Are there any safe investments in this world?
In an era characterized by domestic and global uncertainty and economic fluctuation, the quest for safe and “guaranteed” investments can seem daunting. We want to be good stewards and wisely prepare for our family’s financial future, but when everything seems so up in the air, it can be hard to pick an investment strategy and stick with it.
What about Infinite Banking?
One investment strategy you may have heard a lot about lately is known as the Infinite Banking Concept. In it, investors purchase specially dividend-paying whole life insurance policies on themselves and use the accumulating cash value of the policies to borrow against and repay themselves over time, rather than borrowing money from traditional banks. This method offers policyholders tax advantages and flexibility, but the approach does require patience, since it can take a long time to build up significant value.
Stability and control
The stability Infinite Banking offers can be appealing to potential investors, because when it comes to investing, we often grapple with worry and doubt, especially when faced with headlines about political unrest, economic downturns or unexpected global events.
Add on “fear of missing out” (FOMO) while we watch our friends buy Airbnbs, Bitcoin or other shiny investments. We wonder if we are on the right financial path that will ensure a secure future. (By the way, I think rental property, Bitcoin and other investments can certainly be an excellent part of a comprehensive financial plan if you go into those categories with your eyes wide open. More on this in later articles.)
Infinite Banking promises a great deal of control over your finances, too, a quality attractive to many DCs. A thorough examination of financial market data over the past century reveals a US economy that has repeatedly rebounded from crises, often emerging stronger than before. This historical perspective provides compelling evidence that the financially savvy DC—the one who is careful with debt, manages overhead well, is disciplined, plans for retirement and continues to invest during the good times and bad—can be richly rewarded through long-term investment in the US economy.
The perpetual presence of fear and uncertainty in the US stock market
As you view this chart, you will see there has always been a reason to sell.
What are some things we notice from this chart?
- There are good times and tough times in the economy.
- Over the last 30+ years on this chart, the market is up. Way up!
- If we don’t sell during down markets, what happens? Nothing. You still hold the same number of shares in a down or up market.
- If you are bold enough to double down and invest as much as you can in a down market, your returns can be significant. This is the only time you will purchase stocks “on sale.”
My personal experience with the Infinite Banking Concept
My wife and I had just started working with a financial advisor team back in 2007, right before the Great Financial Recession (GFR). Beginning the investing journey and seeing our accounts begin to rise was satisfying, until the 2008-2009 banking/subprime mortgage collapse. I remember receiving a statement showing a -1% internal rate of return (IRR) and thinking, “how is this any better than a savings account?” As a matter of fact, it was worse.
I panicked. I was mad. I bailed.
I told my financial advisor to put all our money into cash and held it there for almost two years. He strongly recommended we reconsider and showed me the math of what would happen when the market rebounded. I didn’t listen.
Instead, I listened to a well-known chiropractic consultant circa 2011 who recommended permanent whole life insurance—banking on myself, the Infinite Banking Concept.
After some surface-level due diligence and buying into the herd mentality (many other DCs at the same conference I went to bought into the concept as well), I dove in.
For two years I “banked on myself.” That ended up becoming a $722,000 mistake for my family.
How did I lose so much?
Premiums! I was contributing about $3,000 to the insurance portion and $13,000 to the cash value of the policy every month. That was $16,000 I was spending per month, which became too much after only about six months. I was able to pay the premiums for 18 months before I finally gave up and cashed out.
Remarkably, or not so remarkably, my “cash value” ended up being way less than I was expecting.
In hindsight, I should have spotted three major red flags:
- Crazy-high premiums compared to term insurance (literally 10-15 times what a solid term policy would have cost).
- The realization that the insurance companies were not my friend. They have math nerd actuaries who are much smarter than most of us crunching the numbers, running the probabilities and making sure the insurance company remains profitable. They do not offerthese policies so YOU can getrich—they offer them because they know it helps their bottom line.
- Receiving my first statement and seeing my cash value being about $15,000, when I had written a very large check to fund the policy. Where did that extra multi-tens of thousand dollars go? To the insurance agent’s bank account as a very large commission.
My 24-month experiment
I invested $150,000 over 24 months into that life insurance policy.
If I had invested that same $150,000 into the US stock market (in a total market index fund at low cost) over those 24 months ending May 2013 and just let it sit there without adding another penny and let compound interest do its thing, the value would be approximately $722,000 today. If I had kept the $150,000 in the policy all this time, the value would likely be around $175,000 today.
It is exciting to see the power of compounding interest and time. And depressing.
From The Motley Fool re: Dave Ramsey’s stance on whole life insurance: “Life insurance agents love to mention the guaranteed rate of return you get with whole life insurance. Ramsey correctly points out that your policy’s cash value grows slowly. The average annual return on a whole life policy is 1.5%, according to Consumer Reports.”
And, from The White Coat Investor: “Whole life insurance has a terrible reputation and for good reason. It is dramatically oversold. According to the Society of Actuaries, approximately 80% of policies sold are surrendered prior to death, which is an abysmal statistic considering it is a policy designed to be held your entire life. When I have polled doctors that have actually purchased whole life insurance, 75% of them regret purchasing the policy.”
Final thoughts
I know I will get some pushback from some of my colleagues who are all-in with Infinite Banking. Over the years, I have sat through multiple speakers at chiropractic conferences who still talk about how poorly the stock market performs, how the US economy is doomed and how great Infinite Banking is.
My recommendation is to simply do your homework. A very thorough and objective article is here: https://www.mypersonalfinancejourney.com/infinite-banking-concept-whole-life-insurance/
Then follow common-sense, age-old wisdom such as living below your means, saving and investing as much as you can for your future spending, treating debt respectfully, working with solid, trusted advisors who have your best interests at heart and watching your wealth grow: slowly but surely.
In hindsight, I wish I had paid more attention to what the Bible (and common sense) say about wealth, such as that “Wealth gained hastily will dwindle, but whoever gathers little by little will increase it,” (Proverbs 13:11) or “Honor the Lord with your wealth, with the first fruits of all your crops; then your barns will be filled to overflowing, and your vats will brim over with new wine” (Proverbs 3:9-10).
Next question: Bitcoin
A question we get all the time is about Bitcoin. Is it the next big thing? My answer may surprise you. Until next time…
Jamy Antoine, DC, BCN, CFP,® is a doctor of chiropractic with a 22-year history of investing, entrepreneurship and business ownership. Due to his love of finance, investments and good financial behaviors, he retired from private practice and is now using his extensive business experience and knowledge working with The Wealth Group, a nationally renowned, comprehensive wealth management firm, as a Certified Financial Planner® for business owners, entrepreneurs and motivated families to strategically plan for their financial independence and work-optional date. He can be reached at jamy@thewealthgroup.com or 615-395-8600. CFP Board owns the marks CFP®, Certified Financial Planner™ and CFP® (with plaque design) in the US.
Disclaimer: The Wealth Group is a Securities and Exchange Registered Investment Advisor. No content contained herein should be construed as an offer for investment advice or an offer for the purchase or sale of any security, insurance or other investment product. Investments involve the risk of loss, including loss of principal. Please consult with a qualified financial, tax or legal professional before implementing any strategy presented here. Data presented here is obtained from believed reliable sources but cannot be guaranteed as to completeness or accuracy.
