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To Build Wealth; Avoid the Herd February 11, 2008

Posted by shaferfinancial in Uncategorized.
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Rarely, does the herd move in the right direction. Or put another way if you want to end up at a place that is different from the masses then you have to do things differently.  When it comes to wealth building, believe me you want to end up in a different place than the average person.  I have used this figure before but it is the figure that really started me thinking outside the box on wealth building.

The median net worth for folks in the 55-64 age group is $248,700. And that is from the latest report issued about the year 2004.  Median total in retirement accounts: $83,000.  This is likely to have dropped since the majority of net worth is held as home equity and much of the country has seen real estate value drops over the last 18 months.  Also note that this age group has the largest net worth and retirement account amounts of any age group.

So when I suggest to folks they should look outside the box for building wealth it is because of these numbers.  You really don’t want to end up with the herd.

There are two financial strategies that almost all middle class folks can use if they are willing to seperate from the herd.  There is a third if folks really want to increase their chances, but it takes a major life changing decision.  Interestingly, the herd denigrates these strategies as too risky.  Yet, the herd is headed toward these above figures.  So I question the herd’s judgement of risk.

Prepare yourself to doubt my words since the financial propaganda out there about these ideas is intense.  If you are willing to open your mind to the possibility, then read on.  If not ride with the herd!

Strategy #1

Cash Value Life Insurance.  Yep, that’s right the same vehicle which everyone says is too expensive or buy term and invest the difference, or as one financial advisor puts it, is no investment.  Actually, as it turns out it is a vehicle favored by the wealthy for its ability to legally avoid taxation. And there lies its power.  In fact, after the IRS saw how effective an tax avoidance vehicle it is, it put into the tax code rules regarding the limits of cash that can be put into this financial product.  So if fact, the IRS was codifying into law the tax benefits of this financial product.  Now would the IRS have bothered to worry about a vehicle that was not an effective place for the wealthy to put their money?  Of course not.  Would the wealthy put their money into a vehicle that was not a earning more for them after tax than other vehicles?  Of course not.  Is this a product just for the wealthy? No, the middle class can put it to use too.

Here is how.  You load the cash value life insurance contract with as much cash as is legally allowed for the face value of the insurance.  This excess cash is credited with gains dependant on the arrangement made in advance.  There are several different types of arrangements, fixed interest rate, fixed indexed, and variable. Variable universal life insurance allows you to invest in the stock market. This is of course the riskiest strategy because the stock market goes down as well as up.  Fixed offers a annual rate of interest determined each year by how well the insurance company has done with their portfolio.  Fixed contracts also have minimum guarantees.  The fixed index product has minimum guarantees, but allows you to share in the gains of a stock index like the S&P 500.  Now if there wasn’t an investment segment, like some financial advisors say, then how could there be these investment options?  The answer is of course there is an investment portion, the amount of excess premium you pay goes into an investment account.  Now you have the life insurance portion go along for the ride to get the tax advantage.  The contracts allow for you to access the cash value of the accounts by way of “loans.” Many contracts allow you to have wash loans which costs you exactly what you earn.  So you can access your cash with “loans” and these “loans” are not taxed.  So in essense you have money earning interest, becoming exponentially larger as time go on, and you get to it tax free. No wonder the wealthy love cash value life insurance. And you should too.  Couple of caveats, one you must keep the insurance in force to maintain its tax free status and not all life insurance sales people know how to set these up correctly so make sure you are dealing with someone that does.  Finally, if your estate with the insurance is going to be larger than $2 million, look into putting the insurance into a life insurance trust to avoid estate taxes.

Personally, I have one contract now in the fixed index strategy tied to the S&P 500 on myself.  I soon will have that fully funded and will start one on my wife.  Meanwhile if something bad would happen to me, I am assured my family will have the financial means to go on, although as my wealth continues to grow that has become less of a need, just a bonus.  As far as rate of return, I am satisfied with it so far, and feel comfortable with the strategy for the future.

The other two strategies will be posted in the next few days.  



1. lucydance - March 2, 2008

I have been in Network Marketing for about 15 years. I have NEVER seen such a total opportunity where almost everyone who takes a look wants to join. People just see the magic in this program

2. shaferfinancial - March 2, 2008

Network marketing has much possibilities. However, it takes a particular person willing to work to sell retail products to make it work or better yet to build up a group of other people to do the actual selling. Specialized skills needed for it to work. Definately, not for everybody as most of these companies market!

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