E231: Should I Use Infinite Banking Policies To Fund All My Investments?

In this episode, Nate Scott walks us through the types of investments that make sense to fund using Infinite Banking policies and those that may not be a good fit. He explains why investments that produce cash flow, like real estate, private lending, and business expansion, work well with IBC. On the other hand, long-term passive investments, such as retirement programs and stock market investments, may not be a perfect match for IBC. Nate also mentions the option of using policies to repay any debts and highlights the importance of understanding your financial goals before deciding how involved you want to be with IBC.

Key Takeaways:

  • Investments that produce cash flow, such as real estate and business expansion, work well with IBC policies.
  • Using IBC policies to fund investments allows you to repay policy loans and reuse the capital.
  • Long-term passive investments, like retirement programs and stock market investments, may not be a perfect fit for IBC.
  • Using policies to pay down debt can provide a guaranteed rate of return.

Episode Resources:

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What is Infinite Banking

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Nate Scott [00:04]:

Not every investment is a perfect match to fund from your IBC policies, but some investments are like a match made in heaven. So in this episode, I’m going to dive into what investments make sense to use your policies to fund and which ones would make sense to avoid. I’m Nate. I make sense out of money. This is Dollars and Nonsense. If you follow the herd, you will be slaughtered.

Nate Scott [00:34]:

Everyone, welcome back to the show for this week. It’s so fun to be here talking about one of my passions, infinite banking. And as we dive into this episode, you know, a lot of times whenever people get involved with infinite banking, there’s so many things to like about it, and then there’s so many things to have questions about, and it can seem too good to be true. And you’re like, I like it, but what even is this thing? 

And one of the areas that a lot of people really start to get plugged into is the idea that building these policies and then using them to make investments that you’re going to make anyway produce value in two places. Like this is a big thing. This is a reason why a lot of us are very attracted to IBC, is that we use these whole life policies as our capital warehouse, and we borrow against those policies to fund our lives, which would, of course, include investments. 

And those investments produce, return, and kind of flow back into the policy. And we really use the policies as the bank. That’s IBC 101. What I found, though, is that not every investment is like a perfect match to fund from your IBC policies.

Nate Scott [01:37]:

Some of them make a lot of sense. Some of them don’t make as much sense to use policy money to go do. So that’s what we’re going to dive into today. I want to talk about the main investments that produce the most values you use from policies, and then some that could be avoided. 

With that being said, I’m going to dive into this, too. This can be helpful to someone who’s kind of starting out, who’s trying to figure this whole infinite banking thing out and see if it makes sense for them. 

The honest truth is that whenever I talk about the investments that maybe don’t really match well with infinite banking, if those are the ones you actually like, those are the ones you want to put all your money into, then it’s likely doing infinite banking on a big grand scale, like funneling a lot of your money through policies and funneling a lot of money out of policies. Doing it on this big scale could actually maybe not make sense for you.

Nate Scott [02:28]:

Maybe you would start actually on a smaller scale and not even use your policies to fund the investments that you may want to get involved in, and just use your IBC policies to kind of do smaller scale things as just like a small capital warehouse. So just understanding that there’s a spectrum of people that get involved with IBC. 

Some people, they get involved and it makes sense to go all in. Some people get involved and it doesn’t really make sense to go all in. And there’s this big spectrum that exists. Part of it really is what you’re wanting to accomplish with your money will determine what scale you should do IBC at. And by the way, we have a video called the four stages of IBC that you can watch on our YouTube channel, the four stages of IBC. I’ve talked about it many different times.

Nate Scott [03:10]:

That’s probably the best video for understanding what I mean when IBC can be operated at different stages and which stage, either a big stage or a little stage, should be dependent on what your goals are and the outcome you want to get out of it. A lot of that has to do with what investments you’re hoping to make and whether those should be run through a policy or not. 

So let’s go ahead and dive in. So we’ll start with the ones that the IBC policies work really well with. And it’s actually not going to be a surprise for most of you. Like what I’m about to say, you’re probably going to get it pretty easily. But IBC, infinite banking and using policies to fund things, anything that produces cash flow is like a match made in heaven. It’s a perfect fit.

Nate Scott [03:52]:

For what policy, for using policy to fund. So things that are super common are, of course, things like real estate, things like private lending, private equity investments that produce cash flow, things like investing and expanding your own business, all of these things are what IBC meshes so well with. Because in the world of infinite banking and using policies, whenever you’re going to take a policy loan to fund an investment, it just makes the world go round. It makes a ton of sense if that investment produces cash flow, which can be used to repay the policy loan to build more capital up and then go use it to fund the next investment. 

And so if you’re in business, this can make a lot of sense in many different areas, because anybody who’s in business needs capital, especially a capital intensive business needs capital to run the operation, to buy new equipment, to expand things. Maybe you’re buying new businesses, maybe you’re adding things to the business, things that cost money. 

But the goal of spending the money is to end up earning more cash flow. And so people who are in business are naturally attracted to the infinite banking message because they understand the need to have capital to be able to expand the business and then have a place to store cash flows. And voila. 

Nate Scott [05:14]:

IBC is just better than doing it inside of a bank account. And so things that produce cash flow, like business, as I said, or just things like real estate, things that if I take a policy loan out and I use it to fund this investment that I want to make, let’s say, in the world of real estate, if that investment produces cash flow, it makes my life easy, because I can just use that cash flow to funnel back into the policy and go reuse the money as it accumulates again to the next thing. 

And even private lending is super common. Like, of course, for those of you who’ve been around for a long time, you know that Ray Poteet, who founded our company, he was probably one of the best in the IBC community, probably like the best private lender know, had built a multi million dollar lending company making private loans. And that was his investment of choice. I personally don’t love private lending as much as I like equity investments in different assets. But that’s what we’re saying is there’s so many.

Nate Scott [06:12]:

Every investor, every person who’s going to get into something new or is already involved in something, the goal is just to become good at whatever it is you want to get involved in, whether it’s private lending or real estate, or private equity investing, things like that. 

So, to sum that up, the things that you really want, using IBC to achieve something that produces cash flow is always the bread and butter that should instruct you, by the way, that if you are somebody who’s looking to buy a business, build business, or already in business, are a real estate investor, or want to be a real estate investor, or want to go into things that produce cash flow, then using policies as your funding reservoir would make a lot of sense. 

You would be a good fit to receive a good outcome from using policies to do those things. And so, anything that produces cash flow is like a match made in heaven. A perfect fit. I’ll mention one more thing in that is that a lot of things that produce cash flow real estate may have kind of a compounding appreciation going on while it’s producing cash flow. Same thing with business, but for a lot of people, they’re doing it for the cash flow. But what’s nice is that if I pull money out of my policy to go invest in something that produces cash flow, I’m getting cash flow income from that investment.

Nate Scott [07:36]:

But maybe I’m not getting very much compounding occurring over there, I’m just getting the income. Well, if I use that income to roll back into the policy, hey, that policy has actually been producing compounded interest the entire time internally in the policy to begin with. So it’s just a perfect match. I’m saying you have like kind of a compounding growing asset over here that we leveraged to go purchase a cash flow producing asset, and that cash flow gives us income. 

And if we just roll that back into our banking reservoir policies, then we have kind of this best of both worlds already built in. And so it’s just a match made in heaven. It’s a perfect fit. The same thing, by the way, could be said even if it’s “not an investment”, but even like paying down debt that you don’t want to have around anymore, bad debt, recapturing cash flows, in other words, borrowing from a policy to go use to do something that you’re already diverting cash flow to do that, we can then resend the cash flow that used to be going somewhere else back into the policy.

Nate Scott [08:32]:

So, like paying down credit card debt, or bad debt or high interest debt, or all of those sorts of things, or just debt that you don’t want to carry around, even if it’s like car loans or mortgages, things that you just want to get off the books completely, you can redirect the cash flow back to the policy, and it’s kind of a perfect fit. 

That might not be a typical investment, but hey, anytime you pay down debt and you choose to take that cash flow that used to be going to the debt, and you use it to pay back you, you’re technically making a guaranteed rate of return on whatever the interest rate the debt was charging you that you’re now able to pay yourself back. It’s kind of a guaranteed rate of return. 

So it is a form of investing, there’s no question. But with all that being said, those are the things that fit perfectly. The things that don’t fit perfectly to fund from policies by default are the things that don’t produce cash flow. And so here is an interesting take on this that not everyone maybe would say. Clearly, anyone who’s been around infinite banking for very long understands that the policy itself is not supposed to be the investment. It’s supposed to be a profitable, valuable financing tool, banking tool.

Nate Scott [09:38]:

It makes you money maybe similarly to an investment, but it’s not supposed to be the investment itself. We can then leverage policies to make real investments. And the reason I bring this up at this moment in time is that we actually have clients who maybe would never make an investment at all to begin with, who are loving infinite banking, who love being able to save and just store a lot of capital up, using policies for the things of life just in general. 

Without having to, and just living a simple life the way like Nelson Nash would describe whether you make an investment or not, just simply becoming your own banker, using your savings to build policies, and then borrowing from policies anytime you need money, as opposed to going to banks and just living this stress free life where you’re know, putting any money at risk of loss, it’s all guaranteed to grow inside of these policies, and you just go on your merry way. 

You don’t have to make investments to become an infinite banker. So if you want to go into that safe world and just do IBC on a more personal scale, that’d be great. If you are an investor that’s investing in things or want to be producing cash flow and alternative investments, that’d be great. Here’s the kicker, though.

Nate Scott [10:58]:

If you are somebody who actually really loves long term passive investing, appreciation-based long term passive investing, it gets really wonky to use policies to do things like that. So things like inside of your 401K or inside of your IRA, or mutual funds and stocks in general, if those are things that you really like and you want to be putting a lot of money into, the question that it poses is, well, where does IBC really even get involved? 

So let’s say someone is putting 20 grand a year into a brokerage account because they really want to be involved in the stock market. Maybe they’re investing in the S&P 500 or something, some sort of index fund, and they hear about IBC and they start to learn about it, they go down this path. 

They think it sounds great, but they’re not interested in getting into real estate, getting into business alternative investments, cash flow producing investments. If you’re listening to this, you actually just want to continue to have a lot of market exposure. 

You love that aspect of your life, and you’re trying to figure out what to do with your $20,000 a year of cash flow that you’ve been just funding into, let’s say the stock market, and you’re trying to figure out, well, should I take my 20,000 and put it into a policy and then borrow money out of the policy to go give it to the brokerage account and just let it sit there for the rest of my life. 

And so every year I put in 20,000 to my policy, and every year I pull out a maximum loan and I use it to go sit in the brokerage account. And there’s never really an expectation of taking money out of that account to ever pay back the policy, or there’s no cash flow being produced that would fund back into the policy, and we’re just going to leave it in this brokerage account for forever.

Nate Scott [12:54]:

What we’re saying is, yeah, there might be some value to doing that. There might be a reason why, there can be– By the way, I think maybe some of my clients may be listening to this and are kind of in that boat where maybe they are trading stock options and doing some active trading, or maybe it’s in bitcoin or something like that. 

And the reason why they would run it through policies first is because they want to be able to have the option to sell out of that reservoir of money, let’s say it’s bitcoin, crypto, S&P 500, something like that, and roll it back into policies. So they say, okay, it makes sense, I’ll run it through the policies. If I’m getting great returns and don’t want to move any money, I’ll just leave it out there. But if I want to, I’m doing this because I want the option to be able to go move the money out of the brokerage account back into the policy. And so you can see some reasons it would make sense, but at the end of the day, we would say that that is not a perfect match.

Nate Scott [14:00]:

If you are going to fund policies and then take max loans every year to stick it someplace that is not going to produce any sort of cash flow, that’s going to come back into your banking system. And I just funnel 20 grand into the policy. I funnel from the policy 20 grand to the investment, and there’s like a loan accruing at the policy with interest, and I don’t have any cash flow to pay that. 

So we’re just going to let the loan accrue in its balance and just pay the premium every year, take Max loans and leave all the money in the brokerage account. And what we’re saying is, this is no longer a match made in heaven. This is why I’ve always said that there’s a spectrum of people that exist. Some people, by nature, are going to be very, very compelled by the benefits of building their own banking system through policies. And some people comment on this YouTube channel about how stupid IBC is, and they’re the ones, of course, that it’s not for everybody.

Nate Scott [14:50]:

First off, I tire, by the way, of like a YouTube commenter or somebody that says that IBC is a scam. I’m just making sense. I’m like, well, time out. It produces a lot of value for the right people. And if you are on the other end of the spectrum, that is not going to be in business. That’s not going to go look. It’s not looking for alternative cash flow producing investments. It’s not looking to be in real estate.

Nate Scott [15:16]:

It’s not looking to be in private lending or doing anything that’s kind of in the cash flow spectrum of investing. And you love your stock market. You’re a Dave Ramsey mutual fund Homer. You love all of that, and you think that’s going to produce the best results for your life. There’s not an easy way to marry IBC with that end of the spectrum. 

The passive appreciation based, long term investor who just really wants to have money sit on the sidelines, doesn’t really want to access it too much or doesn’t have a need to, just kind of wants to invest it, hope to get a good rate of return inside the stock market. Not really ever going to get their hands on it. There’s not a lot of reason to try to open a policy to go fund that.

Nate Scott [15:55]:

We would just simply shake hands and say, don’t do this. Or if we replayed it, we’d say, okay, you can continue to fund your investments of whatever you’re going to fund into that long term appreciation based passive investments. And if there’s other money beyond what you want to put there, yeah, you could fund that into a policy and then maybe dabble in some other things or just have the policy as kind of a diversification tool. 

But that’s what we’re saying is there would be no reason for you to operate at, like, stage three or stage four of IBC if that’s who you are. You might be a stage one guy just kind of saving some money in policies and using it occasionally whenever needed. But your real wealth building focus is actually going to be inside of just sticking money into a brokerage account or a retirement program or something like that. And that’s great. That’s perfectly fine.

Nate Scott [16:42]:

You could still be a candidate to open a policy and have it be of value to you over your lifetime. It just wouldn’t be your typical, hey, I make 50,000 of free cash flow savings every year, and I’m going to fund it all into policies and leverage the policy to go fund all my investments. That wouldn’t be you, and that’s perfectly okay because it doesn’t mesh perfectly well. 

Now, some people would say, by the way, I wanted to make a caveat here, too, is that I’m talking about long term appreciation based, non-cashflow-producing passive assets. But in reality, we have plenty of people who do borrow from policies to invest in the stock market. I’ve said it many times on this show. I’m just kind of waiting for the next true recessionary stock market correction to occur. I was inches away from pulling a large amount of money back at the bottom of the COVID barrel.

Nate Scott [17:34]:

Whenever COVID struck in March and April of 2020, the stock market just collapsed, dropping by like 40%, and I was inches away from moving in, but I wasn’t confident in it at that time, so I decided not to. The next time the market drops by 30% to 40%. Yeah, I’m definitely taking money from my policies and throwing them into the stock market. 

I’m not going to let it sit there until I’m 65. Most likely, I’m just going to let it. I’m going to earn, most of the time my market collapses and then kind of rebounds and you earn a higher rate of return after the collapse. And so what I’m saying is I’m also not a guy who’s going to sit here and time the market. It’s going to be super opportunistic.

Nate Scott [18:12]:

That market’s going to have to drop 30% minimum from all time highs, and I’ll just jump in and ride the wave back up, and then I’ll sell the profits, the stocks out once I’ve made some money, and I’ll move back into policies, and that’s perfectly fine. 

So what I’m trying to say is it’s not like IBC and stocks don’t matter, but if your goal is more of that retirement style, passive based approach, those types of investments don’t mesh perfectly with using policies. 

So, that could also instruct you to say, if you are that type of person, maybe you won’t be someone who’s going to commit to IBC at this high level and run a whole bunch of your cash flow through policies and then borrow a bunch from policies. 

You might be more of a saver into policies where you’re just going to save some money here, more like as a safe kind of diversification play, and then use policies occasionally for various things, maybe like house remodels or going on vacation or some more minor things, as opposed to running all of your investment cash flows through it. 

Because really, it’s not a perfect match for long term passive appreciation based investing to kind of funnel through policies before it’s being used. But that’s not the case for all these cash flow alternative style investments. And it doesn’t have to be things that produce cash flow immediately. That’s what we’re saying.

Nate Scott [19:27]:

You can invest $100,000 in something that there’s not going to be a return for a couple of years, but then there’s going to be a lump sum payment in a few years down the road. All of those things work perfectly with policies. 

Just the idea is this. If you like taking your cash flow and setting it aside in passive long term appreciation based things, primarily that would be called retirement programs and brokerage accounts and stock market based things, there’s not a ton of benefit for most people to try to run that amount of money through policies before it goes there. Just continue funding those. 

You don’t have to change that unless you want to. In other words, unless you longer want to be doing those things, then of course you’re welcome to change it. But if that’s what you’re going to do anyway, don’t run it through the policy.

Nate Scott [20:07]:

Don’t get started with IBC and try to run everything through a policy. If all you want to do is let it sit in these passive appreciation based things. Utilize the policy for things that generate cash flow or more short term oriented in general, like five years and under type of thing, cash flow producing style investment opportunities. 

So I hope this has been helpful. Hope this has been educational. Guys, if you are enjoying this content, we love to have you here. A like and a subscribe, a rating, all of those things mean the world to us.

Nate Scott [20:33]:

They help all the algorithms know that this is a great place to consume IBC content. So thank you so much for following us for all these years. It’s been a pleasure as always. This has been Dollars and Nonsense. If you follow the herd, you will be slaughtered. And always remember, we do have a free course online. You can go to livingwealth.com/escapethebank to access our free course on infinite banking, which I believe truly is like just from A to Z, the best, simplest course to become an expert on IBC. So go check out our course on infinite banking at livingwealth.com/escapethebank. See you there.