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Why We Make Bad Financial Decisions
As someone who is in his tenth year of the financial services industry I continue to be amazed by some of the decisions made, both personally and financially. Sometimes we watch a loved one make a painfully bad decision in a relationship, and everyone close to them knows it is to their detriment. Other times there is a financial decision that causes great harm due to ignorance or greed. However, since I’m not a therapist I will limit my thoughts here to discussing the financial decisions that people make, and let the therapists handle the personal issues. In this article I will be discussing the five most important reasons that I have noticed that people don’t do the right things financially.
The first is they try to handle things on their own when they don’t know what they are doing. There is no attribute like experience when it comes to handling matters on your own. When my wife and I purchased our first house we used a realtor that we trusted very much and had known for a long time. The house had hit the market at 1:00 on a Friday and he called us to go look at it. He told us to go immediately. We looked at it by 2:00 and told him we liked it. By the end of the day we were offering $5,000 more than the asking price. One of my friends told me I was stupid to not try to low-ball them. It turned out that by 5:00 that day they had received four offers and we barely got the house. Later we learned that the seller was lamenting the fact that they had grossly undersold the house. It was right then that I learned the value of listening to someone who knows what he or she is doing. Since then, I have always used an expert in any area where I was not myself very knowledgeable. This same realtor also tells lots of stories of people who sell their own homes by owner because they don’t want to pay a commission. Sometimes that’s a very expensive lesson for them. This not only applies to real estate but also to investing in the stock market, insurance, legal matters, etc.
The second reason that people make mistakes financially is that they get greedy. Gordon Gecko famously stated in the movie Wall Street that “greed is good”. As applicable as that might be for a Wall Street investment banker, it is not necessarily a good motto for most Americans. Most of us dramatically overestimate our stomach for loss. When we fill out a risk profile for an investment firm we answer multiple questions about what type of risk we are willing to take. They give us examples and multiple-choice questions showing us potential gains and losses in a hypothetical account and we pick the one that we “think” will be closest to our personal preference. However, when the money is tangible dollars that we have seen in our account I believe that most of us are much more risk averse than we believe we are. I remember when I first started trading stocks and options. It was recommended that I paper trade for six months. I did this, and did relatively well. However, once I put actual money in the account I began panicking at the first sign of a loss. My first actual stock purchase only lasted two hours until I cashed it out. It probably took another year to overcome this mental hurdle and be able to trade with little or no emotion. I have seen people panic at the worst possible times in their stock accounts and cement very significant losses. The sad part is that many times this happens when the investor doesn’t have time to make up the loss. They simply have to make the hard decision to not retire on time or retire on a lot less.
The third reason that people make bad decisions financially is they get conflicting information from advisors. One advisor may say to put it all in the market, another in real estate, and yet another into some sort of guaranteed financial product. Many advisors, especially in insurance and investments, chase hot new products or funds. Due to their excitement they can have very compelling arguments for why someone should purchase these products or investments. It is as if the key to guaranteed wealth building has eluded the geniuses all this time and has just now been discovered. I believe that there are many great ways to build wealth and most of them have been around for a very long time. Hard work, investing in your business or yourself, buying high quality stocks in a terrible market, buying real estate in a depressed market are all ways that people have built empires. The key is to do your research and put a focus on something that you either know about already or are willing to do a lot of studying on.
Reason number four that people make bad financial decisions is they follow the pack. I have an endless number of clients and prospective clients that I have asked why they were doing something only to hear the response of “my friend/boss/coworker/family member is doing it”. One of my first responses is to ask how savvy this “advisor” is. Almost without fail that person is no more knowledgeable than they are. And if they are better off financially it is usually because they are older or make more money. It is rarely because they have made amazing financial decisions. If you want to become wealthy then ask really wealthy people what they have done. For instance, if you wanted to become a great boxer you would ask a great boxer how to become great. If you wanted to become a great car mechanic you would ask a great (or at least good) mechanic how to become great at that. But for some reason when it comes to investments or money, people just ask someone they know, many times unaware of how knowledgeable that person actually is. Personally, the best information I have received (financially at least) is from independent books that I have read on a particular subject or strategy. I have found that when information comes from a magazine or article that allows advertising that the information is usually biased and usually follows the pack mentality.
The last reason that people don’t do the right thing financially is, in my experience, they don’t diversify. While it is true that most of the time significant wealth is created by putting all of the eggs in one basket (one stock, one business), it is also true that once wealth is created that it should be diversified. As the saying goes you only have to get rich once. After that the goal should be in earning a modest return and not losing money. Many advisors would say this could be done in a diversified stock and bond portfolio. But in my opinion diversification should consider tax advantaged products, bonds, inflation advantaged products like precious metals, stocks, guaranteed products like life insurance and annuities, cash products, real estate, income producing assets, etc. There are many ways to keep money safe and grow it at a reasonable rate. It just may take a little research.
Jay Gentry has been in the financial services industry for more than a decade. His experience is vast - spending time with one of the nation's largest financial firms and a locally-owned firm before co-founding PhysiciansEconomics.com. Jay is extremely energetic about proper investment education*, privatized banking systems, and helping others reach their full financial potential. He's also a musician and spends a few weekends a year jamming out for faithful fans.
Jay educates and operates out of Little Rock, AR.
Here we go again. So we thought health care reform was a big issue. This is bigger.
The government is now getting serious about raiding all 401(k)s, 403(b)s, and IRAs and pooling the money to create the ultimate socialized retirement program. It would be social security times 50. They've already forgotten that social security is broke! They've come up with a slick marketing name as well - Guaranteed Retirement Accounts.
Now it's time for us to get really serious about looking for other solutions.
First watch this video blog (below). Then read this article - http://www.examiner.com/article/government-considering-socializing-retirement-accounts.
Trust me, you do not want to wake up one morning and find out that you no longer have control of your money! This is a big deal.
So watch the video blog (below) and read the article. Then send this to everyone you know. They are going to want to know about this.
I am a relatively new doctor. I have only been out of residency for 2.5 years. I still have a massive amount of debt from medical school. I make a good salary compared to the average American, but not a lot different than most physicians. I am pretty new to the profession, but I’m sure many of you have noticed the same things that I have. There are a large number of doctors that still live paycheck-to-paycheck, and in spite of a larger paycheck, still live beyond their means. I refuse to live this way! I want to be more responsible with what I have been blessed with.
I am also worried about what Obamacare / Medicare / Medicaid / Social Security are going to do to our profession and our country. If Obamacare goes into full swing, I’m not sure if hospitals will be able to afford current salaries of its employees due to increased costs and decreased reimbursements. I also don’t think our economy can afford the massive increase in cost that these programs will require. All of these things have led me to investigate how to best prepare myself for change and protect my assets for the future.
I had been devoting a large percentage of my paycheck to pay off debt, and sacrificing my savings to do so. I don’t claim to know a lot about the stock market, but I wondered if that might be a good place to invest for the future. However, after looking at current market volatility, and the rate of return of IRAs and 401(k)s that I have had for several years, I hoped there was a better avenue to direct my money toward.
Now enter Chase Chandler and his much appreciated advice and recommendation of the book “Becoming Your Own Banker” by Nelson Nash, as well as his own book “The Wealthy Physician”. These two books have been absolutely eye opening for me! Since reading these books, I haven’t been able to stop reading and educating myself about the philosophies and strategies that are discussed in them. The philosophies are simple, and have been around for hundreds of years. It makes so much sense, but very few people know about it, and I have decided that I am going to help spread the word.
The strategy is called the Infinite Banking Concept, or the Cash-Flow Banking System. Like I said, it really is a simple philosophy, but it is very different than what most “financial gurus” or pundits will tell you. In fact a lot of them will tell you the strategies and the avenues to implement the strategies are a bad idea….DON’T LISTEN TO THEM. “The masses” are listening to them, but in order to create real wealth we need to be different from “the masses”.
So to get to the point…the infinite banking system is a way to set up a foundation of wealth that will give you a place to park your money (like a savings account, except on steroids), save for “retirement”, allow you to pay off 3rd party debt (school loans, cars, credit cards, etc.), finance the things you need or want throughout life, AND provide a death benefit to your family once you are gone. All while keeping this money out of the hands of other banks, the stock market, and out of the hands of the government. It will also be protected in case you ever find yourself in a lawsuit.
The avenue to accomplish this uses a privately owned, dividend-paying whole life insurance policy. Most "gurus” will tell you that Whole Life is a bad investment, and that you should get cheap Term Insurance and invest the difference somewhere else. As an investment, they are probably right; however they just don't understand the benefit it can have as a place to park your money, if it is used correctly.
The companies that are used have been around for many years and have survived many market crashes, such as 1929 and the great depression, the housing market crash of the 80s and of the last decade, as well as the recession that started in 2008. Not only did they survive, the policies in those companies continued to GROW during those times. The reason this is true is the companies either don’t use, or only dedicate a small fraction of their assets in the stock market.
The “gurus” will point to rate of return in the stock market vs. rate of return in whole life insurance. The problem is that they either use bogus numbers (such as the 12% that is commonly talked about for mutual funds. Have you ever seen that kind of return over any significant amount of time in your mutual fund?), or they look at average rate of return rather than actual rate of return, which is not the same. Also, many times they forget to factor in fees associated with mutual funds, which can be significant (national average is 3.1%). I don’t want to get into the details here, but books like “Becoming your Own Banker”, “Building Your Warehouse of Wealth and “Pirates of Manhattan” all give convincing data to show you that Mutual funds haven’t and won’t perform as advertised. They also, give compelling data to show how well your cash can grow within a whole life policy.
Banks and financial institutions, including those that sell stocks and mutual funds, are in business to make money for themselves first and the investors second. Mutual funds are great moneymakers for the fund managers, which is why there has been a boom in mutual fund companies, but they are horrible for making money for investors (Read “Pirates of Manhattan” By Barry James Dyke).
Whole life policies are set up in a much more “investor” friendly manner. First of all the government and the stock market don’t have their hands in your money. Second, when you buy a policy you become an owner in the company. They are privately owned, not publicly traded, so there are no stockholders to have to please. The administrators of these life insurance companies only make money if you are making money! Third, cash value in these policies is GUARANTEED to go up, it can never go down. Have you ever seen a mutual fund that guarantees that? Finally, the cash value grows tax-free, can be taken out tax-free, and can provide a tax-free death benefit. Again, that isn’t going to happen in a mutual fund either.
I think understanding these concepts is THE MOST important thing you can learn to start toward financial freedom, especially in the uncertain economic climate that we find ourselves in currently. Once you understand these concepts, it will open up many other doors and ideas for investing and building wealth, and allow you to weather any storm that the current government may be leading us toward.
To learn how to become wealthy, I think it is wise to mimic those that have already done so successfully. Oprah Winfrey, Walt Disney, Ron Paul, and some of the largest banks in the US have used or are using these strategies to protect and to grow their own wealth.
My advice would be to mimic these successful people, and not those that continue to try the same tired ideas that obviously aren’t working. I also encourage you to read as much as you can get your hands on to educate yourself, and to surround yourself with people that are familiar with these strategies that can mentor you while you try and implement them for your own family.
Chase and the new "Chandler Letter" and “Practitioner’s Memo” will be great resources for you, or should I say ‘us’. I am forever grateful to Chase for introducing me to these concepts, and I am very excited about what this “Memo” will provide.
Reagan Baber, M.D.
Earlier today you received a letter written by Dr. Reagan Baber. In the letter he mentioned this idea of 'the masses'. This being the majority view. I'd like to expand on that.
The famous Robert Frost poem sums it up perfectly -
"Two roads diverged in a yellow wood,
And sorry I could not travel both
And be one traveler, long I stood
And looked down one as far as I could
To where it bent in the undergrowth;
Then took the other, as just as fair,
And having perhaps the better claim,
Because it was grassy and wanted wear;
Though as for that the passing there
Had worn them really about the same,
And both that morning equally lay
In leaves no step had trodden black.
Oh, I kept the first for another day!
Yet knowing how way leads on to way,
I doubted if I should ever come back.
I shall be telling this with a sigh
Somewhere ages and ages hence:
Two roads diverged in a wood, and I—
I took the one less traveled by,
And that has made all the difference.”
There are two types of people - those who have enough money to thrive in their later years and those who don't. You can imagine that, especially in today's economic environment, the vast majority of physicians, dentists, and other professionals are not on track to become financially free. We define financial freedom as the opportunity to unequivocally not have to worry about money.
Another reality is that through conventional planning, it will be virtually impossible to reach true financial freedom. If you've watched any of the video lessons on Chandler Wealth University then you probably have a good understanding of why the stock market absolutely will not work. The current state of our economy simply will not allow the market to produce returns viable for lasting financial freedom - and all of the printing of money/quantitative easing that The Fed is undertaking is only temporarily propping it up.
A few years ago I heard a quote that literally changed my thinking; "For most people, the guilt of not growing is easier to bear than the anxiety of continual growth." I kept that quote taped to the wall in my closet-size office for two years. It was a constant reminder of the reason most people fail. The majority (the masses) will never have a drive for constant learning. That's not how we're wired as humans. Robert Cooper, Ph.D., the famous neuroscientist, states that the brain will always naturally revert to what's easy. When we're confronted with ideas or systems that we're not familiar with it's much easier to blow it off or, better yet, run the other direction - to what we know. Or what we think we know.
It's no different financially. We've all been taught to put money in mutual funds, 401(k)s, IRAs, and the like and just let it ride. Well, now we have definitive proof that this is not working and will not work. Yet the majority still will not accept it. That is, except for the majority of the super-rich. Most multi-millionaires and billionaires have never relied on these 'traditional' strategies for financial freedom. They've taken the road less traveled.
This coming Friday Neil Denman, a leading CPA, JJ Childers, a nationally recognized author and attorney, and Reagan Baber, an anesthesiologist and Infinite Banking expert, will be recording the next section of videos a group called The Practitioner's Memo. In these videos we will be sharing the secret strategies of the ultra-rich. I'm going to do my best to get some of this content on Chandler Wealth University so you can see it.
I've been hesitant, until now, to call these ideas 'strategies of the ultra-rich.' It just seems a bit dramatic. But I continue to be amazed at the amount of CPAs, attorneys, financial advisors, physicians and so on who have not heard of them. I have a good friend and client who is a top engineer for the Trane organization. He spent months studying and scrutinizing the Infinite Banking System. The first time we talked about it he Googled 'Criticisms of Infinite Banking' and proceeded to print out of 40 pages of why it was a bad idea. After months of analyzing (apparently engineers can be very analytical) he said he came to the realization that all of the criticisms came from individuals who did not understand, or really try to understand, the system.
JJ Childers, one of The Practitioner's Memo's executive contributors, wrote a few books that said whole life insurance was a bad idea and you should always buy term and invest the difference. One of these books he wrote with Donald Trump. Yet after careful study and analysis, he too has become an avid advocate of the Infinite Banking System.
It is the road less traveled. It will take time to fully understand. But it will change your financial life.
Why Put Money in Insurance Companies? PDF Version
B. Chase Chandler, 10/16/12
Not long ago a client asked me, “Why are you so convinced and sacrificing so much to put so much money into the Infinite Banking system.” Also known as IBC.
After a few seconds of thought I found this to be a very valid question. I responded, “Where else would I put my money.” He softly mentioned something about stocks and bonds and mutual funds. He had already been through the process of learning why these things; stocks, bonds, mutual funds, IRAs, 401(k)s, etc., are not the best place to hold money. He was already convinced that Infinite Banking made sense, but the conventional wisdom was getting to him.
It’s such a paradigm shift to come to the realization that much of what we’ve learned and much of what we’ve done, financially, is inappropriate and unsuitable. Nevertheless I wanted to answer his question.
This is the synopsis –
My strong conviction behind the Infinite Banking system is not so much an infatuation with life insurance as it is a combination of infatuation with the insurance companies and the life insurance – how they work hand in hand.
You see insurance companies (specifically life insurance companies) are, with very little doubt, the strongest financial institutions in America. When I give the insurance company my money, I’m essentially putting it in the most efficient place in the world. Sound a bit dramatic? It’s true. With a mutual insurance company, the kind I’m talking about, the clients collectively own the company. The company inherently exists for the benefit of the clients! It has to legally distribute the profits of the company back to the policyholders – i.e. ME!
The insurance companies also manage money very conservatively, which is why they’ve been fine even through The Great Depression and, more recently, The Great Recession. When I delegate my money to them they put it in their giant general portfolio, $50-150 billion depending on the company. Their focus is less on earning some pie-in-the-sky rate of return and more on keeping up with inflation and making sure the money is there when it’s needed.
The entire concept of a life insurance company was originally to protect against death. A group of people got together and pooled some money. The idea was that if someone died then their family would get the money they needed to sustain themselves. But over time these entities have become more and more efficient. Combine that with modern medicine – people are dying less, a little morbid but good for insurance companies and their efficiency, and people are living much longer. Again, very good for life insurance companies.
Now millions of people put money with these companies. These companies agents who sell policies, underwriters who underwrite policies ( i.e. make sure a person is healthy enough to qualify for life insurance), and have administrators who handle paperwork and regulation. Yes they must pay all these people – this is obvious. These are the life insurance expenses. So when someone says “Life insurance is expensive” I say “No, your lack of understanding of life insurance is expensive.”
Life insurance, through a mutual company, is the most efficient financial product you can buy. Policies can be structured today with less than a .50% TOTAL expense ratio over the life of the policy. That’s how efficient life insurance is! (Have you checked your 401(k) fees lately?) Yes, people get paid from your life insurance policy, i.e. the company generates revenue because you bought a life insurance policy. BUT if it’s a mutual company you’re going to get the profits! What’s wrong with this picture? Nothing.
Now for term insurance. Do you know what the chances are of your term insurance paying off? 2-3%. That’s a 97 to 98% chance that your money is going down a rat hole. Let me rephrase that – your money is not actually going down a rat hole. It’s going to me! I love people who own term insurance with the companies I do business. Why? Because insurance companies make a load of money off of term insurance. Where do those profits go – to the cash-value owners because they own equity in the company.
Finally, my premise is that the insurance companies, with $50 billion plus at work, oriented to safety first, keeping up with inflation and diversification can do a bit better than I can do on my own looking for safe places to put money. I’m betting the house that I can’t beat them with my $20k. What’s more interesting is the insurance companies don’t have to invest solely in the market like many of us. They use their money more efficiently (are you seeing a theme?). They go directly to market – meaning they loan money out to banks, the government, corporations, etc. They directly invest in fixed income assets – apartment buildings, joint ventures, etc. About 85% of the general portfolio’s funds are in fixed income assets. Then they can be somewhat aggressive with 15% or so. But here’s the kicker – they aren’t reliant on stocks to create a competitive return. So when stocks tank, as the historically do, the insurance companies exposure is exceptionally low! This is not to say that they aren’t at all affected, but rather to say that the general portfolio DOES NOT FLUCTUATE WITH THE STOCK MARKET.
Let me not forget to mention the benefits of the actual insurance contract – tax-free growth, access to my money immediately through the use of policy loans, guaranteed growth, competitive growth above and beyond the guarantees, tax-free retirement income through the use of policy loans, a death benefit that’ll be there forever, the access to cash to take advantage of business opportunities and I can put up my policy as collateral at a bank. Someday I’m going to compile a list of all the advantages and disadvantages. Someday.
I recently interviewed an engineer on his thoughts about life insurance and Infinite Banking. He explained that the first thing he did when I introduced him to the concept was Google “criticisms of Infinite Banking.” Over the course of a few months he analyzed what he found. His conclusion – all of the criticisms come from individuals who do not understand life insurance or the IBC system. He said he was extremely surprised to find all of these “smart people” who simply didn’t follow up on their questions. The just continued to criticize without becoming educated. You can listen to the interview by going to www.blogtalkradio.com/chandleradvisors. Click on the interview from 9/25/12.
When I hear the financial talking-heads or read some of the life insurance articles online one phrase consistently comes to mind – HOGWASH. It’s all hogwash. It’s self-proclaimed experts trying to make something of themselves by talking about something that they simply do not understand. It’s conventional wisdom – and conventional wisdom is rarely right.
So what can you do? Become educated. Go find a good life insurance agent. Refer your friends and family to that life insurance agent. Not only can it change your financial future for the better but it can change the financial life of those around you. I’ve yet to meet one person who’s studied and practiced IBC correctly who doesn’t swear by it. Now make the leap.
10/11/12: The IRA Trap - PDF version
Today I had a very interesting experience. I got a letter from Vanguard stating that my former employer had rolled over my old 401(k) plan into a Traditional IRA. Being that I'm not a huge proponent of the market my initial thought was to simply cash it out. My original thought was to pull the money out, about $3,200, pay the federal and state income taxes and the fees (which are also taken by the government). I would take the $2,000 or so, after taxes and fees, and put it into an annual premium IBC life insurance policy. (If you’re not familiar with IBC, click here to learn what it is.) I would then have immediate access to the majority of the money and could use it to pay off debt or purchase the couch my wife and I want.
After further thought I decided to leave it in the market. It was a relatively small amount of money and it could act as an experiment – how badly will Privatized Banking (IBC) beat The Market. I thought it could be a good real-life illustration to write about and even show clients. So I called Vanguard to move the money to an S&P index fund. One problem – I didn’t have enough money in my account. So I went to the second option – put it in an account where I could buy and sell stocks. Ran into another problem. For some reason they said I could only keep the money in a fund, not in individual stocks. So I began asking questions about certain funds. I thought I could put it in a couple of funds that might make for good examples of how the market fluctuates. My idea was to keep up with the funds each quarter. I would keep the statements and use them for illustrations about the volatility of the market.
And finally, as you might expect, I ran into another problem. If the account goes below $1,000 then Vanguard automatically liquidates the account and sends me what’s left over after fees and taxes, which would be very little. Given the fact that the market can drop substantially at any time, I didn’t really like that idea. I asked the Vanguard agent to liquidate my account and send me the money. So my project will have to wait – but I will do it!
All of this led me to one resounding conclusion. An IRA is a terrible trap! As are 401(k)s, etc. The overwhelming problem is YOU DO NOT HAVE ACCESS TO YOUR MONEY. If you put money in when you’re 30 you can’t touch it again for 29½ years! That’s 29½ years that I’m missing significant opportunities. Opportunities like: real estate, advertising in my business, hiring within my business, etc. But most importantly I would miss the opportunity to literally become my own banker (or become someone else’s banker). You see if I can take that money that I would’ve put into “qualified plans” and put it into my own banking system then I have the ability to loan money to myself for the products and services I need. The products and services that I would have previously had to get a loan from the bank. Then I can begin to pay myself back. When I pay myself back, instead of the bank, then I would be able to recapture the interest I would’ve lost to the bank. I can also recapture the opportunity cost I would’ve lost by paying cash. What I end up accomplishing is a more efficient long-term wealth management plan in a safe fashion! I no longer have to stomach the rollercoaster of the market.
(Side note: I also get to do other things I want to do – vacations, cars, etc. – as long as I’ve got the money in my banking system.)
To take it one step further, if I do want to get into the market for any reason (although I don’t know what reason that would be) I can. But if I’ve bought into building my own banking system I do it through my banking system. Building your own banking system is not in competition with investing in the market or other uses of money. It is in unison with the other uses of the money. It gives the option to do other things with money.
So why isn’t everyone doing it?
The question some ask is “why isn’t everyone else doing this?” And the answer is: they are – or at least many of the wealthy are doing it. It’s called Economic Value Added (EVA). The wealthiest individuals and corporations are very acquainted with EVA and use the system to loan money to themselves everyday.
The second answer to that question is another question. Why would you ever want to do what everyone around you is doing? It doesn’t make sense. I met with a CPA today that told me that 92% of mutual funds are held by families with income under $200,000. That means people making over $200k are doing something else.
What are you doing?
9/26/12: Why are there so many different opinions out there?
The Federal Reserve Board system
Over the years there have been many smart people that have disagreed on many different topics – specifically on financial and economic topics. How can honest, educated, intelligent people openly disagree about what grows our economy most efficiently? How can the personal finance “gurus” disagree about what makes our personal economy tick (our ability to grow long-term wealth)? Over the past five years I’ve made it my mission to find out what works best and, more importantly, find out what the wealthy are doing that’s making them wealthy. About a year ago I was introduced to a couple very interesting ideas. One of those ideas was that the stock market, the way it’s managed today, is not efficient. One of the main reasons for this is The Federal Reserve Bank. This is our nation’s central bank, although it’s not a government institution. It’s a FOR-PROFIT privately owned bank that does not pay taxes! It also creates money from thin-air, from nothing! This is called FIAT MONEY. All of this to artificially enhance the economy/stock-market. This also creates inflation. Inflation makes our dollar worth less – principally making us poorer than we think.
Who gets the profits from The Fed? The Federal Reserve Board.
“The Board administers the finance system by authority of a (themselves) purely profiteering group.” – Charles A. Lindbergh Sr., 1923
“They [the Federal Reserve Banks] are private credit monopolies which prey upon the people of the United States for the benefit of themselves and their foreign swindlers.” – Congressional Record 12595-12603 – Louis T. McFadden, Chariman of the Committee on Banking and Currency – June 10, 1932
Although there was much uproar over the 30 or so years following the creation of The Fed, somewhere throughout the years we began to forget dangerous nature of this beast. We forgot that Adam Smith even said “The problem with fiat money is that it rewards the minority that handles the money, but fools the generation that has worked and saved money.”
The Fed creates superficial confidence, fooling many Americans into believing we have a stronger economy then we really do. (The reality is that the only reason our economy is still alive is because of the production of the American people.)
So why do many politicians and economists differ on their view of The Fed? Good question. Most historical aficionados have a relatively negative or very negative view of The Fed. Those that support The Fed simply do not understand the historical, inflationary and dollar-devaluing effect of the system. Virtually all of the smart people that have strongly supported The Fed in recent history have the notion that more government is better – i.e. a very Keynseian and bordering on Marxist perspective.
Study more by reading The Creature From Jekyll Island by Edward Griffin.
Last Friday I attended an EntreLeadership Seminar put on by Dave Ramsey and his company. To be frank – the content was great. It was a lesson on running a business from a scriptural perspective. The problem is his financial advice. The problem is not, however, his philosophy on budgeting, getting out of debt to financial institutions and delayed gratification. These principles are timeless. The utterly obvious problem is his perception that the stock market will grow at 12% and the notion that people should never put money in any type of cash-value whole life insurance.
(Go to our videos on Dave Ramsey: www.chandleradvisorsllc.com/daveramsey)
But the real inherant problem with Dave Ramsey is the narcissism that he consistently displays to or about REAL PEOPLE on his radio show.
(Watch the second video at www.chandleradvisorsllc.com/videos)
Yet on page 7 of his EntreLeadership Seminar handout he talks about how much he cares about real people. He talks about how much good he’s done for the first 20 minutes. I’ve studied his books and listened to him on radio and TV. I’ve never heard him admit he was wrong about one piece of his financial advice. No one can be right all of the time. That privelege is God's and God's alone.
Mark my words – certain aspects of Dave Ramsey’s advice will go down in history as utterly inexplicable. It will be noted that, while he helped many people get out of debt, he also cost them 100’s of thousands of dollars in the process. Mainly because he doesn’t understand how to appropriately plan for a financial future. The reality is that Ramsey is wealthy because of book sales and endorsements. If he had not reached mega-superstar status, which landed him mega-millions of dollars, he would be in the poor house. If he’d taken his own advice as a regular person he may have paid off debt but he would not have built wealth. I challenge any one to find a random group of 100 Ramseyites that have been practitioners of his ideas for 15 years. You will find a few people that have paid off debt – but you will find less than 5% who have actually built wealth.
In short – much of the misinformation and lack of truth that is out there is based on one thing: ignorance. Lack of understanding. Lack of education. Lack of willingness to learn. There is only one thing that will save us, the American people – educating our financial minds.
9/12/12 - I am writing this to those who, at one point or another, I have advised to put money in the market. Although it is relevant to all. I've felt a strong sense of responsibility over the past few months to put something down in writing and on record about my thoughts. While some may disagree with me, I strongly believe the evidence is out there. Do not make the mistake of not taking this seriously.
In early 2006 Peter Schiff, a noted author and investment broker, warned us all of a coming recession. In an interview with Art Laffer, the famous and influential member of Reagan's Economic Advisory Board from 1981-1989, scoffed at Schiff. He stated "the American economy has never been better. I don't believe any of it whatsoever!" (http://www.youtube.com/watch?v=LfascZSTU4o) Why did he say this? Some believe it was political. Bush was in office and Republicans wanted another of their party members to be elected. That re-election of the party was more likely to happen if the economy was ok. Well Peter Schiff turned out to be exactly right and his prediction has affected all of us in one way or another.
It’s time for those of us, who are willing, to take a deeper look at what’s really happening for ourselves and make decisions on what WE find. This will serve us better than simply taking what others say at face value. For the most part I try to stay non-partisan. I’m fairly convinced that the political system is broken or almost broken anyway. I do believe that we need to stop bashing each other over the head because of our disagreements. In order to work together we must respect one another’s views. We have a lot more in common than we have dividing us, but we let the divisions take root and tear us apart like a cancer. That’s mostly all I’ll say about politics. But let me say this – as Americans we all need to stop blaming President Obama and President Bush for the current economic woes. In fact we need to stop blaming others period and start doing something about it. When you study economics you begin to notice a consistent trend – economic consequences, good or bad, do not happen overnight. What’s happening at any current moment is the result of what’s been done over the past 15-30 years. Current politicians can somewhat help or hurt the situation, but largely our present-day circumstances are a result of actions from the past. At the moment we’re experiencing very slow growth and looking another recession right in the face. The reason – decades of reckless spending by both parties, often not understood by the American people. Many of these problems started in the 90’s. That’s when subprime mortgages began being promoted like wild fire. Another problem that began around 1980 was the introduction of the 401k/403b plan by Congress. You may wonder “how in the world was that a bad thing?!” Well here’s how and why: Previous to the creation of the 401k plan there was no arbitrary stock market vehicle where Americans could more or less blindly through money. Although the IRA was presented by Congress in a similar manner earlier in the 70’s it didn’t get near as much traction as the 401k. Before 1980 most Americans kept the majority of their money safe. If you looked at a group of 100 or more people you would have found that most of their money was in their home, cash, CD’s, life insurance, gold and many times their own business. Many people had stocks but they certainly did not have anywhere close to the majority of their savings tied up in the market as we see today. Many of these people lived through the Great Depression and recollected a keen fear of banks and other financial institutions. And they’re also called the Greatest Generation, largely because of their shrewd financial management. Then in 1980 things began to change. We transitioned into a spending culture rather than a saving culture. The Baby Boomers were coming into their prime not having experienced a truly dangerous economic time. Although they did see some economic downturns, they had seen nothing close to the Great Depression of the 20’s and 30’s or the Great Recession of the late 2007-2008. So 1980-1999 just might be the most important economic period we can learn from.
So what’s so important about 1980-1999?
The market rose at a pace never before seen in history. In fact if you’d put $100 in the Dow Jones Industrial Average in 1980, your annualized true rate of return in 1999 would have been 14.01%! Amazing rate of return. Now let’s bring you back down to earth. If you’d put $100 in the market in 1901, by 1979 your money would have grown by 3.57% a year. Looking at 2000-2011, that number would be 0.73%. If we include 1901-2011, not discounting any years, our rate is still only 5.06%. And that’s before fees and taxes. (To fully understand this I encourage you to read my book The Wealthy Physician or The Wealthy Family, the latter to come out in 2013.) From 80-99 the market became significantly overvalued because it had substantially more money going into it than had ever before! In truth the market as the sole place for one’s savings has never worked over a long period of time. Well, that is with one exception (kind of) – the Baby Boomers. You may be a Baby Boomer or your parents may be in that generation, as are mine. The main problem here: many young people today are getting much of their information from those they respect. Their parents and those that are their elders. While there is some obvious legitimacy to this there is also a huge flaw. Many of these individuals still remember the best years ever of the stock market – 1980-1999. Because of experience they’re convinced it’ll bounce back. (The worst of these Baby Boomers are Dave Ramsey and Suze Orman.) My father will be the first one to admit that he made one huge mistake that has likely cost him a truck-load of money – he put it all in the market.
In my book, The Wealthy Physician, I write and back up the fact that 10,000 Baby Boomers will be exiting the workforce each day for next 20 years. That’s 73 million people leaving the workforce! For us to simply sustain even decent market growth we would have to have just as many people entering the workforce putting just as much money into the market as that which is being taken out. Is that possible? No. CNBC recently estimated that true unemployment is around 14.9%[i]. In reality, when you add children and non-working spouses to the mix, only 67-70% of the population is actually working.[ii] Those entering the workforce at an entry level salary will not be able to come close to make up the difference. So in short the market saw ridiculous growth from 1980-1999 because of this 401k phenomenon and now it’s coming to a screeching halt. The stock market has always been volatile and precarious and is going to be even more so for the foreseeable future.
A recent Wall Street Journal article quoted the lauded financial genius Bill Gross: He says consistent, annual returns are a thing of the past. “The cult of equity is dying,” Bill Gross wrote in his August Investment Outlook. “Like a once bright green aspen turning to subtle shades of yellow then red in the Colorado fall, investors’ impressions of ‘stocks for the long run’ or any run have mellowed as well.” (http://blogs.wsj.com/marketbeat/2012/07/31/bill-gross-were-witnessing-the-death-of-equities/)
We also mustn’t confuse stock market growth with economic growth. Market growth is largely dependent on how much money Americans are putting in it (buying stocks) at any given time. Economic growth is largely associated with the number of individuals in America working and producing.
I hope this has been helpful in terms of helping you understand what’s going on. Please do not be deceived by politicians and those in the media who say differently as they often have an ulterior motive – to get elected or ratings, respectively.
"When Jesus saw him lying there and learned that he had been in this condition for a long time, he asked him, Do you want to get well?" – John 5:6 NIV
"So you ought to have deposited my money with the bankers, and at my coming I would have received back my own with interest." – Matthew 25:27 NKJ
So what to do about it? Take it to heart. Do something about it. Start practicing the “new normal” which is actually an old normal – manage your money like the Greatest Generation. Be frugal, conservative and honest with yourself. Send it to others and ask them to take it read it thoroughly. I would recommend calling me, my firm (Chandler Advisors) or one of the firms listed below. You’ll only know what to do if you know the full truth.
B. Chase Chandler, 9/12/12
Firms to Contact:
Chandler Advisors, LLC | www.chandleradvisorsllc.com
RebeccaRice & Associates | www.rebeccarice.net
Physicians Economics Advisors | www.physicianseconomics.com
Tier 1 Capital, LLC | http://www.tier1capital.com
Life Benefits, Inc | http://www.life-benefits.com/
Life Success & Legacy | http://www.lifesuccess-legacy.com
James C. Neathery & Associates, Inc. | http://bankingwithlife.com/index.html
Quick Articles to Read:
Building Your Warehouse of Wealth, R. Nelson Nash