Looks like Allen is another Broker trying to sell stocks. Here's Pamella Yellens review. Thgis isnt the first time CBS has misconstrued the facts. http://www.bankonyourself.com/response-to-allan-roth-cbsnews-com-moneywatch-review-of-bank-on-yourself.html
Dear Mr. Roth, I just thought I'd drop you a quick email to let you know my experience. I have a whole life policy like Pamela Yellen talks about in her book and that you refer to in your article. It is not through her nor am I defending her but I have had nothing but positive results with it. Every time I open a statement I see again. Not like some of my friends who experienced losses. I had one friend say that his broker and financial advisor told him don't worry you're in it for the long haul. That was the beginning of the market crash in 2008. I ask him what his broker said. I can imagine you already know. Hang in there you're in it for the long haul. Of course he stayed in and we all know what happened in 2009. Here we are 4 years later and he has less than what he started with. I asked him now that he's at the age of 61 how many more 10 year periods does he have and how long is a long haul? Will he be 70? 80? 90? How old will he be no one has any idea I know I will be fine. I have guarantees and I will never lose money. Also when my time is up my children will be taken care of very well. In the meantime I haven't had to qualify for loans and pay a bunch of bank finance charges. Maybe others have enough money that they don't mind doing that. What I find very amusing is that people continue to do the same thing and expect different results. Isn't that the definition of insanity?
Although I don't expect it to make me a millionaire like a massive rare performing stock would, it has given me positive gains every year when others have lost everything they've had. I've also been able to access and will be be able to access my funds tax-free.
The bottom line is: I think that most people forget in other kinds of accounts their funds are taxable by the government and depending on what kind of account it may be there may even be a 10% penalty if it's withdrawn early not only that but most people don't realize they usually pay a 3% management fee from a broker. And that broker makes money whether you're there making money are losing money. It doesn't matter the broker still makes his money. When you look at a 3% management fee over a long period of time not only are you paying money on the amount you'll receive later your also paying the management fee on the taxes that you'll be paying. It doesn't seem like a good deal to me. These to me seem like a lot of unnecessary excess charges. Anytime I can keep the government out of my pants pocket I'm happy. I realize there will be a cost of insurance but I would rather pay a small cost of insurance then I would give it away in taxes. At least I'm getting a benefit for it. Just a thought to consider since I hadn't read anything related to these points in your article. Best regards, Fred O'Brien
If you find yourself swallowing Allan Roth's review of the Bank On Yourself book, you should Google "Allan Roth Bank On Yourself" and read Pamela Yellen's response. Then you'll realize that Allan Roth has an agenda and he wasn't about to let any "pesky" facts get in his way.
Pamela gives a very detailed response and rebuttal and you can read the response she sent to Roth - all the numbers and proof are there. Is it any wonder people don't trust the media?
Besides, Allan Roth revealed his true colors in this comment he made here on someone else's comment: "If I really knew how to get rich, I wouldn't write a book about it. If I shared my secrets they wouldn't be secrets any longer and I could no longer get rich from it."
Kudos to Pamela for taking all the bullets for being willing to share what's she discovered.
I'll start by saying that I am biased as I make a living selling policies like this and helping my clients manage their loans. Also, I have never read Pamela Yellen's book and cannot comment on it directly.
There is no point in saying, "Trust me, it works." People need to do their due diligence before deciding to make any financial decision. Many people take months, and in some cases years, to come to the conclusion that they should or should not using the Infinite Banking Concept.
I was not completely satisfied with any of the literature out there about this concept even though Nelson Nash's book is the foundation of the concept. I decided to write a book myself that does not make any promises rather it follows the numbers and explains why this works from our point of view and from the point of view from the insurance company.
I didn't want to write a convoluted, overwhelming book that seems unapproachable. My book is short and to the point. It's always difficult to overcome a bad first impression but I am asking you to read my book with an open mind. I don't sell my book, I give it to people. How should I go about sending you a copy?
Reminds me of an insurance plan pitched to me years ago called "Finacial Engineering" I think I will stick with Allan and Mike Piper, and other Bogleheads who are not interested in getting into my wallet. They are helping me gain distinctions around low cost, diversified investing
Allen, on your search for a "safe money" alternative to the ups and downs of the market, What else have you found that works or doesn't work?
I have looked into a Bank On Yourself plan, and want to know what else to consider that can consistently grow and use to purchase large ticket items (such as your car)... I'm looking at the tax deferment and the amount i'm spending on life insurance anyway, and for the amount of money I'm putting into the policy it seems like a good plan.
Ok I have to make this comment. Really good article in general. And if Pamela Yellen is misleading people I can understand that.
But it's important to note a facts that you left out, whether to make your article sound more prestigious or just because you aren't thorough in your reporting. Either way it's kind of frustrating how you tilt this article to make your picture look a lot better.
1. Let's make this clear, you make it sound extremely negative that you spent $2,500 in order to use this money. Over a 12 year period. If 17 dollars a month is a lot of money for you then ya... complain away.
However, you have missed the biggest and most important part of this. You are paying basically 17 dollars a month to have an account that will grow at 6 percent (historically) and ... wait for it...
THIS ACCOUNT IS BUYING THIS GUY 250-500 THOUSAND DOLLARS OF WHOLE LIFE INSURANCE.
So he's getting whole life insurance, that will always have a GROWING account value, with ever increasing lifetime life insurance, even if he stops contributing, for 17 dollars a month and ONLY when he uses the money in his account?
I mean that's a no brainer to me. To buy term it's going to cost you more than that, and that's going to end and most likely be no rate of return for you ever.
I mean what's with this war here. We got the Pamela Yellen team trying to prove that everything she does is perfect and makes 100 percent sense, then we got this guy and the other wall street side trying to do the exact opposite. When did things have to get so black and white.
Let's just say it how it is, THERE IS NO PERFECT INVESTMENT. There I said it. Either you get gains for risk, and you pay fees, or you get losses and risk, and you pay fees, or you get safety and use of money, and you pay fees, but come on everyone is going to make a fee. That's all this is, it's a fee. And at least it's a fee that GIVES you insurance. And an insurance that if kept active guarantees a payout if I might add.
In fact why wouldn't you want companies to make fees? If they didn't then you wouldn't have a business and we'd all be bartering for hummus from a little kid on the side of the road while his parents are in the corn fields plowing all day.
I don't know much about Pamela Yellen and her Bank On Yourself book (actually haven't even read the book) but I know of the concept she is trying to market, and it's really a very good financing concept (called Infinite Banking Concept.) R. Nelson Nash has pioneered and expounded this concpet in his book Becoming Your Own Banker.
I think R. Nelson Nash's book has the numerical proof you are looking for, and I'd encourage you to read it. Here is another quick example of the numbers in a hypothetical example built around Car Financing: http://youtu.be/5GcMDSNRJwI .
The concept is definitly not a get rich quick scheme but the results are very beneficial. It's about who controls the pool of money and earns intererst on all the purchases we must make in our lives.
It is mathmatically impossible to come out ahead on these deals unless the insurance company is paying an above market rate of retun sufficient to cover their premiums and all the spread they charge to administer the loan.
If you think this is a great idea, you are effectively saying that insurance companies are giving you a free lunch. You really think that is the case?
Check out the illustration from the link (Lafayette). I did the numbers for you. Borrowed $30k in year 4. Established equal annual payments that result in zeroing out loan balance (5 yr term). Rate that generates equivalent loan repayment is 3.8109538347245%. Over same period, I can take the initial cash value for the loan period(24571 loan balance + 5476 net cash value = 30047) and the ending cash value of $33,773, and determine an IRR of 2.965594%.
So riddle me this Bondlawyer...the IRR is less than the loan rate...correct? So, how is it that he earned $3,726, while only paying about $2995 in interest? Is that not an economic benefit? There is no magic here...just finance.
Brianbewoo, a query for you sir. You indicate, in your .pdf attachment, that took our a $30k loan in year 4, but on page 12 it seems like the actual loan was for $23,401, and was paid back in 48, not 60 month installments.
How "rich" have Suze Orman and Dave Ramsey gotten via the multitude of books they have written that simply repeat the "conventional wisdom" of chasing rate of return? Yes, Ramsey made his name with his get-out-of-debt strategies, but why did people get in so much debt in the first place? Mr. Roth, thank you for your efforts and scrutiny into this subject. Perhaps I missed it, but have you also applied the same level of scrutiny to Ramsey's claims that you can "predict" 12% annual returns with mutual funds if you maintain an investment timeframe of 10 years or longer? "Predict" is a direct quote from Ramsey's book, the revised version after the 2008 meltdown. So, all of us who did what we were told and "maxed out" our 401(k)'s for the last 30 years - do you agree with Ramsey that we should have easily earned and "predicted" 12% annual returns?
How does criticizing other authors and their books have anything to do with this book and this author? Total logical failure.
If you think this investment plan works, then explain how a high cost whole life policy makes more money (than e.g. CDs or stocks) for anyone except for the insurance company selling the policy. Stocks and mutual funds are not guaranteed, but insurance companies *still* invest in stocks to give you returns on annuities and insurance claims. The returned money is not all from premiums, and it has to come from somewhere.
Look, there are many things I disagree with regarding Suze Orman and Dave Ramsey. Ramsey's 12% historic average returns was based on arithmetic returns, not geometric. For example, if your investment gains 50% one year and loses 50% the next, your average return is zero but your investment is still down 25%.
Nope. Sorry Jerry, but it is not "total logical failure" when Mr. Roth himself referenced "personal finance personalities such as Suze Orman and Dave Ramsey" in his original review. If those two are going to be held up as examples of others who have "expressed skepticism" regarding the topic being discussed, then their "expertise" becomes relevant. In one of his many books, Total Money Makeover, Mr. Ramsey not only tells us we can "predict" 12% annual returns with "growth" mutual funds, he says we can safely "live off of 8 percent of your nest egg per year" with no danger of running out of money. He says we "will leave a nice inheritance" after a life-long withdrawal rate of 8%. Jerry, what do you think would happen if Mr. Ramsey, holder of a Series 7 license, held a seminar and made those claims in front of a roomful of potential clients? Ramsey doesn't have to worry about that does he? He can say anything he wants in his books. Does that kind of claim deserve scrutiny? Jerry, you are no doubt knowledgeable in this area. Can you defend advising people they can safely withdraw 8% every year from an equity-based portfolio and telling them they will never run out of money? If you can "logically" describe that advice as anything but reckless, then perhaps you should write your own book. Maybe you have. Maybe you have already written a book disputing the annual Dalbar findings. Maybe you have already written a book disputing what Warren Buffett said in his 2007 annual report to his shareholders. He was quite logical in his description of "helpers" who promise double-digit returns in stocks.
Secondly, I made no attempt to defend "this investment plan". I merely posed a question. If new, or alternative, strategies are going to be held up for review and scrutiny, as they should be, then shouldn't those being put forth as experts ("personalities") be held to high standards as well? All you have to do is check the financial headlines everyday to see that what people have been doing for the last thirty years hasn't worked. If it's all about rate of return, then why did household debt increase by a factor of nine during the largest two-decade stock market boom in history? Mr. Roth, perhaps you can check with your contacts at "60 Minutes" to review the piece they did awhile back on the 401(k). My point is, now that Baby Boomers are hitting retirement, we are seeing actual real-world consequences of the financial "conventional wisdom" of the last thirty years or so. To quote one recent article, "it ain't pretty". I'm just wondering when we will see the proponents of said conventional wisdom be held accountable for what they've been saying, rather than used as sources of criticism of what others are saying.
Dave, You have a point about Ramsey and Orman. They are popular writers whom people treat as experts but they do get and say many things that are wrong. I'm not a fan of either person. I will take Allan's word for it that their numbers don't add up.
Here's my main point, however: Ramsey and Orman being wrong does not make anyone else (like Yellen) right. They can all be wrong. I know from personal experience as well as my reading that whole life policies are poor investments, much worse than others. Yellen is promoting a new take on an old sales pitch.
Yes, many people in the U.S. have lost a lot of money in 401k's. Many people have lost money in real estate, whether due to lack of financial knowledge, speculation, buying more than they could afford, or just plain bad timing. Many others have made money, also due to luck or fortunate timing or being more knowledgable and more careful. The individuals share some blame, but the vast majority of the blame goes to a restructuring of the pension, investment, insurance, and real estate laws written by politicians as shaped by large business interests (manufacturers, corporations, banks, and insurance companies). Pensions have essentially gone away, replaced by 401ks that favor the employer's interests, which also created an industry of financial salespeople masquerading as disinterested advisors. Housing morphed from a place to live & raise your family into a money producing speculative investment misused as an ATM promoted by mortgage brokers, banks, and investment houses as CDOs. All this has little to do with the old basic buying a stock, reaping dividends, and holding it for a while. Case A (Orman, Ramsey) saying something wrong does not mean that Case B (Yellen) can't also be wrong, which says nothing whatsoever about Case C (401k, housing) nor Case D (basic stock investments). regards, Jerry
Jerry,
For the most part, I think we're in agreement here, at least conceptually. This entire discussion thread has been about the use of various financial "tools". A tool or strategy can be properly designed and implemented, or any tool or strategy can be abused by greedy or short-sighted practitioners. While you can point out the shortcomings of whole life and Yellen in particular, I can point out the mutual fund scandal of 2003, Bernie Madoff, and the fact that the majority of fund managers who collectively charge billions in annual fees do not out-perform the indexes. As you said, they can all be wrong, we can both be right, and neither one of us is defending one while ignoring the shortcomings of the other.
All this happens within the trillion dollar financial industry. I'm sure nobody would continue to say things that aren't true just to preserve that trillion dollar income stream would they? Nah!
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Here's Pamella Yellens review. Thgis isnt the first time CBS has misconstrued the facts.
http://www.bankonyourself.com/response-to-allan-roth-cbsnews-com-moneywatch-review-of-bank-on-yourself.html
I just thought I'd drop you a quick email to let you know my experience. I have a whole life policy like Pamela Yellen talks about in her book and that you refer to in your article. It is not through her nor am I defending her but I have had nothing but positive results with it. Every time I open a statement I see again. Not like some of my friends who experienced losses. I had one friend say that his broker and financial advisor told him don't worry you're in it for the long haul. That was the beginning of the market crash in 2008. I ask him what his broker said. I can imagine you already know. Hang in there you're in it for the long haul. Of course he stayed in and we all know what happened in 2009. Here we are 4 years later and he has less than what he started with. I asked him now that he's at the age of 61 how many more 10 year periods does he have and how long is a long haul? Will he be 70? 80? 90? How old will he be no one has any idea I know I will be fine. I have guarantees and I will never lose money. Also when my time is up my children will be taken care of very well. In the meantime I haven't had to qualify for loans and pay a bunch of bank finance charges. Maybe others have enough money that they don't mind doing that. What I find very amusing is that people continue to do the same thing and expect different results. Isn't that the definition of insanity?
Although I don't expect it to make me a millionaire like a massive rare performing stock would, it has given me positive gains every year when others have lost everything they've had. I've also been able to access and will be be able to access my funds tax-free.
The bottom line is: I think that most people forget in other kinds of accounts their funds are taxable by the government and depending on what kind of account it may be there may even be a 10% penalty if it's withdrawn early not only that but most people don't realize they usually pay a 3% management fee from a broker. And that broker makes money whether you're there making money are losing money. It doesn't matter the broker still makes his money. When you look at a 3% management fee over a long period of time not only are you paying money on the amount you'll receive later your also paying the management fee on the taxes that you'll be paying. It doesn't seem like a good deal to me. These to me seem like a lot of unnecessary excess charges. Anytime I can keep the government out of my pants pocket I'm happy. I realize there will be a cost of insurance but I would rather pay a small cost of insurance then I would give it away in taxes. At least I'm getting a benefit for it. Just a thought to consider since I hadn't read anything related to these points in your article.
Best regards,
Fred O'Brien
Pamela gives a very detailed response and rebuttal and you can read the response she sent to Roth - all the numbers and proof are there. Is it any wonder people don't trust the media?
Besides, Allan Roth revealed his true colors in this comment he made here on someone else's comment: "If I really knew how to get rich, I wouldn't write a book about it. If I shared my secrets they wouldn't be secrets any longer and I could no longer get rich from it."
Kudos to Pamela for taking all the bullets for being willing to share what's she discovered.
I'll start by saying that I am biased as I make a living selling policies like this and helping my clients manage their loans. Also, I have never read Pamela Yellen's book and cannot comment on it directly.
There is no point in saying, "Trust me, it works." People need to do their due diligence before deciding to make any financial decision. Many people take months, and in some cases years, to come to the conclusion that they should or should not using the Infinite Banking Concept.
I was not completely satisfied with any of the literature out there about this concept even though Nelson Nash's book is the foundation of the concept. I decided to write a book myself that does not make any promises rather it follows the numbers and explains why this works from our point of view and from the point of view from the insurance company.
I didn't want to write a convoluted, overwhelming book that seems unapproachable. My book is short and to the point. It's always difficult to overcome a bad first impression but I am asking you to read my book with an open mind. I don't sell my book, I give it to people. How should I go about sending you a copy?
I have looked into a Bank On Yourself plan, and want to know what else to consider that can consistently grow and use to purchase large ticket items (such as your car)... I'm looking at the tax deferment and the amount i'm spending on life insurance anyway, and for the amount of money I'm putting into the policy it seems like a good plan.
But it's important to note a facts that you left out, whether to make your article sound more prestigious or just because you aren't thorough in your reporting. Either way it's kind of frustrating how you tilt this article to make your picture look a lot better.
1. Let's make this clear, you make it sound extremely negative that you spent $2,500 in order to use this money. Over a 12 year period. If 17 dollars a month is a lot of money for you then ya... complain away.
However, you have missed the biggest and most important part of this. You are paying basically 17 dollars a month to have an account that will grow at 6 percent (historically) and ... wait for it...
THIS ACCOUNT IS BUYING THIS GUY 250-500 THOUSAND DOLLARS OF WHOLE LIFE INSURANCE.
So he's getting whole life insurance, that will always have a GROWING account value, with ever increasing lifetime life insurance, even if he stops contributing, for 17 dollars a month and ONLY when he uses the money in his account?
I mean that's a no brainer to me. To buy term it's going to cost you more than that, and that's going to end and most likely be no rate of return for you ever.
I mean what's with this war here. We got the Pamela Yellen team trying to prove that everything she does is perfect and makes 100 percent sense, then we got this guy and the other wall street side trying to do the exact opposite. When did things have to get so black and white.
Let's just say it how it is, THERE IS NO PERFECT INVESTMENT. There I said it. Either you get gains for risk, and you pay fees, or you get losses and risk, and you pay fees, or you get safety and use of money, and you pay fees, but come on everyone is going to make a fee. That's all this is, it's a fee. And at least it's a fee that GIVES you insurance. And an insurance that if kept active guarantees a payout if I might add.
In fact why wouldn't you want companies to make fees? If they didn't then you wouldn't have a business and we'd all be bartering for hummus from a little kid on the side of the road while his parents are in the corn fields plowing all day.
I don't know much about Pamela Yellen and her Bank On Yourself book (actually haven't even read the book) but I know of the concept she is trying to market, and it's really a very good financing concept (called Infinite Banking Concept.) R. Nelson Nash has pioneered and expounded this concpet in his book Becoming Your Own Banker.
I think R. Nelson Nash's book has the numerical proof you are looking for, and I'd encourage you to read it. Here is another quick example of the numbers in a hypothetical example built around Car Financing: http://youtu.be/5GcMDSNRJwI .
The concept is definitly not a get rich quick scheme but the results are very beneficial. It's about who controls the pool of money and earns intererst on all the purchases we must make in our lives.
Regards,
John
If you think this is a great idea, you are effectively saying that insurance companies are giving you a free lunch. You really think that is the case?
Good Luck to you sir.
https://dl.dropbox.com/u/7350169/Free%20Lunch.pdf
Check out the illustration from the link (Lafayette). I did the numbers for you. Borrowed $30k in year 4. Established equal annual payments that result in zeroing out loan balance (5 yr term). Rate that generates equivalent loan repayment is 3.8109538347245%. Over same period, I can take the initial cash value for the loan period(24571 loan balance + 5476 net cash value = 30047) and the ending cash value of $33,773, and determine an IRR of 2.965594%.
So riddle me this Bondlawyer...the IRR is less than the loan rate...correct? So, how is it that he earned $3,726, while only paying about $2995 in interest? Is that not an economic benefit? There is no magic here...just finance.
What might I be missing here?
Thanks for all the great, and in this case very brave, work you do for us small investors.
Terry
If you think this investment plan works, then explain how a high cost whole life policy makes more money (than e.g. CDs or stocks) for anyone except for the insurance company selling the policy. Stocks and mutual funds are not guaranteed, but insurance companies *still* invest in stocks to give you returns on annuities and insurance claims. The returned money is not all from premiums, and it has to come from somewhere.
Secondly, I made no attempt to defend "this investment plan". I merely posed a question. If new, or alternative, strategies are going to be held up for review and scrutiny, as they should be, then shouldn't those being put forth as experts ("personalities") be held to high standards as well? All you have to do is check the financial headlines everyday to see that what people have been doing for the last thirty years hasn't worked. If it's all about rate of return, then why did household debt increase by a factor of nine during the largest two-decade stock market boom in history? Mr. Roth, perhaps you can check with your contacts at "60 Minutes" to review the piece they did awhile back on the
401(k). My point is, now that Baby Boomers are hitting retirement, we are seeing actual real-world consequences of the financial "conventional wisdom" of the last thirty years or so. To quote one recent article, "it ain't pretty". I'm just wondering when we will see the proponents of said conventional wisdom be held accountable for what they've been saying, rather than used as sources of criticism of what others are saying.
Dave
You have a point about Ramsey and Orman. They are popular writers whom people treat as experts but they do get and say many things that are wrong. I'm not a fan of either person. I will take Allan's word for it that their numbers don't add up.
Here's my main point, however: Ramsey and Orman being wrong does not make anyone else (like Yellen) right. They can all be wrong. I know from personal experience as well as my reading that whole life policies are poor investments, much worse than others. Yellen is promoting a new take on an old sales pitch.
Yes, many people in the U.S. have lost a lot of money in 401k's. Many people have lost money in real estate, whether due to lack of financial knowledge, speculation, buying more than they could afford, or just plain bad timing. Many others have made money, also due to luck or fortunate timing or being more knowledgable and more careful. The individuals share some blame, but the vast majority of the blame goes to a restructuring of the pension, investment, insurance, and real estate laws written by politicians as shaped by large business interests (manufacturers, corporations, banks, and insurance companies). Pensions have essentially gone away, replaced by 401ks that favor the employer's interests, which also created an industry of financial salespeople masquerading as disinterested advisors. Housing morphed from a place to live & raise your family into a money producing speculative investment misused as an ATM promoted by mortgage brokers, banks, and investment houses as CDOs. All this has little to do with the old basic buying a stock, reaping dividends, and holding it for a while. Case A (Orman, Ramsey) saying something wrong does not mean that Case B (Yellen) can't also be wrong, which says nothing whatsoever about Case C (401k, housing) nor Case D (basic stock investments).
regards,
Jerry
For the most part, I think we're in agreement here, at least conceptually. This entire discussion thread has been about the use of various financial "tools". A tool or strategy can be properly designed and implemented, or any tool or strategy can be abused by greedy or short-sighted practitioners. While you can point out the shortcomings of whole life and Yellen in particular, I can point out the mutual fund scandal of 2003, Bernie Madoff, and the fact that the majority of fund managers who collectively charge billions in annual fees do not out-perform the indexes. As you said, they can all be wrong, we can both be right, and neither one of us is defending one while ignoring the shortcomings of the other.
All this happens within the trillion dollar financial industry. I'm sure nobody would continue to say things that aren't true just to preserve that trillion dollar income stream would they? Nah!
Cheers,
Dave