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/


Inflation: devastating or full of opportunity. Which do you want?

May 25, 2012

Banks lending again? What does that mean for you and your money? More than you may think.

Did you notice there are some banks that have begun to lift their tight lending requirements? For example, Key Bank here in Denver is now offering 100% financing again. So, what’s the big deal? Before we take a look at what this means, let’s ask a few questions:

  • Have there been any bad times before in the history of the world financially? Of course.
  • During those bad times, even the Great Depression, were there any people who made money? Of course.
  • Was it the people who planned and prepared or people who just let stuff happen to them that were most successful? Obviously those who planned.
  • So which one do you want to be and when do you want to get started?
  • If you could truly put yourself in a position to take advantage of the opportunities you have to earn your family’s financial independence even in bad times, then shouldn’t you be thinking the current economic situation is an opportunity and not a “bad thing”?

Inflation is going to do some real damage to our money if we’re not prepared. Stop and think about this, if you had $1,000,000 and you lost $200,000, you’re down to $800k and that money just stays the same. If we have 7% inflation that $800k is only going to buy $400k of retirement, or $400,000 of goods and services a decade from now.

  • What’s your strategy to make sure that you don’t get hurt by this inflation?
  • More importantly, are there any strategies available that would help you actually take advantage of that inflation to your benefit?

There are strategies that have been implemented for over a century.

Now, let’s get back to the banks…like what Key Bank is doing. The banking system received an unbelievable amount of [printed] money (inflation Step #1) that our government created when TARP was passed. We’ve discussed before but do you remember Step #2 that is required for inflation to take hold? Step #2, the printed money has to be circulated. You starting to put this together?

  • Did the banks circulate those monies initially? No they didn’t, at least not very much of it.
  • Even though they didn’t circulate a lot have we experienced some inflation because of those funds? Absolutely, all you have to do is go buy a gallon of milk today to see it first-hand.

Here’s the bigger problem, banks are beginning to circulate more of that money (i.e. Key Bank offering 100% financing again!). This will have a huge impact over the course of the next decade. Huge!

  • What happens to interest rates when inflation begins to roar? They go up. Remember the early 80’s after the inflationary pressures from the late 70’s?
Historical rates of great opportunity
If you don’t remember what interest rates were at that time then take a look at this graph. Opportunity? You better believe it but only if you were in a position to take advantage of it. What if all your money was in your house (equity)? Look at this graph. In 1982 would you have borrowed money at 16.08% in order to earn 15.12% for one year? Of course not.

There are always those who plan and those who do not. Over the next decade and beyond, you have the opportunity to take advantage of these opportunities but it requires one very important characteristic.

  • You MUST have access to capital, more specifically, guaranteed access to capital no matter the situation with the ability to collateralize those funds and earn a spread in a GUARANTEED and PREDICTABLE environment!
If inflation was raging right now and guaranteed rates, like CDs, were flying high, are you in a position to take advantage of it or are you currently positioned to be hurt by it? It’s a choice, not a matter of chance.
Since I’m on a roll, here’s some more questions for you
I love questions so here are a few more; however, these questions are designed for you to ask other advisors who want to invest your money. Those advisors MUST be able to provide an answer for each one these and we challenge you to ask them because, after all, it’s YOUR money and YOUR future.
  • What are you doing to do to make sure I don’t lose any money? What’s your strategy?
  • If I do lose, what’s your strategy to make back any money lost to get me back ahead of the game? What are your recommendations?
  • What impact are taxes going to have on all of this and could taxes prevent me from having a successful outcome?
  • Do you believe taxes will be higher in the future? If so, please answer the third bullet point again.
  • What strategy is there in place to keep taxes off my back going forward?
  • If you are recommending my money be put in a taxable position then please explain to me the specific reason why (especially if you believe taxes will be higher in the future) and the exit strategy to minimize those taxes in the future.
  • How can I take advantage of the pressures caused by inflation with your strategy?
  • What impact will inflation have on your strategy?
  • What is the impact of fees over time to the performance of your strategy? How can I get rid of or minimize those fees?

I hope it’s obvious by now but we have an answer, and a specific strategy, for each and every one of those questions.

You better be able to address each and every one of those. If not, then you’ll simply be one of many who didn’t plan…again, it’s not a matter of chance but instead a matter of choice.

We’d be happy to show you.

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


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Why “the experts” confuse the average investor

November 17, 2009

We have clients in our office every day who love to ask what our opinion is of the market and what are effective strategies to invest and win. Well, we have our opinions but I thought I’d refer to a few experts out there in the financial world to see what they say we should be doing. First, what’s the “attitude” of investors? Let’s see what the numbers say.

The Chicago Board Options Exchange’s Volatility Index (VIX), which tracks the volatility of the market, has dropped significantly; on November 20, 2008, the VIX was 80.86; on September 11, 2009, it was 24.15. So, it appears the market is “calming down” and the investors are too. Not so fast though. There are those who anticipate we’ll need another 12-18 months to gauge the change in the market before any true confidence can be determined.

Randy Carver, a financial advisor with Raymond James Financial, says “We believe the market will move higher over the next couple years, perhaps significantly so, but is likely to go lower before it does” (italics added by me). He sure covered his butt didn’t he?

The Senior Vice President at Raymond James Financial, Sacha Millstone, says, “If you got out of the markets, you have to honestly assess why you did that. Find an asset allocation you can stick with through hell or high water.” Alright, so she feels people were uninformed or made poor decisions if they “got out”.

Uri Landesman, Senior Vice President at ING (they’re pretty big) said this, “[I] don’t blame investors for pulling out of the market, as there was no way to know how far down the market was going.” So we shouldn’t feel bad for getting out? Do we really ever know for sure how “far down” it’s going to go? We knew there would be those who said it was okay to secure your principal and there would be those who said we were stupid. There will always be a variety of opinions (hey, at least someone will be right) but let’s assume that confidence is back, the “doom and gloom” is gone, and people are ready to “get back in”, what then do we do with our money?

Uri Landesman (italics added by me): “…try technology bellwethers (ex: Microsoft, Intel). If you think we’re emerging from a global recession invest in the energy and materials sectors…Investors who aren’t sure about the state of the economy can try investing in the health care sector.” Well, no matter what, he’ll have some clients happy and others who “made the wrong choice”.

John Osbon (founder of Osbon Capital Management): “New waders in the market should invest in a mix of Vanguard Total World Stock Index Fund and Vanguard Total Bond Market Exchange-Traded Fund.”

Vahan Janjigian (chief investment strategist at Forbes): recommends Supervalu, Terex Corporation, and Tesoro Corporation. At least he provided some specifics but he does add the good old qualifiers of “if” and “could” when describing his reasoning.

Jeff Rubin (head of research at Birinyi Associates): “Stock selection is going to matter more instead of sector or some other type of selecting process (high dividend stocks, low P/E or what ever it is). As of now, I continue to stick to strength, such as Apple, Google, Goldman Sachs, JP Morgan Chase.” Okay, so the way of old is no longer. Got it.

Randy Carver: “We feel there is an opportunity in long tax-exempt bonds. We would avoid long taxable bonds, and we would add hard assets/commodities.”

Dave Ramsey (Fox financial pornographer): “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.”

Sacha Millstone: “It isn’t about this or that particular investment. It is about a plan and a strategy and overall implementation.” Now I shouldn’t focus on product? These general platitudes have always confused me because my plan MUST pick particular investments and/or products in order to be implemented.

Robert Rodriguez (chief executive of First Pacific Advisors in Los Angeles): “[The economy] will be up and then down, up and then down. We will be far from normal for a very long period of time. People deploying capital will end up destroying capital.” That’s an interesting take. Now I’m really confused on what to do.

David Laibson (economist at Harvard University): “Investors expect that assets on which they personally experienced past rewards will be rewarding in the future, regardless of whether such a belief is logically justified.”

Jason Zweig (journalist for the Wall Street Journal): Responding to Laibson’s comment above said this: “[Buying] more of what has gone up, precisely because it has gone up, is to fall for the belief that stocks become safer as their prices rise. That is the same fallacy that led investors straight into disaster in 1929, 1972, 1999, 2007 and every other market bubble in history.”

How do you sum up all this information? This is only the tip of what we hear everyday on the radio and TV. Some say the economy is rising, some say it’s not, some say it’s flat. We’re told to invest and “suck it up”, we’re told that if we do we’re “destroying capital”, we’re told that we shouldn’t have gotten out, and we’re told we were foolish for doing so. We’re told specific stocks, don’t focus on specific stocks, focus on sectors, don’t focus on sectors, forget stocks and go bonds…AAARRRGGHHH!

An analogy just popped into my head that seems to wrap this all up quite well. It’s like standing on the tee box of a brand new golf course. There is no map of the course and no one has played it before. You’re surrounded by golf club salesmen who have played other courses but never played this one. Some of them have played for many years. Every one of them has an opinion about the wind and the obstacles ahead. Every one believes that their golf club is the right one IF all the factors come together properly (wind, swing, ball, layout of the hole, etc). So what do you do? Do you just pick the one salesman that you like the best and take a swing and hope it works? Dave Ramsey tells us that we should pick the one advisor that “makes us feel good” about our club choice (literally, he says that to us). No matter how hard I love my golf club, no matter how good it makes me feel, if I don’t have the right swing then it still doesn’t do what I want it to do…but at least it made me feel good, right Dave?

What about this choice? What if we worked on our swing first? Now, there’s a radical concept. Or, what if we walked the course FIRST to get an understanding of what we were hitting into? If all we did was ensure our swing was sound and then get a layout of the course, wouldn’t we be better off? Can you imagine what it would be like to NEVER care what the market is doing? Can you imagine what it would be like if you had access to capital that you could invest with a “product salesman” but they only made money IF they made you money?

I sure find it interesting…and so do my clients.

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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What would all the "experts" say if…

April 15, 2009
…Congress made the following changes to the Roth IRA in order to promote savings and financial security for the individual?
1.  They removed the income restrictions making it possible for ALL citizens to invest in the Roth…from the hourly employee to multi-million dollar athletes.

2.  They also decided to remove the limits on the amount one could invest; therefore, the hourly employee could deposit as much as he/she could as well as the millionaire.  Post-tax dollars of course (no change there).

3.  In order to help people stay out of debt (let’s face it, there are way too many bankruptcies and foreclosures) they removed the age restrictions and allow for the new Roth IRA to be completely liquid.  No more waiting till you’re 59 1/2.  You can withdraw or borrow from this account AT ANY TIME.

4.  What if they added an extra bonus to really promote this new Roth by adding a rule that if one does borrow from their account the full balance still earns interest.  For example: you have a balance $100,000 and borrow $20,000 to buy a car.  The account would not compound interest at $80,000 but continue to grow at the full $100,000.  Therefore never giving up the opportunity to earn interest on your money.

5.  Realizing that one individual may be significantly more successful than others in their immediate family, Congress decides to allow an individual to start a new Roth IRA for his/her family members…again, without limits on the dollar amount.

6.  What if they included a guaranty that the new Roth IRA could NEVER lose principle.  Meaning, the account balance would NEVER go down…EVER!

Honestly, what do you think Suze Orman, Dave Ramsey, and all the other “experts” would be saying about these new changes?  They already recommend the Roth IRA, even with all the limitations.  They already advise to put as much as the law allows into these tools.  If these changes were to be made these people would be all over it.  Imagine, now they could acquire the well-to-do and the extremely wealthy as clients.  It’s crazy to envision what the hype would be like for this new Roth IRA…they’d be drooling and advising EVERYONE to do it as soon as they could.

Here’s the kicker…IT ALREADY EXISTS!  If it already exists, then why aren’t they drooling over the chance?  The answer:


It’s not a joke people.  Wall Street, brokers, financial planners, they all make money by managing your money.  If they don’t have the money under their control then they don’t make their annual fees.  How many of you, who have lost a ton this past year, received a call from your financial guy telling you to put all your funds into cash?  My guess is ZERO…unless maybe your financial planner is a family member.

How about this one:  I worked with a client who last summer (July ’08) had three accounts totaling approx. $960,000.  Going through his account statements he was being charged roughly 1.75% in fees.  When his accounts dropped to $600,000 he was still being charged 1.75%.  He decided to take the advice of this planner – “Stay in. Don’t secure your losses. It’s going to come back.”  Now that his accounts are worth roughly $300,000 guess what he’s still being charged…yep, that 1.75%.  This gentleman is 67 years old and had planned – and had enough by the way – to retire at age 70.  “But you’ll average 8% if you stay in.”  Come on.  Get real.  What if, you’re close to retirement when something like this happens?  Does that “8%” mean anything?  Absolutely not…IT’S ALL ABOUT PRINCIPLE SECURITY!

So, in three years, just to get back to his previous balance, this guy will need a 47% return EACH year.  Good luck.

YOU DO NOT need to put your trust in someone else, you do not need to play the game and hope you get the return, you do not need to watch the market everyday to attempt to time the perfect investment.  The tool exists, all you need is the knowledge of exactly how to make it work.  The wealthy have been doing this for over 200 years.  It’s time the average consumer does it as well.  Let’s all get ahead.

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


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