Wealth Formula Podcast

As we get closer to the end of the year, I know a number of you are trying to figure out how to deploy capital. We will have some opportunities that are not real estate oriented. I also believe that it is a surprisingly good time to consider various life insurance strategies that we have discussed before. I have included the email sent to me on this topic by Rod and Christian and they will be my guest on this week's Wealth Formula Podcast. Make sure to listen in! —————————————————————————— We frequently receive questions about how the recent increase in interest rates will impact the strategies we teach that utilize the combination of high cash-value life insurance and leverage. Interest rate reset First, it's important to realize that rising interest rates are great for life insurance! Cash value life insurance is designed to outperform general interest rates. When interest rates go up, it allows life insurance companies to generate higher returns in their general account, that additional return then passes on to the policy holder. In fact, we're already seeing cap rates on IUL's begin to climb and adjust to the market. This increase in caps will result in a higher overall return inside the policy! In traditional whole life insurance, higher interest rates means higher dividends! It's also important to understand that life insurance companies primarily invest in bonds and notes, the types of investments that are sensitive to interest rates. However, there's a significant difference between an individual investor and an institutional investor. Life insurance companies are able to make considerably larger investments and for considerably longer time frames. We're talking about as long as 40 or 50 years. This advantage allows them to be more selective as to the types of investments they buy and for how long they will lock. In the context of our strategies, the recent increase in interest rates is actually creating a much healthier and more profitable environment for life insurance companies, which of course also means that dividends and cap rates will rise. Interestingly, the effect on loan rates is more short-lived. In many cases, when we run the Wealth Accelerator stress tests for the 1980's, we actually end up with a higher long-term IRR than when we run our baseline projections using a very conservative 2% spread. The impact of higher rates on Wealth Formula Banking If you're not yet familiar with Wealth Formula Banking, check out our webinar by going to www.wealthformulabanking.com. In a nutshell, we build up our investment opportunity fund inside of an overfunded whole life policy. We then loan against our cash value to invest in real estate, business, etc., our money stays and continues to grow inside of the account. By doing this, we're able to double dip, and create value in two places at the same time. This is the perfect time to get involved with WFB, especially if you're one of the many people who have money sitting on the sideline waiting for the right deal. Why let it sit in a checking account or money market account earning nothing, when we can put it in a WFB policy and generate a long-term 5%+ tax-free return? By the way, that 5%+ return is going up with interest rates! Here's a question I'm often asked: If I'm using a loan, and interest rates are rising, what does that mean for the WFB strategy? The good news is that for most of our clients there's a direct relationship between the interest they're paying on their loan and the interest that's being credited to the portion of their cash value that is collateralizing the loan. So, if interest rates keep going higher, the interest rate we earn on the collateralized cash value will keep going higher as well. The Impact of higher rates on the Wealth Accelerator For anyone who isn't familiar with the Wealth Accelerator, check out our webinar at www.wealthformulabanking.com. Briefly explained, we're building an asset using leverage. The individual puts the initial funds into overfunded whole life and/or IUL policies, and then we finance all future contributions to the policy. We're taking advantage of the spread that can be generated by creating higher growth in the policies than what we're accumulating in interest on the loan. The goal is to generate double-digit tax-free returns, which then creates massive future tax-free income and/or income-tax-free funds for estate planning. Many people assume that the rise in interest rates kills the opportunity to create a spread. This couldn't be further from the truth. As we mentioned above, a rise in interest rates creates a huge opportunity! The fact is, with interest rates going up, we're already seeing caps rising within IUL policies. And, although there's a slight lag time with dividends on whole-life policies, those will rise as well. One aspect that I think can help alleviate concern as well is the fact that we carry a healthy cushion in the form of our "Net Equity" value. This represents the amount of extra cash value we have over and above the amount of our loan amount. As mentioned above, our design is built for times like this! In other words, we know there will be times when we will get less than a 2% spread, and even times when we'll have a negative spread. This net equity serves as our buffer for times like that, so that we're poised to take advantage of the times when the spread is a lot bigger than 2%. For example, in 2008, we would have cut into our buffer a bit because the market dropped and our IUL wouldn't have produced a return in that year. However, the next 10 years would have averaged a lot higher than a 2% spread, with interest rates so low and the market growing so much. As a side note, we've also had people express concern about getting into an IUL policy while the market is down. Before we answer that, let's be clear that due to the long-term nature of the strategy we don't try to time the market. However, if we can choose, getting started when the market is down makes a lot of sense! We get to start at that lower market value, and ride the wave of the recovery.

What makes for a highly successful entrepreneur or investor? It is the appetite for calculated risk. As Bruce Arians, coach of the Tampa Bay Buccaneers famously says, "No risk it, no biscuit". In entrepreneurship this might be more obvious. You probably know entrepreneurs who took risks by leaving their day job and pursuing a business that they KNEW was going to be successful. I'm one of those guys. In my case I got fired from a job that helped accelerate the development of my first business. But the next one was even riskier. Why was it riskier than the first? Well, when I started the first business, I had nothing. By the time I started the next business, I had a lot to lose. But I remember playing out the business model in my head and feeling like, "This will work". In my mind, there was no risk…only upside. I know that sounds reckless but that's the way young entrepreneurs must think to create successful businesses. In my case I was right fortunately. That next business did extremely well and took me to another level. Of course entrepreneurship is different from investing but there are some similarities. Again, it's not hard to hit singles and doubles. But in order to hit home runs, you have to be willing to take some calculated risks. Often there is asymmetric risk where the upside is huge but there is a possibility of losing it all as well. Some of you have already experienced that for better or worse in the world of cryptocurrency. The bottom line is, "no risk it, no biscuit". Ordinary investing will yield ordinary results. If you strive for more, you have to train yourself and your coronary arteries to be ok with risk. No one knows that more than my guest on this week's Wealth Formula Podcast. He has served as president and/or CEO of multiple major brands that you will recognize and is known for his unconventional approach for high performance through strategic thinking. Listen here to learn how to jump first and think fast!

The last 15 years have been a game of chicken between the Federal Reserve and the financial markets. Think about the old movies where the kids would speed in their cars towards each other until someone decided to quickly turn out of the way and avoid collision and certain death. Similarly, the financial markets and the Federal Reserve have been trying to figure out who would chicken out first for the past several years. Let me give you an example. Despite COVID shutting down the entire country, the asset markets (after quickly blinking) went sky high. Why? Because investors knew that the Fed would come to the rescue and they did. Rates dropped to zero, quantitative easing controlled the bond markets and all of that helped to embolden investors and reinforce the concept that the Fed will always come to the rescue. If you were at a Casino, wouldn't you keep playing if the house guaranteed you wouldn't lose money at the end of the night? That's the way investors came to see the Fed—as an insurance policy. So then we got this inflation thing because of the massive amount of helicopter money injected into the system and supply chains creating huge demand. Of course, the Fed started raising rates again. At first, the markets shrugged it off. Playing chicken again. Then the Fed showed some cajones and kept raising rates and now all of the sudden it's not quite as clear if they will blink first. The Fed has been clear about getting inflation under control. They know it has to be done. That's finally getting through to some investors…or is it? We also know that we can only raise rates so much because of sovereign debt issues. And what if we end up in a massive recession because of the rate increases? Many investors think that's exactly what's going to happen. The moral of the story is that there is now a well-established disconnect between the economy and financial markets. The question is where does this all lead us? Dr. Nomi Prins is one of the smartest financial authors out there and she's just released a new book on this very topic. She's going to tell about this great distortion and what it means for us in the long term. DO NOT MISS THIS SHOW!

If you made it out to our event last weekend I want to thank your for taking the time to prioritize our meetup. And if you were there, I'm guessing you were not disappointed. We had a few familiar faces in the morning talking about taxes and asset protection and some great presentations around asset allocation, the economy and bitcoin mining. But what I think really blew people's minds were the talks on longevity by Dr. John Foley and Dr. Rob Hamilton. This is something we are going to do more often for sure given the response we have gotten thus far. These meetings are also great in that I get to see what others are doing. I am in a bubble sometimes in Montecito behind my computer screen and there is nothing better than going out to meet people of like mind. There are people in our community who are doing amazing things and it's fun to hear their stories. It's even more fun for me to hear that I've made a difference in someone's life. Dr. Irene Lambiris was supposed to come to the meeting but ended up having to put her doctor hat on and miss it. I was bummed because she has a great story. And if you are up to hear about how a young female physician is kicking ass in the investor space, you are going to want to listen to this week's episode of Wealth Formula Podcast!

Boring is Good when it comes to investing. I've started hearing others echo that sentiment lately. I'm not sure if I had something to do with it but I'm glad that message is spreading in the podcast ecosystem. A decade ago, I used to be perhaps the busiest cosmetic surgeon in Chicago. I worked hard and got great results. And you know what…when the economy was good, I was crushing it. It's how I made my first million. From the outside, the cosmetic surgery field is glamourous and sexy. So are medspas that do botox, fillers and laser procedures. I can tell you from insider knowledge, however, that it's hard to make money in these fields unless you have a competitive edge over others. Mine was marketing and a tendency to go overboard on ad spending that would clog the coronaries of most of my fellow surgeons. That said, when the economy goes south, those beauty procedures become less important than food, shelter and the rest of the necessities of life. That is when boring prevails. Boring businesses involve unsexy things like cleaning, or selling widgets or widgets that make widgets. People need this stuff no matter what the economy is doing. Most of these kind of businesses exist in the background though—places where most people would not know to look. But if you can find these golden nuggets, you could make a fortune. A good example of the boring widget concept is the computer chip. Computer chips are critical in society today and the companies that make them are massively profitable despite not having the appeal of a brand like Apple. Just think about all the computers, cell phones and numerous other forms of hardware that MUST have computer chips to help our modern day society function. Computer chips have become commodities in world trade and are literally dictating global politics and even military strategies. This week's guest on Wealth Formula Podcast is an expert in this area and is going to tell you all about this massively underrated commodity.

I guess by now you've heard—we've got some inflation problems in the United States and globally and Central Banks are going to continue to ratchet up interest rates in attempts to reverse the tide. But wait a second. Why inflation now? Didn't we print billions of dollars over the last 15 years or so? Why didn't we have inflation then? Well, we kind of did actually. We've had historically low interest rates and quantitative easing since 2008. This kind of "money printing", however, does not really benefit the common man. Low interest rates don't make bananas cost more. But they do make stocks, real estate, and other assets soar in price. Ahh…so that's where all the money went. Well, let's not pretend we as investors did not benefit from this asset class inflation. We did. And of course, banks and institutional money benefitted even more. But again…the common man did not benefit from the usual money printing methodology. Arguably they weren't hurt too much either. But they are getting hurt now because inflation has drifted from the markets to the price of food and energy. Certainly, there are a number of reasons for this. But, there is one precipitating factor that I believe began the process of shifting inflation to the main street. Before the pandemic, NONE of the efforts by the Fed or fiscal policy put money DIRECTLY into the hands of people who spend it. Of course, that all changed when businesses shut down and the government sent everyone money via parachute. Now don't get me wrong. I know we needed to do that. People had to put food on the table. But I do believe that this is where the shift of inflation to the consumer began. Then you layer on screwed up supply chains and high demand for everyday stuff and of course you're going to have high inflation. And now the Fed is raising interest rates with a vengeance to try to snuff it out. Will it? A recession and high unemployment probably will. But we have high wages, very low unemployment and continued supply issues. Raising rates doesn't seem like it would help with those problems. Anyway, I'm no expert on interest rates and inflation but my guest on Wealth Formula Podcast this week is. He's written a book on it. Make sure to listen to the show and try to figure out how you might potentially benefit from the economy today.

Have you heard of the Financial Independence, Retire Early (FIRE) movement? The movement is defined by extreme frugality and extreme savings and investments in hopes of retiring early and living on small withdrawals of accumulated funds. The general rule of thumb is to live on only 30 percent of your income and invest the rest. So, if you make $300K per year and are in a tax bracket of 40 percent you would be living on $54,000 (less than 5K per month) per year after taxes in hopes of retiring a few years earlier. There is nothing special about the investing patterns for these individuals. They typically invest in a very traditional way through ETFs. The hope is that the market will keep going up and allow for 3-4 percent withdrawal for life at some point. What's particularly interesting to me in the physician community is that the FIRE people are rather militant. They mock other physicians with nice cars and homes. It's so weird to me. Should you consider this kind of lifestyle? Well, personally I would not. It doesn't sound like a lot of fun! And frankly, the militant FIRE people don't sound like much fun either! To be clear, I probably do invest close to 70 percent of my income per year. But that's because I make a lot more money than I need to have fun. In my opinion, that should be the goal—not to deprive yourself of Starbucks in hopes of living an austere retirement. So what if you are in a position where you are not quite financially where you want to be? Can you still enjoy some of the finer things in life? Buying a nice home in an area that will always appreciate is really an investment over the long term. What else? Well, one of my good friends only buys expensive vintage furniture for his home. Is that a waste? Well, the furniture he bought 5 years ago has significantly appreciated in value. This is the same friend of mine who has made a killing on buying and selling vintage cars. My friend helped me understand the concept of living and enjoying the fine things in life today and actually profiting from it. It's really quite genius. Bottom line is that if you can enjoy something really nice and effectively not lose money over time, you are winning. So can you do the same? Can you buy the cars and watches you want and potentially make money? My guest today on Wealth Formula Podcast has built an entire platform around this concept and it's something you might seriously consider for yourself. Trade in the FIRE movement for the BEAST movement: Buy, Enjoy, Appreciate, Sell/Trade. I think you'll have more fun.

First of all, if you have not signed up for the next Wealth Formula Meetup, you should do so NOW. This is going to be a very cool event. We are going to do personal finance talks in the morning like we usually do with lessons on taxes, asset protection and real estate. We are also going to get a big-picture macroeconomics talk from a guy who ran a sovereign wealth fund in the Middle East and an MIT-trained electrical engineer will give us a preview of a very exciting wind energy play as it relates to bitcoin mining! The afternoon is totally new and should be super fun. We will be talking about longevity and lifespan. I believe the first person to live to 150 years old has already been born. And I also believe that most of us have a really good chance of living to 100 and feeling like 50. Why? The science and technology behind longevity is moving at light speed. Some believe that "Longevity Escape Velocity" will be reached by 2030. In other words, the ability for people to essentially become immortal may be near. One thing is for sure. The idea of chronological age dictating your health and wellness will be redefined in the coming years. In fact, it already has and you need to know this stuff so you can implement these things in your life TODAY! That's exactly what we are going to talk about in the afternoon. Or…you can go on a bus tour like previous events. Your choice! People have a really hard time with getting their heads around new ideas like this—an entirely different paradigm which I believe we are on the precipice of. We live in our own reality that influences our cognitive biases. The reality we live in does not include people living to 150 and beyond. We think of ourselves as middle-aged in our 40s and 50s. But technology always sneaks up on us and provides us with a reset of our reality every few years. You probably are old enough to remember the days before the internet and cell phones. Some of the things we see today would have been downright futuristic just a decade or two ago. Furthermore, the concept of cognitive bias is bigger than technology. It affects everything in our life. We perceive the way we perceive because of our biases. What's interesting to me is that with social media and different kinds of political channels, there is a divergence within our population of what that reality is. I've never seen that before in my lifetime. That said, it is important to recognize your cognitive biases and try to add rationality—especially in the world of investing. My guest on Wealth Formula Podcast this week is an expert on cognitive bias and has written a book on how to overcome them to make the right decisions in your own life. Make sure to listen now! P.S. Sign up for our meetup HERE!

When I was growing up, the Republican Party stood for small government and free trade. Democrats were apparently on the other side of the table. Maybe it is an incorrect generalization, but one thing is for sure…neither party supports real free trade anymore. Why? Well, I think it stems from an overriding trend towards nationalism. The problem is that free trade is actually very beneficial for economies. Over the past several decades no other country has benefitted more from free trade than the United States. There are many benefits to free trade. Obviously, you have a greater variety of goods to choose from. Free trade allows for the maximization of resources and makes them more efficient to allocate. It also promotes efficiency in production, improves employment (net effect), and finally, allows us to keep the cost of stuff we consume way lower than it would be if we didn't have free trade. Just imagine what we would be paying for clothes without China! The body that regulates global trade is the World Trade Organization. And, as you can imagine, nationalistic forces have rendered it less effective than it was. To discuss the benefits of free trade and the health of global trade today, I had the opportunity to speak with one of the founders of the World Trade Organization, Congressman James Bacchus. Make sure to tune into this week's Wealth Formula Podcast and learn about the world trade organization, the current trade environment, and some potential solutions to the trade problems of our time. Listen HERE!