease over time as your age increases because of diminished activity and consumption levels with aging.

However, you can also expect spending to increase as you age due to inflation and rising healthcare costs.

How these contradictory influences play out to effect total spending is impossible to predict since nobody knows what future inflation will be or what healthcare issues you’ll face.

These retirement myths threaten to destroy your financial security if you don't overcome them. Many are conventional wisdom spoken so many times that they appear true. Don't sabotage your one chance at a successful, happy retirement because you didn't know better.

If that weren’t enough to confuse you, then also realize your spending will vary depending on what age you choose to retire at, what your interests are, where you live, and other lifestyle issues.

A fortune to one person’s retirement plan could mean poverty to someone else.

Using a rule-of-thumb like “70% of pre-retirement income” as a retirement budget hardly even qualifies as a ballpark estimate.

The smarter alternative is to put together a budget based on your personal situation and goals for retirement, then stress test those figures with various inflation assumptions and potential costs for health crises.

This guesstimate will be better than the alternative, but will likely be a far cry from what you actually end up spending during retirement. Ultimately, the future is unpredictable.

In short, your spending during retirement is unknowable and can only be guessed at with serious potential inaccuracy. Relying on any budget over a potential retirement time horizon of 30 years is more fiction than fact.

If you aren’t totally clear on this, then look back 30 years ago in your life and honestly assess if you could have even remotely guessed what you would be spending today. It wasn’t likely then, and it isn’t likely now.

If you would like solutions to budgeting for retirement, I recommend the How Much Money Do I Need To Retire ebook.

Retirement Planning Myth 7: Invest In “Super Safe” Bonds and CDs To Lower Risk and Preserve Capital

A retirement portfolio built on bonds and CDs made sense for earlier generations when life expectancies were short and inflation was tame, but that isn’t the situation facing today’s retirees.

The old standard for retirement investing was to preserve capital so it could be spent over a 10-15 year period. Losses couldn’t be risked because there wasn’t enough time to recover from them.

But today’s retirees are facing 30+ year time horizons with inflation eating at their purchasing power, making a no-risk portfolio potentially the most risky portfolio of all.

“Observance of customs and laws can very easily be a cloak for a lie so subtle that our fellow human beings are unable to detect it. It may help us to escape all criticism; we may even be able to deceive ourselves in the belief of our obvious righteousness. But deep down, below the surface of the average man’s conscience, he hears a voice whispering, “There is something not right,” no matter how much his rightness is supported by public opinion or by the moral code.”– Carl G. Jung

An inflation rate of just 4% will cut your purchasing power in half every 18 years, meaning you have to double your money just to break even.

If you don’t double your money, it means your nest egg is worth effectively half as much. Imagine living long enough to have that happen twice during your retirement.

It’s equivalent to living on one-fourth the portfolio you began with. The rule is clear: today’s retirees must not only preserve capital, but they must grow it as well to preserve purchasing power.

The result is many financial advisors now encourage stock investing to add a growth component to your portfolio to offset inflation.

This introduces a great deal of potential risk, so they’ve also developed elaborate Monte Carlo simulations based on historical data to give you comfort.

For many retirees, the market is simply too risky, so people seek other alternatives like income producing real estate as a way to fight inflation with greater safety.

The truth is no simple answer exists to structuring a retirement portfolio to guard against the ravages of inflation while protecting capital to an acceptable risk level.

Greater longevity combined with government indebtedness has magnified the risk of inflation to equal or exceed the risk of losing principle from fluctuating, growth oriented investments.

Most retirees have no choice but to embrace this new reality with a less traditional portfolio allocation, or they face the potential risk of outliving their assets.

Retirement Planning Myth 8: Retirement Means Not Working

The traditional retirement converted full time work into full time leisure, but all that’s changing.

Many people are choosing phased retirement, second careers, and stint work as an alternative to full time leisure.

The reason for the change relates to issues of fulfillment and the other bugaboo facing new retirees – increased longevity.

“Musicians don’t retire; they stop when there’s no more music in them.”– Louis Armstrong

Today’s retirees face as much time in retirement as they did in career. Many are realizing 30+ years of full time leisure isn’t necessarily a recipe for happiness and fulfillment.

Instead of taking a binary approach to life by working like crazy so they can retire and do nothing constructive at all, they’re using these extra years to introduce a third phase to life that balances work and leisure.

In other words, rather than retiring from life, they’re building a satisfying life that they never want to retire from.

Besides finding greater fulfillment and connection in work, another motivator for the change is the sheer magnitude of the nest egg required to fund a 30+ year retirement without earning additional income.

Many are realizing their savings have fallen short of perpetual financial security. By adding part-time work, phased retirement, and second careers, new retirees are earning just enough income to afford retirement now so they can lead a more balanced life today.

This gives them the freedom they seek because they aren’t stuck in an unsatisfying career just to build a bigger savings account for tomorrow.

Retirement Planning Myth 9: Retire At Age 65

What’s the magic of age 65?

This myth began because traditional pensions and Social Security were paying full benefits at age 65.

When people became eligible for full benefits, it created a disincentive to work, so most people naturally chose retirement as a response.

Since everyone else retired at that time, it became an expected standard. But those times, they are a changin’.

“Retirement at sixty-five is ridiculous. When I was sixty-five I still had pimples.”– George Burns

Pensions are going the way of the dinosaur and Social Security is hardly significant enough to be a decision breaker in your retirement plans.

The truth is retirement begins in an ideal world when you’re ready and can afford it. In a less than ideal world, it begins when your health fails so you can no longer work, or your employer forces it on you through a layoff or downsizing.

Some people “retire” in their 30s (myself included) and some people never retire. The magical age of 65 as a secession point for career and the beginning of life on the pro-leisure circuit is a myth.

You’re free to choose to retire – or not – at any age. The earlier you begin retirement planning and the more aggressively you build wealth, the more flexible and free you’ll be to make the right choice that’s most fulfilling for you.

Discover the 12 most common retirement myths and how to overcome them so you can enjoy happiness and financial security in retirement.

Retirement Planning Myth 10: My Expected Lifespan Is 75-85 Years

This fact is a statistical truth and a retirement myth simultaneously.


If you look at an actuarial table used by the IRS or an insurance company, you’ll see the statistical facts are true: the average life expectancy is in this range. However, this fact is totally irrelevant to any one person – including you.

Half the people will live longer than the median, and you’ll do everything in your power to be part of that group. The chances of you dying promptly at an average age are close to zip. It makes no sense to build a financial plan based on it.

For example, if you make it to age 65, you’re expected to live much longer than average because the averages include the 21% of the population who died before age 65.

How would you feel if you budgeted to run out of money after 15 years only to live for 30 instead?

This outcome is all the more likely given that average life expectancies are trending higher. In fact, life expectancy has increased 100 days per year for the last century. That’s a lot.

“Life can only be understood backwards; but it must be lived forwards.”– Soren Kierkegaard

The truth is the fastest growing population age group is 85+, and living to age 100 may become relatively common with all the developments in biotechnology, nanotechnology, and health care.

It’s equally possible that you could die tomorrow – but you can’t build your retirement plan around that outcome because you would have a financial disaster if you were wrong.

The key principle here is your retirement plan must provide income to support your life until you die – no matter when that occurs. It could be much longer than average or it could be less.

Here’s the rub: if you die early and leave money behind, it’s doubtful you’ll regret the extra cash; however, if you live longer than average and don’t plan for it, you’re guaranteed to deeply regret running out of money.

You simply have no real choice but to manage for that risk by assuming you’ll live for 90-100 years unless genetics or current health argues otherwise.

The risk of the alternative is simply too great to accept. Financial planning based on average life expectancy is a dangerous myth.

Retirement Planning Myth 11: I Can Plan The Growth Of My Savings Based On Long-Term Historical Average Returns

Most computer models for retirement planning assume long-term historical average returns to determine the expected asset growth in a portfolio going forward.

It would be nice if the process was that simple, but it’s not. The past isn’t the future. Average returns deceive just like average life-spans deceive.

The only average return you care about is the one that happens to your money once it’s invested – not what happened in some historical past that extends to before your grandparents’ birth.

The future is unknown and unpredictable. The required disclosure for financial documents is true and should be respected: “past results may not be indicative of future results.” Take this warning to heart.

High tech financial planners attempt to improve on blind historical models by applying Monte Carlo simulations that randomize historical returns to give computer generated confidence intervals.

It’s still historical returns no matter how you slice them up, and you can still end up running out of money even if the historical odds are low.

“I feel like a fugitive from the law of averages.”– William H. Mauldin

The computer may claim a 90% confidence interval, but it doesn’t mean you won’t live through the 1 out of 10 chance that results in failure.

It doesn’t say anything about how the future could be totally different from the past, invalidating the premise of the model altogether.

Either of those scenarios could equal “broke” for you, even if the odds were low based on historical extrapolation.

For example, the historical returns from stocks may average anywhere from 7% to 11% over the very long-term, depending on assumptions and time period analyzed.

Interspersed within those long-term averages are 15 year periods with negative real returns after adjusting for inflation.

If you just happened to retire in the mid-1960s, the odds based on history were low that your portfolio would do so poorly, but it would have done poorly nonetheless.

Similarly, the odds generated by Monte Carlo models are based on a time period when the United States was the dominant global economic force with an increasing number of workers as a percentage of population, adding to GNP growth.

All of these facts are changing in the future, which casts any historical extrapolation into doubt.

In other words, the investment returns during your retirement may be way above average or way below average – nobody knows because the future is unknowable.

What we do know is if your retirement budget is based on average expectations, and you get less than average results, you could be in for a real problem.

You need a better plan, and that’s what we provide in our step-by-step wealth planning course as you’ll create a custom plan that’s engineered for your life so a secure retirement is certain.

Retirement Planning Myth 12: I’ll Be In A Lower Tax Bracket When Retired

Says who?

As you already learned from Myth 6, you may need as much income during retirement as you did before retirement. If your income isn’t going to drop, then there’s not much credibility to the idea your taxes are going down.

Similarly, top tax rates have been cut by more than half in recent decades. Additionally, the country has a serious debt and spending problem, so the odds are just as good that tax brackets will be rising instead of falling.

If that wasn’t enough, then consider how all the tax deductible money you socked away in 401(k) contributions during your working years will become fully taxable at ordinary income rates during retirement.

Rather than hoping to be so impoverished in retirement that your tax bracket drops, it would be far wiser to build a retirement plan that’s so successful you actually increase your tax burden.

Retirement Planning Myth Bonus: Retirement Planning Is All About Money

Money is an important and essential element of retirement planning, and that’s why most information about retirement focuses on it – but it’s not the ultimate goal. It’s a means to an end, but not the end itself.

Retirement is a lifestyle choice with the objective of creating a more fulfilling, satisfying, and happy life. The money is just a means to support the lifestyle.

“Twenty years from now, you’ll be more disappointed by the things you didn’t do than the ones you did do. So throw off the bowlines. Sail away from the safe harbor. Catch the trade winds in your sails. Explore. Dream. Discover.”– Mark Twain

Numerous studies show that unless you’re facing abject poverty, your happiness during retirement will result more from your relationships with friends, family, and a sense of connection and purpose in life than how much money you have.

Money is just a tool for living that fulfilling life, but it won’t create it for you.

When planning your retirement, make sure to plan a fulfilling lifestyle for yourself. Spend as much time developing your life plan as you do your financial plan.

Putting the two together is what makes the golden years truly golden, and Financial Mentor is here to help you achieve that goal.

Finally, most of the issues raised in this article are fully answered in the ebook How Much Money Do I Need To Retire and the full course on wealth strategy here.

Make sure to pick up a copy, and let us know how we can support you.

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The Way To Wealth By Benjamin Franklin Tue, 14 Jun 2016 21:53:22 +0000 Learn The Wealth Building System That Worked For Benjamin Franklin Many Years Ago, And Still Works Today

Key Ideas

  1. The sure way to kill your hopes and dreams of a secure financial future.
  2. How to control your finances.
  3. Definitive proof that nothing has changed about personal finance in 270 years.

Editors Note: Benjamin Franklin was one of those rare geniuses adept at business, invention, writing, philosophy, and politics. His literature inspired intellectual and political freedom, helped found this great nation, and contributed measurably to our culture.

The Way to Wealth, written in 1757, is a summary of Benjamin Franklin’s advice from Poor Richard’s Almanac published from 1733-1758. It’s a compilation of proverbs woven into a systematic ethical code advocating industry and frugality as a “way to wealth”, thereby securing personal virtue. His advice is just as relevant today as it was 270 years ago when first written.

I love this article, and I hope you do too.

For that reason, I’ve taken pains to provide as complete a version of The Way to Wealth as is available; however, I have added some paragraph breaks, title breaks, and minor punctuation and spelling changes to increase modern day readability. I hope you enjoy it.

Get This Article Sent to Your Inbox as a PDF…

Way to Wealth by Benjamin Franklin Image

Benjamin Franklin: The Way to Wealth (1757)

Courteous Reader,

I have heard that nothing gives an author so great pleasure as to find his works respectfully quoted by other learned authors. This pleasure I have seldom enjoyed; for tho’ I have been, if I may say it without vanity, an eminent author of almanacs annually now a full quarter of a century, my brother authors in the same way, for what reason I know not, have ever been very sparing in their applauses; and no other author has taken the least notice of me, so that did not my writings produce me some solid pudding, the great deficiency of praise would have quite discouraged me.

I concluded at length, that the people were the best judges of my merit; for they buy my works; and besides, in my rambles, where I am not personally known, I have frequently heard one or other of my adages repeated, with, as Poor Richard says, at the end on’t; this gave me some satisfaction, as it showed not only that my instructions were regarded, but discovered likewise some respect for my authority; and I own, that to encourage the practice of remembering and repeating those wise sentences, I have sometimes quoted myself with great gravity.

Judge then how much I must have been gratified by an incident I am going to relate to you. I stopped my horse lately where a great number of people were collected at a venue of merchant goods.

The hour of sale not being come, they were conversing on the badness of the times, and one of the company called to a plain clean old man, with white locks, “Pray, Father Abraham, what think you of the times? Won’t these heavy taxes quite ruin the country? How shall we be ever able to pay them? What would you advise us to?”

Father Abraham stood up, and replied, “If you’d have my advice, I’ll give it you in short, for a word to the wise is enough, and many words won’t fill a bushel, as Poor Richard says.” They joined in desiring him to speak his mind, and gathering round him, he proceeded as follows:


Friends, says he, and neighbors, the taxes are indeed very heavy, and if those laid on by the government were the only ones we had to pay, we might more easily discharge them; but we have many others, and much more grievous to some of us.

We are taxed twice as much by our idleness, three times as much by our pride, and four times as much by our folly, and from these taxes the commissioners cannot ease or deliver us by allowing an abatement.

However let us hearken to good advice, and something may be done for us; God helps them that help themselves, as Poor Richard says, in his almanac of 1733.

It would be thought a hard government that should tax its people one tenth part of their time, to be employed in its service. But idleness taxes many of us much more, if we reckon all that is spent in absolute sloth, or doing of nothing, with that which is spent in idle employments or amusements, that amount to nothing.

We are taxed twice as much by our idleness, three times as much by our pride, and four times as much by our folly.

Sloth, by bringing on diseases, absolutely shortens life. Sloth, like rust, consumes faster than labor wears, while the used key is always bright, as Poor Richard says. But dost thou love life then do not squander time for that’s the stuff life is made of, as Poor Richard says.

How much more than is necessary do we spend in sleep forgetting that the sleeping fox catches no poultry, and that there will be sleeping enough in the grave, as Poor Richard says.

If time be of all things the most precious, wasting time must be, as Poor Richard says, the greatest prodigality, since, as he elsewhere tells us, lost time is never found again, and what we call time enough, always proves little enough: let us then be up and be doing, and doing to the purpose; so by diligence shall we do more with less perplexity.

Sloth makes all things difficult, but industry all easy, as Poor Richard says; and he that riseth late, must trot all day, and shall scarce overtake his business at night.

While laziness travels so slowly, that poverty soon overtakes him, as we read in Poor Richard, who adds, drive thy business, let not that drive thee; and early to bed, and early to rise, makes a man healthy, wealthy and wise.

So what signifies wishing and hoping for better times? We may make these times better if we bestir ourselves. Industry need not wish, as Poor Richard says, and he that lives upon hope will die fasting.

There are no gains, without pains, then help hands, for I have no lands, or if I have, they are smartly taxed. And, as Poor Richard likewise observes, he that hath a trade hath an estate, and he that hath a calling hath an office of profit and honor; but then the trade must be worked at, and the calling well followed, or neither the estate, nor the office, will enable us to pay our taxes.

If we are industrious we shall never starve; for, as Poor Richard says, at the working man’s house hunger looks in, but dares not enter. Nor will the bailiff nor the constable enter, for industry pays debts, while despair increaseth them, says Poor Richard.

What though you have found no treasure, nor has any rich relation left you a legacy, diligence is the mother of good luck, as Poor Richard says, and God gives all things to industry.

Then plough deep, while sluggards sleep, and you shall have corn to sell and to keep, says Poor Dick. Work while it is called today, for you know not how much you may be hindered tomorrow, which makes Poor Richard say, one today is worth two tomorrows; and farther, have you somewhat to do tomorrow, do it today.

If you were a servant, would you not be ashamed that a good master should catch you idle? Are you then your own master, be ashamed to catch yourself idle, as Poor Dick says. When there is so much to be done for yourself, your family, your country, and your gracious king, be up by peep of day; let not the sun look down and say, inglorious here he lies.

Handle your tools without mittens; remember that the cat in gloves catches no mice, as Poor Richard says. ‘Tis true there is much to be done, and perhaps you are weak handed, but stick to it steadily, and you will see great effects, for constant dropping wears away stones, and by diligence and patience the mouse ate in two the cable; and little strokes fell great oaks, as Poor Richard says in his almanac, the year I cannot just now remember.

Methinks I hear some of you say, must a man afford himself no leisure? I will tell thee, my friend, what Poor Richard says, employ thy time well if thou meanest to gain leisure; and, since thou art not sure of a minute, throw not away an hour.

Leisure is time for doing something useful; this leisure the diligent man will obtain, but the lazy man never; so that, as Poor Richard says, a life of leisure and a life of laziness are two things.

Do you imagine that sloth will afford you more comfort than labor? No, for as Poor Richard says, trouble springs from idleness, and grievous toil from needless ease. Many without labor would live by their wits only, but they break for want of stock.

Whereas industry gives comfort, and plenty, and respect: fly pleasures, and they’ll follow you. The diligent spinner has a large shift, and now I have a sheep and a cow, everybody bids me good morrow, all which is well said by Poor Richard.

Employ thy time well if thou meanest to gain leisure…since thou art not sure of a minute, throw not away an hour.


But with our industry, we must likewise be steady, settled and careful, and oversee our own affairs with our own eyes, and not trust too much to others; for, as Poor Richard says, I never saw an oft removed tree, nor yet an oft removed family, that throve so well as those that settled be.

And again, three removes is as bad as a fire, and again, keep thy shop, and thy shop will keep thee; and again, if you would have your business done, go; if not, send.

And again, he that by the plough would thrive, himself must either hold or drive and again, the eye of a master will do more work than both his hands; and again, want of care does us more damage than want of knowledge; and again, not to oversee workmen is to leave them your purse open.

Trusting too much to others’ care is the ruin of many; for, as the almanac says, in the affairs of this world men are saved not by faith, but by the want of it; but a man’s own care is profitable; for, saith Poor Dick, learning is to the studious, and riches to the careful, as well as power to the bold, and Heaven to the virtuous.

And farther, if you would have a faithful servant, and one that you like, serve yourself. And again, he adviseth to circumspection and care, even in the smallest matters, because sometimes a little neglect may breed great mischief; adding, for want of a nail the shoe was lost; for want of a shoe the horse was lost, and for want of a horse the rider was lost, being overtaken and slain by the enemy, all for want of care about a horse-shoe nail.



So much for industry, my friends, and attention to one’s own business; but to these we must add frugality, if we would make our industry more certainly successful. A man may, if he knows not how to save as he gets, keep his nose all his life to the grindstone, and die not worth a groat at last.

A fat kitchen makes a lean will, as Poor Richard says; and, many estates are spent in the getting, since women for tea forsook spinning and knitting, and men for punch forsook hewing and splitting.

If you would be wealthy, says he, in another almanac, think of saving as well as of getting: the Indies have not made Spain rich, because her outgoes are greater than her incomes.

Away then with your expensive follies, and you will not have so much cause to complain of hard times, heavy taxes, and chargeable families; for, as Poor Dick says, women and wine, game and deceit, make the wealth small, and the wants great.

And farther, what maintains one vice would bring up two children. You may think perhaps that a little tea, or a little punch now and then, diet a little more costly, clothes a little finer, and a little entertainment now and then, can be no great matter; but remember what Poor Richard says, many a little makes a mickle, and farther, beware of little expenses; a small leak will sink a great ship, and again, who dainties love, shall beggars prove, and moreover, fools make feasts, and wise men eat them.

Here you are all got together at this venue of fineries and knickknacks. You call them goods, but if you do not take care, they will prove evils to some of you. You expect they will be sold cheap, and perhaps they may for less than they cost; but if you have no occasion for them, they must be dear to you.

Remember what Poor Richard says, buy what thou hast no need of, and ere long thou shalt sell thy necessaries. And again, at a great pennyworth pause a while: he means, that perhaps the cheapness is apparent only, and not real; or the bargain, by straitening thee in thy business, may do thee more harm than good.

For in another place he says, many have been ruined by buying good pennyworths.

Again, Poor Richard says, ’tis foolish to lay our money in a purchase of repentance; and yet this folly is practiced every day at venues, for want of minding the almanac. Wise men, as Poor Dick says, learn by other’s harms, fools scarcely by their own, but, felix quem faciunt aliena pericula cautum.

You call them goods, but if you do not take care, they will prove evils to some of you.

Many a one, for the sake of finery on the back, have gone with a hungry belly, and half starved their families; silks and satins, scarlet and velvets, as Poor Richard says, put out the kitchen fire.

These are not the necessaries of life; they can scarcely be called the conveniences, and yet only because they look pretty, how many want to have them. The artificial wants of mankind thus become more numerous than the natural; and, as Poor Dick says, for one poor person, there are a hundred indigent.

By these, and other extravagances, the genteel are reduced to poverty, and forced to borrow of those whom they formerly despised, but who through industry and frugality have maintained their standing; in which case it appears plainly, that a ploughman on his legs is higher than a gentleman on his knees, as Poor Richard says.

Perhaps they have had a small estate left them, which they knew not the getting of; they think ’tis day, and will never be night; that a little to be spent out of so much, is not worth minding; a child and a fool, as Poor Richard says, imagine twenty shillings and twenty years can never be spent but, always taking out of the meal-tub, and never putting in, soon comes to the bottom; then, as Poor Dick says, when the well’s dry, they know the worth of water.

But this they might have known before, if they had taken his advice; if you would know the value of money, go and try to borrow some, for, he that goes a borrowing goes a sorrowing, and indeed so does he that lends to such people, when he goes to get it in again.

Poor Dick farther advises, and says, fond pride of dress, is sure a very curse; e’er fancy you consult, consult your purse. And again, pride is as loud a beggar as want, and a great deal more saucy.

When you have bought one fine thing you must buy ten more, that your appearance maybe all of a piece; but Poor Dick says, ’tis easier to suppress the first desire than to satisfy all that follow it, and ’tis as truly folly for the poor to ape the rich, as for the frog to swell, in order to equal the ox.

Great estates may venture more, but little boats should keep near shore.

‘Tis however a folly soon punished; for pride that dines on vanity sups on contempt, as Poor Richard says. And in another place, pride breakfasted with plenty, dined with poverty, and supped with infamy.

And after all, of what use is this pride of appearance, for which so much is risked, so much is suffered? It cannot promote health; or ease pain; it makes no increase of merit in the person, it creates envy, it hastens misfortune.

What is a butterfly? At best he’s but a caterpillar dressed. The gaudy fop’s his picture just, as Poor Richard says.

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The Way To Wealth by Benjamin Franklin proves little has changed about wealth building in 250 years. Learn what worked then and still works today.


But what madness must it be to run in debt for these superfluities! We are offered, by the terms of this venue, six months’ credit; and that perhaps has induced some of us to attend it, because we cannot spare the ready money, and hope now to be fine without it.

But, ah, think what you do when you run in debt you give to another power over your liberty.


If you cannot pay at the time, you will be ashamed to see your creditor; you will be in fear when you speak to him, you will make poor pitiful sneaking excuses, and by degrees come to lose you veracity, and sink into base downright lying; for, as Poor Richard says, the second vice is lying, the first is running in debt. And again to the same purpose, lying rides upon debt’s back.

Whereas, a freeborn Englishman ought not to be ashamed or afraid to see or speak to any man living. But poverty often deprives a man of all spirit and virtue: ’tis hard for an empty bag to stand upright, as Poor Richard truly says.

What would you think of that Prince, or that government, who should issue an edict forbidding you to dress like a gentleman or a gentlewoman, on pain of imprisonment or servitude?

Would you not say, that you are free, have a right to dress as you please, and that such an edict would be a breach of your privileges, and such a government tyrannical?

And yet you are about to put yourself under that tyranny when you run in debt for such dress!

Your creditor has authority at his pleasure to deprive you of your liberty, by confining you in gaol (jail) for life, or to sell you for a servant, if you should not be able to pay him!

When you have got your bargain, you may, perhaps, think little of payment; but creditors, Poor Richard tells us, have better memories than debtors, and in another place says, creditors are a superstitious sect, great observers of set days and times.

The day comes round before you are aware, and the demand is made before you are prepared to satisfy it. Or if you bear your debt in mind, the term which at first seemed so long, will, as it lessens, appear extremely short.

Time will seem to have added wings to his heels as well as shoulders. Those have a short Lent, saith Poor Richard, who owe money to be paid at Easter.

Then since, as he says, the borrower is a slave to the lender and the debtor to the creditor, disdain the chain, preserve your freedom; and maintain your independence: be industrious and free; be frugal and free.

At present, perhaps, you may think yourself in thriving circumstances, and that you can bear a little extravagance without injury; but, for age and want, save while you may; no morning sun lasts a whole day, as Poor Richard says.

Gain may be temporary and uncertain, but ever while you live, expense is constant and certain; and ’tis easier to build two chimneys than to keep one in fuel, as Poor Richard says.

So rather go to bed supperless than rise in debt. Get what you can, and what you get hold; ‘tis the stone that will turn all your lead into gold, as Poor Richard says. And when you have got the philosopher’s stone, sure you will no longer complain of bad times, or the difficulty of paying taxes.

This doctrine, my friends, is reason and wisdom; but after all, do not depend too much upon your own industry, and frugality, and prudence, though excellent things, for they may all be blasted without the blessing of heaven; and therefore ask that blessing humbly, and be not uncharitable to those that at present seem to want it, but comfort and help them. Remember Job suffered, and was afterwards prosperous.

Gain may be temporary and uncertain, but ever while you live, expense is constant and certain; and ’tis easier to build two chimneys than to keep one in fuel.

Knowledge Into Action:

And now to conclude, experience keeps a dear school, but fools will learn in no other, and scarce in that, for it is true, we may give advice, but we cannot give conduct, as Poor Richard says: however, remember this, they that won’t be counseled, can’t be helped, as Poor Richard says: and farther, that if you will not hear reason, she’ll surely rap your knuckles.

Thus the old gentleman ended his harangue. The people heard it, and approved the doctrine, and immediately practiced the contrary, just as if it had been a common sermon; for the venue opened, and they began to buy extravagantly, notwithstanding all his cautions, and their own fear of taxes.

I found the good man had thoroughly studied my almanacs, and digested all I had dropped on those topics during the course of five-and-twenty years.

The frequent mention he made of me must have tired any one else, but my vanity was wonderfully delighted with it, though I was conscious that not a tenth part of the wisdom was my own which he ascribed to me, but rather the gleanings I had made of the sense of all ages and nations.

However, I resolved to be the better for the echo of it; and though I had at first determined to buy stuff for a new coat, I went away resolved to wear my old one a little longer.

Reader, if thou wilt do the same, thy profit will be as great as mine. I am, as ever, thine to serve thee,
Richard Saunders

Benjamin Franklin, The Way to Wealth (1757)

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The Zen of Wealthy – When Is Enough… Enough! Wed, 18 May 2016 17:15:05 +0000 How Much Money Do You Need To Be Wealthy And Free?

Key Ideas

  1. Reveals how more can actually be less.
  2. Discover how getting wealthy is just one step to the real goal.
  3. How to connect your values to enoughness.

If you had one million dollars, would you take risks and work hard to make it five million?

Suppose you had five million – would you be wealthy enough to relax and pursue non-monetary goals, or would you push onward to reach ten million dollars?

When is enough, enough?

This is a question I’ve had to answer for myself. At what point do I turn off the monetary spigots, put my investment portfolio on auto-pilot, and completely re-focus my life?

It’s not a simple question because you pay a price to continue onward and upward, and you pay a price to stop.

It’s a very personal question as to which price you want to pay.

At some point, more money becomes meaningless in terms of the quality of your life, but where is that point?

It’s an important question, so let me explain with a little story.

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The Zen of Wealthy - When is Enough Enough image

Why A Private Yacht On The French Riviera Is Too Much

During a recent summer vacation I took my family to France for a month. As we traveled along the French Riviera, we spent two days in Monaco.

If you’ve never been there, it’s a beautiful place with an amazing concentration of wealth. I’ve never seen more Lamborghini’s, Bentley’s, Ferrari’s anywhere else.

Driving a Mercedes or BMW in that town is like driving a 1970s Chevy station wagon in the United States. The level of wealth and luxury is astounding.

Even more amazing than the luxury cars were the luxury yachts in the harbor. I had been to Monaco twelve years earlier and was amazed by the yachts back then, but on this trip, the size and opulence of the yachts was over the top.

Some of these personal boats were so large you had to look closely to make sure it wasn’t a commercial cruise liner. We’re talking huge yachts that require large staffs to operate, incredible overhead to maintain, and cost more money to purchase than most upper-middle-class Americans earn in a lifetime.

“The end of wisdom is to dream high enough to lose the dream in the seeking of it.”-William Faulkner

As I walked along the harbor with my daughter gawking, we watched one of these mega-yachts dock. It was a very involved process to bring a yacht that size into port.

I noticed 12 deck hands working the boat, 2 harbor personnel, and much more going on while the family that apparently supported this operation stood passively on the upper deck watching over everything – but doing nothing.

The most striking part of the whole scene was how there wasn’t an ounce of happiness written on the faces of any one of the three generations of family standing on that top deck. The contrasting effect was startling.

Here was a family with every luxury, convenience, and personal possession that money could afford, and every one of them looked less happy than the masses walking along the harbor being entertained by this parade of luxury.

I didn’t want to read too much into the scene, because it could have been a miserable family that had received bad news recently, but it made me think and brought up some interesting questions.

How Much Money Do I Need To Be Happy?

I wondered if I would have enjoyed spending the day on that fancy yacht more than on shore?

Would the additional money to support yachting bring more happiness than a day spent at the beach?

Surprisingly, the answer was “no.” The thinking process that led to that conclusion is what prompted this article.

“He is rich enough that wants nothing.”– Polish Proverb

You see, I often work with my financial coaching clients around issues of how much money they need for financial freedom because many are already successful entrepreneurs pursuing even greater success.

“Enoughness” is an important concept to become clear on because it dramatically affects what goals you pursue and how you pursue them. In short, it’s essential to the coaching process.

Using my own business as an example, I have no intention of becoming the next famous guru like a Robert Kiyosaki or Suze Orman. While they both have some worthwhile ideas to share with their audiences, I’m not trying to deliver a “mass appeal” message.

I have no intention of diluting or repackaging my information so it’s palatable for New York Times bestseller status. My only focus is serving independent investors and business owners genuinely committed to achieving wealth in this lifetime.

As a result, my message is meatier and sometimes a little harder to digest, but it attracts sophisticated and experienced clients instead of the masses of people who still believe in oversimplified, get-rich-quick nonsense. Frankly, I like it that way.

In other words, I’m happy with existing somewhere out on the long-tail of my market. It’s enough for me. I want to grow large enough to achieve my financial goals for this business, serve my target market exceptionally well, and deliver a message that’s in integrity with my beliefs.

Conversely, I want to remain small enough so I can continue to walk in public anonymously without being recognized. It’s a sweet spot I pursue – not too large, not too small, but just right.

Becoming Wealthy “Enough” Means Having Just The Right Amount Of Money To Maximize Life Experience

It’s the same way with building wealth. Getting back to Monaco and yachts, the reason I had zero “big-boat-envy” was because it would add nothing of value to my day.

Everything was perfect just the way it was. We had been in Monaco to meet up with some friends at the beach. Our kids played great together, we rented chaise lounges to relax in, ate wonderful food, shared stimulating conversation, played in the surf, and had a total ball together. I couldn’t ask for a more enjoyable day.

“I have learned that to be with those I like is enough.”– Walt Whitman

The more I thought about it, the more I had trouble imagining any reason why I would want to own a luxury yacht like that. It seemed to be more hassle than it was worth.

Even if my wealth was so massive I could afford to purchase one and staff it, I wouldn’t want to own one.

It might be fun to rent for a week or two just to have the experience of cruising around on one, but ownership would limit my experience of life rather than add to it.


It would give me new responsibilities to handle and new decisions to make. Frankly, I can have more fun and more life experience on shore for a lot less money and hassle than I can on a fancy yacht at thousands of times the price.

You may notice that implied in the above statements is my underlying values. I don’t value unnecessary luxury. I like nice things, but luxury has never held much appeal.

For example, a BMW drives nicely, but the luxury of a Rolls Royce feels stodgy and wasteful. Renting an apartment on the French Riviera for a week is fun and great adventure, but owning a luxury yacht to cruise the Mediterranean feels cumbersome.

The extra luxury hinders my fun rather than expands it. Like all things, spending also has its balance point. More isn’t always better, and sometimes less can be more.

You can have too much of a good thing.

How about you? Where do you stand on these issues?

Your Definition Of Wealthy Is A Statement Of Your Values

For me, the values statement lurking behind my attitudes is a clear preference for adventure and experiences in life.

Unnecessary luxury puts a barrier between me and life experience.

Sitting on a yacht with a full-time staff may sound nice for a few days, but would get real boring in a hurry. I wouldn’t have much interaction with regular people, and I’d be insulated from daily life experience by living in an artificial bubble of existence.

Contrast that to playing in the surf with other families of kids, watching street artists, and dining at a Jazz club on the beach that evening (which is what we did). I like the real-life, common experience with all the flora and fauna over the sterile, luxury experience.

I like the diversity and the spice – it’s fun. Others might disagree and call me wacky, but that’s what I enjoy.

“It is not wealth one asks for, but just enough to preserve one’s dignity, to work unhampered, to be generous, frank and independent.”– W. Somerset Maugham

What I’m trying to communicate is that at some point, you have all the money you need to have all the experiences you desire.

When you reach that point, you have to question the value of spending your life energy earning more.

  • I only need one bed to sleep in, one chair to sit in, and it doesn’t take a lot of money to buy these things.
  • World travel, considered a luxury by many, can be purchased for a reasonable price. The more luxury you buy when traveling, the more insulated you become from the experience you sought from travel in the first place. There’s an efficient budget for traveling that avoids unnecessary hardship without insulating you from the country you came to visit.
  • It doesn’t take a lot of money to buy a good bicycle or backpack, but it does take time, health, and freedom to enjoy bike trips and backpacking adventures.
  • If travel and adventure isn’t your passion, but arts and crafts are, then the same rule applies. It doesn’t take a lot of money to pursue your artistic goals – but it does take time and health.
  • Close, personal relationships cost very little to flourish, but they do require time to cultivate.

The message should be clear: the stuff that’s really important in life – that which contributes to happiness and fulfillment – doesn’t cost a lot of money.

I know it’s a cliche, but it’s true. Happiness isn’t the exclusive domain of the wealthy. In fact, study after study has shown there’s very little relationship between happiness and wealth once your income rises above abject poverty.

The reason is simple: unnecessary luxury is no substitute for quality, life experience.

How Being Too Wealthy Can Limit Freedom

Surprisingly, it can work the other way around: more money can lead to less freedom and happiness.

Earning and managing more money requires additional effort. Reaching mega-wealth raises your profile in such a way that it may place limits on your freedom.

That’s why celebrities and tycoons have body-guards, private ranches with security gates, and more.

They become targets of attention and can’t travel anywhere and do as they please without getting bothered. Their success actually limits their freedom and experience of life.

“Ambition is a poor excuse for not having sense enough to be lazy.”– Edgar Bergen

Another example where success limits freedom is the successful entrepreneur who becomes trapped by the empire he created.

He stands at the hub of many responsibilities as all the spokes of his empire turn around and around keeping him busy and involved. Where’s the time for all the good things in life when meetings and other business obligations place endless demands on his time?

The truth is you will pay a price to build your wealth. It takes time and effort to earn and compound wealth. Even after you earn and save the money, it must be managed and invested.

All of this takes effort. Sure, you can hire advisors to do things for you, but in the end, you’re responsible and you must make the decisions.

Earning and managing money is work and it takes time… time that can’t be spent on other experiences in life.

How much is enough? It's a question you'll inevitably confront on your wealth building journey, and if you're not prepared the answer may surprise you. The truth is less can be more because you'll pay a price for every choice you make. The key is to know what's right for you.

In Summary

So where do you draw the line – is it one million, five, ten, twenty? At what point do the diminishing marginal returns of additional dollars make you say “Enough!”?

At what point is your time and life energy more valuable than growing your financial empire?

These are questions only you can answer, but assuming you’re successful at building wealth, someday you’ll confront them. It’s a certainty.

They’ll beg to be answered and they won’t let go of you until you reach a conclusion.

My personal experience and the experience of my financial coaching clients is each person has a point where enough is enough. It’s like Goldilocks And The Three Bears where one choice is too large, one is too small, and one is just right.

There’s a sweet spot to building wealth where you spend no more effort than is necessary on acquiring money; yet, you grow your wealth to the point that money doesn’t limit your ability to enjoy experiences consistent with your values.

It’s the balance point where you’re successful enough to do as you please with your life, but not so successful that the freedom you sought in the first place is lost to public notoriety and business demands.

The point is that happiness and fulfillment are the real goals – money is just a lubricant to achieving them. Less money can be more happiness.

Each person’s life requires a different amount of lubrication to run at maximum efficiency. Is that level of success one million, five million, ten million, or more? In the end, it’s a personal question only you can answer.

The Step 3 course in the 7 Steps To 7 Figures series shows you how to answer this question and design your plan to achieve it.

I hope it helps you find enoughness.

]]> 12
Whole Life Insurance – The Essential Guide Tue, 12 Apr 2016 16:38:10 +0000 How To Avoid The Salesman’s Hype And Focus On What’s Best For You

Key Ideas

  • Why life insurance is a negative expectancy bet for the majority of consumers
  • The problem with mixing investing with life insurance
  • 4 concerns you should have about whole life insurance
  • 7 basic terms and features of whole life insurance you need to know
  • Why you may not benefit from compound interest with whole life insurance
  • The hidden consequences behind tax-free whole life insurance loans
  • 4 common, persuasive arguments from whole life salesmen and why they’re wrong

What’s the most popular type of life insurance sold in the U.S.?

If you guessed term life insurance, you’d be wrong.

Despite the well-established conventional wisdom that you should “buy term and invest the difference,” the reality is whole life insurance sells the doors off term. The numbers aren’t even close.

According to the American Council of Life Insurers (ACLI), in 2014, 63.7% of all individual policies sold in the U.S. were whole life, compared to just 36.3% of policies being some type of term coverage.

This fact is even more disturbing because you’d be hard-pressed to find anything positive written about whole life insurance unless you happen to prowl insurance agent or insurance company sites that profit from selling that type of policy to you.

And yet 63.7% of all policies sold are whole life. Amazing!

This article will give you a deep understanding of whole life insurance – its benefits, pros & cons, tax treatment, and use for retirement income – so that you can decide for yourself what best fits your situation.

You’ll get everything you need to combat the insurance salesman’s hype so you can make a smart decision, independent of their influence, as to which type of life insurance is best for you.

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The only guide on whole life insurance you'll ever need

Whole Life Insurance – The 30 Second Elevator Speech

The writer in me is always impressed with the salesman’s pitch and how they manage to frame their product in the most favorable light.

It’s an art form, so let’s consider the typical pitch for whole life insurance before dissecting it.

  • You can “contribute” as much premium as you like (not subject to limits like an IRA or 401k), so there’s no limit on your tax-deferred growth.
  • Your policy has a built in “cash value” account, where you’ll enjoy a guaranteed minimum interest return, tax-deferred growth, and tax-free access to your funds via policy loans.
  • What’s more, should you die while you hold this account, your policy value will blossom into a much larger cash benefit, which your beneficiaries will receive without paying any income tax.

Not a bad pitch, eh? Now you know why it sells so well.

Entire books have been written indoctrinating laymen about how whole life insurance is the perfect vehicle for tax-free accumulation and distribution of retirement income.

But if there’s one lesson you should take from my writings, it’s that the world of personal finance is rarely so simple. Whenever a salesman gives you an over-simplified, glowing analysis, it should always serve as a warning flag that you need to dig deeper and uncover the whole truth.

Life Insurance Common Sense Test

Before we analyze whole life insurance in depth, we must first set a framework for the arguments so we’re grounded in obvious business truths.

The reason this is essential is because, I have to warn you, this is going to get complicated. The insurance companies designed it this way to help sell their products (I’ll explain this below).

If you’re not thoroughly grounded in inviolable, mathematical truths, then you can easily get distracted and swayed by their persuasive arguments.

The essence of life insurance is you give the company your money in the form of policy premiums and they give you back a package of benefits in exchange.

The value of those benefits, on average, must be less than the value of the policy premiums you paid, after factoring in the time value and investment return on the money, in order for the insurance company to profit and pay salesmen commissions.

In simple language, that means that on average, the general population would be better off independently investing the money, rather than giving it to the insurance company and having them invest it in exchange for a contractual package of benefits.

Or stated even more simply, the contracted benefits package offered by the policy must, on average, have a lower value than the money you pay to the insurance company for those benefits.

If this weren’t true, then the actuaries designing these complicated investment contracts would get fired, and the insurance company would lose money and eventually go out of business.

This isn’t some conspiracy theory. It’s just irrefutable business common sense. It’s inviolable math.

Let me be clear that this inviolable math doesn’t mean that you can’t win with life insurance. You absolutely, positively can win.

Insurance is an actuarial process where the minority can win and the majority must lose in order to pay the salesman’s commission and leave a profit for the insurance company.

Okay, now that you have the basic life insurance business equation down, defining it as a negative expectancy bet, on average, for all policy holders, where some will win and the majority must lose, we must add an additional layer of complication to deal with investment products wrapped inside life insurance.

When investments are involved, the benchmark for judging whether the product is beneficial or not rises to the level of competing investment returns, since that’s the alternative you would invest your money in if life insurance wasn’t there.

In other words, you really have two things going on when analyzing the life insurance purchase decision.

You’ve got life insurance in its simplest and most traditional form – a risk management tool – where you pay the company to provide a benefit to support your dependents (or achieve other financial objectives) in exchange for a defined cost should you meet an untimely demise.

This cost is a known, negative expectancy bet that you hope you lose on by living a full and long life. It’s similar to homeowners insurance and liability insurance, where you transfer risks you can’t afford to accept to an insurance company in exchange for a fee. The insurance company then earns a fair business profit for providing this valuable risk management service. Examples include term life insurance and guaranteed universal life.

However, combining life insurance contracts with investment contracts, like with whole life insurance, is a different animal entirely.

The problem is the insurance company invests the capital you send them in the same stuff you and I can invest in on our own – stocks, bonds, real estate. They have large pools of capital and earn market based returns because they are the market. The only problem is they stand in the middle collecting fees and paying commission which means the net return to you as a policyholder must be less than competing low cost alternatives. The high fees and commissions virtually assure this.

That means, by definition, their investment products are at a competitive disadvantage to conventional investments with lower cost structure and less commissions.

Numerous research studies have proven that cost is top indicator of long term investment outperformance relative to the averages, and life insurance companies are at a competitive disadvantage on costs, which places them at a competitive disadvantage for selling their wares based on investment return.

Are there exceptions? Yes, but that doesn’t change the math, that on average, this must be true for the majority. Remember, insurance is always an actuarial process where exceptions will exist, but the majority defines the rule. It’s the nature of the beast.

So how do the insurance companies compete in the investment arena when they’re at an inherent investment return disadvantage due to costs?

The solution is genius.

They roll out a litany of incredibly complicated investment products with incredibly complicated benefits so that even the experts can’t agree on what’s best or even how to analyze them. The insurance company obfuscates the truth through complication.

The game is simple. Professional actuaries who live and breathe this stuff full time create packages of benefits associated with complicated rule sets.

The package of benefits is used to sell the policy to the consumer, and the complicated rule set is used to ensure that the policy is a negative expectancy bet for the majority of consumers (net of competing, low cost investment returns), resulting in a profit for the insurance company.

Whenever you meet a complicated investment, always know one thing with absolute certainty: the complication doesn’t exist without a reason.

Each term changes the mathematical expectancy of the investment, and I guarantee it doesn’t change it in your favor. When it comes to life insurance as an investment, always know that the devil is in all those complicated details and fine print that you don’t understand (but they do).

The investment rule this violates is you should never invest in anything you don’t fully understand because that means you can’t define the expectancy of your investment. Life insurance investment contracts are so complicated that even the experts disagree. It’s fraught with controversy.

The key point to carry throughout the rest of the analysis in this article is that there’s two things going on here:

  1. Traditional life insurance, which is simple to understand, is a known negative expectancy bet that’s totally acceptable because you’re paying for the privilege of transferring risk you can’t afford to accept. It’s very similar to liability insurance and homeowners insurance. You buy it hoping you lose, and that’s okay.
  2. Life insurance as an investment product is very different. It’s so complicated and filled with so many rules, each of which changes the expectancy of the bet, that advanced expertise beyond the capability of most consumers it’s sold to is required to sort it out.

This gives us two simple rules that we’ll carry throughout the following analysis:

  1. Traditional life insurance (examples include Term and Guaranteed Universal Life) is a wise purchase when the death benefit and risk transfer are justified by the price.
  2. Investment products wrapped inside a life insurance policy (Whole Life) can be a wise purchase when the ancillary benefits (tax advantages, asset protection, employee retention, etc., etc.) are justified by the price.

In other words, savvy consumers are not buying life insurance investment products for their investment value. Instead, consumers are accepting the negative expectancy (on average) against competing alternatives for your capital in exchange for an ancillary benefit built into the contract that they value enough to justify the cost.

As a consumer, you must always know that every policy is designed by the company to be a negative expectancy bet for the majority of the purchasers, and positive expectancy bet for the insurance company.

You are buying something designed to make you lose money relative to investment alternatives, so have your eyes wide open and do your due diligence.

This is not a conspiracy theory. It’s just business. It’s baked into the cake by inviolable math.

It doesn’t make life insurance bad. It just means you have to really know what you’re doing.

The Other Side Of Whole Life Insurance That The Salesman Didn’t Tell You

With that framework in place, let’s now look at some of the complicated details left out of the salesman’s persuasive arguments above that change the expectancy of the investment…

When you buy whole life insurance, you become contractually obligated to make contributions every year, and cannot waiver.

If you miss a contribution, the rest of your account value is penalized. If you take money out of your investment, you have to pay it back plus interest, and if you don’t pay it back, you could be in jeopardy of losing all of your investment.

You won’t break even on your investment for the first 10 years because of all the costs and fees associated with your investment, and for the same reason, you’ll probably earn significantly less than competing investments over the long term.

Doesn’t sound quite as alluring, eh? But wait, it gets better…

When structured properly, most “distributions” you’ll take (including gains), are tax free.

However, if you ever decide to cancel your account, withdraw 100% of the funds, or even need access to more money than you had anticipated, you could have to pay income tax on all the “tax free” gains you’ve ever taken from the investment.

Lastly, if you die with funds in your account, the company keeps your investment.

This, in a nutshell, is the dark side of whole life insurance the salesman doesn’t reveal. As I said, the devil is in the details, and each detail was created by the insurance company actuary with the sole purpose of managing the expectancy of the contract.

On top of that, some additional concerns you should have about whole life insurance include:

  • It’s confusing – not just for the average Joe consumer, but for anyone who doesn’t live and breathe life insurance. Heck, even the people who live and breathe life insurance disagree about the stuff in this article.
  • It’s expensive (as a pure lifetime insurance coverage play, it usually costs 2-3x as much as guaranteed universal life).
  • The tax and liquidity benefits are often grossly overstated.
  • And it offers a lower rate of investment return than competing investments.

With that said, there are extremely rare instances where whole life insurance makes good business sense for the consumer. It’s not always bad because remember from earlier, it’s an actuarial outcome where the minority can win but the majority must lose to pay the salesman’s commission and still provide profit to the insurance company.

However, most insurance experts (except, of course, the whole life salesman) will generally agree that if you have a whole life policy (and are healthy), you should consider the possibility of transferring the cash value into a lower cost, lifetime guaranteed coverage plan, such as a guaranteed universal life insurance contract.

It costs you nothing to look carefully at the numbers to see if it makes sense for you.

If you have a whole life policy (and are healthy) then consider clicking here to get a free quote and switching to a guaranteed universal life contract to see what it would save you. It costs you nothing to get the numbers and learn the facts. Full disclosure: this is an affiliate relationship so I get compensated if you buy, but this relationship is also why they’ll help analyze your situation without pushing or pitching.

Whole Life Insurance – First, the Basics

The key difference between term life insurance and whole life insurance is term offers low cost protection with guaranteed level premiums for a fixed duration, typically 10, 15, 20, or 30 years; whereas whole life insurance offers lifetime guaranteed coverage with the additional benefit of accumulating cash values.

In other words, whole life is a mix of investment and life insurance, and that’s what causes all the complication. Because it’s an investment product it’s held to a whole different standard. It must provide positive expectancy, and it must outperform competing investment products if your objective is investment return.

The other problem with mixing the investment product with life insurance is the complexity. Just look at this list of whole life insurance features:

Basic whole life insurance features:

  • Fixed Level Premiums – Premiums are guaranteed to stay level for life, or you can schedule the premiums to be “paid up” by a certain age, such as 65. If you miss a payment, cost of insurance is deducted from your cash value, and if you don’t make up the payment, that can lead to a reduced death benefit.
  • Lifetime Guaranteed Face Value – The benefit amount is fixed for life. It cannot decrease as long as the owner continues to make timely premium payments.
  • Cash Value Account – Besides the life insurance component, whole life policies contain a cash value account associated with the policy, from which fees and cost of insurance are paid. The cash value account typically earns a minimum, guaranteed interest and accumulates tax free.
  • Tax-Free Access to Funds – Whole life cash withdrawals are tax free until you reach the cost basis, as withdrawals are treated with FIFO (first in – first out) accounting rules. Most people, however, borrow from their policy cash values to keep their cash value account in tact and earning interest, but are charged interest on policy loans until the loan is paid back, similar to how a home equity line of credit works.
  • Dividends – Most insurance carriers pay dividends to their policy holders. Owners can take these dividends as cash, apply the dividends to pay down their premiums, or have them purchase “paid-up additions,” which essentially buys them additional life insurance, pushing up their cash value and death benefit. Dividends are not guaranteed, but most companies pay them every year without fail.
  • Commissions Life insurance agents earn commissions based on the premium paid into a policy, typically between 80% to 100% of the first year’s premium. Therefore, most or all of a whole life policy’s first year’s premium gets paid to the salesperson, which also helps explain why it can take 10 years or more for your investment to break even.
  • Surrender Fees – To manage the risk of paying the first year’s premium to the salesperson, most companies add a 15 year surrender fee schedule to their policies to ensure they earn back that commission, one way or another. If a policy holder cancels the policy during the first year, he would typically not expect to get back “any” of his cash value.  The penalty decreases each year thereafter.
  • Paid-Up Additions (PUA) – If you buy whole life from a “mutual” company who pays dividends, one of your dividend options is to purchase additional, single premium bits of additional life insurance.  This is called paid-up additions, and serves to increase your death benefit (with no qualification or medical exam) and since most of the premium (approximately 90%) is funneled to your cash value, it is the fastest way to increase your cash value.  Some policies also have an option (or rider) where you allocate some of your premium to purchasing paid-up additions.  It’s common to see individuals allocating 70-75% of their premiums to the base policy and 25-30% to PUA.  The advantage in doing so is faster cash accumulation.  The disadvantage is you’ll have a lower death benefit, as single premium paid-up additions coverage costs more than the standard whole life coverage.

Whew! Can you already see what I mean about complication? And trust me, we’re just getting warmed up on this front.

But at least, for now, you have the basic terms and features of whole life insurance.

You also understand the general framework of expectancy analysis as applied to life insurance and the actuarial reality of how the minority can win but the majority must lose relative to competing investment products. Finally, you understand how complicated features and rules are used to change the expectancy of the investment as demonstrated already just by this partial features list.

So now, you’re armed with all the tools you need to take the discussion a cut deeper by analyzing the inner complexity underlying whole life insurance.

My objective is to give you a deeper understanding behind many of the insurance agent’s claims that drive whole life to dominate the life insurance sales charts so that you have a balanced perspective and can make a smart financial decision.

We’ll start with fixed level premiums…

Fixed Level Premiums (aka Forced Contributions)

Let’s assume you contribute $1,000 per month into your 401K as part of your wealth plan. But then life changes and you hit a roadblock.

Perhaps you lose your job or need to provide financial assistance to a family member, and you stop making your automatic contribution for a while.

If you’re contributing to a 401k, it’s no problem. You can always stop your automatic contributions for a while until your financial situation stabilizes. You own the asset, and you’re in control.

With whole life insurance, however, that’s a big problem, especially during the first 15 years of the policy while cash values are low and aren’t earning much interest yet.

Remember, this isn’t a straightforward asset you own. Instead, it’s a contractual obligation with an insurance company on the other side.

You must understand that when you stop making premium payments to your life insurance company, they don’t stop charging you for the cost of insurance and other fees, which eats away at the cash value you’ve accumulated, and could put all the premiums (contributions) you’ve paid into the policy at risk.

Can you imagine an investment that forces you to make payments or your initial investment is at jeopardy?

Welcome to whole life insurance! Remember, it’s a contractual agreement, so the terms are whatever is defined in the contract.

And since whole life is so expensive, typically 10-20x the price of term life insurance, a lot of people can’t afford to keep their policies through all of life’s ups and downs, and are forced to let them lapse.

In fact, the Society of Actuaries conducts an annual persistency report, and the most recent one shows that:

  • 12% of individual whole life policies lapse during the first year,
  • 10% lapse in the 2nd year,
  • 8% in the 3rd year,
  • 6% in years 4-5,
  • And finally drops to 4% in years 11-20, and 3.5% in years 21+.

That’s a lot of people surrendering their policies, and they’re often hit with a hefty surrender penalty, getting back a fraction of what they originally paid into their policy.

Surrender penalties are meant to discourage policyholders from directing their funds into another investment. For that reason, it’s very important that you read the fine print on any whole life insurance policy that you might be considering so you know what you’re getting yourself into for the long term.

The key point to take away is that whole life can only work if you consistently pay your premiums for a very long time.

That’s a serious potential problem because everybody has ups and downs and goes through unexpected setbacks. Any financial strategy that doesn’t allow for “life” to happen, but in fact penalizes you when it does, is not representing the best interests of the consumer.

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Did you know that 63.7% of all individual life insurance policies sold within the U.S. are whole life policies? That's shocking, considering most everything written on them is negative. Here's exactly what you need to know so you can make an informed decision on what type of insurance is right for you.

Rate of Return – “Hidden” Charges and Overstated Tax Benefits

Another challenge with whole life insurance is deciphering the real rate of investment return.

While policy costs are disclosed if you look hard enough, few readers have sufficient financial math skills to convert those data disclosures into accurate investment return figures (expectancy).

I know this from my coaching experience because whenever I ask a client (many are very sophisticated) what interest they earn on their whole life policy, they’ll tell me the “headline” figure. Unfortunately, it’s not that simple.

For example, let’s imagine a fictitious 68 year old female client named Ashley with a $250,000 whole life policy, just so we can quote real numbers.

She would probably tell me something like, “Todd, I make a guaranteed interest rate of 2.5%, but that’s the worst case scenario. It actually earns more like 4.75%.”

guaranteed interest rate insurance

Let’s see if she’s right…

We’ll start the analysis in the guaranteed values column on the left side of the table above, where the illustration shows a 2.5% guaranteed interest rate.

Take special note of the Premium Outlay and Cash Value columns.

Nobody needs to pull out a financial calculator to figure out that the owner isn’t quite making 2.5% on her money.

She has paid over $21,000 per year for 5 years, (that’s well over $100,000), and the guaranteed cash value in year 5 is only $79,556.

guaranteed interest rate insurance 2

The same is true for the “Non-guaranteed” column.

A $21,848 contribution over 5 years at 4.75% interest should result in an end value of $120,123. So that column doesn’t quite add up, either.

guaranteed interest rate insurance 3

So obviously there are charges here that are being taken from the policy.

Are they hidden? No. They are stated in the illustration, but the point is, people don’t notice them.

These fees include:

  • Commissions
  • Cost of insurance/mortality fees
  • Policy fees
  • Administrative fees
  • And in the first 15 years, typically, surrender charges

Here’s a personal account from Matt Becker of

“With that said, there is actually a small guaranteed return on these policies, but even this is incredibly misleading. In the policy that was attempted to be sold to me, the “guaranteed return” was stated as 4%. But when I actually ran the numbers, using their own growth chart for the guaranteed portion of my cash value, after 40 years the annual return only amounted to 0.74% … The reality is that you can get better guaranteed returns from a CD that locks up your money for a shorter period of time and is FDIC insured.”

The reality is expenses matter, a lot! Let’s explore this further…

Whole Life – The Expensive Sister of Mutual Funds

Just to be clear, the life insurance industry is no more deceptive at reporting their numbers than any other financial industry.

You must be a smart consumer and look closely at the details to get the truth, because numbers can be used to deceive if you don’t understand them.

For example, mutual fund companies and other investment firms frequently report average returns rather than compound returns. The reason is simple: average return is always higher than compound return, so it makes the investment look more desirable.

The reality is compound return is the only number you can actually spend, thus it’s the only number that actually matters to an investor. Average return is a statistical fiction that doesn’t exist in your account because your money compounds, it doesn’t average.

The same is true with mutual fund expenses and 12b-1 fees. They are disclosed to you in unreadable documents filled with legalese so everything is above board.

However, they never show you the paper trail by providing the exact figures for how much you personally spent on those expenses and fees, and how much lower your account value is as a result.

Most mutual fund investors would be shocked to know that if they earned 8% in their mutual fund, the actual underlying portfolio they’re invested in might have made 10-11% during the same period.

So where did the other 2-3% go? It’s hidden in the detailed expenses that were fully disclosed to you, even though you can’t figure out how to find the actual money lost.

Again, this is not some grand conspiracy theory. It’s how the financial industry works, and it’s all fully disclosed in the prospectus (contractual documents).

The problem is consumers (you) rarely know about or understand how to interpret the details of these documents, and even if you know what’s disclosed, it’s very difficult to translate back into tangible dollars and cents.

The game the pros play is to make the investment complicated, and then layer in expenses in disclosure documents that are difficult to figure out.

Complication alone is not necessarily bad, but it usually accompanies high expenses, which means it violates two fundamental investment tenets:

  1. Don’t invest in anything you don’t fully understand. If you don’t fully understand it, then you can’t possibly know the expectancy of the investment.
  2. Below average expenses are associated with above average returns. It’s only acceptable to incur investment expenses when they put more money in your pocket than they take out.

Expenses matter.

Small amounts compound over many years to become large amounts. Insurance actuaries are pros at figuring this stuff out and using that knowledge to structure policies that profit at your expense.

The bottom line is you want to pay attention to expenses and fees for all your investments, including your life insurance.

And you should never invest in something you don’t fully understand because you should only put capital at risk on positive expectancy bets. If you don’t understand it, then you can’t figure out the expectancy.

For a free quote on the lowest cost, best value life insurance products (without sales pressure) just click this link. A trusted independent agent will follow up with you and answer any questions you may have.

The Problem of Compound Interest

Staying with our compound interest reasoning, it’s also worth noting that one of the reasons for the meager returns in whole life is what happens during the first 10 years of the policy… minimal to no gains.

The problem with the math of compound returns is low returns in the early period are very difficult to overcome over the long term. You have to earn extraordinary returns in later years to result in an average compound return.

Again, this is all just the way the math works. It’s not an opinion. It’s inviolable math.

Unfortunately, whole life insurance wastes those first 10 years of compound growth. In fact, it’s the rarest of policies that will break even in the first 10 years.

That’s because the first 10 years are front loaded with heavy fees and expenses, causing you to lose valuable compound return time.

Whole Life Insurance Taxation – Are Withdrawals/Loans Really Tax Free?

Now let’s turn our attention to all the tax benefit claims of whole life insurance.

This is actually a valid return stream. Insurance companies have lobbied heavily to be the beneficiary of this government sanctioned investment return stream – tax advantages – so they can turn around and sell those tax advantages to you for a profit.

But again, the devil for determining the positive expectancy from tax benefits is in the details (read “complication”).

There are 4 essential phases to every investment that must be considered when talking about tax advantages:

  • Contribution phase
  • Accumulation phase
  • Distribution phase
  • and Transfer phase

For example, a typical 401k enjoys tax favored treatment in the contribution and accumulation phases, but can incur income tax liability in the distribution and transfer phases.

Whole life proponents like to argue that you get tax favored treatment in 3 of the 4 phases:

  • Contribution phase
  • Accumulation phase – cash value grows tax deferred in life insurance contracts
  • Distribution phase – when it’s time for you to take money from your policy, you can borrow “tax free” from your cash value
  • And Transfer phase – when you die, your policy benefit is transferred to your beneficiary(ies) income tax free.

(The really aggressive whole life proponents even go so far as to argue you can get tax favored treatment in the Contribution phase if you pull equity from your home to pay your life insurance premiums. The reasoning is your mortgage interest deduction provides a tax favored contribution. This is a highly aggressive strategy that puts your home at risk, so I would never encourage it.)

While the claims are technically correct, the devil is in the details (gee, have I said that before…?).

Let’s examine these details by starting with liquidity issues…

Before Taxation – A Word about Liquidity

Life insurance salespeople love to point out the liquidity of whole life.

They will boast that:

  • You can access funds via policy loans, and you don’t have to pay it back.
  • Life insurance loans are a great place to turn for emergency funds, or even business loans, because the money belongs to the owner so there’s no “qualification” needed for the loan.
  • And finally, loans are not subject to 10% early withdrawal penalties for taking funds prior to age 59 ½, as they are with IRA’s and SEP’s.

Agents will argue these benefits make life insurance an excellent source of lendable money at your convenience.

However, it’s not quite that simple. The problem lies in what happens to the policy once you borrow funds from it.

First of all, during the first 5-10 years of the policy, it simply cannot sustain withdrawals/loans.  Yes, you can access the funds, but you’ll be charged interest and have to pay it back.

If you can’t pay it back, and you stop making premium payments, then any other cash value you have in the policy will begin to get eaten up by loan interest and cost of insurance.

Think about the illogic of the claims – most policies don’t have any gains for at least 10 years, so what’s the benefit of being able to withdraw money on FIFO tax status or borrow from your policy tax free if there are no gains to borrow?

What’s the benefit of getting to your money without an IRS early distribution fee of 10% if there are no gains?

Rather than pay all those premiums to the life insurance company, you could just stuff it all under your mattress and have instant access with no IRS penalty. It makes no sense if that’s really your goal.

Why would you want to use whole life insurance and have to wait roughly 15 years before you have any gains worth talking about? How’s that an advantage?

15 Years Later… Tax-Free, Liquid Access to Money, Finally! (Or is It?)

So when can we actually pull money out of a whole life policy and get this sacred tax-free income that insurance salespeople love to talk about?

Let’s say you’ve spent 15 to 20 years diligently paying your mandatory premiums, building up your cash value, and now you need some money…

There are 2 ways to pull money out of a whole life account:

  1. You can take a withdrawal (as mentioned earlier, in which case you’ll only pay taxes on gains after you’ve taken more than your cost basis)
  2. Or you can borrow from your cash value. Many owners withdraw funds up to their cost basis, to avoid taxation and loan fees, and then switch to loans.

In the first instance, there’s nothing impressive or unique about policy withdrawals. You’re merely withdrawing your cost basis, thus not incurring any tax since it was your money anyway. This isn’t some great benefit you should get excited about.

However, the almighty whole life insurance policy loan is different. This is the feature that salesmen get excited to pitch as the great secret to investment income.

For example, let’s say you need some money to start a business or supplement your retirement. The good news is you can easily request a policy loan from your life insurance provider.

If you request a check, most companies will send it out within 2 weeks. (Although if you read the fine print, most carriers reserve the right to hold withdrawal or loan requests for up to 6 months before they pay.)

What’s really cool about this loan is that it’s low-hassle, you can usually get the money quickly, and your insurance carrier won’t be sending you a 1099 for taxable income received, as long as your loan amount doesn’t exceed your cost basis. That’s all fine and good.

So you’re happy to get your tax-free loan, but what’s happened to your policy?

  1. Generally, policy loans reduce the policy death benefit.
  2. Generally, your loan is accruing interest. You need to pay it back (plus the interest), or risk a reduced death benefit or even policy lapse (see #4).
  3. Your policy loan generally decreases your cash surrender value.
  4. When the loan balance exceeds your cash value, your premiums may increase to maintain the same death benefit. If you can’t pay the increase, your policy could lapse.
  5. If your policy lapses, 100% of all “tax free” monies ever taken are taxed as ordinary income.

None of this is necessarily bad for you unless your specific actions and situation make it a problem.

If you’ve accumulated a lot of interest and dividends, then your policy may have grown to the point that it can support the ongoing cost of insurance, and it might even support a 4% spend rule.

If you haven’t, then you could have a problem.

Again, notice the level of complication hiding all the fees and expenses. Think about how each rule impacts the expectancy of the investment. It’s so difficult to sort all this out that even the experts disagree.


The Death of a Whole Life Policy and Its Tax Benefits

The next issue we run into is the difference between theory and reality.

Whole life insurance salespeople pitch you the policy based on illustrations and tables that assume you withdraw or borrow from the policy according to perfectly designed plans.

Again, life happens, and the policyholder may need money earlier than expected, or more than expected.

One of the points I make in my book about the 4% Rule and Safe Withdrawal Rates In Retirement is that we have no idea what inflation will be like 20-30 years down the line, or life expectancies, or interest rates.

The future is unknowable.

But if you look at the whole life illustrations provided during the sales pitch, it shows a perfect pattern of premium payments for X number of years, and then shows a perfect distribution pattern with the exact same amount taken each year.

Take, for example, this sample whole life illustration for a 40 year old male, who pays $5,225 per year for a $250,000 policy.

The illustration shows 25 years of premium payments, and then shows him pulling out policy loans of $8,313 per year to age 100.


… so he pays his premium every year without fail, and then pulls out the exact amount for the rest of his life.

At first glance, it doesn’t look too bad. The policy seems to support an $8,313 per year loan amount for life off of a cash surrender value of $213,098. That’s almost 4%, and since it’s tax free money, it’s even more valuable, right?!

But do you see a problem here?

First, it’s important to note how there’s non-guaranteed interest and non-guaranteed dividends being credited to the cash value, which, in the case of interest, could be lower than illustrated, and in the case of dividends, might not happen at all.

Yes, there are many carriers that have been around for hundreds of years who pay dividends every year, so it’s almost as if they’re guaranteed, but they aren’t.

The cost of insurance also isn’t guaranteed.  The numbers above reflect what would happen if all goes according to the illustration.

Here’s the “non-guaranteed” language at the bottom of the illustration:

whole life fine print

Remember, I said to read the fine print.

The other problem here is the “never-miss-a-class, straight-A-report-card” policy owner who paid $5,225 per year for 25 years in a row, without missing a payment.

I don’t know about you, but my life hasn’t operated even remotely close to that level of certainty and perfection. Has yours?

Agents will say that you can add a “waiver of premium” rider, in case you happen to become disabled, which allows you to stop paying premiums, but that hardly solves most real world problems. What if you lose your job? What if you need to bail out a family member?

This should be particularly concerning for whole life “investors,” since the only way to avoid collapsing their policy when they start withdrawing funds is to take small amounts, probably not exceeding 3-4% of their cash value.

If they stray from that formula, as many do, then big problems can develop.

Watch what happens to the illustration above if “life happens,” and instead of paying every year for 25 years, you can’t afford to make a premium payment in year 10, and instead, have to take a $10,000 loan.


*Illustrations provided by Chris Huntley and are not to be considered an offer for insurance. Premiums and policy performance varies by company. Not available in all states.

You can see the estimated amount available for lifetime loans drops to $6,798.  That’s a big difference from the first illustration.  Let’s see the math.

what happens when you miss a life insurance payment

With one simple deviation from your perfect plan, the amount available for supplemental retirement income has been reduced by 23%.

It’s this severe because even though we pulled out only $10,000, our policy costs didn’t decrease.  We still had to pay the cost of insurance associated with supporting a $250,000 death benefit.

Notice how severe this impact is compared to more straightforward investments that don’t have the life insurance wrapper.


**Please note I have not taken tax considerations into account in the above charts, as my intent was not to show how much more or less you could earn by choosing an alternate investment, but simply to show you how an alternate investment is not impacted as severely by unexpected changes, particularly when they occur early in the plan. I could have skewed this even more in favor of the “alternate investment” if I had adjusted the contribution for its pre-tax equivalent. In the same breath, the reverse is true for the tax-free vs. taxable distribution of the two options.

The key distinction between life insurance and other competing investments is life insurance is just a contractual obligation. If life goes awry when owning other investments, you can adjust your withdrawals because you control the asset.

You might have to adjust your living expenses because of withdrawal errors, but at least the corpus of your investment will not be affected.

But with whole life insurance, you’re bound by the contractual obligations of the policy, and may not have the same luxury.

What typically happens with whole life is the owners who purchased the policies were told to expect to rely on them for retirement income.

Upon retirement, they stop making premium payments, borrow far more than the amount of annual interest and dividends the policy can support, and cannot afford to pay back the loans. These loans typically accrue interest at 4-8% depending on the company, which leads to hefty unpaid loans.

Ultimately, the loan must be paid back. (Or the owner must at least pay increased premiums to keep the policy in good standing.)

Often the owner can do neither, and the policy lapses. When that happens, all of the tax-free monies received over the life of the policy suddenly become taxable.

It can be a very bad situation.

Did I remember to mention the problem with complicated terns and how the devil is in the details?

Sample Whole Life Buyer

For example, let’s consider Sam, a 34 year old man in good health, who needs life insurance to provide income replacement for his wife.

His agent sells him a $500,000 whole life insurance policy for $4,790 per year. It’s a lot of money for Sam, but his advisor assures him it will not only help him accomplish his insurance goals, but points out that it will offer him the additional benefit of tax-deferred accumulation and tax-free withdrawals via policy loan, should he need extra cash in retirement.

The sales pitch includes an illustration of guaranteed death benefit and cash value totals that looks something like this:

guaranteed death benefit

As you can see, 20 years into the policy, Sam has invested $95,808 (premium outlay) that’s now worth $111,245 on a guaranteed basis.

His agent would point out that his policy would likely earn dividends (non-guaranteed), which would be re-invested into the policy and help grow the cash value.

If that were the case, and if this policy were truly liquid, and these funds were truly tax-free, this might not be so bad after all.

… But in fact, that’s not the case, as explained above.

Sam doesn’t truly have access to $111,245 on a tax-free basis in year 20. In fact, if he withdraws all of the cash, the policy will lapse, and he’ll be taxed on the growth.

If he borrows all the cash, he’ll immediately be hit with a severe premium increase to keep the policy in force, or it will lapse.

If he borrows only 80-90% of the cash value, the policy may not lapse immediately, but would require additional premiums to pay back the loan and pay for the cost of insurance.

So you see, it’s not as if once you’ve accumulated some cash value, you really have unlimited, tax-free access to the cash.

Your access is limited, and you have to pay for access to it.

So to conclude this section, policy loans only work if you pay them back, or take out small enough amounts that the loan never overtakes the cash value for the duration of the policy.

If the loan overtakes the cash value, then you put the policy at risk of going belly up.

Getting this right requires constant monitoring and requesting new “in force illustrations” to ensure the policy is not in danger of lapsing, and that no further premiums will be needed.

Do you have the expertise or desire to follow through on that in your retirement?

Misconception – Whole Life is “Risk Free”

While whole life may offer guaranteed interest, a lot of people misinterpret that fact to imply that cash value always increases – never going sideways or down.

Given the expense threshold of the policy, that obviously can’t be true. If you’re not totally clear about how this works, then just stop paying your premiums for a couple years, and you’ll quickly see that your cash value certainly can decrease.

Remember, administrative fees and cost of insurance continue getting deducted from your policy whether you pay premiums or not. This isn’t just an investment. It’s life insurance also, and there’s a cost for that insurance.

Not only is an ever increasing cash value not a sure bet (despite guaranteed interest), but you want to take your investment return analysis one step further and realize your true investment objective is to increase purchasing power net of inflation and outperform other investments competing for your scarce capital.

In other words, it’s not just a question of whether or not you’ll make money with your whole life insurance policy (which is not a certain bet), but it’s really a question of whether or not you’d be better off investing that money elsewhere.

That’s a much tougher threshold to overcome…

Opportunity Cost

For example, do your recall our earlier example of 34 year old Sam buying whole life insurance?

He paid $4,790 per year, and by year 20, he had a guaranteed cash value of $111,245. That’s an ROI of less than 2%.

What if he bought term life and invested the difference in premiums?

At Sam’s age, he could purchase a $500,000, 20 year term policy for just $249 per year. (If he’s following my strategies… paying down his debts, spending money wisely, and saving for retirement, he shouldn’t need coverage longer than that.)

This is a true measure of what Sam’s real cost of insurance should be.

Again, I’m putting this in bold to drive the point home. You want to separate the life insurance component of a whole life policy from the investment wrapper it’s contained in to sort out the cost versus benefit equation.

Remember, complication is how the financial pros hide unnecessary expenses, and combining insurance with investment is very complicated.

When you separate the insurance from the investment, what you quickly see is Sam is paying $4,541 per year more than he has to for his insurance needs.

If he were to take the savings and invest it at just 6% after tax, he would have accumulated $167,043 after 20 years. You can run these calculations at various ages and face values, and the results are extraordinarily consistent. In all but the rarest of cases, term wins.

What Should I Buy Instead?

Again, if you are following my strategies on this site, you should have no need for life insurance beyond your working career.

The message is straightforward – KISS (Keep It Simple, Sam). Don’t collapse the life insurance component with the investment component. Separate them to see the true cost.

Term insurance can be a good idea if you have dependents who rely on your income, but even that can be dropped once you’ve accumulated enough assets to ensure their well-being in the event of your death.

However, there are other life situations where permanent insurance is needed for estate planning or charitable giving.

For example, it’s common for very wealthy individuals to purchase life insurance to pay federal estate taxes due upon their passing.

In 2016, estates valued at $5.45 million or less are excluded from federal estate tax. Any amount over that is taxed at 40%. The exclusion amount is doubled for married couples.

So if an individual has a net worth of $25 million, for example, his federal estate tax liability would be over $7.8 Million dollars.  (After the exclusion amount of $5.45 million, that leaves $19,550,000 subject to a federal estate tax of 40%.)

If you’re fortunate enough to face that problem, then lifetime guaranteed coverage is a potential solution.

Many independent agents offer a form of permanent life insurance called guaranteed universal life insurance.

It offers guaranteed lifetime protection and guaranteed level premiums, but because the policy isn’t mixed up with an investment component that grows in cash value, it can be purchased for half the cost of whole life (or less).

For cases like this, many wealthy individuals opt to purchase life insurance to cover the future tax liability and keep their estate whole.

Take, for example, a 60 year old man in this situation. He’s worth $25 million and his estate will owe $7.8 million in federal tax within 9 months of his passing.

If he wanted to avoid a $7.8 million reduction to his estate, and he’s in great health, he could buy a guaranteed universal life policy with guaranteed level premiums to age 95 for $97,188 per year (as of this publishing date).

If he lives 21 years, as the Social Security Actuarial table predicts he will, he will have paid just over $2 million in premiums for the life of his policy, and the death benefit will effectively wipe out his estate tax problem.

Obviously, this a simplified example. It doesn’t factor in what he could have done with that money for those 21 years (opportunity cost), or the fact that his estate would likely be increasing over that time frame, increasing his need for coverage.

The point is to show you how affordable guaranteed universal life can be if you do have a permanent need.

Tony Steuer, author of “Questions and Answers on Life Insurance” and founder of, only sells guaranteed universal life. He says:

“When I consult, if there’s a permanent need for life insurance, I always go with a Guaranteed Universal Life (GUL) recommendation – pure insurance and nothing more. Life insurance is the only type of insurance where someone expects something back if there’s no claim. With homeowner’s insurance, policy owners are perfectly happy when their home doesn’t burn down and they don’t have a claim. That’s how GUL’s work. They only pay out when the insured passes away.”
Click here for a free quote, and an independent agent will follow up with you to answer any questions you have about Term and Guaranteed Universal Life insurance. They don’t represent a specific life insurance company so they can show you the absolute best deal without sales hype.

Is Whole Life Insurance the Best Type of Life Insurance for Estate Planning?

Another misconception is that whole life is a good financial vehicle for estate planning. As discussed in the previous section, if permanent insurance is needed, the best value in coverage is guaranteed universal life.

When Does Whole Life Make Sense?

It should be clear by now that for 99% of individuals, whole life insurance does not make sense.

However, there is a rare combination of circumstances where whole life insurance might work:

  • The policyholder needs permanent life insurance protection,
  • Is extremely wealthy and has exceeded the contribution limits of competing tax-advantaged investment plans such as the 401K, IRA, HSA, or for the self-employed, a Solo 401K or SEP,
  • Can easily afford the planned premiums,
  • Is not concerned with rate of return…
  • …and values the less tangible benefits from the policy such as asset protection, or for businesses, higher employee retention, or simpler (or more cost effective) administration of defined benefit plans.

Remember, I didn’t say whole life insurance is always a bad deal. It’s not. There are always exceptions, and those exceptions are best illustrated by clients placing a high value on the ancillary benefits provided by the policies (not the straight investment return or life insurance itself).

In a recent report conducted by The Newport Group titled “Executive Benefits: A Survey of Current Trends,” the group determined that within businesses with $1 billion or more of revenue, permanent life insurance (often whole life) is used to fund 82% of supplemental executive retirement plans and 73% of Non-Qualified Deferred Compensation plans.

Businesses use cash value life insurance to fund their executive retirement plans not for rate of return or liquidity, but for completely different reasons that are beyond the scope of this article. I’ll mention them in passing, just to illustrate:

  1. They set up a “split dollar” plan providing some death benefit protection to the business as long as the employee or key executive works for the business.
  2. Employee retention benefit.
  3. In some cases, businesses find it’s cheaper, or they run into fewer ERISA compliance issues, when life insurance is the funding vehicle.

In other words, the motivation for the purchase is an ancillary benefit of the policy other than the expectancy of the investment. This is a key point.

Another example of this type of motivation is when a wealthy individual chooses to fund a whole life insurance policy with large amounts of premium for asset protection reasons.

Historically, creditors and plaintiffs have had a difficult time attacking life insurance cash values, since the purpose of that money is to pay for life insurance expenses.

Notice how the motivating reason is not the expected return of the investment. It’s the legislated value of ancillary benefits, by law, that motivate the purchase.

Again, these are less common and beyond the scope of this article. However, the life insurance agency I’m affiliated with has experts with advanced knowledge in this niche, and would be glad to answer your questions. You can click here to grab a free quote, and an independent agent will get in touch with you.

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Always do your due diligence with a financial product, especially life insurance

Agent Arguments

Okay. I’ve covered a lot of territory in this article. Now it’s time for all the insurance agents to jump in and rebut everything stated and prove what a great deal their insurance products are for consumers.

Readers should understand they are salesmen for a reason. They make their living by being persuasive, and I fully expect amazingly persuasive comments showing how most of what I said is nonsense and I don’t understand the business and made egregious errors and don’t have any clue what I’m talking about.

So let’s prepare the normal (not a life insurance geek) reader for the usual types of persuasive arguments used to refute everything written here so that you’re well-armed to deal with the onslaught:

  • The Circumstantial Argument – They’ll cite examples where they personally, or maybe their clients, got a great return on their whole life policy. Yep, it’s entirely possible. There are always exceptions. However, that doesn’t change the general principle that it’s not right for the majority of middle to high income individuals.
  • The “Properly Structured” Argument – These arguments consist of various statements about whole life only working if it’s set up properly. For example, you must have the right agent using the right policy from the right company. Or if you structure it for maximum cash accumulation, or direct more premiums to paid up additions, or buy this or that rider, or pay up your policy over 10 or 15 years instead of over your whole life, or if you take your cash as a life-only SPIA how much more money you’ll end up with, etc. While I agree some agents will set up whole life policies for better success than others, and that some companies offer products superior to others, these don’t change the irrefutable facts.  Regardless of what you do, you’ll still have the problem of forced contributions, limited liquidity, and a policy that usually won’t break even for 10 years. Will careful structuring help? Of course. Does the fact that careful structuring is necessary for it to work prove the issue about unnecessary complication raised in this article? You betcha! Does it prove my point that the devil is in the details to calculate the expectancy of the contract? Absolutely yes!
  • The “Better Than Nothing” Argument – Agents defend selling whole life insurance because even if whole life isn’t the perfect investment, it’s better than nothing, and people would be better off investing in this “forced savings plan” than doing nothing at all. Yep, I absolutely agree that it’s better to pay premiums into a whole life policy than spend your money on lattes, but to be fair, when analyzing any investment opportunity, the deciding factor usually isn’t whether or not you get a better return from the proposed investment vs. pissing your money away. The real question that must be addressed is whether the investment outperforms competing investments. Lattes aren’t an investment. Anything is better than nothing, but that’s not saying much.
  • The “Burned by Term” Argument – They’ll cite examples where people got burned by buying term instead, and down the road, after their level premium period expired, they still needed coverage, but couldn’t afford to buy permanent coverage in their old age. They’ll argue that people should lock in their permanent rates when they can (the younger, the better). Yep, that’s true also. But they knew that fully disclosed risk when they bought term. It’s not a case for whole life, but it could be argued in favor of guaranteed universal life.

Realize also that many agents love whole life, not only because they make great commissions from selling it, but because some agents really do believe in it.

Just take what they say with caution. See if you can uncover all the details and complication well enough to develop a full understanding about the investment expectancy of the policy. It’s not likely.

Note to Agents: My only request with all the expected critiques is you please be respectful to my audience by focusing on facts and providing information that expands the knowledge base.


The lesson learned from analyzing whole life insurance is pretty straightforward and can be extrapolated as a general principle to other “Swiss Army Knife” investments like variable annuities as well.

Complicated investments are usually complicated for a reason. When the insurance actuaries mix life insurance with a savings account with guaranteed income and throw in tax benefits and borrowing all into one wrapper, even the experts can get confused.

The facts and numbers can be twisted in many different ways. Just trust one thing: life insurance actuaries aren’t dumb.

They design and price this stuff for a living, and they represent the opposite side of the deal from where you stand. The goal is insurance company profit, pure and simple.

And the only way they can profit is to construct a package that sounds desirable enough to the consumer to motivate him to hand over his money, yet price it in a way so that the insurance company and the agent selling it get paid.

Stated simply, it must be a positive expectancy bet for the insurance company and negative expectancy bet for the buyer (on average), otherwise it won’t be profitable to the company.

That’s not to say all life insurance is bad. Quite the opposite is true, as long as you use life insurance to insure those risks you can’t afford to take.

In other words, the general rule is to use insurance as a risk transfer tool. That’s what it was originally designed for before slick salesmen and actuaries figured out how to redesign it as investment packages with tax benefits and complicated rules to broaden the sales appeal.

The undeniable truth is that it’s extraordinarily difficult for consumers to separate out all the costs and figure out what benefits they really need versus what they’re paying for.

These complicated investment products sell well because the pitch includes a smorgasbord of benefits all wrapped into one investment product, albeit at a cost.

They sound appealing because you get so many things that no other investment provides – guarantees, tax benefits, asset protection, and even a little life insurance thrown in for good measure. Few consumers have the time or financial savvy to dig deep enough to figure it all out.

Slick salesman use advanced persuasion techniques like the framing tools mentioned above (and likely used in the comments below) to organize arguments that sound undeniably true to promote their policies (read “contracts”), while simultaneously failing to disclose the multitudes of rules and complication that must be fully understood to really know the investment expectancy of the product.

If you’re one of the unfortunate people who was sold a bill of goods by one of the big name life insurance company agents and it hasn’t measure up to expectations, then consider cutting your losses by using your cash value to fund a guaranteed universal life policy instead, or by cashing in your insurance and buying term instead.

It costs you nothing to get your quote here and examine the numbers, and it might just save you a bundle. There’s no risk to inquire and learn more.

I hope this information on whole life insurance has helped you understand the issues at a deeper level so you aren’t easily swayed by the narrow framing arguments commonly provided.

This is business, and like most business decisions, it’s really common sense when you get right down to it.

Complication is generally used to obfuscate the facts and distract the consumer from the obvious truth. For that reason, be wary of complication.

If you can’t fully understand it, then don’t invest in it.

Independent Agents Can Save You Up To 73% On Life Insurance

Applying to the life insurance company with the "lowest quote" rarely gets you the lowest rate.

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Pension News: You’re on Your Own For Retirement Wed, 24 Feb 2016 04:59:08 +0000 Nobody Wants Responsibility For Your Retirement So They’re Passing The Buck To You. Do You Know How To Benefit?

Key Ideas

  1. The reason retirement planning changed from socialized to personalized.
  2. How underfunded pensions might impact you.
  3. 3 simple steps for securing your retirement.

Eliminating poverty and providing security for the elderly used to be part of the American Dream.

It began with Social Security and gathered momentum after World War II with corporate pension plans.

The implied promise was that decades of service bought you a financial safety net during retirement.

But not anymore…

The paternalistic days of employers and government providing a guaranteed retirement income for life are coming to an end.

Social Security and defined benefit retirement plans are quickly becoming relics of the past as they’re replaced with individual savings accounts and defined contribution plans.

Retirement planning for the masses has proved to be a hot-potato too big to handle. The government and many employers mismanaged the responsibility, so now they want to pass the problem off to you. Their mistake is now your responsibility.

Are you ready? Do you know what to do? Do you understand the implications?

More than ever a huge premium has been placed on your developing the necessary skills and knowledge to invest and build wealth reliably and securely.

As one coaching client told me, “It’s time to get religion about this situation” and own responsibility for your retirement security.

Nobody else is going to do it for you. You’re solely responsible.

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Pension News You're On Your Own for Retirement image

Why Retirement Planning Is Now Your Problem

Let’s begin with some facts to bring perspective to this issue before we explain how this turn of events occurred:

(Editors note: Some studies and data in this article may be dated, but none of the principles are. All trends cited are current and fully in force.)

  • Traditional defined benefit pension plans, which provide a fixed income for life based on ending salary and years of service, peaked in 1985 with 112,000 plans covering roughly 40% of American workers.
  • According to the US Department of Labor, as of 2015, the number of defined benefit pension plans was 45,672, versus 648,252 for defined contribution plans.
  • In the brief 4 year period from 2001 to 2004, nearly 20% of the Fortune 1000 froze or closed down their defined benefit retirement plans. That trend continues today.

“This is a watershed event. There has been a steady decline in traditional pensions for two decades, but the trend is really accelerating, and it’s going to accelerate even more.”– Jack Van der Hei

  • The reason corporations are cutting pension and health benefits is to reduces costs, reduce risks, and control underfunded liabilities. The total amount that pension plans are underfunded has steadily risen since 2000 to exceed $450 billion in 2005 (that number is far worse today).
  • At the same time, pension underfunded liabilities have escalated, the governmental agency that guarantees pension benefits has grown a deficit in excess of $76.4 billion as more corporations turn to government bailouts as a solution for their pension funding problems (again, a worsening problem).
  • While on the subject of government, the Social Security system is unfunded and based on flawed actuarial assumptions. As the baby boomer generation grays and people live longer, it’s already reducing benefits by increasing the minimum age requirement. You should reasonably expect additional benefit reductions and means testing as the system fights off financial insolvency.
  • Over the same time period that defined benefit retirement plans and Social Security have been declining, defined contribution and individual retirement plans have been booming. According to the Employee Benefit Research Institute, the total number of participants in defined contribution plans was 64 million in 2005, and according to the Department of Labor, it has since grown to 88 million in 2013. The buck has been passed…
  • According to Ibbotson, defined contribution retirement plans and IRAs had grown to make up nearly half of the $14.5 trillion in total retirement assets by 2005. Considering these plans hardly existed a generation earlier, that represents a colossal shift that’s only accelerating.

Those are the facts, and they paint a clear picture: the days when corporations and government took care of your retirement planning are ending. They want out of the retirement planning business, so they’re passing the buck to you.

They’re doing this by getting rid of defined benefit plans and replacing them with defined contribution plans. The trend is clear: you’re now responsible for your retirement security.

Let’s see what that means to you…

Defined Benefit Retirement Plans Vs. Defined Contribution Plans – Why You Should Care…

It’s important to understand that changing from defined benefit to defined contribution plans is more than just words or semantics: it’s a fundamental shift in how retirement planning is done.

It’s a totally different ballgame. You must fully understand these differences so that you can profit from this changing environment.

The most obvious difference is evidenced by their names: defined benefit plans specify the monthly payment you’ll receive (the benefit). Defined contribution plans specify the amount of contribution you must make to your retirement account.

One is based on a fixed benefit, and the other is based on a fixed contribution.

But what does that mean and what do you do with it? Below are some explanations of the implications:

  • Defined benefit plans “guarantee” a certain monthly benefit for the rest of your life based on final average pay and years of service. Defined contribution plans have no guarantee; the amount you can withdraw each month during retirement may be higher or lower than a defined benefit plan depending on how much you saved, how much your assets earned, how long you expect to live, and how much risk you can live with.
  • Defined benefit plans protect participants from market risk by shifting that risk to the employer. The stock market crashing or interest rates going to the moon is the employer’s problem – not the employee’s – because the employee gets the same benefit regardless. Defined contribution plans place all the market risk squarely on the shoulders of the plan participant: you. If the market tanks and takes your account with it, then you lose. Nobody is going to pick up the pieces for you.
  • Defined benefit plans offer some protection from inflation until retirement day by calculating benefits based on final average pay. What happens to inflation after you retire is your problem because your benefit’s fixed unless your plan includes cost of living adjustments. Defined contribution plans offer no protection from inflation which can significantly erode the purchasing power of the account assets. The only way you can protect yourself is to invest competently so that your assets grow fast enough to offset the effects of inflation.
  • Defined benefit plans require no personal contribution from the plan participant, nor do they require any investment skill or financial experience. Your employer takes care of everything, and you’re a passive participant. With defined contribution plans, you’re responsible for making contributions (with some employer matching) and you’re responsible for all financial and investment decisions. You’re an active participant, and you’ll succeed or fail based on your actions.
  • If investment mistakes or funding shortfalls occur in a defined benefit plan, it’s your employer’s problem to solve; they’re responsible. If investment mistakes or funding shortfalls occur in a defined contribution retirement plan, it’s your problem to solve; you’re responsible.
  • Defined benefit plans penalize workers who change jobs regularly by requiring vesting. Defined contribution plans are completely portable and can travel with an employee from job to job. There are no vesting requirements.
  • Defined benefit plans are little more than a promise that can be broken under certain circumstances, and often is. No personal ownership of a specific asset or account occurs in a defined benefit plan because the plan assets remain the property of the company. Defined contribution plans are owned directly by the employee and placed in the employee’s name. You own it.
  • Because defined contribution retirement plans are your property, they can be passed on to your heirs. Defined benefit plans die when you and your spouse cease to exist. They aren’t your property – they’re just promises from your employer.

The key driver underlying this change is shifting ownership and responsibility.

The old plans were just promises and weren’t owned by you. They were the property and responsibility of your employer.

You were a passive participant so you didn’t have to know anything or do anything. As long as you were covered by the plan, everything was taken care of.

“The price of greatness is responsibility.”– Sir Winston Churchill

With a defined contribution plan, everything is up to you. You’re the owner of the plan and you’re responsible. You must participate and decide how much to contribute, where to invest, and how much to withdraw every month after you retire. Nobody is going to do it for you.

All the market risks, inflation risks, actuarial risks, and management risks have been transferred onto your shoulders. You’re solely responsible and your retirement security hinges on your ability to make the right decisions.

In other words, the responsibility for retirement planning has been shifted from the company to the employee. This change was sold to the masses under the typical American bravado of independence, freedom, and self-actualization.

In reality, it was a deliberate effort on the part of corporations to transfer the risk and expense for funding retirement off their balance sheet and onto the back of the employee.

Let’s look deeper into what drove this change and how you can profit from it.


What Caused Pension Reform?

There are two primary reasons corporate America has jettisoned the defined benefit retirement plan in favor of defined contribution plans: to lower risk and increase profit.

Funding retirement has become increasingly expensive because people are living longer. The average lifespan in 1950 was 69. Today, at least one partner in a couple retiring has even odds of living to over 90.

With rapid advances in biotechnology, the true life expectancy for people retiring today is anybody’s guess because it’s an expanding, moving target growing at an average of 110 days per year for the last century.

“The quality, not the longevity, of one’s life is what is important.”– Martin Luther King Jr.

Longer lifespans place a tremendous burden on retirement planning. The cost of funding retirement for someone expected to die at 69 is nothing compared to funding retirement for someone expected to live 30 or more years in retirement. (Get the complete story on how much money you need to retire here.)

It means adding a zero to the savings required by raising it from six figures to seven figures. The ratio of years worked to years in retirement went from 12:1 just a few generations ago to less than 2:1 today. That means every year worked has a higher and higher savings burden placed on it to fund retirement.

The result of ever-expanding life spans is ever-expanding unfunded liabilities on the corporation’s balance sheet from their pension plans. More assets are required to fund longer lifetimes and increasing health care costs. Funding company pension plans got too expensive.

It doesn’t take a genius accountant to figure out that’s a bad thing, and that’s why corporations are getting rid of the responsibility. They want to control costs.

According to the Department of Labor, companies paid 89% of retirement contributions in 1974 and by 2000, workers were paying 51% and companies were paying only 49%. This represents a 40% cost shifting from boss to worker.

In addition to this cost shifting, additional savings result because fewer total dollars are contributed with direct contribution plans. The overall effect according to Brooks Hamilton in a 2006 PBS interview is companies have effectively reduced retirement contributions from 6-8% of payroll down to 1-2%.

The change to defined contribution plans is saving companies big money. That’s why they’re doing it.

The other main factor causing the change is all the risk associated with managing a pension plan. Despite extensive education and training, many retirement plan officials chose investments that radically under-performed expectations, exacerbating unfunded liabilities.

In other words, they screwed up.

With defined benefit pension plans, the responsibility to make up that shortfall rests squarely on the company’s and government’s shoulders, and they don’t like it one bit. That’s why they teamed up to give the problem back to you.

And if that risk wasn’t enough, there’s always the risk of an unsavory character attracted to the large pool of retirement assets under the corporate umbrella.

Corporate raiders buy companies and strip the money from the retirement plan (remember, it’s the property of the company – not the employees), leaving the Pension Benefit Guarantee Corporation and employees holding the bag.

“Corporation, n. An ingenious device for obtaining individual profit without individual responsibility.”– Ambrose Beirce

Lawyers use legal shenanigans to bankrupt companies, thus erasing pension and health benefit obligations – again, leaving retirees out in the cold.

When a large pile of money is at stake, there’s no shortage of clever and unethical ways people devise to effectively steal those assets from the people who earned them and are relying on them for retirement. Breaking promises to retirees is an ugly, but profitable, business.

In short, American companies have learned a valuable lesson: funding and investing a massive pool of assets to pay retirement benefits to employees who are living longer is both expensive and risky.

It’s little more than a massive liability they no longer want. Like the kids game “hot potato”, they don’t want the retirement planning hot potato anymore, so they’re passing it to you.

Unfortunately, most employees don’t understand or appreciate the value of the pension and health benefits they’re losing. This allows companies to lower risk and pocket huge cost savings with little backlash from employees.

The actuarial and cost shifting issues are too complicated, and the negative implications are too far off in the future for most employees to protest about.

With the door wide open, corporations are passing the “hot potato” to you. They’re freezing and closing down defined benefit pension plans and replacing them with defined contribution plans like 401(k)s.

They shift the liability for retirement planning from their shoulders to yours.

This trend is amply proven out by the statistics cited earlier. It’s already reality and gaining momentum as you read these words.

Social Security Income Isn’t Secure, Either

You may want to believe Uncle Sam will rescue your retirement income needs from all those unfair corporations by offering government guaranteed Social Security benefits, but you would be deluding yourself with fantasy.

Social Security is similar to a defined benefit plan, so it suffers from the same problems as corporate America’s version. However, it’s worse in other ways because it’s unfunded with no real assets and based on flawed actuarial assumptions.

“We’ve gotten to the point where everybody’s got a right and nobody’s got a responsibility.”– Newton Minow

The only reason Social Security exists at all is because of the taxing authority of the United States government to force current workers to pay retired workers their benefits. However, there’s a dwindling percentage of the population working and paying into the system, and a growing percentage of the population in retirement drawing benefits from the system.

The years worked to years retired equation has changed over the last few generations from 12:1 to 2:1, so you have fewer and fewer workers paying for more and more retirees. It’s a bad situation that’s getting worse.

As it stands, most studies show that someone living an average lifespan can expect a return on their Social Security investment ranging between 1-3% a year. That’s pathetic. Treasury bills, money market funds, and passbook savings accounts would have paid you better.

Worse yet, if you die before you can collect benefits, you get nothing. Nor do you have an account value that you can pass to your heirs, because there are no assets and you own nothing – it’s just another promise to pay.

That promise continues to get weaker and weaker because as the baby boomers retire and live longer, the proportion of working Americans paying into the system versus those drawing on the system will force a reduction in benefits.

That means the pathetic return on “investment” for Social Security is only going to get worse.

The politically expedient solution to date has been to restrict benefits by raising the age limit for qualification. This measure effectively lowers the total lifetime benefit; however, many more remedies will be needed to stop the red ink.

It’s reasonable for you to assume additional qualification restrictions and means testing as the baby boomer generation grays and retires. Reducing actual pay rates or raising tax rates have both proven politically difficult to implement.

With that said, don’t expect the Social Security system to vanish as many doomsayers claim. It’s more likely to wither away and become less relevant to your retirement planning. If you were born before 1960, it’s reasonable to factor some diminished form of expected Social Security benefits into your retirement income planning with confidence.

Those born after 1960 should be more cautious because the government will be in a very difficult position by the time you want to collect a benefit check.

Again, the end result is you’re solely responsible for planning your retirement income needs. Nobody else is going to take care of it for you.

The Only Pension Plan That Remains Secure

The world of pension reform isn’t gloomy for all segments of the economy. If you’re a public employee working in state or local government, then you can plan for your golden years with a higher degree of confidence. At least for now.

The relative security of public employee pension plans is a confusing fact to consider at first glance given a study by Barclays Global Investors in San Francisco estimating the unfunded liabilities for public employee pension plans at an astronomical $700 billion.


This is all the more amazing when you realize this unfunded liability exceeds their entire annual revenue stream. A separate study by Wilshire Associates found 54 out of 64 state pension funds were under-funded to the tune of $175 billion.

In short, public sector pension plan assets are every bit as mismanaged and underfunded as in the private sector. They’re faced with the exact same problems the private sector faces, but there’s a key difference.

The public sector has the commitment, taxing authority, and legal support to pay the bill. The private sector doesn’t.

What do I mean by this? When judges and legislators make rulings in cases regarding promised pension and health benefits for public employees, it should come as no surprise they tend to rule in favor of the plan participants. After all, they’re one of them.

“If men were angels, no government would be necessary.”– James Madison

History has shown they don’t tend to rule against their own self-interests on these matters. However, that hasn’t been the case for legislation affecting private pension plans.

So while public pensions face many of the same problems that the private sector faces, they have one ace in the hole. Those who determine the future of the plan are part of the plan, and that makes all the difference (so far).

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Are you saving enough for retirement? If you're not, you could be in trouble. More and more companies are offering 401ks over pensions, leaving the burden of retirement savings on your shoulders. Here's how you can benefit and secure your financial future.

Why You Need Retirement Planning Help

The new reality of retirement planning means your role and responsibility has shifted from passive to active. You either get in the driver’s seat to secure your retirement income needs or face an insecure retirement as a consequence.

Corporations are washing their hands of the responsibility by eliminating defined benefit plans, and the Social Security system is hopelessly flawed.

The institutions and bureaucrats botched up the retirement planning process and have passed the buck to you, whether you want it or not.

Are you ready? Do you know what to do?

“You can delegate authority, but not responsibility.”– Stephen W. Comiskey

To answer “yes” to the above question, you must have the personal financial management skills to take advantage of today’s retirement planning alternatives, the commitment and discipline to follow through, and you must also possess the investment skills to manage the wealth wisely.

All of this requires a clear plan of action, which you can learn how to create, step-by-step, here.

So let me try again, are you ready to take advantage of this change? Unfortunately, the statistics show most individuals aren’t ready:

  • Watson Wyatt analyzed 503 employers sponsoring both a 401(k) and defined benefit retirement plan from 1990-95. The result was the employee determined investments in the 401(k) averaged 1.9 percent lower annual return than the professionally managed pension plan.
  • Even employees of companies whose business is investment advice under-performed market indexes by 3.2 to 10.5 percentage points, according to the National Center for Policy Analysis. Can you imagine? Employees in the investment advice business under-perform passive indexes. Hmmm…
  • Anecdotal studies of finance professors’ 401(k) investment choices show surprising contradictions between the optimal portfolio theories they teach and the investment choices they actually make. These are the very finance professors who teach future financial advisors – makes you think twice, eh?
  • Multiple studies show employees not participating in company offered defined contribution plans, failing to maximize employer matching contributions, and not saving enough to fund their retirement income needs. In short, they’re making the same mistakes their employers made with the earlier defined benefit plans.
  • Finally, a 2001 study by John Hancock Financial Services found a severe lack of financial literacy among 401(k) participants. For example, employees perceived company stock as less risky than a diversified portfolio. 44 percent thought money market funds included stocks, 20 percent didn’t know they could lose money in equities, and 65 percent didn’t know they could lose money in a bond fund.

This is a difficult situation. Most people aren’t financial experts, yet they’re required to be one because they’re responsible for their retirement plan.

If highly paid, highly educated, corporate experts botch the retirement planning job miserably, what can we reasonably expect from the average American worker with little formal training and a few hours a month to dedicate to the task?

This isn’t a good situation.

“If stock market experts were so expert, they would be buying stock, not selling advice.”– Norman Augustine

The sad truth is many employees have limited financial skills and experience. Even those who are employed in the finance industry and should know better have demonstrated less than expected ability to put their knowledge into practice.

This situation is further aggravated by a legal system that makes companies reticent to offer investment advice to help their employees. They fear it will expose them to liability if the employee loses money or comes up short at retirement.

Given the facts, your only reasonable choice is to take the bull by the horns and prioritize your financial education. I know you need another thing to do like a hole in the head, but you must learn about investing and finance, or you’ll be putting your retirement security at risk. There’s really no other choice.

If you would like the support and guidance of your own personal financial coach to help you, then consider our coaching services. Also, steps 5 and 6 of the Seven Steps To Seven Figures course series are specifically designed to educate you about investing.

Step 3 teaches you how to build an actionable wealth plan that will actually work for you.

Three Steps To Take Now So That You Secure Your Retirement Income

There are three clear action steps every employee should take regardless of their investment experience.

1) Recognize That You’re Ultimately Responsible For Your Financial Security

No corporation or government is going to take care of your retirement planning and investment decisions for you. Your financial advisor can help, but you must possess enough knowledge to personally know whether his advice is accurate or not.

There are varying qualities of financial advice, and even the best advisors make mistakes, as evidenced by the highly paid corporate advisors who created the under-funded liabilities that caused this mess in the first place.

If these high profile experts can botch it up, it might make sense to question your own experts.

Until you become committed to your retirement security and own responsibility, nothing is going to happen. It’s the necessary first step for you to prioritize the actions necessary to get results. Remember, to know but not act is to not know at all – commitment comes first.

2) Maximize Your Contributions To Every Available Tax-Deferred Investment Vehicle You Can

Begin by maximizing your 401(k) to take advantage of employer matching programs, and then look into any other plans you may qualify for. IRAs, Roth IRAs, SEPs, HSAs and any other tax deferred saving vehicle is worth considering.

Check with your accountant or financial advisor for current contribution limits and qualification rules that apply to your personal financial situation. Also, consider including alternative assets such as income producing real estate or business ownership as potential long-term retirement income vehicles.

If you would like to learn how to integrate these 3 asset classes into a single, comprehensive wealth plan then Step 3 of Seven Steps To Seven Figures can help.

3) Make Investment Education A Priority

You must learn how to make your assets earn. When it comes to investing, what you don’t know can hurt you. A few decisions can make the difference between a secure retirement and flipping burgers at your local fast food restaurant during your “golden years.”

“I believe that every right implies a responsibility; every opportunity an obligation; every possession a duty.”– John D. Rockefeller Jr.

Investing and personal finance are arguably two of the most important skills you can develop, and there’s no time better than now to get started.

Financial Mentor is here to help you with education and retirement coaching services you need to succeed without the conflicts of interest and bias created by selling investment products.

Let us know how we can help you.

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27 Retirement Savings Catch-Up Strategies For Late Starters Thu, 07 Jan 2016 12:23:55 +0000 If Retirement Looms Large But Your Nest Egg Doesn’t, This Article Will Help You Catch Up

Key Ideas

  1. Shows how to raise your savings contributions to the next level.
  2. Six ideas to convert non-earning assets to income producing savings.
  3. How to overcome mathematical limitations to reach retirement on time.
  4. Discover the power of redefining retirement so you can retire earlier with less stress.

What can you do to salvage your retirement when you’re on the other side of 40 without sufficient savings?

Maybe it’s because you were a procrastinator, a big spender, put several kids through college, or experienced more than your fair share of setbacks.

Whatever the reason, you now find yourself behind the eight-ball on your retirement savings. What can you do?

If it makes you feel any better, you’re not alone. According to a study done by the National Institute on Retirement Security, over 45% of working-age households don’t own any retirement account assets.

Worse, according to research, the median retirement account balance is $3,000 for all working-age households, and only $12,000 for near-retirement households. That’s obviously not anywhere near what you need to save for a secure retirement.

The good news is it’s never too late to begin.

The road to retirement security for late starters may be more challenging, but it’s still possible if you apply the following six tactics to feather your nest egg:

  1. Boost taxable savings by reducing expenses and/or increasing income (9 strategies)
  2. Convert non-producing assets into investment savings (6 strategies)
  3. Maximize tax-deferred savings so that your boss and the government fund your retirement (4 strategies)
  4. Overcome the mathematical limitations to savings through leveraged, direct-ownership investments (2 strategies)
  5. Stretch your savings so you can retire comfortably on less (3 strategies)
  6. Redefine your retirement for a lower savings burden today and greater happiness tomorrow (3 strategies)

The first four tactics fall into the category of what you must do before retirement begins to maximize savings growth. The fifth and sixth tactics are how you decrease the savings required once retirement has begun.

In other words, use the first four lines of attack to feather your nest egg, and apply the last two tactics during retirement to stretch the value of the savings you accumulate.

Designing your retirement plan with an appropriate combination of the six tactics above gives financial late-bloomers the best odds for retirement success.

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Where To Get Started For Catch-Up Retirement Savings and Planning

The first thing you must do is focus forward rather than dwell on past mistakes.

Kicking yourself and getting discouraged by your lack of results to date will only push you further from your goal. Sure you’re frustrated, but so what?

It may sound cheesy, but today really is the first day of the rest of your life when it comes to retirement planning. Your job going forward is to focus on what you can begin doing today that will make the future different from the past.

Once you get over your frustration and decide to do something about it, the next step is a reality check with a little basic retirement planning. The starting point in this process is determining the amount of retirement savings you’ll need in your golden years.

If you haven’t done so already, I highly recommend reading my book “How Much Money Do I Need To Retire”, which will walk you step-by-step through the process of estimating your retirement savings needs.

I also provide a free retirement calculator here designed specifically for this purpose that I use both for my own planning and with my coaching clients as well.

“The ultimate security is your understanding of reality.”– H. Stanley Judd

The reason you must first estimate how much money you need for retirement is because all actions and plans will be designed around your retirement savings goal.

Without a specific, measurable savings goal, you’ll have nothing to work toward and no way of knowing if you’re on track, or behind.

Additionally, studies have shown the act of planning and calculating your retirement needs improves the results you will get in achieving them. In short, it’s a worthwhile, necessary exercise.

Once you’ve completed this exercise, you’ll know:

  • Your sources of income in retirement
  • How much savings you have
  • How much more you’ll need to be financially secure
  • When you can afford to retire by

The difference between your current assets and future needs gives you an expected shortfall amount. This becomes your retirement savings goal to apply when working through the ideas in this article.

Below are 27 separate strategies you can pick and choose from to assemble your plan for overcoming your savings shortfall. Using these strategies will allow you to win the retirement planning game.

Tactic 1: How To Begin Saving More Money For Retirement

The first line of attack is also the most obvious: increase savings.

It’s as simple as it is unpopular because it requires decreasing spending and/or increasing income.

This is easy to say, but probably hard for you to do if you’re late to the retirement savings game in the first place.

For that reason, I’ve made the following action steps as painless as possible. The unfortunate reality is certain medicines must be swallowed regardless of how bad they taste because they’re the only way to cure the problem.

Sorry, but there’s no royal road to riches. Here’s the medicine:

  1. Eliminate All Consumer Debt: Credit card debt is wasteful and expensive. Pay off your highest interest balances first and use the money freed up as each card gets paid off to accelerate the payoff of the remaining cards (I provide a free debt snowball calculator here to help you manage this). Never spend more in a month than you can afford so you don’t accumulate new debt. Never settle for making minimum payments on credit cards because it’s financial suicide on the installment plan. It makes compound interest work against you instead of for you. The sooner you stop overspending and pay down existing debt, the sooner that money can be redirected to investments so you’re financing your retirement as a wealth builder instead of the bank executive’s retirement as a debtor.
  2. Increase Savings Automatically: The least painful approach to lowering spending and increasing savings is with an automatic withdrawal plan from your paycheck so you never see the money in the first place. You’ll hardly miss it if you never see it, and the small inconvenience of lower pay will be offset by the great feeling of knowing your retirement savings are back on track.
  3. Bank the Raise: Most people increase expenses every time their income rises, but smart savers control spending by sending all raises and bonuses directly to savings where it can earn more income. What you never had, you’ll never miss. I know because I “walked the talk” with this little savings secret during my 20s and 30s when my income grew ten-fold. The result was the basis of my retiring at age 35. It’s simple and it works.

“If you would be wealthy, think of saving as well as getting.”– Benjamin Franklin

  1. Eliminate All Unnecessary Expenses: A few dollars here and a few dollars there can add up to enormous sums today and compound into a fortune during retirement. The value of a $5 latte at age 40 can compound to over a $1,000 by the time you’re in your 80s. The truth is much of our spending is habit, and new habits can be formed that are just as satisfying and a lot more enriching. Examine your expenses closely and get creative, because little differences in spending today can make a big difference in your retirement savings tomorrow.
  2. Recover Lost Money: Is there an extra space in your house that you could rent out for cash? Could you move your office into a spare bedroom and save the rent money? Is your attic or garage filled with stuff that could find a happy home through eBay and pad your retirement savings in the process? Each action may sound inconsequential by itself, but taken together they can add up to significant savings over time. For my family, this strategy has been worth many thousands of dollars every year. It has since compounded into a small fortune over time.
  3. Consider New Employment: The savings game isn’t how much you earn, but how much you keep after taxes and expenses. One way to expand the gap between income and expenses is to consider new employment in another state or country where the cost of living is lower, allowing you to save more. Another possibility is to negotiate new employment with a company that would offer lucrative pension arrangements, thus taking the pressure off your savings.
  4. Eliminate Unnecessary Insurance Policies: The rule for insurance is only protect against losses you can’t afford to take. The insurance you needed 10 or 20 years ago to protect your family may be an unnecessary expense now. You may be able to eliminate or reduce coverage and save the premiums for retirement instead.
  5. Drive Used Instead of New: Cars are a big expense. Few people appreciate how certain quality cars can travel 200,000 or 300,000 miles reliably. Let someone else pay the depreciation to impress their friends with new so you can drive used for pennies on the dollar after it’s little more than broken in. This strategy can add five figures to your retirement plan every time you apply it.
  6. Moonlighting Income: Second careers and home-based businesses have several advantages. The most obvious is they can provide additional income for your retirement savings. Less obvious is how they can safely transition you into a second career that you might really enjoy continuing after retirement. Meanwhile, they can open up the possibility of tax-deferred SEP and Keogh plans for self-employment retirement savings and other tax savings. The keys to making this strategy work are to pursue the moonlighting income in a field you’re passionate about and would enjoy even during retirement, and to commit all revenue produced toward boosting savings rather than lifestyle.

Always remember it’s never too late to begin saving. Some of these strategies might appear too small to dent the savings deficit you face, but small amounts add up over time.

Every little bit will make a difference. Keep a positive focus, choose new habits that build savings, and you can achieve a comfortable retirement.

Finally, it’s worth noting that if you’ve tried to save and are still behind the curve, then odds are good you may require more than a few how-to tips. You didn’t reach the age of 50 or 60 without having saved for retirement because the thought never occurred to you.

Psychological blocks are probably in the way, which may require additional help. An affordable program offering support and education is our wealth planning course, which will strategically engineer your life to result in financial freedom.

Tactic Two: Convert Non-Earning Assets Into Retirement Savings

If you’ve exhausted the ordinary ways to boost retirement savings and still find yourself coming up short, it’s time to examine alternative strategies.

Converting big-ticket assets into retirement savings is a good place to start, and for most people, their biggest ticket asset is their home.

  1. Downsize Your Home: Consider harvesting some of your home equity by scaling down to a smaller, less expensive house. This creates a double-win for your savings because you increase investment income while simultaneously reducing or eliminating certain expenses such as your mortgage payments, utilities, maintenance, property taxes, insurance, and more.
  2. Relocate Where You Live: For people living in high cost areas where property values have soared, consider relocating to a lower cost housing market. The price differentials between certain housing markets can be enough to fund a significant portion of some people’s retirement needs. For example, $300,000 of equity invested at 7% produces $21,000 per year in income.
  3. Reverse Mortgage: Another strategy for tapping the equity in your home that has the additional benefit of not requiring you to move is a reverse mortgage. In simple terms, it’s a tax free loan against your home equity that typically doesn’t get re-paid until after you move or pass away. These complicated transactions often come with high closing costs and high interest rates that will also reduce the value of your estate, so make sure you read the fine print and consider all competing alternatives first. Many people will find downsizing a superior alternative after the facts and costs are considered, but each circumstance is unique.

“Mid pleasures and palaces though we may roam, be it ever so humble, there’s no place like home.”– John Howard Payne

  1. Sale-Leaseback: One final strategy for people who are house rich and cash poor in their retirement plan is the sale-leaseback arrangement. Usually this transaction involves selling your home to your children and renting it back. The desired outcome is for the homeowner tax deductions to go to the children who are hopefully in a higher tax bracket and for the parents to gain some spending cash while staying in their home. If you take this route, make sure to solicit solid legal advice that includes professional contracts and market rents so you don’t run afoul of the law.
  2. Convert Other Assets: Consider what antiques, jewelry, collectibles, and other valuable items you own that could be converted into productive investments. That old wedding ring from your first marriage, the boat you didn’t use last year, the vacation home you seldom visit, grandma’s mink coat, and other infrequently used, yet valuable items, could bolster your retirement savings. What assets can you convert?
  3. Insure Your Inheritance: This is more of an offbeat asset protection strategy than it is an asset conversion strategy, but it may apply to your situation. The concern is that your parent’s asset base (which could equate to your inheritance) is at risk due to the possibility that long-term care expenses and nursing home bills could eat up your legacy. Consider “insuring” your inheritance by funding their long-term care insurance and/or life insurance premiums. This might help you be a good child to your parents and send a lump sum to your retirement savings all in one fell swoop.

Most people that go through the asset conversion process find that less is more.

Less stuff not only equals lower expense and greater retirement savings, but surprisingly, it also equals a lighter and more carefree lifestyle in retirement with fewer burdens and clutter to deal with.

The goal is freedom, and this strategy is perfectly in alignment with that goal.

Tactic Three: Maximize Retirement Savings By Making Your Boss And The Government Pay

It’s a lot easier to save for retirement when the government and your employer pay part of the bill. There are two ways you can benefit from this:

  1. The first is through tax-deferred savings that provide an up-front tax benefit to you
  2. The second is through employer-matching savings programs.

For example, assuming your combined state and federal marginal tax rate is 35%, you can invest in an IRA or 401(k) and it will only cost you 65 cents on the dollar. The government pays the rest by deducting it from your tax bill.

When you add in the possibility of additional tax credits for lower income savers, the advantage is even more compelling. Remember, it takes a lot less money out of your pocket to save for retirement when the government pays part of the bill.

“For every action there is an equal and opposite government program.”– Bob Wells

In addition to tax savings, some tax-deferred plans (ie: 401(k)) include employer matching contributions ranging from 25 cents to a full dollar (within certain limitations) for every dollar you save.

That’s an immediate, guaranteed return on investment that beats any deal you’ll find on Wall Street.

The rule is simple: maximize all employer matched retirement savings plans or you’re throwing free money away – literally.

Below are four strategies to help you catch up on retirement savings by having your boss and the government pay part of the bill.

  1. Maximize Retirement Plan Contributions: A study by the American Benefits Institute shows Americans contribute an average of 5-7% to their 401(k) plan – far less than the maximum allowed by law for most workers. Maximize the value of tax deferral and employer matching contributions by maxing out your 401(k) every year. The same holds true for 457s, 403(b)s, SEPs and other retirement plans. It’s a no-brainer for anybody saving for retirement: maximize tax deferred contributions.
  2. Catch-Up Contributions: Uncle Sam encourages workers age 50 and older to save more than younger employees by offering catch-up contributions for retirement plans. This can be a big incentive for late savers to get back on track. Consult your accountant or IRS documents for the exact rules and this year’s contribution limits as they change frequently.
  3. Multiple Savings Plans: The 2001 tax law repealed some of the rules that coordinated the various annual contribution limits for the different tax-deferred plans into one limit. What that means is you may have the ability to save in more than one retirement plan at the same time. Contributions to different savings plans are no longer interdependent. For example, employer plans and IRAs may be combined, or those with moonlight income may combine employer plans with self-employed plans. Make sure to consult your accountant for the current rules and limitations and don’t forget to include spousal IRAs and Roth IRAs in your strategy. For those that can afford it, maxing out more than one tax-deferred plan is a great way to catch up on retirement savings.
  4. Switch Employers: It may be worthwhile to shop your services out to other employers with better pension benefits. You may be able to negotiate similar take-home pay while simultaneously qualifying for a generous pension. A lucrative pension plan from the boss can significantly reduce how much you personally have to save to fund your retirement.

“The government’s view of the economy could be summed up in a few short phrases. If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”– Ronald Reagan

Tactic Four: Overcome The Mathematical Limitations To Retirement Savings Through Direct Ownership

The conventional wisdom in retirement savings is to visit your local broker or financial planner and open a retirement account.

Then you stuff this account with savings from your earnings through a variety of tax-deferred and taxable savings vehicles, which are invested in traditional paper assets like stocks, bonds, and mutual funds.

That’s the traditional approach to retirement planning, and up to this point, that’s what this article addressed. Now it’s time for something different to start catching up on retirement savings.

The reason you want to consider alternatives to the traditional approach is because late savers are, by definition, short on time. Conventional retirement planning requires you to have sufficient time and money to make the numbers work.

It assumes you can save and grow enough money between now and your retirement date to reach your goals.

Unfortunately, for many late savers, that assumption is false.

For example, let’s say you earn $100,000 per year, have little savings or significant assets besides your home, are 55 years old, and want to retire in 10 years.

Conventional wisdom says you need $70,000 plus per year in retirement income (70% * 100,000), and Social Security is likely to cover a small fraction of that (30,000 assumed for this example, leaving a 40,000 deficit).

This would require you to save somewhere in the ballpark of $1,000,000 (4% withdrawal rate from $1,000,000 equals $40,000) by retirement to make up for your savings shortfall.

(If those numbers went a little fast for you, or you aren’t totally comfortable with the calculations involved, then I highly recommend my book “How Much Is Enough To Retire”. It will give you a behind-the-scenes look into retirement planning calculations so you’re able to navigate the numbers with confidence and security.)

Saving $1,000,000 in 10 years is obviously unworkable because it would require someone earning $100,000 per year to save close to 100% of his income every year for 10 years straight (assuming zero taxes, which is also unrealistic).

That isn’t going to happen for somebody who is 55 years old with little savings to date. Sorry, but sometimes reality is harsh.

“Argue for your limitations and sure enough, they’re yours.”– Richard Bach

What can you do when the math you face is similarly impossible using conventional retirement planning assumptions?

The answer is to change the playing field from conventional paper assets that your broker sells you to direct ownership assets that no broker can sell you.

Examples of direct ownership assets include income producing real estate and owning your own business. These types of assets involve more risk and may have a lower certainty of outcome, but they include leverage principles that make aggressive retirement savings goals possible that would otherwise be mathematically impossible with traditional retirement planning.

The key point to understand is direct ownership assets are not bound by the mathematical growth limitations that govern how fast you can build equity in traditional assets.

For example, the oft-quoted long-term growth rate for stocks including dividends and inflation but excluding transaction costs and taxes is somewhere around 10% depending on time period analyzed and other assumptions. Expected returns for bonds and cash are lower.


That means late savers should expect very little equity growth in their portfolios because they don’t have enough time to compound that low return rate. The bulk of their savings must be funded directly from earnings.

In other words, late savers generally can’t grow their assets to reach their goal using traditional strategies because of the return and time limitations. They must save their way to the goal instead – and that’s very difficult for people who don’t already have the savings habit.

Conversely, direct ownership assets like building your own business or real estate portfolio have no upside limit to equity growth because they have multiple sources of return and leverage.

You could conceivably start a business (easier said than done) with little or no money down and build it to support a lucrative retirement in 10 years. It’s mathematically possible to do this without saving anything from your regular income. This advantage isn’t available using conventional retirement planning strategies.

Similarly, with real estate, I know people who have built a portfolio of properties over a period of just a few years and funded safe, secure retirements in a relatively short period of time through a combination of smart buying, rent increases, and adding value to their properties.

Maybe your particular twist would be to convert that old garage on the side of the house into a rental apartment for additional income during retirement, or maybe you’re handy and would enjoy fixing-up dilapidated structures and converting them to long-term rentals.

Others have started sideline businesses to their regular occupation and built them into cash flow machines in just a few years, sufficient to support a generous retirement. The options are only limited by your creativity and dedication.

What skills do you have that would be fun to convert into a business or real estate empire?

Direct ownership opens up the possibility of achieving aggressive retirement goals when the math governing the traditional approach is all but impossible.

It’s not an easy path, and it require skills and involves risks, but a late saver with aggressive retirement goals may have no other viable alternative. It’s a choice that should be considered as part of any catch-up retirement plan, and it’s a strategy that is covered in-depth in our wealth planning course.

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Are you behind with your retirement savings? Worried about your future financial security? These wealth building tips will have you catching up in no time. Get on the path to less financial stress today.

Tactic Five: How Late Starters Can Get More Out Of Their Retirement Savings

Up until this point, we’ve talked about how to maximize your nest egg prior to retirement. The flip side of the same coin is to lower the amount you spend during retirement so you reduce the savings required.

The less you have to save, the easier the goal is to reach. Small differences in spending multiply to huge differences in savings burden.

For example, using the “4% rule” or the “rule of 25”, for every $10,000 less you spend annually in retirement, your savings requirements drop by roughly $250,000 (250,000*.04 = 10,000).

Or an easier way to think about it is the “‘Rule of 300.” For every $1,000 per month reduction in spending in retirement it reduces your savings need by roughly $300,000. Same thing, just simpler math.

Many late savers will find it far easier to lower their budget by $1000 per month compared to coming up with another $300,000 in retirement savings. (See the ebook “How Much Is Enough To Retire” to fully understand these calculations and how they apply to your situation.)

The way you do this is by controlling expenses. Many of the examples cited in the first section of this article that help you increase savings apply equally to reducing expenses, so they won’t be repeated here.

Controlling expenses isn’t just for increasing savings – it’s for stretching savings as well. The key principle is that you must get maximum value for every dollar spent.

Buying used, eliminating unnecessary expenses, and only spending what you can afford so you don’t incur consumer debt are always good principles to live by when you’re trying to get more value out of less money.

This isn’t that hard to do when you realize that happiness comes from experiences, not stuff. When you focus on experiences the spending naturally drops.

In addition to the well-known and proven dollar stretching methods for consumers, there are three strategies that apply specifically to stretching a retirement nest egg for investors.

1. Control Investment Expenses

Just as you must control your personal expenses, you must also control your investment expenses. The only justifiable investment fees are those that put more money in your pocket than they take out.

Few people intuitively grasp the large difference a mere 1% increase in return can make when compounded over 30 years of retirement (10 years of saving plus 20 years retired).

For example, if $10,000 grew annually at 10% for 30 years, it would become $174,494. If you increase expenses just 1%, giving a net annual return of 9% (10%-1%), it only grows to $132,677 – which is $41,817 less.

In other words, if you can add just 1% to return by controlling investment expenses, then you can increase the dollars earned by a whopping 31.5% – not just 1%. Amazing!

This is a big deal and can make a meaningful difference in your retirement. The rule is simple:

Little improvements in return when compounded over time become big differences in the dollar value of your account.

Pay attention to that 1% expense ratio by only hiring investment services that add more to your return than they cost you.

How can you capture that 1% or more? Consider how the average mutual fund expense ratio approaches 1.5% annually while low cost alternatives are under .5%. Numerous studies show the high expense funds under-perform their low-cost cousins on average over time.

Likewise, many brokers charge 1% annually for their services without any provable value added to return over investing independently at zero cost. These are just two examples of ways you can control your investment expenses by only paying for services that add more money to your pocket than they cost you.

2. Maximize Tax Advantages

Tax efficiency is also important for your retirement savings. Minimize tax expenses to maximize the value of your savings.

For example, if your taxable portfolio includes mutual funds, then consider owning competing funds or ETFs managed for tax efficiency so you minimize the taxable distributions passed through each year.

“The hardest thing in the world to understand is the income tax.”– Albert Einstein

Similarly, once you’re retired, all withdrawals to cover living expenses should be tax efficient. The way you do this is by liquidating your taxable and tax-deferred investment accounts first up to the point of an acceptably low tax bracket (these investments are taxed at ordinary income rates so they are best used to fill out the lowest marginal tax brackets) so you can make use of your standard deduction and low tax marginal tax rates.

Use Roth IRA assets for liquidation once your taxable income is in excess of acceptable marginal tax rates. This minimizes liquidations to maximize the time these assets can grow tax-free plus the liquidations themselves are completely tax free.

When contributing to your retirement savings, earlier is better than later. Contributions to tax-deferred retirement plans made on the first of the year have one more year to grow inside your plan compared to deposits made on the last day of the year – and it’s all tax free growth.

Again, this may not sound significant, but over many years it can add up to tens of thousands of dollars, so it’s worth doing. Little details can result in big differences when compounded over many years.

3. Move to a Low Cost Area

I mentioned this strategy earlier, but it’s worth repeating because it can play such an important role in stretching your retirement savings.

Consider moving from a high cost of living area like San Francisco, New York, or any other major city or coastal area to a low cost alternative such as the South, Midwest, or even a foreign country. The cost differential can be as dramatic as night and day, so don’t dismiss this possibility if location doesn’t matter a lot to you.

Several things to consider before moving include proximity to family, friends, and important medical providers. Are there other retirees to connect with, and how does the lifestyle fit your retirement interests?

Consider visiting the area first and renting for awhile so you can try before you buy. There are many low-cost alternatives for retirement living including moving abroad, so try visiting and renting at several until the fit feels just right.

Tactic Six: Redefine Your Retirement Plan For More Happiness and Less Savings

Working after retirement may sound like an oxymoron, but working like crazy for 40 years and then spending 30 years doing little or nothing doesn’t make much sense, either.


For many people, having a full time career until the magical age of 62 and then stopping cold-turkey is an artificially contrived ideal. Reality seems closer to a transitional period of semi-retirement from your 50s through your late 70s (depending on health).

The list of reasons to continue working part or full time after “retirement” is important to consider:

“Work saves us from three great evils: boredom, vice and need.”– Voltaire

Assuming you generate $20,000 per year in extra income by working during retirement and use industry standard withdrawal rates of 4% from savings, you’ll need roughly $500,000 (500,000*.04=20,000) less in retirement savings to support the same lifestyle when compared to not working.

Clearly, this additional income can be a big band-aid to a late saver’s wounded portfolio.

Before getting excited about this strategy, carefully consider if you have the desire to work full or part time during retirement. Do you want to develop a second or third career that interests you?

Maybe you want to continue with what you already do, but work fewer hours? You can redefine what retirement means to fit your exact needs.

1. Postpone Retirement

The longer you work, the fewer years in retirement you must finance from savings.

Not only does this lower the savings required, but it gives more years to continue growing your savings while having your employer cover medical insurance and other expenses. This can dramatically close the retirement savings gap.

In addition, continued work can allow you to delay when you begin taking Social Security, which can significantly increase the level of benefits you receive. Similarly, some defined benefit pension plans increase benefits when you remain on the job longer.

2. Phased Retirement

Rather than stopping work, how about just slowing down? Some employers encourage workers to phase into retirement by reducing workload to three days a week so they can retain worker knowledge and skills.

If your employer doesn’t offer this program, consider switching to a job that offers flex hours or large blocks of vacation time like teaching. This way, you can slow down without quitting entirely.

Maybe you want to pursue dreams of entrepreneurship in retirement. You wouldn’t be alone. According to a study by the Ewing Marion Kauffman Foundation in Kansas City, Americans aged 55-64 were more likely than anyone else to start a new company.

A tried and proven path to entrepreneurial transition in retirement is consulting for your previous profession.

Another popular phased retirement strategy is to convert an artistic passion or hobby interest into extra revenue. What avocations of yours could be converted into revenue streams? The choices are limited only by your creativity.

Regardless of the part time or second career option you choose, be careful to check how the additional income will affect your social security benefits and tax situation.

3. Don’t Retire

Maybe your work is downright fun and so satisfying that you hope to never retire. Consider yourself fortunate. Some people find an active, fulfilling work life beats a life of leisurely retirement any day.

If that’s true for you, then why fight it? It certainly makes your retirement planning easy.

Retirement Savings No-Nos – Don’t Make These Mistakes

The road to catching up on retirement savings is well-trodden. Many have traveled the journey before you and their experience teaches us where the most obvious potholes in the road are located.

Anyone trying to catch-up on retirement savings faces certain incentives and realities, making them susceptible to making the same mistakes. By learning about these common mistakes and avoiding them, you save valuable time and money.

  1. Reaching for Return: Don’t ramp up portfolio risk in a desperate attempt to improve returns. You might luck out and enjoy magnified returns, but the odds favor something worse. Beware of investment scams, speculative stocks, viatical settlement deals, and anything else promising high returns with little or no risk. You’re a prime target for investment con men because of your need for above market returns – so walk carefully. If it sounds too good to be true, then it probably is.
  2. Assuming Overly Optimistic Returns: Retirement planning would be a whole lot easier if we could assume investment returns of 15% or more indefinitely into the future – but that’s not reality. Use conservative estimates so your retirement is secure. Never use aggressive return estimates to force the numbers to work because running out of money in your old age is a tough price to pay for unrealistic assumptions.
  3. Eggs in One Basket: Beware of investing too much of your 401(k) plan in company stock as you near retirement. A single company is much riskier than a diversified portfolio, and you can’t afford the double whammy of losing your job and retirement savings at the same time should your company run into problems. Just ask former Enron employees who were nearing retirement.

Are you behind with your retirement savings? Worried about your future financial security? These wealth building tips will have you catching up in no time. Get on the path to less financial stress today.

  1. Banking the Inheritance: Many people use an expected inheritance as an excuse to not save for retirement. Life is uncertain. The grantor could spend the inheritance on health care in their final years or make a foolish investment. A lot of things can go wrong and leave you empty-handed and destitute in your golden years if you don’t take self-responsibility for your retirement savings.
  2. Don’t Follow Simplistic Guidelines Blindly: Retirement planning is an inexact process despite what all the experts may claim. You’re unique with skills, abilities and interests different from others. Your solution to catching up on retirement savings could look totally different from what your broker tells you. Just because he outlines asset allocation and savings requirements doesn’t mean you shouldn’t go build that dream business and invest in real estate instead. It’s your financial security and you’re responsible. Consider all options and trust yourself to do what is uniquely right for your situation. You’re the only one that has to live with the results.
  3. Invest For A Lifetime: If you’re 55 years young and planning to retire at 65, you would be mistaken to believe your investment time horizon is just 10 years. Odds are good you’ll live at least another 30 years in retirement, lengthening your investment time frame to 40 years or more. Plan your investing accordingly and don’t think too short-term.
  4. More Procrastination: What got you into this bind in the first place is procrastination, and what will get you out of it is doing the opposite. Get proactive by taking aggressive actions now to catch up on your retirement savings. The longer you wait, the harder it will be to catch up. There’s no better time to get started than today.

In Summary

The bottom line is it’s never too late to begin saving for retirement.

You still have plenty of options and solutions available to increase savings and reduce cash flow needs – but you must act now.

Retirement planning late in your working years may be more difficult, but it can be done regardless of your age if you follow the strategies above.

Commit to adopting one or more strategies from this article and begin implementing action steps today. As you get one strategy firmly in place, begin implementing another strategy.

Nobody should need or want to adopt all the strategies, so pick and choose only the ones that work best for you. If you need more guidance, our wealth planning course gives you the actionable steps you need to take to achieve your financial goals. Before long, you’ll be well on your way to a secure and fulfilling retirement.

And if you have additional ideas on how late-starters can catch-up on retirement savings, then please add to the conversation in the comments below…

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The Dirty Dozen Retirement Planning Mistakes to Avoid Tue, 15 Dec 2015 03:19:27 +0000 There’s More To Retirement Planning Than Just Funding Your 401(k) or IRA. Discover The 12 Retirement Planning Mistakes You Must Avoid So Your Golden Years Aren’t Spent Flipping Burgers

Key Ideas

  1. Reveals why you can’t rely on anyone else to fund your retirement, including the government.
  2. Discover which 3 major health care issues could jeopardize your financial security.
  3. Explains the make-or-break value for developing your investment knowledge now.

Retirement planning is one of the most important financial goals you’ll undertake – and the stakes couldn’t be higher.

Do it right and your golden years can be filled with independence, joy, and freedom. 

Conversely, make one of these 12 mistakes and you could face a life of poverty, dependence, and penny pinching.

The key to success is getting it right the first time because there’s no second chance once you hit retirement.

While you may think you’re on the right track by funding IRAs and/or a 401(k) retirement plan, experts caution you against false confidence.

According to Brooks Hamilton in an interview for PBS television’s Frontline, over 900 people in any given 1,000 person retirement plan will retire in poverty or run out of money before death.

That’s a shocking statistic.

It means over 90% of participants suffer financially in retirement.

Clearly, there must be a better way.

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Learn how to avoid these costly dozen retirement planning mistakes so you can enjoy your golden years in peace.

Retirement Planning Mistake 1: No Plan

According to the Retirement Confidence Survey from the Employee Benefits Research Institute, 48% of workers haven’t calculated how much money they need to save for retirement.

Similar studies show that when workers calculate their retirement savings needs and set a goal, they materially improve the actions taken to achieve that goal.

Stated simply, you can’t get to where you want to go if you don’t where you’re going. You must set the goal and then design a plan to achieve it.

Failing to plan is the same thing as planning to fail. The sad truth is most people spend more time planning their vacation than their financial future. You must be different.

“Make no little plans; they have no magic to stir men’s blood. Make big plans, aim high in hope and work.”– Daniel H. Burnham

If you haven’t already set specific, measurable financial objectives in writing and implemented a step-by-step plan to achieve them, then you’re setting yourself up for disappointment.

Fortune magazine published a study showing people with written plans end up with an average of five times the amount of money at retirement as those with no written plans.

Similarly, Harvard Business School published a study on goal setting and found:

  • 83% don’t have clearly defined goals
  • 14% have goals but they aren’t written down
  • Only 3% have goals committed in writing

After a 30 year follow up, the conclusion was the 3% with written goals earned an astounding 10 times the amount of the 83% group. (Editors Note – some claim this study is an unverifiable urban myth. However, other studies show consistent results and my own work with coaching clients shows consistent results.)

Have you calculated your retirement planning goals, and have you committed to regular savings goals in writing? If not, then what’s stopping you?

Do you have a step-by-step action plan based on proven principles that will lead to financial success? If not now, then when? (If you’d like help with this see our wealth planning course here.) Time is working against you every day you wait.

It’s not enough to just calculate your retirement savings number, fund your 401(k), and then put everything on auto-pilot.

You must review your asset allocation, investment performance, and total savings on a regular basis and make changes as necessary so you leave nothing to chance.

In summary, there are two groups of people: those who set goals in writing and build plans to achieve them, and those who envy and admire the results achieved by the first group.

The number one retirement planning mistake most people make is not setting financial goals and committing to a plan in writing to achieve them.

Financial coaching can help you design your retirement plan and provide the accountability and experience necessary to support you in completing its implementation.

Best of all, we can do it without any of the conflicts of interest created by selling investment products.