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Compounding, Cash Flow, & Policy Loans

 

COMPOUNDING

 

How does compound interest really work? Albert Einstein famously said that “Compound interest is the eighth wonder of the world. He who understands it earns it… he who doesn’t… pays it.” Compound interest is interest on the principal amount plus whatever interest has already accrued. Put more simply; compound interest is interest on interest. This is how people generate true wealth. It is how Warren Buffett has been able to amass such a fabulous fortune over the years. There is a true compounding effect with Cash Value Life Insurance. The marginal growth increases every year guaranteed with dividends and interest.  The market can go up and can go down, but this investment will continue to grow at an exponential rate, guaranteed.  That is a big relieve for real estate investors in a volatile market.  Safety, guarantees, liquidity, use, and control.  These are cornerstones of Cash Value Life Insurance and this is available to you and me.

There is a myth about compounding.  If you are in a volatile system with market based investments like stocks, that can go up and down, there isn’t true compounding.  The only true way to get compound growth is if you are in a truly guaranteed investment like Cash Value Life Insurance where you know for sure every single year that the investment will grow, that is where true compounding comes into play.  When you invest in other forms of investments, you end up breaking up that growth curve and then you have to start over again.  When an asset depreciates in value, it takes longer to recover, slope is steeper to climb back up.  If you have a 25% decrease in an investment, many people mistakenly think you will need to earn a 25% rate of return to break even.  That isn’t true.  You need a 35% return to recover from a 25% loss.  With a life insurance policy there is no lost opportunity cost because the full cash value is working for you.  It is still compounding and earning dividends. This is an asset and it never stops growing.  As I write this book, we are sorting through the fallout of major recent market fluctuations, coronavirus etc. We don’t ultimately know what is going to happen in the market day by day.  If you are ready to retire this year, market fluctuations could severely affect your cash flow.  However, with safe harbor, and guaranteed growth, you have safe money that never stops growing.  In down markets, people with these plans are MAKING money.

This is the Safe Bucket mindset: you want this in your portfolio. The key here is the term “uninterrupted.” When returns are uninterrupted over time, they grow at an exponential rate. However, when returns are “interrupted,” that is, they fluctuate up and down over time, this incredible power loses its affect. That is why when you invest in the market and earn an average return of 7%, you aren’t actually earning 7% year over year. You are actually earning less in real terms, because the returns are interrupted by volatility and fluctuation. We help people earn a steady, uninterrupted ~5% return year over year by harnessing the power of uninterrupted compound interest. And this is completely without market risk. The markets rise and fall, but you continue to earn ~5% year over year, no matter what.

 

CASH FLOW

 

For real estate investors, it is more important to have cash flow.  Talking heads and gurus talk all about net worth.  But if your net worth can’t produce significant cash flow (2008 banks – no lending), It’s money you cannot really capitalize on.  That’s what I love about real estate: the cash flow aspect of it.  Cash flow is more important than net worth. If it’s not liquid and its tied up, what real good is it going to do you?  Looks good on the balance sheet but that is not the point. This secret is all about leveraging Cash Value Life Insurance to systematically create cash flow sources that don’t interrupt the sequence of return of your money.  Take the money, while growing the money at the same time.

For a real estate investor, cash flow is king for growing wealth. Cash Value Life Insurance is one of the only tax-advantaged financial products that can be used in buying real estate. This quick and easy access to capital is what makes this type of life insurance a powerful tool. The cash value never goes down as it is noncorrelated to market fluctuations, so it is a much better tool than a savings account that barely earns any interest. With dividends and interest, cash value in a life insurance policy can pay ~5% annually. Using cash value in a life insurance policy is similar to taking a Home Equity Line of Credit (HELOC) from a home. However, the key difference is you do not need to “apply” for a tax-free loan from a life insurance policy to be “approved.” It is yours for the taking whenever you need it. There are no origination fees, and the interest is paid back to you, not a financial institution. You get to be your own “bank” so to speak. Utilize the cash value of your life insurance policy to turn around and invest in real estate. With non-direct recognition, you can grow your money while using it to invest in real estate at the same time.

I for one would rather have access to capital over a higher rate of return any day of the week and twice on Sunday. Far too many investors chase returns without a second thought to how they are actually going to access that money down the road. Let’s assume an investor earns a high rate of return in a 401(k) over their working years. When it comes time to take the money to live off, they are subject to Uncle Sam’s tax rate to calculate how much they actually get to keep. With trillions of dollars of Coronavirus Stimulus printed, underfunded Medicaid and Social Security, taxes have nowhere to go but up. When it comes time for this person to distribute, they are destined to lose a large percentage to taxes. What if I told you that instead of suffering this fate, you could take your money tax-free as many times as you want, and forego the tax calculation entirely? That is how this system creates massive value for investors.  The tax free nature of policy loans allows for greater cash flow.  Instead of simply enjoying cash flow in your real estate ventures, you can take advantage of cash flow from you Cash Value Life Insurance policy as well.  This is the concept of double dipping.  This is the elimination of opportunity cost, because the money is doing more than one thing at a time.

 

Unstructured Loan Repayments

 

You want to learn how loans work before you borrow. Many people leverage debt to fund major purchases they wouldn’t normally be able to afford, like a home or car etc. And you can do this the traditional route with all the pitfalls, or you can leverage the power of life insurance to avoid all of the pitfalls. How do loan repayments typically operate? If you take a loan from a bank, or take a HELOC, you have a structured loan repayment. The bank wants to ensure they get paid back, on a fixed schedule. And if you do not comply with their rules, you risk defaulting on the financing. There is a fixed term, that is, the amount of time that the loan lasts. When you take out a loan from a bank, you must pay back the borrowed amount plus interest and sometimes fees. Each monthly payment is divided into two parts: a portion goes to principal, and the other portion goes to the interest you are accruing on the loan itself. You need to get “approved” and actually qualify for a loan. In a life insurance policy, you don’t need to get “approved” or have to “qualify.” It is guaranteed. When you take a loan from cash value life insurance, you don’t have to pay the loan back on any fixed schedule, and you pay YOURSELF interest instead of paying a bank interest. You are basically borrowing against your future dead self, i.e. the death benefit of the policy. If you die after taking a loan, the death benefit is simply reduced by the amount of the loan. This is the essence of being your own “bank.” When you take a tax-free policy loan against your underlying capital, you pay it back at your own pace. You don’t have a deadline that you have to make a payment on the first of the month or the 15th. You decide how and when you want to pay it back.

In conclusion:

Why is this important? What does this mean for you? How is this a benefit over traditional finance advice you hear from the talking heads? At the end of the day, chasing returns just doesn’t cut it anymore. The power of compounding gets taken out of the equation with the fluctuations of the market that interrupt steady returns. Taxation eats away at the actual capital you have access to in many cases. High fees also erode your wealth. It is time for a smarter system. Cash Value Life Insurance is the answer to these problems. Tax-Free distribution. Guaranteed Growth and Compound Interest. And many, many more benefits. Our dedicated team of advisors are excited to offer a free one-on-one consultation to help you get started.

Schedule A Free 30-Minute Consultation

Our Financial Expert Advisor will personally reach out to answer all of your questions.

Schedule a free 30-Minute Consultation

Our Financial Expert Advisor will personally reach out to answer all of your questions.

Our Support and Sales Team is available 24/7 to answer your queries

Our Support and Sales Team is available 24/7 to answer your queries

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