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Archive for April 2009

The MoneyforLife Blog will keep you posted on the progress of the almost century old Shenandoah Life Insurance Company as it emerges from receivership.  What’s important to note is that this relatively small mutual insurer seems to have invested prudently and responsibly based on the support the US Congress gave to publicly held Freddie Mac and Fannie Mae.

Shenandoah Life has limited resources and cannot invest in large scale projects the way the Behemoths do.  It must invest its capital based on generally available information from what it – and most others – would consider reliable sources.  In this case the US Congress and the finance committees of the two houses were “sleeping with the enemy.” They were receiving significant campaign contributions from Freddie and Fannie and, at the same time, were aware of the great risks associated with the lending practices and portfolios of these two Behemoths of the mortgage industry.  The committee power brokers intentionally withheld that information from the public – and Shenandoah Life and its policyholders are part of the public.

While dozens of financial institutions - mainly banks – are failing due to the irresponsible behavior of the entire industry and the failure of the Congress to exercise adequate oversight (not control), Shenandoah Life is the first casualty among life insurance companies. (No, AIG is not a life insurance company.  It is a conglomerate Behemoth that owns life companies.  Those life companies are doing OK.)

The cautionary tale here is that the 31 State Guarantee Associations will protected and preserved the personal wealth of Shenandoah Life policyholders.  The federal folks, who contributed so significantly to this unfortunate failure will beat their chests, complain about executive compensation and divert attention away from their past and ongoing failures.

Stay tuned.

Here’s the Notice of Receivership…

“On February 12, 2009, pursuant to Title 38.2, Chapters 10 and 15 of the Virginia Code, the Circuit Court for the City of Richmond issued an Order that appointed the State Corporation Commission of the Commonwealth of Virginia as Receiver of Shenandoah Life.

Receivership is a protective measure established under Virginia law to protect policyholders in the event an insurer experiences financial difficulty. The Circuit Court for the City of Richmond found Shenandoah Life in a condition where any further transaction of business would be hazardous to the policyholders, creditors, members, and the public. Both Shenandoah Life and the State Corporation Commission determined that the receivership was necessary to protect the interests of policyholders and creditors.

For additional information regarding the receivership, please visit our web site www.shenlife.com, or you may contact Shenandoah Life at 1-800-848-5433.”

by Jeffrey Reeves – youBEthebank.com

An article, Turmoil Spooks 529 Holders, published in the National Underwriter on 4/20/2009 By TREVOR THOMAS indicated a flight to safety by some parents and grandparents that were putting money aside in 529 Plans for the college educations of their children and grandchildren.

This is one more indicator that America is waking up to the reality that Wall Street and the Dolts in DC have been telling us to “save” but that what they are really telling us is to gamble.  Investing is clearly very risky.  Investing that is disguised as saving is clearly a con of the lowest character.  Putting your children’s or your grandchildren’s future at risk based on a con game that you or they cannot win is foolish.

Of course, the con-artists don’t tell you that.  They project 8% gains year upon year and proclaim it the truth.  They ignore actual investor performance history and substitute generic stock market statistics that support their sales proposal.  (Sales proposals are OK when they are sales proposals.  They are a con when they are packaged as sage personal finance advice.)

A truly sage advior told me today during an interview that he makes sure his college funding proposals incorporate cash value life insurance, which is not counted when seeking financial aid, and rely on gurantees that are –>

  • truth based
  • objective
  • verifiable

That kind of advice might just lead to reliable wealth creation and wealth preservation, intelligent legacy planning, and the perfect investment.

You might want to evaluate529 Plans that way, too.

by Jeffrey Reeves – youBEthebank.com

Answer to a Financial Advisor’s Question…

An insigthful Money for Life Guide recently asked…

“There is one concept in the book Money Now, Money Later, Money for Life that I am interested in being better able to more fully understand, teach and implement, ‘Save from income and invest from assets.’ Basically, my understanding is to save from income, purchase assets with savings & leverage, and use the income from assets to replenish the savings…”

Your understanding seems to be basically correct but also contains two assumptions that are alien to The  EUREKONOMICS™ Model for creating wealth and managing personal finances.

  • First, your question seems to assume “leverage” as a part of the investment equation. Leverage–in the minds of most people–implies borrowing from others, so it implies that the source of borrowed money is not under the control of the borrower. The EUREKONOMICS™ Model rests on the idea that individuals and families need to control the money that flows through their lives. When individuals and families borrow from an outside source, they are falling into the Debt Paradigm trap that chants the mantra “You cannot have what you need and want unless you borrow from others to get it.”
  • Second, your question seems to assume that assets produce income. Some assets do not produce income; your home, your car, collectibles, precious metals, and so on. Moreover, some assets that are supposed to produce income do not; GM bonds, most mutual funds, some real estate, and so on.
  • In addition, the unspoken conclusion of that sentence seems to be that the assumed income from the assets would reduce or eliminate the debt created to acquire those assets. (Ask anyone who has been tricked into one of the many get rich quick and easy schemes of the past about relying on formulas based on an ever increasing value of assets.)  There are two malicious Debt Paradigm shibboleths embodied in this conclusion.  The Debt Paradigm encourages having stuff you don’t own and owning investments you don’t control.
  • Other People’s Money – The Debt Paradigm would have you believe that what it calls leverage, borrowing from others, is really “arbitrage.” Not so. Arbitrage is the process of buying in one market and selling in another to take advantage of varying prices [Oxford Dictionary]. A money lender uses arbitrage when it borrows from savers and pays them 3%, knowing that someone else will borrow the same money from the money lender at 6% for a mortgage, 8% for a car loan, or 18% on a credit card. It is not arbitrage when one borrows from a money lender. It’s debt and a burden on the resources of the individuals and families that are borrowing.
  • Assets Increase in Value – No need to belabor this point today. The Debt Paradigm acts on the assumption that 1907, 1929-1942, 1973-6, 1979, 1982-4, 2002-3, 2008-20nn will never happen again or that the investor should only consider the long-term. DUH.

A More Accurate View of Wealth Creation and Financial management…

Let’s take a look at how the EUREKONOMICS™ Model for creating wealth and managing personal finances sees this issue.

Saving…

The EUREKONOMICS™ Model for creating wealth and managing personal finances tells one to save from income.  Saving doesn’t imply investing in a 401(k), IRA, or equivalent plan.  We’ve all seen what’s been happening to the money that Americans ‘saved’ in those kinds of plans.

Saving means putting money in a secure financial vehicle that guarantees a reasonable return for as long as the money remains an asset of the financial vehicle. The   EUREKONOMICS™ Model for creating wealth and managing personal finances calls these savings vehicles Money for Life Accounts.  Generally Money for Life Accounts are whole life insurance policies, annuities, credit union savings accounts, and other savings vehicles with guaranteed interest rate returns.

Investing…

If and when individuals and families using the EUREKONOMICS™ Model for creating wealth and managing personal finances want to invest, they would borrow the money for the investment from their Money for Life Accounts.  The loan would be made with the commitment that the Money for life Accounts would be repaid from income on the same schedule a money lender would impose.

If the investment turns out to be a total bust and all of the money was lost, the owner of the Money for Life Account would still repay the loan and the Money for Life Account from which it was borrowed would be fully restored, including the earnings that derive from interest.  The investment, in other words, would not have damaged the wealth and well being of the individuals and families that made it.

Is Investing Necessary?

Many who follow the Money for Life Model for Creating and Managing a Personal Economy find it entirely unnecessary to take the risk to invest in anything.  They commit all of their money to building multiple Money for Life Accounts to assure that the Four Pillars of every successful personal economy are erected on an unassailable foundation of money that they control.

Jeffrey Reeves

In 1974 the US Congress passed ERISA and began convincing Americans that saving money was a bad idea.  The law they passed convinced us that investing [aka gambling] in an IRA or 401(k) was better than putting our money into guaranteed return savings vehicles.  Americans listened.  Wall Street and the IRS rejoiced.

In 1977 a high school coach convinced thousands of naive amateurs that they were financial advisors and taught them to strip every penny possible from secure whole life insurance policies and – you guessed it  – buy term insurance and invest [aka gamble] everything else in mutual funds.  Americans listened.  Wall Street and the IRS rejoiced.

A few years later one of the Wall Streeters invented a new kind of life insurance that took the money that whole life insurance saved in guaranteed accounts and moved it into accounts that were not guaranteed but that the Wall Streeter could profit from even if the policy owner didn’t.  These kinds of policies destroyed dozens of successful insurance companies and cost billions in  lost savings to American families.  Americans listened.  Wall Street and the IRS rejoiced.

In the ensuing decades Americans listened to advice to invest [aka gamble] in dotcoms, invest [aka gamble] our home equity in all sorts of schemes.  Americans were convinced that carrying debt equal to their investments [aka gambles] made some sort of sense.  Americans listened.  Wall Street, the IRS, and money lenders rejoiced.

BUNK – A THOUSAND TIMES OVER – BUNK!

“THE FACT THAT AN OPINION HAS BEEN WIDELY HELD DOESN’T MEAN THAT IT’S NOT UTTERLY ABSURD.” Bertrand Russell.

America has been listening to the wrong people for almost 40 years.  The results are apparent.  American families and the American government are bankrupt.

You and I can’t stop the Dolts in DC and the IRS from trying to convince us that they can handle our money better than we can, or the wonks on Wall Street from trying to sell us products that make them wealthy and us poor.

We can stop listening to them.  Please, stop listening to the wrong people.  Find old ways of creating wealth, preserving assets, and taking care of your families.

By Jeffrey Reeves MA – youBEthebank.com

ING To Review “Strategic Options” For U.S. Ops; May Shift Annuity Book

Published 4/9/2009, National Underwriter
“ING Groep N.V. wants to reduce the scope of its U.S. operations ‘over time and as market conditions permit’…”
ING is a good company with a solid base in the U.S.  It is not, however, a U.S. company.  For the past few decades insurance Behemoths from Europe have been buying their way into the U.S. market by buying U.S. companies.  These have been strategic decisions aimed at improving both the profitability and the balance sheet of the alien Behemoth.  Insurance and financial Behemoths from the other side of the world are currently eyeing U.S. insurance and financial businesses as potential acquisitions.
If and when an alien Behemoth finds its U.S. operation to be unprofitable and unable to add to its bottom line, the Behemoth will divest its interest in its American business and leave the country.  The adverse effects such a departure may have on American families and other American businesses will be only a minor consideration.
I’m not suggesting that ING or any other alien Behemoth is currently planning to leave the U.S.  I am suggesting that insurance purchases, and particularly life and health insurance products, are based on long-term commitments from both sides.  The stability and commitment of the Behemoth needs to be based on a commitment to America and the U.S. economy.  That is not and cannot be the basis of an alien Behemoth’s commitment, whose country of origin regulates and controls it to a greater extent than the host country does – in this instance the US of A.
I personally choose to write cash value life insurance, long-term care, and annuity contracts with US companies for this reason and because there is no compelling reason to do otherwise.  US companies perform as well or better than their alien counterparts, offer equivalent or better products, and don’t bow to foreign powers or governments.
The wealth creation, family wealth management, and personal asset protection of clients are better served over a lifetime with cash value life insurance, annuities and long-term care insurance from companies that owe allegiance to America and American families first.
If there were compelling reasons to do business of any kind with an alien Behemoth one should be willing to do that.  In the case of life insurance, long-term care insurance, and annuities there is not only no compelling reason to do so, but some pretty darn good reasons not to do so.
by Jeffrey Reeves – www.yoBEthebank.com

This post recounts an email exchange with a credentialed financial advisor.  The content has not been modified but the name has been changed and the credentials eliminated to avoid implying that there is any relation between one advisors opinion and the position that might be taken by the credentialing body.

Stephen,

Thanks for your comments.

Although they do not open a discussion but rather, close the door on dialogue, I am responding in detail.  [As you will likely recognize, Stephen's mind was made up before there was a chance to respond.]

Stephen The Stepford Advisor wrote:

“YouBeTheBank site recommends that individual purchase life insurance policies to accumulate funds which are then used to fund future activities.”

Specifically we recommend that clients purchase permanent cash value life insurance. We recommend further that they choose dividend paying policies from mutual companies. Please, take the time to read further in the blog and you’ll discover that we justify this approach in some detail. Better yet, order copies of Money for Life! How to Thrive in Good Times and Bad by Jeffrey Reeves [that's me] and Becoming Your Own Banker by R. Nelson Nash.  You’ll discover the amazing power of this approach, as many other credentialed advisors have done.

Stephen The Stepford Advisor wrote:

“It fails to mention that the costs of owning the policies will be substantail,(sic)”

There are – of course – costs. Substantial? You might want to define that for yourself first and for your practice second. Many advisors find the approach not only helpful but essential to their practice and do not see the costs as either substantial or burdensome.

There is another aspect of this that you may want to consider. There are many different forms of permanent cash value life insurance available in the marketplace. Some carry a heavy cost burden while others do not. If you don’t know which policy is being used you do not know whether or not the cost is “substantial”. Whole life policies from mutual companies tend to be less costly. Universal lifepolicies tend to be more costly – especially when they are improperly funded.  Term insurance policies tend to be the  most expensive.

Stephen The Stepford Advisor wrote:

“as will the restrictions on the availablity(sic) of cash.”

Again, Stephen, you may not have all of the information you need. My clients can access all of the cash in their policies whenever they want it. There is a bit of a lag – a day or two for processing and mail time – since the request must be made through the insurer. Immediate needs are satisfied with overnight delivery. This is not uncommon for mutual companies that are responsible only to their policy owners and not to shareholders or other outsiders.

Stephen The Stepford Advisor wrote:

“The accumulation of funds should never be done with life insurance as the primary choice.”

My Grandpa told me to “never say never and always avoid always.” Your statement is a shibboleth – an oft repeated mantra that contains no truth but that has been repeated so many times that people assume it must be true. In 1492 the world was thought to be flat.

To a thinking person who truly explores this approach to creating and managing a personal economy, the opposite is true.  Whole ife insurance belongs in the foundation of every personal economy.  That was the opinion of most financial planners prior to the advent of EF Hutton creating UL, A. L. Williams brainwashing amateurs, and Wall Street’s merchants of misinformation misleading America into the  mutual fund swamp beginning in the 1980’s.

For over 150 years, and still today, dividend paying whole life insurance has been and is the single best place to put the money you use as a foundation for your personal economy and wealth building system.

Stephen The Stepford Advisor wrote:

“Individuals who truly fear banks should buy treasury securities instead. There are no costs as a practical matter.”

Nowhere in our blog or our book do we state or imply that you should fear banks. In fact, the practices of Money for Life are based on the banking model. Treasuries, like all investments, are for the limited few who have already established a foundation. In addition, there are always (sorry Grandpa) costs.  Most commonly ignored by Stepford Advisors is lost opportunity cost.

Stephen The Stepford Advisor wrote:

“Yet the fact is, if the bank is insured via FDIC, then for all practical purposes, the initial $100,00 is not at risk.”

True. FDIC insures up to $100,000.00 per account. But, again, we never suggested that money in banks is at risk. Also, are you aware that the 50 state insurance guarantee funds typically insure about $250,000.00 per policy?  Are you aware that no whole life policy holder in the history of the insurance industry in the US has ever lost even one dollar of their guaranteed values? Banks can make no such claim. Mutual funds fail this test.  Stepford Advisors run and hide.

Stephen The Stepford Advisor wrote:

“Almost no one needs that amount of money to fund future plans.”

Of all your comments, Stephen, this is the one that challenges me the least. I’ve been serving clients for over 35 years. During that time every one of those clients encountered a financial need so great that they had to invade their retirement accounts…every one of them. Here are a few situations that demand even larger amounts of secure money.

  • Fidelity Funds reports annually on the unfunded medical expense needs of a couple that will retire in that year. In 2007 that was $207,000.00. That’s the out-of-pocket after insurance payments have been made.
  • Another fund company (Vanguard, I believe) projects the long term care needs of retiring couples – for 2007 it was $350,000.00.
  • One of my best friends has two Down Syndrome children. I expect they’ll continue to need that $100,000.00 almost every year.
  • Kyle was injured in a skiing accident and after months in a body cast, two years of physical therapy, and $125,000.00 in debt he is back to work. Seems each of these adds up to more than the $100,000.00 that “no one needs”.

Stephen The Stepford Advisor wrote:

“You should reconsider your recommendation as it fails every reasonable test of jusgement.(sic)

Stephen, the recommendation and my judgment are just fine.

Moreover, the processes and practices that we talk about on YouBeTheBank.com and TheMoneyforLifeBook and blog are tried, tested and proven to produce results that are guaranteed – a word that Stepford Advisors are not allowed utter.  ”Guaranteed” is entirely legitimate in the context of dividend paying whole life insurance from mutual companies. I can assure you that “every reasonable test” of judgment supports what we teach and practice.

I can further assure you that the advisors who apply these practices in their planning help more people  than those who don’t. One of our understudies (a former Sr. VP with a major, well known international brokerage with a large ad budget) proposed his first case last week to a very sophisticated investment client and it passed “every reasonable test” of judgment for all parties – advisor, client, attorney, accountant and family. Imagine that.

Stephen, I want to end with a word of thanks, again. My mission is to educate and inform.  Your comments give me that opportunity. I urge you to learn more than you know, earn more than you imagine possible, and begin to question the shibboleths.

Financial Literacy in Disguise

Television is a great teacher.  So is the internet.  That’s only true, however, if you pay close attention to the advertising and not the shows that are supported by advertising.

Advertising costs money. Lots of money.  Businesses that can afford extensive TV and internet advertising need to be making lots of money.  Advertising also tells you what’s at the front of the minds of Americans.

Here’s a few of the general business catagories that are currently spending millions – probably billions collectively - on TV and internet ads:

  • Credit repair
  • Credit negotiation
  • Credit watch
  • Bankruptcy
  • Tax mitigation
  • Class action law suits
  • Auto insurance
  • Life insurance
  • Investments
  • Sham WOW! [just threw that in for the fun of it]

It’s All About Selling Products

Of these, life insurance and investment ads bear special meaning for me.  For almost 40 years, I’ve been helping people understand their alternatives when considering insurance and investment decisions.

During those almost 40 years I have studied economics, insurance, investments, and all of the topics that insurance and investment advisors must study to earn and keep their licenses, registrations, and appointments.  I have also studied the various selling strategies that insurance companies and investment houses use to entice you to buy their products.

It’s important to remember that these companies are selling products.   The products are packaged as “peace of mind,” “wealth creation,” “future security,” “best savings account,” or “concern for your family.”  They are still products.

Be Aware

What is a Product

Products aren’t bad things.  However, when you follow a link or respond to an ad that points you to a web-site or a toll free number for advice and guidance, be aware that the company sponsoring the ad wants to sell you their products: life insurance, mutual funds, investment advice [yes, advice is a product whether you pay for it by means of fees or by means of commissions].

Beware of Good Intentions

Often the web sites contain “calculators” that are supposed to help you arrive at a decision, while the advisor on the other end of the toll free number claims to aim at the same thing.  Putting aside good intentions – paving material for a very unsavory place – the result of these calculations and advice will always be the same: “Buy my product.”

The product that the site or the advisor recommends may or may not be your best choice.

  • My expectation, based on experience, is that it is not even close to your best choice.
  • My advice, based on experience, is that you find an experienced advisor that is not affiliated with just one company and that does not ascribe to conventional wisdom – doing what the rest of the industry does because that’s what the rest of the industry does.

Changing Your Mind About Money

Very often your best choice is not goin to be a product at all.  Rather, it is going to be a change in your approach to creating and managing your personal economy and your personal wealth; changing your mind about money.

By Jeffrey Reeves MA, EUREKONOMIST