Why did the chicken cross the road?

February 28, 2013

In November of 2009, I wrote a blog post titled: Why “the experts” confuse the average investor (here is the link). This topic popped into my mind the other day as I was talking with my 10-year old daughter. She asked me the classic question: “Daddy, why did the chicken cross the road?” Of course I knew that a rip-roaring joke was about to be laid out on the table…at least that’s how I had to portray it with her. Sure enough, she had a great answer and I busted out laughing. This got me thinking about my previously mentioned blog post because the answers to the question posed by my daughter are endless and they simply depend on who’s answering the question.

I thought, what if we asked this simple question about the chicken to various people, maybe even historical people? Would their answers have been the same or would they be different? So, here we go, “Why did the chicken cross the road?”

Their answers*

Dr. Seuss: Did the chicken cross the road? Did he cross it with a toad? Yes! The chicken crossed the road, but why it crossed it, I’ve not been told!

Ernest Hemingway: To die. In the rain.

Buddha: If you ask this question, you deny your own chicken nature.

Martin Luther King, Jr.: I envision a world where all chickens will be free to cross roads without having their motives called into question.

Colonel Sanders: I missed one?

Attorney: Chickens are invited to cross the road to join a class action lawsuit against all non-chickens.

Bill Clinton: I did not cross the road with THAT chicken. What do you mean by chicken? Could you define ‘chicken’ please?

George Bush Sr.: Read my lips, no new chickens will cross the road.

Retired truck driver: To prove to the armadillo that it could be done.

Albert Einstein: Did the chicken really cross the road, or did the road move beneath the chicken?

This is all in fun of course but the theme here is very similar to the variety of instructions given to people about solidifying their financial future. Having a clear understanding and a concise plan can be almost impossible because financial professionals virtually always disagree with each other and they never provide the same answer. Most people have heard the following conversation over and over again whenever they speak with a new financial expert: “How much money do you have? Where is it? Oh my gosh, why did they put you there!? You need to come over here because we’ll do so much better.”

Climbing Mount Everest

So, who can you trust? Who really has your best interests at heart? This is often the hardest hurdle to get past. This reminds me of climbing expeditions up Mount Everest. What is the most important phase of the climb? This single phase is responsible for over 75% of all deaths that occur during the quest to summit Everest. It’s the descent. The plan DOWN is the MOST important part of the entire expedition.

Financially it’s no different. The “climb” to the summit can be viewed as the accumulation phase as you work towards your retirement. The descent is the distribution phase of your assets to ensure you have enough money to live on for as long as you’ve planned to live. What does traditional planning focus on the most: i) simply getting to the summit or ii) getting to the summit with a very specific plan on how to get down? ING put out a series of TV commercials (here’s one of them) asking you if you “know your number”. That “number” is the amount you need to retire or more specifically the number you need TO GET TO THE TOP OF THE MOUNTAIN! But ING, what is the plan once that number is reached? Our focus should be even more intent on that phase of life than any other.

105% increase in 10 years!

Truly, if you hired a guide for your climb up the mountain and you asked him for his plan to get you down the mountain, how would you feel if he said this: “I don’t know, but once we get there we’ll figure it out.” Remember, 75% of those who die, die on the way down. Look around, how are people doing? We have an aging population, a declining workforce, an inability to save, a national debt that’s beyond comprehension and a government whose only answer is to print more money. According to whitehouse.gov (Table S5 Proposed Budget by Category) if we wiped out the entire Federal Government and the entire Military (all discretionary spending for 2012) then we’d still be short by $8,000,000,000 due to the various entitlement programs (we did a video on this very topic). Let that sink in, the ENTIRE federal government and the ENTIRE military and we’d still be short. Now, if you do this exact calculation for 2013 then we’d have a surplus of $360 billion (again, only if we got rid of the federal government and the military – obviously never going to happen) but look at the “total receipts” (all taxes collected)…they’re predicted to go up by 17.5%! If you look at the total receipts predicted in just 10 years, 2022, it’s a 105% increase from 2012. Are you ready for that? What’s your plan to deal with this issue? How are going to get down the mountain? If you’re only being told that you’ll be in a lower tax bracket in the future then you better get a new climbing guide.

Reduce future taxable income

There’s an endless amount of Congressional Budget Office reports and Government Accountability Office reports informing you that your taxes are going up plus the dollar will continue to weaken (the hidden tax). How will all of this affect you once you decide to “come off the mountain top”? Please understand, there are strategies and solutions to help mitigate some of these issues but you must be prioritizing strategies that will reduce your taxable income in the future! You will most assuredly face fewer deductions, fewer benefits, higher taxes and a weak dollar; therefore, reducing your taxable income in the future will be the biggest and most important aspect of your plan to efficiently climb down the mountain and make it out alive. The only factor that determines success is the reaction of the government. Shouldn’t we be studying them and NOT the financial products? All other discussions are only focused on making it to the summit. Our clients come to know what it means to have a plan for distribution and how their plan will ensure that they will NEVER be poor. Our job isn’t to help you strike it rich. Our job is to secure that you not only summit the mountain but that you make it down safely regardless of the conditions or challenges you face.

So, I ask you, why did the chicken cross the road? My answer, because she knew she could make it.

Kelly O’Connor – kelly.oconnor@mtnfinancial.com


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*some of these answers came from http://grandfather-economic-report.com/

Taxes (Defining Moment #2) Part 3

October 5, 2010

What other factors point to the thought that this may be the lowest tax bracket you will ever be in (what we call Defining Moment #2)?

The continual decline in the overall labor force will pose a huge problem.  We already know that from a percentage  standpoint, there will be fewer taxpaying workers than there are retirees who are and will be on government programs.  And they will be living longer.  Watch for my Demographics blog (next week).  This is a serious issue that virtually no financial planner is discussing with their client.

So let’s take a look at this: we have a declining workforce in the United States, we have an aging population living longer on government programs, we have a government that’s spending like it’s on crack, and we have $50+ trillion in future government financial burdens. Unfortunately the only source of revenue for the Federal Government comes from you, in the form of taxes.

From the government’s standpoint, do you think they are going to lower taxes or raise taxes? Decrease or increase government benefits?  You may start to put a few things together about your qualified plans here and why the government is highly motivated to stay in charge of them.

Afterall, who owns the pen on those accounts?  Who’s your partner?  The government.  They control it all.  When you open your statement on your 401k how much of it is yours?  You have no idea. Why do you have no idea?  Your plan is taxed at the tax rate you qualify for when you begin to withdraw funds.  What’s that rate?  No one knows.  Do you think the government may be in need in the near future?  Do you think they may need to raise taxes?  You must start putting this together folks.

Ever thought why they made some changes recently to IRAs?  Was it really for our benefit? Could they raid investment accounts?  Of course they can. That’s why they created these things in the first place…another lesson on Demographics.  You must understand when Qualified Plans were created and why – Demographics blog next week will address this issue.

Imagine now, if you can, your future savings and retirement money being taxed at two times today’s levels. Once again this is an estimate from the government’s GAO.  Traditional thinkers and the so called experts from the government –please key in on from where they are experts–are now telling us that in order to survive in the future, where we will all be living longer, we must save more money now…and specifically into these types of accounts where they control the rules.

Upsetting isn’t it?  “Save more now so we can control it later.”  This is why this one bugs us so much.

If given a choice would you want to receive money now, when taxes are the lowest, or later when taxes may be much higher?  If you are successful and are saving money and deferring the taxes to a later date, you may want to rethink the dilemna awaiting for you.  The old adage “You will probably retire to two-thirds of your income thus be in a lower tax bracket” may be floating around in your mind.

But THINK about that for a minute!  What determines your tax bracket?  Your income.  So, your planner is telling you to work your whole life, save, put it at risk so you can lower your income to a smaller tax bracket when you finally retire?

Sorry, but I’ve yet to meet a client who plans on drastically reducing their lifestyle at retirement.  The typically plan to maintain their lifestlye.  For one, they now can travel, play more golf, and spend time with hobbies.

If anything, you have MORE expenses NOT less.  This concept is pure foolish on it’s face but absurd when you take this Defining Moment to heart.  There’s one sure-fire way to accomplish what this advice states and that is to lose most of your savings and investments.  Tell you what, that’s easy to accomplish.  If that’s your planner’s strategy, fire them.

So finally, do you really want to retire to the least amount of money so you are in the lowest tax bracket or do you want to maintain your current lifestyle?  Maybe even retire to the MOST amount of money…but you can’t say that in today’s world can you.

How then, in an increasing tax environment, certain demographic changes, and a desire to not have the least amount of money in retirement, does this way of thinking still permeate most plans?

If it’s your plan, you need a good dose of Financial Caffeine and we’re just the guys to serve it to you.

Kelly O’Connor – kelly.oconnor@mtnfinancial.com


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Taxes (Defining Moment #2) Part I

September 27, 2010

I’ve spent some time over the last few posts about, what we call, Defining Moment #1.  This post dicusses Defining Moment #2 but lets first start with a quote from the former Comptroller General of the United States, David Walker:

“We are heading for a future where we will have to double federal taxes or cut federal spending by 60%”.

The rapidly changing demographics of our country are going to impact everyone’s lives in our nation. Simply believing we are a great nation will not continue to make us one.  To compete and survive we will have to change and that change may not come easy.

Alan Greenspan said “As a nation we have already made promises to coming generations of retirees that we will be unable to fulfill.” Keep in mind, he said this in 2004…well before the last two years of continued spending.

That’s why Defining Moment #2 is critical to understand, it states that “this may be the lowest tax bracket you will ever be in.”

As you are reading this post, the U.S. Federal Government continues to spend more than it takes in from tax revenues. The debt in our nation is growing over one million dollars an hour. And it keeps going up. What does that mean to every person in the United States? Well, in order to pay for this government burden every citizen in the country would have to pay about $174,000 or for every household $664,000 (as of September 2010).

The purpose of telling you this is not to scare you but rather to make you aware that all the conditions are in place for everyone’s taxes to increase.  We know this isn’t new information for you but you can’t just take this for granted. You must understand the importance of planning for not only the demographic changes but the serious problem our government has created for itself and exactly what it means to you.

Traditional thinking professionals may be willing to avoid this problem that is out there right now until it becomes a crisis for you.  For example, are you still being told to defer your taxes now by contributing to a qualified plan that will be most assuredly taxed at a higher rate later?  Times are changing and if you’re being told to just wait it out and see what happens, it is simply going to be too late to react to the problem.

Future taxes that you pay will be the largest transfers of your money that you will ever make. The size and amount of future taxes has not yet been determined but we do know that government debt will be a large determining factor.

You must not only understand this Defining Moment that this may be the lowest tax bracket you will ever be in but you also need to act upon that knowledge.

What if you in fact could be insulated against future tax increases and use your money tax free when you need it?  Would it make sense for you to do a little homework for yourself?  Truly, how much is that worth to you?

If you don’t have a plan to counter this defining moment then please understand, the government does.

We’ll continue to do our part in providing you as much free information and analysis as you need.  But, you need to step up to the plate and ask some questions.

Kelly O’Connor – kelly.oconnor@mtnfinancial.com


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Velocity of Money Part 4

September 24, 2010

We just discussed how this first Defining Moment, that your money will never be worth more than it is today, motivates banks and why they live by it, but how does it impact your mortgage?

If you own a home and have a mortgage on it you are probably the proud recipient of a lot of junk mail. Much of this mail is from financial institutions who want to inform you that making additional payments on your mortgage is a good thing. For whom it is a good thing is not clear to most but for those who understand this Defining Moment it’s very clear.

We touched on this a little bit before but let’s take it a little deeper.  Let’s start with this question: would you like to make more house payments now with dollars that will never be worth more than they are today? Or, make more payments later when the buying power of that money is far less?

Let’s look at some math.  If your mortgage payment is $1,000 per month, do you want to make more payments now when your money has the buying power of $1,000 or make more payments later when the buying power of that money is $412 thirty years from now? (Which is the buying power of $1,000 with a 3% inflation rate for 30 years).

What you need to understand is that the value of your home is going to go up or down no matter what your monthly payment is as well as no matter what your mortgage balance is at the time.

To prove that point, if there are two identical homes side by side and one is paid for but the other is mortgaged, at any point, the houses are worth the same.  Neither the payment nor the mortgage have any effect on the value of the property.

But by making additional payments or paying cash up front for the house, you have used the most expensive buying power dollars you could to do this. At the same time by using today’s money to make additional payments you have made the banks and mortgage companies very happy. Remember they are in a win-win situation. So what do you do?

We’d highly recommend you read our Mortgage blogs when they’re posted…so that means you’d have to subscribe. There is one thing I know that WE can do for you right now.

We can prove, again not with concept or fancy theory but good ‘ol 8th grade math, that paying extra and sending more of your most value dollars to the bank ahead of schedule actually hurts you financially.

Big paradigm shift, we get it.  Call us crazy but we also can prove that a 30 year mortgage can actually pay off FASTER than a 15 year mortgage using the exact same budget for both…even with a higher interest rate on the 30 year. Read that again. This can be proven with math and no investments are needed to accomplish this fact.  It’s true and can be backed up with simple math.

So, we’ll do our part for free by showing you. You just have to challenge us and be willing to learn something new.

Kelly O’Connor – kelly.oconnor@mtnfinancial.com


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How Financial Institutions Make Money

June 22, 2009

***Updated this post with “How Financial Institutions Make Money #2″…don’t forget to check it out.***

I’ve never illustrated exactly how banks make money.  You’d think most people would understand but the majority of those I meet with don’t.  They typically have the basics down but don’t take the whole strategy from point A to point B.

This actually takes me back to philosophy class in college.  Remember when you’d create a logical syllogism?   You’d make a few claims that work together to prove a conclusion.  Here’s a Banking Concept syllogism:

  1. The banking business is very profitable.
  2. Banks succeed by attracting depositors, maintaining use and control of the depositors money for the longest possible time, charge fees and interest on the funds their depositors borrow, and return the money to the depositors as slowly as possible.
  3. Financial tools exist for individuals and businesses to function and succeed exactly like a bank.
  4. Individuals and businesses have a choice to either deposit their money as the depositor at a bank or to deposit their money into the financial tools that allow them to act like a bank.
  5. Therefore, if individuals and/or businesses funneled their money into these specified financial tools then they could profit from their own money and transactions INSTEAD of the bank.

Seems simple.  It is. That’s what we teach everyday.  Don’t think it’s legitimate?  Then why do you see banks on every corner?  How could any other business, literally, be successful like banks?  Imagine if McDonalds was on each corner of a busy intersection throughout America.  Could they really all turn a profit?  Of course not…there’s not THAT big of a need.  So how can every bank on every corner make a profit?  By functioning in the matter described above.

Let’s go a little deeper.

Banks make money differently than you do.  They first have to attract money to build their success.  Please understand, they produce nothing.  They ship nothing.  They manufacture nothing.  They are completely dependent upon you and others to deposit money.  These deposits are the bank’s “raw materials” to operate their business plan.

Let’s imagine that two accounts are opened at the time of your deposit: one for you and one for the bank.  The bank is required to keep a small portion of your deposit on hand but is free to use the rest as it sees fit.  The primary function of the remaining money is used to loan out to others, maybe even yourself, and earn the interest on those loans.

I like how Don Blanton, author of Circle of Wealth, explains it:

“The homeowner, who pays the builder, who re-deposits the money back into the bank, borrows this money.  After receiving the money from the builder, the banker quickly reactivates this process.  Once a small portion of these funds has been placed in reserve (as required), the bank loans this money out again.  Let’s assume the next loan is for a debt consolidation. Now you should start to see why being the bank is so advantageous!”

He continues, “Let’s continue with the examlple.  The money for debt consolidation will eventually be returned to the bank as payments.  After keeping the required minimum, the money immediately goes right back into circulation!  This time it could be used to provide a customer with a car loan.”

“As the money is again deposited, it could be used for installment credit on a credit card issued by the bank.  Can you see the cumulative results of this process?  The bank gets one dollar to do the work of several by focusing on multiple uses of your deposits.”

We hear and see advertisements every day of financial institutions telling us to deposit our money.  They’ll even give us an iPod or a new sweet toaster oven.  They have only two hooks: easy access to money and the opportunity to compound interest.  The strategy they themselves employ and the strategy that they want us to employ are very different.  They concentrate on deposits that can generate multiple returns while you are invited to leave yours to compound and receive one benefit: interest.

Truly, how many people do you know that have actually gotten ahead financially because of what their money did for them at a bank as opposed to how many banks have gotten ahead financially because of what your simple deposits have done for them?

What if you could redirect your “deposits” into an entity that you own and control and could therefore function just like a bank?  Wouldn’t it only make sense that you’d benefit financially in the exact same way as banks do?

Don’t use the bank, be the “Bank” and do what the wealthy have done for ages.


Kelly O’Connor – kelly.oconnor@mtnfinancial.com


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Cash Value life insurance is a horrible investment; however…

May 15, 2009

We’ve all heard it: Cash Value life insurance is a horrible investment.

Are you ready for this?  All those gurus and experts ARE RIGHT!

The problem, there’s a “however” that needs to be added to that claim.

It should read like this: Cash Value life insurance is a horrible investment; however, if it’s not used or designed for death protection and instead is designed to maximize the MEC (Modified Endowment Contract) rule, then there’s no better place to park money.


Let’s take a look at what was possible prior to 1986 when the government realized that the wealthy individuals had a tool that was too good of a tax shelter…got to love the government.  Prior to 1986 NO ONE talked bad about life insurance.  Why?  Because you could put as much as you wanted, no limits, into a policy and the insurance company would underwrite you for a small amount.

For example: someone with a million dollars could put it into an insurance policy and the insurance company would underwrite them for maybe $100,000 in death benefit.  Why would the individual do this?  For many reasons: All the money in the policy was safe from lawsuits, litigation, and even IRS liens.  The money was totally liquid and they had available what they put in.  Let me say that again: this money was completely liquid and could be used at anytime with NO qualification necessary and NO IRS involvement. The money also had guaranteed growth.

Real life example: the Denver Business Journal in November of 1999 produced what they called “The Century Book”.  This special edition provided a 100 year history of Denver and highlighted something or someone for each year of the century.  When you come to the year 1929 the event covered was of course the Great Crash.  Also within that article was the story of one of Denver’s most wealthy individuals and at the time Denver’s best market player, Claude Boettcher.  The article says this:

“When he returned (he was traveling in the Soviet Union when the market crashed), he fired the messenger who brought him news of his financial ruin.  He had the courage to wait for stocks to drop more before he borrowed $2 million for his insurance policy and bought stocks and banks – the reason he is still known to history.”

How much death benefit do you think $2,000,000 in cash value would have to have?  Back then, very little.  Notice, when the market crashed he didn’t lose his cash value.  It’s guaranteed. It can’t be lost.  He was “financially ruined” but did that effect his ability to access his capital? Nope. What is the one factor that saved him financially? Having access to capital. If this tool was not in his portfolio then Claude would have been just another story of riches to rags.  But still to this day his wealth lives on here in Denver.  Now if he was Denver’s best market player why in the world did he have so much in cash value life insurance?  He was obviously one smart man.

In 1986, the government decided that it was not fair that the wealthy had such a great tax shelter tool and decided to create what is called the Modified Endowment Contract.  Basically, this rule added the risk to the insurance company by creating a minimum death benefit for the premium being paid to fund the policy.  If a policy owner goes over this MEC line then the majority of all tax advantages are wiped out.  The policy becomes a qualified plan with the IRS all over it…forever.  This new MEC rule limits what I can do with my own money…thanks Big Brother.

Let’s get back to the original MYTH.  Virtually all gurus and experts say that Cash Value life insurance is a bad investment.  Let’s first prove they’re right before we illustrate the proper use of the MEC line.

If I had a healthy, 30 year old client who was willing to fund a policy for $25,000 per year, how much insurance do you think that would buy?  Probably around $2,500,000 in death benefit.  Why would this be a bad choice?  For the exact reason Dave Ramsey and Suze Orman say:  your cash value sucks.  Now Dave says you have no cash value for three years…even with this type of policy he’s wrong; however, it would take 12 years of paying $25,000 each year before you’d have available in cash value what you put in.  Not a good option.  If you needed $2.5 million in death protection then buy term and invest the rest.

Here’s the “however”.  However, if the policy is NOT designed to maximize the death benefit and “dance” on the MEC line then what do we have?

Same example: this client is willing to fund a policy for $25,000 per year but we use it to purchase the LEAST amount of death benefit in order to have the most cash value available.  The death benefit is only $900,000 and he has over $17,000 available DAY ONE.  When he makes his year three payment of $25,000 his cash value grows by $29,000…already getting back more than he put in.  At the end of year four when year five’s premium is paid, his total cash value exceeds what he has paid into the policy…NOT twelve years.  Let me ask you this: if you save for five years to buy a car by using a money market at your bank (which is what Dave Ramsey recommends), how much would have in the account?  What you put in right?  Plus a very small amount of interest; however, the IRS takes their share of that every year.  If Dave Ramsey recommends this type of account for purchasing items how is a policy designed in this matter a bad thing?  Keep in mind, the IRS doesn’t get their share.  Shoot, you even have a growing death benefit just in case…at year five the death benefit is over $1.3 million.

Insurance people think we’re the stupidest insurance agents around.  Why?  Because we don’t get paid on the cash portion of the policy.  The commissions would be incredible if we did the first example but we aren’t here to sell expensive death benefit policies we’re here to teach individuals how to bank.  Our commissions are significantly reduced.  Why would an insurance agent turn someone down this path when they can attempt to sell a huge policy and make a ton of money?  We don’t consider ourselves insurance agents, we’re bankers.

So why would we want to fund a policy like this? My next post will be how to USE these funds to redirect debt or purchase vehicles, equipment, etc.  Over time, if you implement this concept, you will NEVER pay another dollar in interest to another entity, you will NEVER need to finance with a bank, and you will NEVER lose a dime.

Cash Value life insurance is a horrible investment; however, if it’s not used or designed for death protection and instead is designed to maximize the MEC (Modified Endowment Contract) line, then there’s no better place to park money.  You get back everything you put in, there is no risk of principle loss, there’s a guaranteed return plus a tax-free dividend, compounding growth, gains tax-deferred but can be used later in life tax-free, no government involvement (they already ruled on all this), creates an immediate tax-free estate, and most importantly, it’s liquid and you have complete use and control of the money (read that one again – what other tool, other than a bank account, can you claim this).

You can have everything you need and anything you want. Don’t use the bank, be the “Bank”. Do what the wealthy have done for ages.

Kelly O’Connor – kelly.oconnor@mtnfinancial.com


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Dave Ramsey is CLUELESS!

May 8, 2009

Let me be a little more specific.  I do have to tip my hat to Mr. Ramsey for all that he has done to help people get out of debt.  His work has freed thousands of individuals and couples from the crippling effects of debt…that horrible thing we do that requires us to pay someone or something back WITH interest.

HOWEVER, what he recommends when the focus shifts from debt reduction to capital accumulation is just plain STUPID.  I so wish Dave would just stick to what he knows best…getting out of debt.

Let’s first take a look at what he says.  Here’s one straight from his website: “If you follow my plan, you will begin investing well. Then, when you are 57 years old and the kids are grown and gone, the house is paid for, and you have $700,000 in mutual funds,…”

So what’s the big deal?  If you look at the criteria you’ll laugh out loud.  This example was a 30 year old who would invest $93 per month for 27 years into a good growth mutual fund.  The basis (the total amount contributed) would be $30,132…that must be some kind of return he’s calculating.  As of matter of fact,

  • He assumes a 17.75% annual return EVERY year.
  • Whenever he’s calculating future account balances he always uses a return between 15-18%…totally ridiculous.
  • He does this all the time by the way.
  • Recently on Fox & Friends (Fox’s morning news program) he was asked a question and responded in the same manner he always does:  “stick with your money markets for short term needs and go with a good mutual fund, like we say over and over, for your long term investments 5, 10, 20 years out.”
  • He teaches his students to NOT invest with a mutual fund that is younger than five years – “you need a good track record.”

I decided to look at 2008’s mutual funds with a return over 12%.  I thought I’d be nice and only cover the first half of the year.  Here are the results:

  • Of the Top 10 only eight had a return over 12%
  • Five of the eight were younger than three years therefore would not have been selected. One of the five was brand new and had no data at all – certainly not recommended by Dave.
  • Of the three remaining, all of them had a negative five year average. All were no-loads but averaged 1.75% in fees.
  • All remaining three had a huge spike that lasted less than 60 days.

So, five of the eight, with the returns Dave says is possible each and EVERY year, were too young.  Three of them averaged negative returns over the previous five year history.  And, they had a very short stretch of success.  Remember, he never recommends to sell so all those gains would have been lost in the second half of the year…all of them are down over 40% as of now.  As a side note, these returns didn’t include what was lost to fees and taxation.

But, the main point,

  • There are thousands of mutual funds (there are more MFs than stocks)
  • Do you really believe you could have timed it perfectly (again only a 45 to 60 day window)?
  • Do you think you would have been so lucky to narrow it down to the ONLY three which actually hit the returns he talks about?

If that’s not gambling I don’t know what is.  Playing with mutual funds is NO different than playing blackjack in Vegas.  It’s NOT investing it’s speculating.  Now look, I understand that there are people out there who can accomplish what Dave recommends but Dave does NOT deal with nor speak to those individuals who treat their money management / trading as a full-time job.  He specifically recommends this strategy and “attainable” results for your average Joe – “like we say over and over”.

Just recently Dave Ramsey held what he called Town Hall For Hope.  It was a great idea to market his get-out-of-debt business…which, by the way, is excellent.  He has great insight with this particular niche of financial assistance.

When it gets to investing he’s simply laughable.  In all seriousness it’s very frustrating because he’s just plain wrong and leads many down a path that is just not attainable (unless you are extremely talented at trading which most are not). Here’s a question that was asked of him during the Town Hall For Hope:

Q: Dave, I have been through Financial Peace University and found some of the rates of return (10–13%) you suggest for “growth mutual funds” to be unattainable in today’s marketplace. Have you revised your suggested rates of return, and where could I find those rates?

A: Those rates are what the stock market has averaged over the past 70 years. Some years it has averaged more and some less. The market may gain 15% one year, then 10% the next, then 3%, then 20%. The gain has varied year to year, but it has averaged 12%. Sometimes it may lose money, but the average is still 12%. Even in these down times, I would still project the same overall growth, based on the past. Remember, the market eventually recovered after the Great Depression, a president resigning, an energy crisis and cowards flying planes into buildings. We’ll survive this as well.

Let’s look at this answer he gave.  First of all, 12%?  There is not one respected financial entity that claims the average is 12%.  According to www.soundmoneymatters.com anyone claiming the average to be 8% is “lying to you.”  The saying is so often repeated that even newcomers know it – “over time, the average stock market return is 8-12% annually”. Dave seems to suggest that if you’re investing in the stock market you will earn 12% if you can just stay in the market long enough (so why does he calculate a 15-18% return when he’s using actual numbers?). The problem with a statement like that is incompleteness of thought and downright deceptiveness.

This statement purports the idea that if you can only buy a few (or maybe only one) stocks you are going to achieve that famous 12%. That is some really good news! Oh, by the way, which stock was that?

It’s sad but true that there are people who really believe in this mythical 8-12% stock market average return by just simply buying a stock or mutual fund and sitting there doing nothing. The flaw in the entire discussion is that the performance of “the market” doesn’t matter; what matters is the performance of the investments in your stock portfolio.  If you make a 100% return on your portfolio, you had a great year regardless of the S&P 500. If the Dow made 2% and you beat it with 2.5%, did the net result in your portfolio really give you something to brag about?

You would think then that he would be a fan of a product that actually does perform based upon “the market”, like a Fixed Indexed Annuity.  They can be linked to the S&P 500 and go up when it goes up.  One thing they don’t do is go down when the S&P goes down…SECURING YOUR PRINCIPLE.

But Dave says they are a joke for two reasons: 1. There are fees if you pull your money out within a 10 year period and 2. They are a product of an insurance company.

Okay wait, if I were to follow his advice I wouldn’t care about the 10 year term because I’m never supposed to touch this money anyway – “you don’t sell. You think long-term and just ride it out.”  As far as the second reason, I believe he’s just plain naïve here.  Look back over time and show me how many investment firms, Wall Street brokers, banks, etc have gone out of business compared to insurance companies.  Maybe, just maybe, they have something figured out.

I’m not recommending Fixed Indexed Annuities here I’m simply pointing out his inconsistencies.

Finally, I think its fine that he attempts to teach an idea to people.  The problem I have is that outside of his advice there’s only heresy and scammers who are focused on commissions.  Again, very naïve and utterly false.

Do you remember that show where Ben Stiller picks up a hitchhiker who has a great business idea?  Instead of the “8 Minute Abs” video he wanted to produce the “6 Minute Abs” video.  I think I may take a similar angle and start promoting that the average Joe getting out of debt and beginning to accumulate can toss away the recommendations of old with 12-18% returns and do my recommendation of 30-40%.  That’s it!  From now on I’m going to tell my clients to only invest their money in those “funds” and “the market” that returns them 30-40% so they can have plenty when they retire.  Then, I won’t ever recommend any specific “fund” or “market” so that I don’t look like a fool.

Kelly O’Connor – kelly.oconnor@mtnfinancial.com


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