Understanding how Becoming Your Own Banker: The Infinite Banking Concept (IBC) works begins with understanding one very fundamentally important money principle. Some people will get it right away and for others it takes a bit longer, but what I've discovered over the years in my professional practice is that when you dedicate yourself to learning the truth about money and practicing IBC, you will ultimately have the IBC epiphany and be able to fully comprehend this one very simple truth about money:
You finance everything you buy.
You either lose the interest you could have earned or you agree to pay interest to someone else, most commonly your bank or finance company. It's as simple a principle as that. Flip a coin and you have two possible outcomes: heads or tails. It's the same scenario when you buy something. Give up interest earned as you pay cash or pay interest by financing it with a 3rd party. The interest you lose on your money adds up into the hundreds of thousands over one's lifetime. Is it any wonder why there are multiple banks on every major street corner in every town across the country looking for deposits? (As a side note, you should be asking yourself,"what is it that bankers know that I don't?)
Now it might seem to you either scenario, paying cash or financing, is a losing proposition. And it is a losing proposition for most of you just learning about Becoming Your Own Banker and not yet practicing it. However, it is a winning proposition for the owners of the banking system. Unfortunately, we've been taught to be customers of the banking system rather than owners of it.
Our lack of education about how the banking system works leaves us in a very vulnerable and powerless position. We are conscious about our ability to earn millions of dollars of income in our lifetime, but we're confused about where it all goes. This is because no one ever taught us how to harness our savings to re-deploy it over and over again within a banking system we own, control, and, therefore, profit from. For generations we have been ingrained to continually save money the way our family, friends, and neighbors do which means we've never investigated or been presented with an opportunity to own our banking system.
For this reason, the most prudent thing you can do is create your own banking system as written about in books such as Becoming Your Own Banker by R. Nelson Nash and Bank on Yourself by Pamela Yellen. In doing so, you'll eliminate the opportunity cost of paying cash or financing at your lenders terms. The interest you once squandered and principal of capital transferred will be re-directed back to your own banking system for a lifetime of use. Thus, you will be capitalizing on the things you'll buy in your lifetime instead of letting it slip through your hands and back to the bank.
As Nelson Nash is fond of saying,"You should receive two paychecks. One paycheck from what you do for a living and one paycheck from your banking system." He also says,"Businesses come and go, but the business of banking eternal." Since you are captive to your local bank, doesn't it make sense to be in the very business you use everyday?
If it sounds to good to be true, you're not alone in thinking so. This is only because, like most people, you haven't been presented with this knowledge before or, if you were like me, you failed to grasp the enormity of its power in creating risk-free, tax-free wealth for yourself now and your future generations the first time IBC was presented to you.
Before you continue on your journey learning about Becoming Your Own Banker, I'd like to recommend you open your mind to one simple truth: you finance everything you buy.
This blog, as well as my website at JLMWealthStrategies.com, is full of F.A.Q.s and articles relating to Becoming Your Own Banker: The Infinite Banking Concept. At this point, you can choose to ignore what you learn or you can heed this writers advice. I can tell you what the smart people I meet do with their personal and business money. They take control of it and having your own banking system gives you the ultimate power to do so.
For a free analysis, call (800) 208-6141.
John Montoya
John@JLMws.com
www.CashValueBanking.com
Sunday, May 29, 2011
Friday, May 27, 2011
The Last Nail In The Coffin
The last nail is being driven into the coffin of the American Republic. Yet, Congress remains in total denial as our liberties are rapidly fading before our eyes. The process is propelled by unwarranted fear and ignorance as to the true meaning of liberty. It is driven by economic myths, fallacies and irrational good intentions. The rule of law is constantly rejected and authoritarian answers are offered as panaceas for all our problems. Runaway welfarism is used to benefit the rich at the expense of the middle class. Who would have ever thought that the current generation and Congress would stand idly by and watch such a rapid disintegration of the American Republic? Characteristic of this epic event is the casual acceptance by the people and political leaders of the unitary presidency, which is equivalent to granting dictatorial powers to the President. Our Presidents can now, on their own:
1. Order assassinations, including American citizens,
2. Operate secret military tribunals,
3. Engage in torture,
4. Enforce indefinite imprisonment without due process,
5. Order searches and seizures without proper warrants, gutting the 4th Amendment,
6. Ignore the 60 day rule for reporting to the Congress the nature of any military operations as required by the War Power Resolution,
7. Continue the Patriot Act abuses without oversight,
8. Wage war at will,
9. Treat all Americans as suspected terrorists at airports with TSA groping and nude x-raying.
And the Federal Reserve accommodates by counterfeiting the funds needed and not paid for by taxation and borrowing, permitting runaway spending, endless debt, and special interest bail-outs.
And all of this is not enough. The abuses and usurpations of the war power are soon to be codified in the National Defense Authorization Act now rapidly moving its way through the Congress. Instead of repealing the 2001 Authorization for the Use of Military Force (AUMF), as we should, now that bin Laden is dead and gone, Congress is planning to massively increase the war power of the President. Though an opportunity presents itself to end the wars in Iraq, Afghanistan, and Pakistan, Congress, with bipartisan support, obsesses on how to expand the unconstitutional war power the President already holds. The current proposal would allow a President to pursue war any time, any place, for any reason, without Congressional approval. Many believe this would even permit military activity against American suspects here at home. The proposed authority does not reference the 9/11 attacks. It would be expanded to include the Taliban and "associated" forces—a dangerously vague and expansive definition of our potential enemies. There is no denial that the changes in s.1034 totally eliminate the hard-fought-for restraint on Presidential authority to go to war without Congressional approval achieved at the Constitutional Convention. Congress' war authority has been severely undermined since World War II beginning with the advent of the Korean War which was fought solely under a UN Resolution. Even today, we're waging war in Libya without even consulting with the Congress, similar to how we went to war in Bosnia in the 1990s under President Clinton. The three major reasons for our Constitutional Convention were to:
1. Guarantee free trade and travel among the states.
2. Make gold and silver legal tender and abolish paper money.
3. Strictly limit the Executive Branch's authority to pursue war without Congressional approval.
But today:
1. Federal Reserve notes are legal tender, gold and silver are illegal.
2. The Interstate Commerce Clause is used to regulate all commerce at the expense of free trade among the states.
3. And now the final nail is placed in the coffin of Congressional responsibility for the war power, delivering this power completely to the President—a sharp and huge blow to the concept of our Republic.
In my view, it appears that the fate of the American Republic is now sealed—unless these recent trends are quickly reversed.
The saddest part of this tragedy is that all these horrible changes are being done in the name of patriotism and protecting freedom. They are justified by good intentions while believing the sacrifice of liberty is required for our safety. Nothing could be further from the truth.
More sadly is the conviction that our enemies are driven to attack us for our freedoms and prosperity, and not because of our deeply flawed foreign policy that has generated justifiable grievances and has inspired the radical violence against us. Without this understanding our endless, unnamed, and undeclared wars will continue and our wonderful experience with liberty will end.
Ron Paul - May 25,2011
Thursday, May 26, 2011
Your Bank Is Spying On You!
I could hardly believe what I heard just now listening to Rand Paul speak before Congress about the two amendments he proposed in reauthorizing the Patriot Act bill for another 4 years. Both amendments were defeated. One amendment would have exempted 4473s, the form gun owners fill out when registering weapons, from Patriot Act provisions. The other amendment would have made it the job of the government, not banks, to initiate "suspicious activity reports." (Listen below beginning at 8:40.)
As it stands now, your bank is encouraged to report your activities to the government if your banking transactions exceed $5000.00 or face fines of $100,000 or more! There are now over a million suspicious activity reports a year. Like it or not, your bank accounts are being spied on and reported to the government BY YOUR BANK.
It's sickening to me that my kids are growing up in a world in which they will be treated like suspected terrorists for how they use their bank accounts or what they post on Facebook or Twitter because of the Patriot Act.
Our banks now report us to the government and they have been for nearly a decade without the public knowing. How long before neighbors are spying on neighbors? Nothing changes until we support the rare politician like Rand Paul who is courageous enough to stand up for the very liberties we take for granted. Do you want a government that is unrestrained by law? At the moment, it seems we do.
As it stands now, your bank is encouraged to report your activities to the government if your banking transactions exceed $5000.00 or face fines of $100,000 or more! There are now over a million suspicious activity reports a year. Like it or not, your bank accounts are being spied on and reported to the government BY YOUR BANK.
It's sickening to me that my kids are growing up in a world in which they will be treated like suspected terrorists for how they use their bank accounts or what they post on Facebook or Twitter because of the Patriot Act.
Our banks now report us to the government and they have been for nearly a decade without the public knowing. How long before neighbors are spying on neighbors? Nothing changes until we support the rare politician like Rand Paul who is courageous enough to stand up for the very liberties we take for granted. Do you want a government that is unrestrained by law? At the moment, it seems we do.
Wednesday, May 11, 2011
The Ultimate Money Trap: Your 401K!
Nobody wants to be stripped of their freedom to make decisions. Why should it be any different with the money you save for retirement? I don't know of one soul who would volunteer to be incarcerated but I know it's a fact that the majority of Americans imprison their retirement savings without giving it much thought. They lock it up in government qualified (i.e. controlled) employer sponsored retirement plans like 401k, 403b, or 457 retirement plans and then throw away the key!
In doing so they give up the liquidity, control, and use of their retirement savings all because no financial advisor or investment firm has ever approached them or their employer with a better, more prudent place to save money. With no alternative, most people will simply abide with the option provided. Retirement savings vehicles are no exception.
The sad fact is the majority of American contribute to 401k or their equivalent type plans because it's the only type of retirement plan offered by their employer. If you're reading this, chances you have a 401k/IRA type retirement plan. Since these plans have been around for over a generation, there is a perceived trust in the system despite evidence to the contrary that it works in your best interest. I personally will never see the upside into saving a pre-tax dollar now in order to guarantee a future tax bill at an unknown and potentially larger tax bracket. Add in the current limited liquidity to these plans which actually has legislation in Congress to restrict the use of the money further and you have to ask yourself: how can these retirement plans get any worse? But sadly, they do. Not only do these plans lock up your money, guarantee a future tax bill for the rest of your life, but they also fail to protect your money from stock market loss. Is it any wonder why these plans are doomed to fail?
I understand most people don't really think about having their money locked up in 401k/IRA's because we've been conditioned to believe it's in our a best interest to save for a rainy day. However, by locking up your retirement savings into a 401k, it forces you to rely on banks and credit card companies to finance the very things you could have acquired (and, by the way, you could have paid interest to yourself instead of to the bank) if you had the access and liquidity of your own savings. I know what you're thinking, though. It's smarter to pay cash for everything. Unfortunately, you're not understanding the secret about money that banks understand: you finance everything you buy.
Paying cash means you give up the ability to earn interest on your cash forever! Think of the last car or vacation you paid for with cash. Are you able to earn interest on that money or is the interest you could be earning gone forever? Since that interest on your cash doesn't end up in your own banking system, guess where it goes? If you're still fishing for the answer by the end of this article, please re-read as many times as necessary. And if you're wondering how you're supposed to pay for things if you're not paying cash or putting it on a credit card, keep reading.
Before I solve the riddle for how you are to pay for things without paying cash or with credit, I want to tell you something you probably already know and sprinkle in something you may not be aware of and it's this: 401k's are a very profitable savings system for Wall Street (you should know this,but if not read here) and these government qualified retirement plans tie directly into the relationship you have with your local bank and/or credit card companies.
First, by participating in a 401k, an employee allows Wall Street to manage their savings with little to no liquidity. If the employee happens to need access to their account for any reason, the options are limited. What most people end up doing is going to their local bank or go online to shop for the best financing options without realizing the best financing is available if they only had access to their savings.
Without access to your own savings, you'll be positioned into a corner right where banks want you. Once you're there, banks are ready to capitalize on your need to borrow. Are you ready to finance your first home, start a business, your dream wedding, your car,etc...? Pay attention to all the advertising. Banks are there to help you! Make note of it. Ask yourself,"What if I could borrow my own money to finance and pay myself interest instead of the bank? Why do I need to borrow money from a bank when I already have been saving money for years in my 401k?"
You may not be aware of it, but banks are in the lending business. They are not in the deposit and savings business. That's an important distinction to make. Banks will want to sell you on all types of products and services under the guise of being helpful towards accomplishing your financial goals and dreams. However, their primary goal is making you believe that you need them more than they need you. The truth is, you only need a bank to accomplish one function: a checking account. Beyond a checking account, all your banking needs can and should be centered around your savings where you can use it as the means to recapture the total purchase price of things you'll otherwise pay cash with or finance with credit.
Psychologically, these financial institutions know that limiting saving options allows their captive audience the ability to make quicker decisions. Since your money is tied up in one box (401k), you have to go obtain money from a different box (bank lending department or credit card company) controlled by the same financial institutions acting in concert to deprive you of what is rightfully yours: the compounding collection of interest on your money in perpetuity! If you controlled your individual banking function via your own banking system, you could bypass the banks and Become Your Own Banker!
The solution to all your financing needs doesn't require your banks help. I know they are all too eager to help by promising incredible service and offering themselves as a friend when you're in need, but they are actually the enemy because they will earn the interest on your money for everything you buy that you otherwise could have earned yourself if you had your own banking system.
Think of it this way. You deposit your money at your bank or employer 401k. Leaving out your 401k/IRA for now, when you have a greater need than what's in your checking or savings account, the teller will recommend you speak to a personal banker so they can discuss their loan products should you happen to qualify based on their lending criteria. This is what millions of American's do everyday and our investing and banking systems have conditioned us to think it's the best way to manage our money and finances. It just happens to be the best way for the banks and Wall Street, NOT YOU!
The thought I'm proposing you digest is the ability to save your money in an unlocked box where you have complete control of your money. You can access it whenever you want it, for whatever reason. You get to be the banker. Pay it back right away... or pay it back over 5, 7, 15 years or when ever. As the banker, you get to decide! Regardless of how long it takes you to pay it back, you will recover every penny of principal and interest you otherwise would have paid to your bank! It all goes back into your money system, not theirs!
Does that seem out of this world?
It shouldn't because the money system I'm referring to has been around for over 150 years. Not only is it backed by the safest and best capitalized financial institutions in the world. It's also a money system that operates in a tax-favored system approved by the IRS. It actually existed before the creation of the IRS in 1913. In fact, this system works so well and is so reliable that the largest banks in this country utilize this money system for a sizable portion of their own assets that they deem necessary to be ultra liquid and ultra safe. Let me make a point here that banks do not buy mutual funds with their own assets! They are actually the largest buyers of permanent Cash Value Life Insurance in the world!! That's something to chew on next time your banker conveniently recommends their mutual funds knowing full well they don't buy the very things they sell. And yes, your bank likely sells permanent cash value life insurance. However, they won't design these policies to create a banking system. Why? Well, if they did design and sell what I sometimes refer to as a "Banking Policy", would you actually need to borrow money from a bank when you could borrow it from yourself and pay yourself interest? The answer would jeopardize the lending department of every bank across the country.
So what is the number one takeaway from this article?
In doing so they give up the liquidity, control, and use of their retirement savings all because no financial advisor or investment firm has ever approached them or their employer with a better, more prudent place to save money. With no alternative, most people will simply abide with the option provided. Retirement savings vehicles are no exception.
The sad fact is the majority of American contribute to 401k or their equivalent type plans because it's the only type of retirement plan offered by their employer. If you're reading this, chances you have a 401k/IRA type retirement plan. Since these plans have been around for over a generation, there is a perceived trust in the system despite evidence to the contrary that it works in your best interest. I personally will never see the upside into saving a pre-tax dollar now in order to guarantee a future tax bill at an unknown and potentially larger tax bracket. Add in the current limited liquidity to these plans which actually has legislation in Congress to restrict the use of the money further and you have to ask yourself: how can these retirement plans get any worse? But sadly, they do. Not only do these plans lock up your money, guarantee a future tax bill for the rest of your life, but they also fail to protect your money from stock market loss. Is it any wonder why these plans are doomed to fail?
I understand most people don't really think about having their money locked up in 401k/IRA's because we've been conditioned to believe it's in our a best interest to save for a rainy day. However, by locking up your retirement savings into a 401k, it forces you to rely on banks and credit card companies to finance the very things you could have acquired (and, by the way, you could have paid interest to yourself instead of to the bank) if you had the access and liquidity of your own savings. I know what you're thinking, though. It's smarter to pay cash for everything. Unfortunately, you're not understanding the secret about money that banks understand: you finance everything you buy.
Paying cash means you give up the ability to earn interest on your cash forever! Think of the last car or vacation you paid for with cash. Are you able to earn interest on that money or is the interest you could be earning gone forever? Since that interest on your cash doesn't end up in your own banking system, guess where it goes? If you're still fishing for the answer by the end of this article, please re-read as many times as necessary. And if you're wondering how you're supposed to pay for things if you're not paying cash or putting it on a credit card, keep reading.
Before I solve the riddle for how you are to pay for things without paying cash or with credit, I want to tell you something you probably already know and sprinkle in something you may not be aware of and it's this: 401k's are a very profitable savings system for Wall Street (you should know this,but if not read here) and these government qualified retirement plans tie directly into the relationship you have with your local bank and/or credit card companies.
First, by participating in a 401k, an employee allows Wall Street to manage their savings with little to no liquidity. If the employee happens to need access to their account for any reason, the options are limited. What most people end up doing is going to their local bank or go online to shop for the best financing options without realizing the best financing is available if they only had access to their savings.
Without access to your own savings, you'll be positioned into a corner right where banks want you. Once you're there, banks are ready to capitalize on your need to borrow. Are you ready to finance your first home, start a business, your dream wedding, your car,etc...? Pay attention to all the advertising. Banks are there to help you! Make note of it. Ask yourself,"What if I could borrow my own money to finance and pay myself interest instead of the bank? Why do I need to borrow money from a bank when I already have been saving money for years in my 401k?"
You may not be aware of it, but banks are in the lending business. They are not in the deposit and savings business. That's an important distinction to make. Banks will want to sell you on all types of products and services under the guise of being helpful towards accomplishing your financial goals and dreams. However, their primary goal is making you believe that you need them more than they need you. The truth is, you only need a bank to accomplish one function: a checking account. Beyond a checking account, all your banking needs can and should be centered around your savings where you can use it as the means to recapture the total purchase price of things you'll otherwise pay cash with or finance with credit.
Psychologically, these financial institutions know that limiting saving options allows their captive audience the ability to make quicker decisions. Since your money is tied up in one box (401k), you have to go obtain money from a different box (bank lending department or credit card company) controlled by the same financial institutions acting in concert to deprive you of what is rightfully yours: the compounding collection of interest on your money in perpetuity! If you controlled your individual banking function via your own banking system, you could bypass the banks and Become Your Own Banker!
The solution to all your financing needs doesn't require your banks help. I know they are all too eager to help by promising incredible service and offering themselves as a friend when you're in need, but they are actually the enemy because they will earn the interest on your money for everything you buy that you otherwise could have earned yourself if you had your own banking system.
Think of it this way. You deposit your money at your bank or employer 401k. Leaving out your 401k/IRA for now, when you have a greater need than what's in your checking or savings account, the teller will recommend you speak to a personal banker so they can discuss their loan products should you happen to qualify based on their lending criteria. This is what millions of American's do everyday and our investing and banking systems have conditioned us to think it's the best way to manage our money and finances. It just happens to be the best way for the banks and Wall Street, NOT YOU!
The thought I'm proposing you digest is the ability to save your money in an unlocked box where you have complete control of your money. You can access it whenever you want it, for whatever reason. You get to be the banker. Pay it back right away... or pay it back over 5, 7, 15 years or when ever. As the banker, you get to decide! Regardless of how long it takes you to pay it back, you will recover every penny of principal and interest you otherwise would have paid to your bank! It all goes back into your money system, not theirs!
Does that seem out of this world?
It shouldn't because the money system I'm referring to has been around for over 150 years. Not only is it backed by the safest and best capitalized financial institutions in the world. It's also a money system that operates in a tax-favored system approved by the IRS. It actually existed before the creation of the IRS in 1913. In fact, this system works so well and is so reliable that the largest banks in this country utilize this money system for a sizable portion of their own assets that they deem necessary to be ultra liquid and ultra safe. Let me make a point here that banks do not buy mutual funds with their own assets! They are actually the largest buyers of permanent Cash Value Life Insurance in the world!! That's something to chew on next time your banker conveniently recommends their mutual funds knowing full well they don't buy the very things they sell. And yes, your bank likely sells permanent cash value life insurance. However, they won't design these policies to create a banking system. Why? Well, if they did design and sell what I sometimes refer to as a "Banking Policy", would you actually need to borrow money from a bank when you could borrow it from yourself and pay yourself interest? The answer would jeopardize the lending department of every bank across the country.
So what is the number one takeaway from this article?
- Unlock your savings and put it into a Private Tax-Free Money System so you can continue to earn interest on the things you otherwise would pay cash or credit with, and earn interest on your cash tax-free in perpetuity!
Tuesday, May 10, 2011
You Insure Your Most Valuable Assets. Why Wouldn't You Insure Your Retirement?
Most economists are saying that income taxes must rise just to pay off our national debt. Why would anyone take a tax deduction today at these historically low income tax rates, let your money grow tax deferred for a number of years, and then when you need your money in retirement have every dollar subject to income taxes? And the taxes due will most likely be on a larger sum of money and at a higher tax bracket?
The proper structuring of a life insurance policy provides substantial benefits over qualified retirement plans, such as:
- Eliminate market risk while enjoying guaranteed contractual growth
- Liquidity-- you don't have to wait until age 59 1/2 to access your money
- No forced withdrawals beginning at 70 1/2
- Virtually unlimited contributions
- A tax free death benefit paid to your heirs or named beneficiaries
- A TAX-FREE income at an age that you select.
This concept is not new. In fact the majority of Fortune 500 companies and major accounting firms use life insurance to fund their executive retirement plans. The key is having the right type of permanent life insurance and having a professional design the policy to eliminate as much as 70% of the commissions normally associated with these products. For more information, watch the video at www.CashValueBanking.com or request a free analysis by calling (925) 386-6639.
Monday, May 9, 2011
There's Money In The Air!
I've been telling people for years how the value of the dollar has been purposely devalued since 1913 by the Federal Reserve, but don't take my word for it. Listen to this college professors explanation starting at 13:48 to 14:30. (Click on the red link.) $1 from 1913 is only worth 5 cents today. This is a transfer of wealth from the you to the banks and only we have the ability to strip the Federal Reserve of its power to print money. Don't complain about higher prices. Learn what causes it.
On my recommended reading list you'll find a copy of a book that covers this topic better than anything I've come across. The book is The Creature From Jekyll Island. Hope you take the time read it.
The machinations of the Federal Reserve is just one more reason to start your own banking system using non-direct recognition dividend paying Whole Life insurance contracts as instructed in books like Becoming Your Own Banker by R. Nelson Nash and Bank on Youself by Pamela Yellen. These policies replicate the individual banking function you outsource to your local bank and unlike the Fractional Reserve Banking system your local bank operates under, these Whole Life contracts are anti-inflationary.
With insurance contracts, wealth is created from capital. Money first has to be saved before it can lent out. It is not created from thin air like with a bank. Ask yourself where the money for your mortgage came from. Did the bank lend its own money? The truth is that the money to refinance or buy your house was spontaneously created from nothing with just a mere signature on a mortgage note giving the bank the power to create money and the ability to collect interest on that money which never existed prior to your signature. How sinister is that? Also, how great of a business model is that where you get to create currency and charge interest for essentially doing nothing? You might come to dislike bankers but they are only doing what we allow them to do.
Life insurance companies do not have the ability to create money out of thin air. In fact, they are the most heavily regulated financial institutions in the country having to maintain complete solvency at all times. Compare this to a bank which only has to keep a fraction of deposits as reserves (hence Fractional Reserve Banking) while lending out the remainder of what is not kept as a reserve, plus the multiplier effect of creating 10x or more in loanable money than what is deposited. Make no mistake, our banking system is the most highly leveraged and inflationary financial system there is.
While we can hope that the Congress will learn the truth about our monetary/banking system, we can actually do something as individuals to work around the Federal Reserve banking system. Instead of repealing the Federal Reserve through Congress, we can simply bypass the "Fed" by creating our own banking systems. This is what a true free market enables free thinking individuals to do which is bypass the red tape and hurdles created by government intervention. Be self-reliant, don't rely on the government for answers and don't rely on the very banks that work in concert with the Federal Reserve under the Fractional Reserve Banking system to rob you of your savings.
John Montoya
JLM Wealth Strategies
www.CashValueBanking.com
Sunday, May 1, 2011
Excerpt From PBS Interview with John Bogle, Founder of Vanguard
John Bogle is the Founder of The Vanguard Group, Inc. He created Vanguard in 1974 and served as Chairman and Chief Executive Officer until 1996 and Senior Chairman until 2000. The Vanguard Group is one of the two largest mutual fund organizations in the world. If anyone can speak honestly about the effect of fees, both disclosed and hidden, that mutual funds have on the growth of mutual fund account values, it is John Bogle. 401k plans offerings are nearly entirely composed of mutual funds.
PBS: So what do you say to the great mass of people who feel terrific about putting away 6 percent a year, with a 3 percent employer match -- that is, 9 percent a year combined starting at around age 35? What do you say to them?
Bogle: You'd better step it up if you're putting 9 percent in at age 35, and you'd better also do some other very significant things. One, you'd better keep [the investment] costs down so you aren't overwhelmed by the tyranny of compounding costs, whatever market return you might get.
... Investors should realize [they] don't get the market return. In a 9 percent market, we all share 9 percent before we pay the cost of financial intermediation, and after we pay those costs, which are about 2.5 percent a year, we get 6.5 percent on a 9 percent market.
PBS: So if I do your average, what percentage of my net growth is going to fees in a 401(k) plan?
Bogle: Well, it's awesome. Let me give you a little longer-term example. The example I use in my book is an individual who is 20 years old today starting to accumulate for retirement. That person has about 45 years to go before retirement -- 20 to 65 -- and then, if you believe the actuarial tables, another 20 years to go before death mercifully brings his or her life to a close. So that's 65 years of investing. If you invest $1,000 at the beginning of that time and earn 8 percent, that $1,000 will grow in that 65-year period to around $140,000.
Now, the financial system -- the mutual fund system in this case -- will take about two and a half percentage points out of that return, so you will have a gross return of 8 percent, a net return of 5.5 percent, and your $1,000 will grow to approximately $30,000. One hundred ten thousand dollars goes to the financial system and $30,000 to you, the investor. Think about that. That means the financial system put up zero percent of the capital and took zero percent of the risk and got almost 80 percent of the return, and you, the investor in this long time period, an investment lifetime, put up 100 percent of the capital, took 100 percent of the risk, and got only a little bit over 20 percent of the return. That is a financial system that is failing investors because of those costs of financial advice and brokerage, some hidden, some out in plain sight, that investors face today. So the system has to be fixed.
PBS: I've got to unscramble what you just said. You said that in the case of the $1,000 invested for 65 years, the financial system is taking 80 percent of the money. But most of us aren't doing that. In the first place, at 20 we're out spending it; we're not putting it away. But set that aside. We're really talking about people who are probably saving from 35 or 40 or 45 at best for retirement at 55, 60 or 65. and they are plunking the money away into 401(k)s. I'm just asking you, in that system, roughly what chunk of it are people getting back themselves out of their gains, and what chunk of that is going to go to the financial system for managing their money?
Bogle: Well, in the long run, it's 80 percent to the financial system, 20 percent to you. In a given year, it's about 80 percent to you and 20 percent to the financial system, so if you look at 10 years or 15 years, you're probably talking about 60 percent to you and 40 percent to the financial system maybe over 20 years, something like that. But the longer the period, the greater the impact of that tyranny of compounding costs is.
Full Interview can be found here: http://www.pbs.org/wgbh/pages/frontline/retirement/interviews/bogle.html
Your 401k qualified retirement plan is not the only plan that exists. It's time you learned about a better alternative that's been around for over 150 years.
To learn about an IRS approved Private Retirement Plan with no exposure to stock market risk and 100% tax-free in retirement, visit:www.CashValueBanking.com and watch the videos.
PBS: So what do you say to the great mass of people who feel terrific about putting away 6 percent a year, with a 3 percent employer match -- that is, 9 percent a year combined starting at around age 35? What do you say to them?
Bogle: You'd better step it up if you're putting 9 percent in at age 35, and you'd better also do some other very significant things. One, you'd better keep [the investment] costs down so you aren't overwhelmed by the tyranny of compounding costs, whatever market return you might get.
... Investors should realize [they] don't get the market return. In a 9 percent market, we all share 9 percent before we pay the cost of financial intermediation, and after we pay those costs, which are about 2.5 percent a year, we get 6.5 percent on a 9 percent market.
PBS: So if I do your average, what percentage of my net growth is going to fees in a 401(k) plan?
Bogle: Well, it's awesome. Let me give you a little longer-term example. The example I use in my book is an individual who is 20 years old today starting to accumulate for retirement. That person has about 45 years to go before retirement -- 20 to 65 -- and then, if you believe the actuarial tables, another 20 years to go before death mercifully brings his or her life to a close. So that's 65 years of investing. If you invest $1,000 at the beginning of that time and earn 8 percent, that $1,000 will grow in that 65-year period to around $140,000.
Now, the financial system -- the mutual fund system in this case -- will take about two and a half percentage points out of that return, so you will have a gross return of 8 percent, a net return of 5.5 percent, and your $1,000 will grow to approximately $30,000. One hundred ten thousand dollars goes to the financial system and $30,000 to you, the investor. Think about that. That means the financial system put up zero percent of the capital and took zero percent of the risk and got almost 80 percent of the return, and you, the investor in this long time period, an investment lifetime, put up 100 percent of the capital, took 100 percent of the risk, and got only a little bit over 20 percent of the return. That is a financial system that is failing investors because of those costs of financial advice and brokerage, some hidden, some out in plain sight, that investors face today. So the system has to be fixed.
PBS: I've got to unscramble what you just said. You said that in the case of the $1,000 invested for 65 years, the financial system is taking 80 percent of the money. But most of us aren't doing that. In the first place, at 20 we're out spending it; we're not putting it away. But set that aside. We're really talking about people who are probably saving from 35 or 40 or 45 at best for retirement at 55, 60 or 65. and they are plunking the money away into 401(k)s. I'm just asking you, in that system, roughly what chunk of it are people getting back themselves out of their gains, and what chunk of that is going to go to the financial system for managing their money?
Bogle: Well, in the long run, it's 80 percent to the financial system, 20 percent to you. In a given year, it's about 80 percent to you and 20 percent to the financial system, so if you look at 10 years or 15 years, you're probably talking about 60 percent to you and 40 percent to the financial system maybe over 20 years, something like that. But the longer the period, the greater the impact of that tyranny of compounding costs is.
Full Interview can be found here: http://www.pbs.org/wgbh/pages/frontline/retirement/interviews/bogle.html
Your 401k qualified retirement plan is not the only plan that exists. It's time you learned about a better alternative that's been around for over 150 years.
To learn about an IRS approved Private Retirement Plan with no exposure to stock market risk and 100% tax-free in retirement, visit:www.CashValueBanking.com and watch the videos.
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