E85: Why Financial Gurus like Dave Ramsey are Wrong

Nate: In this episode we’ll discuss why financial gurus like Dave Ramsey are wrong when they tell the world to buy term and invest the difference, and then how infinite banking can fit into anyone’s financial picture. She’s Holly and she helps people find financial freedom.

Holly: He’s Nate, he makes sense out of money. This is Dollars and Nonsense. If you follow the herd, you will be slaughtered.

Nate: We’ve probably spoken about this before on this podcast, but it seems like it’s been years and it’s still comes up in the in conversations, this whole, well if this infinite baking thing is so good, why do people like Dave Ramsey or Suze Orman or some of these other financial gurus, self-proclaimed gurus, why did they push back on whole犀利士
life insurance and say it’s a terrible thing. A lot of times it’s just based on a bad premise, misunderstandings or just pure ignorance or just pure stupidity. I don’t know. They are so far from the truth most of the time, and today Holly and I are going to dive in and tell you guys the way we see it and really why most of them are just flat out wrong about their advice in this area.

Holly: Well, and I think, Nate, that one of the main keys we want to point out is why it’s fundamentally wrong and why infinite banking is such a vital asset to you for any, like you said, Nate, financial picture. It’s not just about a life insurance policy. It actually literally is about banking and how money works and that those are two very different things that we’re talking about when you buy term and invest the difference versus owning a whole life insurance policy and the flexibility it has with that. And I think the biggest thing that Dave Ramsey and Suze Orman share is motivated most of the time out of fear versus actually out of a knowledge or understanding of which one is actually better for me and how can it work for me versus you got to just go do this because that’s your only option.

Nate: Exactly right. I guess there’s a few points we want to make. It seems like there’s about three main points, so we’ll just kind of dive into those. There’s probably a whole bunch more than we can make, but we’re just going to stick with the three. First off, one of the things I’ve always seemed to have noticed that’s wrong with all of these is they completely missed the point of infinite banking. So first of all, let me just say this. Infinite banking is not the same thing as whole life insurance. Whole life insurance is used in the infinite banking concept for a very specific purpose, very specific policy, very specific type because it helps us become our own banker better than any other tool that we know of. If there was another tool that let us get into the banking business and profit, then we would just use that.

Nate: I want to start this off by saying that infinite banking is not whole life insurance. Many times they can say crap about whole life insurance, but infinite banking, you have to change your mindset when you go into it, because we are not investing money in a whole life insurance policy. That’s already a wrong premise. Remember, we are building a bank. Investing money is typically when you put money at risk, so investments, we have a risk of loss and so you’re putting money at risk, but the money has to stay in the investment for it to earn anything for you. You have to put the money in the IRA, the 401k, the mutual funds, whatever it is, and you have to leave it there for it to generate a return. Infinite banking is not meant for you to stuff money into policy and just leave it there necessarily.

Nate: You can do that and under return, but banking is about money in motion. ne of the biggest issues with buy term and invest the difference is most people say, “Well, don’t buy a whole life insurance policy. It’s too expensive. Just buy term insurance and the difference in the premium that you would have paid to get the whole life insurance, go invest that someplace else and earn a higher return.” Well, once again guys, we are not opposed to you making investments and taking advantage of opportunities that come your way that can achieve a great rate of return.

Nate: We’re all for that. We want you to do that. We’re just simply changing how you pay for it. So instead of just building up cash and sending that to make the investment, build up cash value in a policy and make an investment. Then you don’t just have an investment. You actually have a policy that’s going to continue to compound and grow while your investment is growing. So you get two jobs or a lot more than two jobs for the price of one. So it’s not the investment, it’s just the financing tool, the banking tool to do all the things that we want to do in this life.

Holly: What you’re actually doing is you’re using the policy to then make the investment after the policy has started. I just think that’s so key because then you actually can earn a higher rate of return if you want to by using the investment, but on the same hand you didn’t stop your money in motion. That money never stopped moving and working for you. Just like we know with banks, if you’re in the banking business, they do not let money sit in their bank. In the same way with infinite banking and using your life insurance policy, your money shouldn’t just be sitting. It can earn that interest in tax free growth, but if you can have it earn that as well as use that money to make an investment, then you’ve made a better decision all the way around. I think that we really want you to hear our heart, and please, it’s not saying don’t make an investment. What we’re telling you is there’s a better option to buying term and then investing the difference. You actually can still purchase the infinite banking by using a whole life insurance policy and then still continue to make an investment.

Nate: Exactly right. To kind of recap point number one. Obviously infinite making is not about investing in life insurance. It’s about using a policy in this new way to become your own banker and becoming a banker includes financing your investments with your policy as opposed to cash. We’re not opposed to making an investment. It’s not an either or thing. We don’t have to buy a policy or do this. Almost every single time we can do many things through the policy, just like you would if you had cash, because it is just cash in there. So the first point is, I think they’re just mistaken on the infinite banking concept. “Oh, they’re just leaving money in a whole life policy.” No, the infinite banking is different. It’s not whole life insurance. It’s a process that uses whole life insurance. And that process, we have to kind of change our mentality. It’s not just investing money. It’s not just buying a policy. It’s becoming your own banker. So keep that in mind.

Nate: Point number two, Holly, every single time I’ve heard someone talk about buy term and invest the difference, they always seem to downplay how much a policy can actually earn you and they always seem to hyper exaggerate how much money you can make in the stock market or in mutual funds. I think Dave Ramsey’s the most guilty of this. He always throws some piddly-

Holly: 12%.

Nate: Piddly amount for the whole life… Yeah, 12% is his favorite number for mutual funds, which I don’t know anybody who’s ever made 12% in mutual funds anyway. Even if we were to get rid of point number one that we just made and just say, “Hey…” Even if we were going to invest money in a life insurance policy, they are always downplaying what you can actually make in a policy and exaggerating what people are making inside the stock market.

Holly: They typically always say with a whole life insurance policy, you’re only earning 1 or 2%, and to really actually get to a point where there is a guaranteed rate in a whole life insurance policy, and very rarely is it 1 or 2%. am I right, Nate?

Nate: Exactly. Very rarely.

Holly: Very rarely is it 1 or 2%, but often times, and even most recently, and I’m going to say probably on average in the last even 10 years, I’ll say, it’s at least 4% typically. So use that 4% versus 1 or 2%. But you can find out a guaranteed rate, but the bottom line is it’s consistently saying this is something bad. Yet if it’s so bad, then how is term and invest in it any different? How is it saving you any money? I’d rather have a guaranteed rate, Nate, of 4% or even earning 4%, then an average rate of what the stock market might do, or even in mutual fund. I mean mutual funds are not that high even in the interest rate currently today.

Nate: Oh yeah, not even close. I think that’s a good point, I wasn’t even really thinking about it. It is like comparing apples to oranges. You can’t compare an investment into essentially what savings is, so when savings is very low risk or practically no risk whatsoever of loss, and the volatility of the market, you typically can’t compare those two anyway because one involves the potential risk of loss and the other one does not. We’re already in an unusual territory, but regardless, Holly’s right. Most policies grow over time to about 4 to 5% rate of return, just premiums in, boosting the cash value, and all of that is after all costs. It’s all essentially tax-free because it’s inside the life insurance policy.

Nate: If you run some numbers, and maybe I’ll have to do a video of this to go along with this podcast, but if you run some numbers and you take the growth of a policy at, let’s say, four and a half percent, and over a 30 year timeframe, the question is how much do you have to make inside of a mutual fund or a brokerage account to equal what you’re making in the policy? There’s no way you’re going to find a savings accounts that have an after tax return of 4.5%, so you’re going to have to go invest the money, typically in a mutual fund. So when you get into mutual funds, you’re going to have to pay management fees for the mutual fund managers to manage the money. Then you’re also going to have the cost of the term insurance because it’s buy term, invest the difference, you’re going to own term insurance. You have a cost of the term insurance. You’ve got a cost with the management fees, and if you’re just going into a mutual fund or brokerage account that’s fairly liquid, you can’t put it into a retirement plan if you want to keep it liquid, ready to be used like for things that we use infinite banking to do anyway. You’ve got to keep it liquid, which means you’re going to pay taxes on it since it’s not an unqualified program.

Nate: So you typically have to earn a gross of around 8 to 9% in the market in order to pay the fees better in the mutual fund, to pay for the term insurance costs that you’re now paying, and to pay the taxes on the growth of it. So the question is, is it really worth taking the risk to try and earn 8 or 9% just to end up netting 4.5, 5% that you could get into policy without even having to break a sweat or worry about the volatility of anything? To me, that’s a hard pill to swallow, even if we were just going to call whole life insurance an investment, which we’re not doing and that’s not the purpose of the policy. But even if we were going to dive in in a wrong paradigm, it still doesn’t even make sense. They only can make sense out of it if they glorify the returns of the stock market and very much reduce what people can actually get inside of a policy.

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Holly: You never hear them talking about the fees. You never hear them talking about the cost of the term insurance and what that looks like. All you hear is the promotion of buy term, invest the difference. And yet they don’t explain the overall costs of that or I even say the stress to an extent of having to figure out a set investment that’s going to yield you that 8 or 9% to just make sure you can cover the other costs associated in there and keep that money liquid. I just don’t understand why we don’t ask more questions and yet I also know why they never explain it. You can pull 12% out, but show us something that is that or actually talk exactly about the specifics, comparing it. Nate being willing to do a video means he actually can show you why and infinite banking whole life insurance policy is better, 100%, simply by looking at the numbers and calculating that out versus… You never see that.

All you hear is buy term, invest the difference. And most of us consistently do we want to do that? Yes we might buy a 30 year term policy but most of the time we just buy 10 year or 15 year and then we got to do it all over again.

Nate: Yeah, it’s the normal way.

Holly: And then we’re older, so then we have to spend more money to buy another term policy to increase our cost to just do that.

Nate: And the problem is when the buy term, invest the difference plan actually goes awry, it’s much more problematic than just doing the policy in the first place because as you mentioned, no one would buy a term and if we don’t invest the difference like we should and we just have the term policy and we don’t do a very good job becoming self sufficient and self-insured, whatever that means, becoming independently wealthy on the side of the term insurance, then the term is going to run out and you very well could be uninsurable at that point and you can leave your family hanging or you can be… Health could be problem and just kind of hard to get a policy, or you just won’t have enough money built up to be self-insured or enough cashflow to buy a big enough policy at that point to be able to actually fund what the family would really need if you were to pass away.

So there’s actually a lot more danger, I think, in and buy term, invest the difference if it doesn’t work out or if you’re a bad steward of your own money. Holly even mentioned that, if you were to buy term and invest the difference, you’d probably be okay. I don’t think you’d be better, as we’ve always said, it’s completely missing the point. We could talk about that all day. But even if you were to do it, okay. But most people just don’t do it. So let’s be honest with ourselves, we are living in a society that’s fairly poor with saving money. They’re not very good at it, so it’s a good thought to have, but since it doesn’t happen too much, it can lead to some dangerous situations because then you can be very much under- insured after listening to these people and not have nearly enough money that you need, have a hard time getting a policy due to health reasons that you’ve received in your older age. It could just go awry. It seems like it does open a can of worms that we don’t really want to get into.

Holly: When they’re talking about investing the difference, how many of us really know enough to really know where we should be investing that money and what we should be investing it in. It sounds really great, but most of us don’t even take the time, like you said, because we’re not even typically saving what we should be, that we don’t even honestly understand where and how we should be investing it.

Nate: Exactly. To kind of finish it up, with term insurance, it is just a pure cost. You never get that money back. So just adding an expense to your life, you may or may not be able to make a return high enough to overcome the cost, but either way it’s something that’s going to disappear. No one ever dies with a whole life insurance policy and says, “Man, I wish I didn’t buy this thing.” Like a lot of people wish they had more insurance, whatever it is, even in your 70s and 80s. They wish they had some and now they have a hard time getting them, but having the policy in force and having it started whenever you’re young and it’s really working very well. Even if you are older, as long as you’re healthy, so it looks great.

But regardless, no one ever complains about it. People are worried every day that I have a meeting with somebody who’s getting up there in the upper 50s and 60s and their term insurance is expiring, they’re like, “What am I going to do? I don’t really have enough money to take care of my spouse or to do things that I know we need to do if I was to die tomorrow.” As we know, term insurance gets quite a bit more expensive the older you get, so it can become very cost prohibitive. I just say we avoid that and we dive in and I think you’ll do well.

Holly: I’m going to just second what Nate said. The number of times I have individuals that have a term policy and they want to convert it and the cost of converting it or, “I’ve put all this money in,” feeling like they’ve given an insurance company a lot of money over 10 years or 15 years of their life, sometimes 20. I haven’t seen a 30 year term in a while, but I saw a 20 year that the individual was just like, “I’ve given so much money, I have nothing to show for it, and it’s going to expire, and what do I do?” And the cost just to keep it grew so drastically because of their age that they couldn’t even afford to keep the term insurance, let alone, they really didn’t even believe they could convert it to keep it as a whole life and they just lost all the money. Like Nate said, you have to understand the only way the money’s paid out is if you die, and the likelihood of you dying is very slim compared to the life insurance company having the money to use and cover that. A life insurance company doesn’t sell you term because they think that you’re going to die. They’re betting you’re going to live.

Nate: Exactly. Either way we can talk about it forever on the miscalculations and different things. Maybe I will have to do a video to go along with this, but either way I think that you guys can tell that buy term, invest the difference is not gospel. There’s a whole bunch of holes in it. There’s some issues with it, and if you really want to build wealth, [inaudible 00:19:38] making as a tried and true way, people have been doing it for hundreds of years in whole life insurance and they’ve been using these policies, so don’t get caught up. Infinite banking is not an investment in a whole life insurance. It’s not whole life insurance. It is a system, a concept of using a policy to become our own banker that would include financing other things if you have other investments you want to make. So don’t get caught up in that and don’t believe the hype on the mutual funds or the downgrading of the policies and the returns. If you want more information, you can reach out to us if you’d like, Holly and Nate, feel free to do so. With that being said, we’re going to go ahead and close it down today. This has been Dollars and Nonsense. If you follow the herd, you will get slaughtered.

Holly: For free transcripts and resources, please visit livingwealth.com/E85.