Phil Town
Phil Town

People often write in to ask me specifically how to free up funds to invest. I'm sure a lot of you have Eric's question, below, about life insurance. Read on:

Mr. Town,

1.  I currently have a whole life policy into which I pay $250 per month.  Would it be smarter for me to invest the $250/month in following the program you set before us during the "Get Motivated!" seminar?  I could pick up inexpensive term life to replace it for about $120 per year and invest an additional $3000 per year.  I do have $3000 invested in the policy at this point (1 year) to consider - what would you do?

2.  I started putting about $200-$500 per month into a normal money market account four months ago just to have it set aside for a rainy day.  You seemed to be in favor of putting all eggs into one basket - do I close my safety account and start sending that money to Scottrade?

3.  I have an IRA in worth about $15K.  Would I be smarter to take the penalty for early withdrawal in order to have it available to invest using the Success Investor's Toolbox in the manner you described during the seminar?

Any advice is greatly appreciated.

Eric W.

Here's what I think:


I'm no expert.  I'm a river guide.  But I've never been a fan of whole life.  Seems like we're paying a lot and getting a little.  A death benefit only policy is a lot cheaper and as you say, leaves you with a bunch of money to invest.  So let's take a look at what you might be able to do with that $3000 a year. 

Let's say you put it in for the next 20 years.  Ballpark return of 15%.  In 2025 you'll have about $300,000 to work with which, at 15% will be throwing off a nice $4000 a month forever.  Will your whole life policy do that?  If it isn't close, time to switch even with the $3000, which you might be able to borrow out?

I break diversification into two categories: Things and Cash. Real estate is a thing.  Gold is a thing.  Diamonds are a thing.  Have some things that will appreciate in the long run.  But cash is where we get rich.  Having it when others want it is how we get good deals.  Knowing we are buying a wonderful business at an attractive price is how we keep risk to a minimum.  And staying liquid is how we reduce short term risk to almost zero. 

Keep the rainy day fund going until you are sure you understand how to invest like I do.  Some day in the not too distant future your wife will come to you and ask you why you aren't investing that money too.  That's when you know you got it going on good enough that you don't need a rainy day fund anymore... because your business investments are just as safe as money in the bank.

And the good news about your IRA is that you can roll it over without taxes or penalties into a self-directed IRA.  Any online broker will be happy to explain how to do it.  Simple, easy and quick.

Now go play!