Latest / The Personal Finance Club Show / Tax Free Millionaires, Life Insurance (Scam?), and The Magnificent 7 Crash | Ep 33

Transcript

Tax Free Millionaires, Life Insurance (Scam?), and The Magnificent 7 Crash | Ep 33 · The Personal Finance Club Show

0:14
Welcome back to the Personal Finance Club show.
0:16
Hey, John. Hi Jeremy, I love your like ramp
0:20
up face when you're getting ready to start recording you
0:22
like you smile really big and then you.
0:26
Well, because when the camera turns on, you got to be on Jen.
0:29
This is Hollywood stuff. I know, but it's it's funny to
0:31
witness it. I'll say like, they don't get to
0:33
see that. No, I do feel like when I'm like
0:35
making a TikTok or like on the podcast, I'm definitely like
0:39
more on because I think you're supposed to be and you're trying
0:42
to like put on a show. But sometimes people meet me in
0:44
real life and they're like, entertain me clown.
0:48
And I'm like just staying in line at the airport.
0:50
I. Speak to you're a real bore in
0:53
real life. I'll tell it from personal
0:54
experience I. Think the guy who's shaped his
0:56
life around espousing the benefits of low fee index funds
1:00
would be much more fun at parties, yet here we are kind of
1:05
boring. Speaking of parties, did you
1:07
just get an e-mail from me, Jen? I got invited to the wedding.
1:13
That's right. My life right now is it's
1:15
actually not that bad. We're trying to have it be like
1:16
a very chill kind of planned wedding where it's going to be
1:20
at a resort. It's a destination wedding, I
1:23
know. But we're hopefully trying to
1:25
make it somewhat affordable. And yeah.
1:28
So now what do you think? What do you think a wedding
1:30
should cost these days? I don't know, like 5-6 bucks
1:34
was. I.
1:38
Have no perspective on that at all.
1:41
I've never planned a wedding, especially financially.
1:43
I've sung at a lot of weddings, but I would say like, I mean in
1:48
these major cities, like you're looking at like $30,000.
1:54
It's an. Incredible guess.
1:55
Last time I looked it up, I think they said that was the
1:57
average, but obviously I think it's skews expensive because
2:01
like, while most are clustered around 30,000, some can be like
2:04
300,000 or 3 million or whatever.
2:06
Getting really crazy. Yeah, I think we're kind of like
2:09
targeting 30,000, but I'm expecting it to just be more
2:11
like 60,000 because just things happen.
2:15
I mean, we could do it like way cheaper and just be like show up
2:18
to this resort and, you know, we'll see you there and there's
2:20
nothing else, but we're having the party and, you know, booking
2:24
a big room for ourselves and doing a bunch of other stuff,
2:26
just it just starts to come out of the woodwork.
2:28
So yeah, we'll see. I mean, you know, it's a ton of
2:31
money. It's an offensive amount of
2:32
money. I normally would be like fully
2:34
against this, but you know, I am pretty rich, not like in the 1%,
2:39
but I'm in like the 3%. I thought you were going to say
2:41
I'm in love. You said I'm rich.
2:43
I'm in love with my money and I I don't want to get divorced.
2:47
Like, normally I wouldn't do this, but I'm so in love.
2:50
No, you said I'm pretty rich. Wow.
2:52
Well, to be fair, I think that was like the first half my
2:55
sentence, which means I can afford it.
2:56
And therefore things that are kind of like once in a lifetime
3:00
opportunities where, you know, I'm not really like a wedding
3:04
guy. But the reality is it's like,
3:06
how often do I see my cousins? How often do I see like my
3:09
wife's family? You know, and when you're
3:10
talking about memories kind of like dotted throughout life, a
3:13
lot of times you will say, like the last time I saw my family
3:16
was at so and so's wedding. And so, you know, while it's
3:20
like a lot of money also because I have the means, what are you
3:24
going to spend it on? You know, and I actually was
3:26
thinking about buying a new car. I talked about buying a Rivian
3:29
and I basically it's like 100 grand.
3:31
I'm like, all right, what would I rather have like this other
3:34
car sitting in my driveway? Or would I rather have like a
3:37
memory and experience for like, you know, maybe 150 people or
3:41
however many people show up this thing, I don't know.
3:44
So yeah, in the in the midst of it, yeah, we're going to spend
3:46
some money. Vivi and I are already planning
3:49
our grand. Gift.
3:49
Oh really? Oh, that's good.
3:51
Yeah, I know. I think there are some like
3:53
colonies of scale if you like share rooms and stuff like that,
3:56
so. I'm so excited.
3:58
I love I have your magnet on my fridge.
4:01
I just got the e-mail. I'm fully.
4:02
I know we actually sent out. We did send out save the date
4:05
magnets and then we're talking about sending out like physical
4:07
invites like whatever, let's just e-mail everyone.
4:10
We did like a whole fancy. Invite.
4:11
You're not gonna, you're not gonna do physical invites at
4:13
all. You just got the e-mail.
4:14
What do you want? You want a physical invite now.
4:16
Cheap. OK, I'll take it out of your
4:20
booze, your booze budget, which is 0 because.
4:24
Don't check, I'm really excited and the magnet's super cute and
4:29
I'm just like Thomas. Amazing.
4:32
Should we get into? It I thought I was smiling at
4:34
the wedding. Let's talk about making some
4:36
more money somehow. What do we got?
4:41
Hot Topics. What is today's hot topic?
4:47
OK, this headline from Yahoo Finance.
4:49
Shout out Yahoo, by the way, like they've been around.
4:51
Yeah, still exists. Ready to go, Yahoo?
4:54
I mean this post didn't have a lot.
4:56
Did you see this on your Myspace page?
4:58
I'm seriously Yahoo Finance isn't my topic actually.
5:02
So this headline from Yahoo Finance reads.
5:05
The Magnificent 7 is leading the S&P 500's decline.
5:09
The caption is short and sweet. The Magnificent 7 stocks posted
5:12
a loss of over 330 billion on Friday.
5:16
Like, is there any validity to do this?
5:18
Is this something you've heard before?
5:19
What does this even mean? All right, so first of all, when
5:21
they say posts are lost, they don't mean the company's lost
5:24
that money. That meant the value of the
5:26
stocks trading. And so the way that you value a
5:29
company in the stock market, as you take all you know, you take
5:32
how many shares exist of that stock multiplied by the current
5:36
price of the most recent trade of that stock, and then assume
5:39
every share is worth that much. Therefore the whole company is
5:42
worth that much. And so, for example, if you have
5:44
a billion shares and every share is worth $10 and the company's
5:48
worth $10 billion, and if it goes from $10 a share to $9 a
5:52
share, the company goes from 10 billion to 9 billion, that means
5:57
it's just lost a billion dollars.
6:00
Although it's all kind of like paper pretend money because not
6:03
all the shares are trading on any given day.
6:05
But yeah, that's what it means. The Magnificent 7 for some frame
6:10
of reference, is the seven stocks that have done really
6:14
well the last few years that have been really doing the
6:17
opposite of what you read about, which is most of the gains of
6:19
the S&P 500 is because of the seven stocks.
6:22
And now they're saying most of the losses of the S&P 500 is
6:25
because of these seven stocks, for the record.
6:28
I really should know who what? Are your guesses if you have a
6:30
guess to any of those, if you could guess.
6:32
I know, I know. At least Google.
6:33
Google's one, that's one, you got 1.
6:35
Whatever, you keep going. Apple.
6:36
That's 2. NVIDIA.
6:39
That's three. Is Tesla public?
6:45
Is it 1 Tesla Tesla's. 4 All right, you're 4 for four.
6:49
You only have three more to go. I don't think I can get the
6:51
other four. They they're tech companies.
6:52
Yes. They're computer is it is IBM up
6:55
there. We just talked about IBM.
6:56
So that's in my head. No, that's a very cute gas, but
6:59
no way. You told me they had a fall from
7:01
grace, but OK, I don't think I could do the other three off
7:03
top. I kind of figured which ones you
7:06
said, but it's Google, Amazon, Apple, Facebook.
7:11
Meta. Microsoft, NVIDIA and Tesla.
7:16
Oh. I did pretty good.
7:17
Nice. Yeah, no, you did great.
7:19
And and yeah, those are like these big hot tech companies
7:24
booming from like electric vehicles, AI, you know, social
7:28
search, all this stuff that's like been big, they've been
7:31
doing really well. But now is the bubble bursting
7:34
because now those companies are plummeting.
7:36
As you can kind of see this chart, which shows year to date,
7:40
the Magnificent 7 are down about 15 or 16% it looks like from the
7:44
chart, whereas the SP500 is down, you know, maybe 3%.
7:48
And so these companies are so big, they represent a big
7:53
portion of the SP 500. And so while the other companies
7:56
in the SP 500 have done better, maybe they're even up, the net
7:59
result of all 500 companies is that it's down a little bit.
8:04
This also reminds me, have you ever heard of Fang FAANG Fang
8:09
like was the, you know, the five company acronym that preceded
8:13
the Magnificent 7, which stood for Facebook, Apple, Amazon,
8:17
Netflix, Google and I guess Netflix was not magnificent, but
8:22
NVIDIA and Tesla and Microsoft were magnificent.
8:27
And so they got added. And you know, the huge problem
8:32
with these fancy named groups of stocks is that they're purely
8:38
backwards looking. You know, you can like, let's
8:42
say you take 500 random companies, jumble them up and
8:46
then let time go on for a while. And then you look backwards
8:49
like, OK, look at those 7 did really well.
8:50
Those are magnificent. But you only know that because
8:53
time went on when you started, you didn't know which 7 was
8:55
going to be and starting now. And so I do need to interrupt
8:58
this this what is this segment, this hot topic segment with a
9:04
Jeremy had time today segment. I'm just.
9:06
Inserting yourself. Interrupting myself with Jeremy,
9:08
had time today because I have time for this interruption and
9:11
I'm going to read you a comment. It's very, very topical.
9:13
Just on a post from today and there's a post I was talking
9:16
about index funds and this commenter said, I feel the index
9:21
funds are just a safer bet. But when you're young, there's
9:24
no reason why anyone should simply own just index funds and
9:27
not individual stocks. To me, that's crazy.
9:30
Your 4-O1K is an index fund. Buy stocks, guys, stick to the
9:35
mag 7. If you if you're more
9:36
conservative, these stocks will all perform any index fund over
9:40
the course of 30 years. It's just that simple.
9:43
And and I responded, I was like, you only know that looking
9:49
backwards. And then we got, we got a little
9:51
flame where he said he's like, no dude, look it up, look it up
9:53
over the last 30 years, see which one did better.
9:55
I was like, I was like, yeah, but you know, this is 2026 and
9:59
20 or in 1996, were you out there commenting on Geocities or
10:06
whatever exist? And I know that's.
10:08
What you need to bring IBM back? You're commenting on Ask Jeeves
10:12
and saying, hey, Google, Amazon, Apple, Meta, which will soon be
10:17
invented in 10 years and be called Facebook, NVIDIA, Tesla.
10:21
Like none of those were even in the conversation back then,
10:24
right? So he's like, he's got this like
10:27
totally warped view where he's like, hey, those will do better.
10:29
I'm like, no, no, no, you're mistaken.
10:31
Those have done better, which would have been great to know 30
10:34
years ago, but we didn't know that 30 years ago.
10:37
And now the question is starting now and looking forward, which
10:40
ones are going to do better. And this post from Yahoo Finance
10:43
kind of perfectly explains the flaw in his reasoning, which is,
10:45
hey, dude, it's already started. They're already underperforming
10:49
dramatically. You know, the market's down 3%,
10:51
the MAG 7's down 16%. You just underperform.
10:54
Which is kind of crazy because you like can't think of a a
10:56
company like Meta ever failing. And The thing is like, it's not
10:59
failing, it's just not doing as well as people expected to do
11:03
people. And so that's why the price
11:04
drops. So again, people, the, the, the,
11:07
you know, the, there's a, a multiple in these stocks, which
11:10
is like how, how many times you're willing to pay for their
11:13
profits. And the bigger the multiple, the
11:16
higher the expectation. And so for example, if you buy a
11:18
carpet company, you might be like, OK, I'll pay you 7 times
11:21
your profits, which means I expect to get back my investment
11:24
in seven years of profits with, you know, some of these
11:27
companies, they're in like the two hundreds when meaning you
11:30
have to wait 200 years to get back your investment.
11:33
And obviously no one will be alive for 200 years.
11:35
And So what that's really saying is I expect this company not
11:38
only to pay me back in 200 years, but to grow so, so fast.
11:42
It actually pays me back in 10 years or five years or whatever
11:44
it is. And so if that doesn't happen,
11:47
rather than taking 200 years, ends up taking 100 years or 50
11:50
years, which would be a magnificent performance.
11:53
It still is underperforming. You know how how well they think
11:56
it's going to do. And so there's just all this,
11:58
you know, that's kind of where the bubble talk comes in, which
12:01
is like, there's all this hype, NVIDIA, Tesla, Facebook, and you
12:05
know, everyone's like, oh, it's going to be huge.
12:06
It's going to be huge. And instead of being super,
12:09
super duper huge, it's just super huge, which would still be
12:12
great. The price drops.
12:15
And so when he's looking backwards and saying look how
12:17
well the stock price is done, you're saying, yeah.
12:19
But baked into that is all this future insane outperformance or
12:24
insane super performance, which if it's just barely
12:27
underperforms that the price will actually drop, which is
12:29
what we're seeing here. And so, you know, here's the
12:32
problem, right? We only named these companies
12:36
because those are backwards looking performance.
12:38
And so my question to you, Jen is like what company is going to
12:41
be the next, in the next fancy name group that's going to
12:44
outperform all these other companies?
12:46
Nectarine. Nectarine.
12:48
That's an extremely good answer. The problem with that if you
12:51
don't. If you're not another joke.
12:52
That's like the company I'm a Co founder of.
12:54
The problem is it's not publicly traded so you can't buy it.
12:56
Damn. I will personally become
12:57
exceptionally wealthy if that's true, but none of you guys can
13:01
buy it. So then if it's not nectarine,
13:03
then the answer is we don't know.
13:04
You don't know exactly. That's the exact right answer.
13:06
No one knows. And so, you know, this commenter
13:09
who you may be a blur his name out because we're being kind of
13:11
mean to him. But this commenter, you know, in
13:14
10 years he's going to be like, of course it was Beyond Meat,
13:18
you know, ABC Electric and you know, DoubleTree Butterfly
13:24
Company, Like of course there's those three.
13:27
Everyone knows those three now. But like, I'm like, no one's
13:29
saying that now. And no one knows what those are
13:30
now. And so to just chase past
13:33
performance by buying the ones that did well in the past,
13:35
you're setting yourself up for underperformance.
13:37
And so him him saying these are guaranteed to perform an
13:40
outperform an index fund. That's totally not true.
13:43
And I told him, I said, hey, do what you want.
13:46
You can buy the mag 7:00 That's fine.
13:47
You know, they're not bad companies.
13:48
I certainly own them inside of my index fund, but you're about
13:52
to learn the expensive way that they don't always outperform.
13:55
As we can see here in this chart, the underperform, the
13:57
underperformance has already started.
13:59
We'll continue. I don't know, you know, no one
14:01
knows the future, but that's why I buy all the stocks.
14:04
Well, it got my attention, so they did their job over there at
14:07
Yahoo. Five.
14:07
I know. Yahoo.
14:08
Really. Clickbait.
14:11
With the two line line chart, they're really.
14:14
Pushing the eye, right Yahoo exclamation point.
14:17
OK, awesome, let's move on to money.
14:20
Money. Can I ask a dumb one?
14:24
You're asking smart questions to a dumb guy.
14:27
What do we got today? Well, we have lots of really
14:31
great questions. Actually.
14:31
I would love more audio questions.
14:33
So if you are listening, don't be shy.
14:36
We want to hear your voices. We want to hear how this effects
14:37
you emotionally. You know, I want to hear the
14:39
angst in your voice and you're asking your money questions or
14:41
maybe the pride and joy in your voice when you're talking about
14:43
your investments. But.
14:44
You want to Fast forward to the front of the question line?
14:47
Send us a selfie video or an audio?
14:49
Sure. Actually, that's that's really
14:51
what it is if you want us to answer your questions on an
14:53
audio and video. OK so Daniel in Fort Worth TX
14:58
asks. I'm 43 years old.
15:00
I can say I am set for life. I receive VA disability 4600 a
15:05
month, tax free army pension 2600 a month plus my full time
15:10
job for the state of Texas. I have a VGLI policy to my wife
15:14
and survivors benefits from the army for my spouse.
15:17
I want to leave generational wealth.
15:19
I was told to get a variable life insurance policy on my son.
15:22
He's 21 years old. I can do $200 a month.
15:26
They should be the whole chart and by 65 he'll have $1 million.
15:30
I was told he can borrow against it tax free and not have to pay
15:33
the loan back or he can pull the money out tax free then allowing
15:36
the policy policy lapse. I'm not sure what that means.
15:39
Is this even possible and worth it?
15:41
Sorry, I'm like my wife and I are set.
15:43
I'm not worried about our future, but I want to create
15:46
wealth for my future generations.
15:47
I also own two homes and will be paid off by the time I'm 55.
15:51
Jeremy, that's a juicy question all.
15:54
Right. Well, Daniel, first of all,
15:55
thank you for your service. You've been in the military,
15:57
you're on disability. I take that to mean that you had
15:59
some sort of injury or something.
16:00
And you know, you have, you have done your time serving your
16:04
country honorably. I, I assume.
16:06
So thank you for that. I, I, I generally agree with
16:10
you, you know, military pensions, there's not really
16:13
much of A better financial bet than the American, you know, the
16:16
US government continue to pay your military pension.
16:18
And so between your $4600 a month from the disability, $2600
16:23
a month from the Army, that's what, $7200 per month plus
16:28
you're still working full time. I'm like, dude, that's, you
16:30
know, serious cash. You know, you're set.
16:33
You said you have a VGLI policy that stands for veterans group
16:37
life insurance. It's a term policy that renews
16:39
every five years. It's basically a way for
16:42
military veterans to keep a term life insurance policy in force
16:45
after they leave the military if they want.
16:48
But it gets more expensive every five years.
16:50
And so into your 50s and 60s and beyond, it gets kind of
16:52
prohibitively expensive. But also, you know, we don't
16:56
build wealth through insurance companies.
16:59
We don't build wealth by buying a bunch of insurance and hoping
17:01
it pays out one day. We build wealth by owning stuff
17:04
like investments in real estate, which you're already doing.
17:07
You're going to own two homes paid off, which is, you know,
17:10
don't know where they are. But even in Texas, that's
17:11
probably going to be 1,000,000 bucks right there.
17:13
More are worth more or less. And so to get to the media
17:16
question, you're saying, OK, I've got 21 year old son.
17:19
I was told he says to get a variable life insurance policy.
17:24
And so the person who told you that is not a financial advisor.
17:27
That person is that person is an insurance salesman.
17:30
This is if you can hear the sound of my voice and this is
17:33
news to you. If you talk to a financial
17:35
advisor and they tell you to build wealth by buying life
17:39
insurance for you, for your son, for anyone, you don't have a
17:43
financial advisor, you have an insurance salesman.
17:46
They are only saying that because they make money from
17:51
selling life insurance so they only can see the world through a
17:55
lens where they get a big fat Commission by signing you up for
17:59
an insurance policy. Insurance salesman are liars.
18:04
I hate to be blunt, but what he told you is not true.
18:06
It's just it's strictly not true will not become true.
18:10
And the way you know this is by looking at people who have done
18:13
what he's suggesting you do. If you go look at people who
18:16
have had a policy for five years, 10 years, 15 years, 20
18:18
years, it's not worth $1,000,000.
18:20
They're not borrowing great money amounts of money against
18:22
it. Everyone I see who has one of
18:25
these permanent life insurance policies in place is usually
18:29
underwater, meaning they put more money into it than it's
18:32
currently worth. Meaning they would have been
18:34
better off putting that 200 bucks a month under their
18:37
mattress in a coffee can buried in the backyard.
18:40
Or if you want to get crazy, on a savings account or a high
18:43
yield savings account. So these projections they show
18:46
are not guarantees and they rarely come true.
18:50
And in fact, they're always hiding the truth behind them,
18:53
which is these policies are extremely expensive.
18:56
They don't mention the huge commissions that you that get.
18:59
They get paid the, the policies fee, the monthly fee, the index
19:02
fee, the statement fee, the, you know, and, and then the cost of
19:05
insurance. And what often happens is these
19:07
policies lapse and you lose everything.
19:09
And so, you know, I'm just so sick of debunking insurance
19:13
sales and lies because it's just like playing whack A mole.
19:16
You know, they say I can bargains at tax free, you know,
19:20
like a hint of truth. But there probably will be less
19:23
cash value than if you just had the money yourself.
19:26
And often these things have no cash value or no borrow money
19:28
can bargains. There's a great, there's a great
19:32
Instagram TikTok account called life insurance refunds.
19:35
This guy named Jonathan, He literally talks to people who
19:38
bought a life insurance policy 5101520 years ago.
19:41
He, he goes on a three-way call with them with their permission,
19:44
calls the insurance company and says, hey, how much money has
19:48
this person put in $50,000? How much is it worth today
19:52
$20,000 How much can they borrow?
19:54
Gets at $5000, you know, and then they, he goes to the, you
19:58
know, the insured. Did you did you know that they
20:01
no. I thought I would have all of
20:04
that money. I thought, you know, so like the
20:06
lies being told by the people selling these policies are just
20:08
so outrageous, you know, and, and this whole like tax free
20:12
thing. Here's my favorite trivia
20:14
question. I think Jen might even have this
20:15
one memorized. Jen, when Daniel and his wife
20:19
die, how much money can they gift to their son before they
20:24
pay any sort of estate tax? 100% tax free.
20:28
Yes, I feel like I should have this.
20:30
I should have this memorized. I want to say 14,000,000.
20:33
That would have been 100% correct last year, but now it's
20:36
15,000,000. Wait, I feel like that's the one
20:37
thing you said last time. It hasn't been a year since
20:39
we've asked. You've asked me that question.
20:41
Maybe it was in the last year, I guess, yeah.
20:43
Well, whatever, it's it's April, January, I don't know, but so
20:46
it's 15,000,000. But you're actually wrong by
20:48
double because that's per person.
20:50
I said patch or sorry, Daniel and his wife, they can do $50
20:54
million each. So as a married couple, they can
20:56
give $30 million tax free to their son.
21:00
And so this whole buy life insurance on your son so that he
21:03
can have wealth. It's, it's total and utter
21:05
nonsense. It's a lie pushed by an
21:08
insurance salesman. So what should you do instead?
21:11
No, don't try to build wealth through an insurance policy.
21:13
You're going to go years and years down this path and find
21:16
out how taken you got. Please don't do that.
21:19
By the way, I don't sell insurance, don't sell index
21:22
funds, I don't care what you do with your money.
21:24
You know, I don't have a Commission to be made here, and
21:26
so I might be wrong, but at least I'm not a paid shill like
21:29
the insurance salesman is. And So what do you do instead?
21:31
The question is, when do you want your son to have the money?
21:33
If you want to have him to have your money upon your death, you
21:36
can invest for yourself in your TSP, in your IRA, in your 4-O1K,
21:42
in your just regular old taxable brokerage account.
21:45
And if you invest in a regular old taxable brokerage account,
21:48
you can give $30 million to your son tax free.
21:51
And when he gets that, he pays 0 tax on it because he gets a step
21:55
up in basis. That means let's say you put in
21:57
$10 million. You know, this is being very
21:59
ambitious. If you can save only $200 a
22:01
month, let's say you put in $10 million, it grows to $30
22:04
million. The day that you die and he gets
22:07
that, it steps up basis, which means if he sells it all on that
22:10
day, he gets to sell as though he put in $30 million, meaning
22:14
he pays zero in capital gains. It's amazing benefit of the tax
22:18
code that requires no insurance whatsoever.
22:21
So you know, the whole insurance thing is like one of these like
22:24
misinformation lies post by insurance sales.
22:26
So if you want to have your your kid have money when you die,
22:30
just invest for yourself. If you want to have your money
22:33
have kid for his retirement you could put that $200 into his
22:37
Roth area. 200 two $100 a month is only $2400 a year as 100% tax
22:42
free growth forever tax free, tax free withdrawals and you can
22:46
invest into an index fund which is like .1% expense ratio.
22:51
The the permanent life insurance policies I look at are like 30
22:54
or 40 or 50% in expenses. It's crazy.
22:57
Half of the money that you put in just erodes instantly to cost
23:01
of insurance, commissions, fees. It gets crazy.
23:05
And you only know that once you've been doing it for a while
23:07
and you look inside, you're like, oh, where'd all my money
23:09
go? It disappeared.
23:11
So yeah, fund his Roth IRA if you want him to have it for his
23:15
retirement. If you wanted to have it now,
23:17
just give it to him. You can give your son, you know,
23:19
$30 million throughout the course of your life before you
23:21
pay any sort of estate tax. And you can give your kid, I
23:24
think it's like $16,000 per year before it even counts towards
23:27
that 30 million. And so that you know, and that's
23:30
actually doubled because it's your wife too.
23:31
So you can actually give your kid $32,000 per year before it
23:34
even starts counting towards that 30 million.
23:36
So you can, you can give your child lots and lots of money
23:39
without worrying about the estate tax.
23:41
And so no, please, if you care about giving your child wealth
23:45
and making generational wealth, do not do it through this
23:48
insurance policy. You will go years down this path
23:51
and find out that you got taken invest.
23:56
Taken like Liam Neeson. Your money will be like Liam
24:00
Neeson's daughter getting off at the airport in France, where of
24:04
course everyone in the Paris airport is immediately
24:06
kidnapped, just like your, just like your money will be and
24:09
thrown into some sort of horrific situation where it's
24:12
just getting, just getting whipped and worn apart with fees
24:17
and cost of insurance and, and statement fees and policy fees
24:21
and, and per unit fees and and surrender fees and the fees,
24:25
just the fees, fees, fees, fees. But guess what?
24:27
In your sales pitch you heard Daniel, they didn't mention
24:31
that, did they? Because they're liars.
24:33
Apologies. To, by the way, to the honest
24:35
insurance sell. Wealthy, there are some
24:37
insurance agents who are very good people, you know, selling
24:40
really, really great, whether it's term or auto or life or or
24:45
homeowners or whatever. Like insurance is part of a, of
24:48
a good financial plan. But the person you're talking to
24:51
is not one of those people. That's that's someone who's
24:53
chasing the Commission, selling some nonsense.
24:55
Wow, you want to get Jeremy on 100?
24:58
Talk about life insurance. Because I just like I see people
25:01
getting scammed. I literally think it's the
25:02
biggest scam happening in broad daylight.
25:05
And just where are our regulators who are placing this?
25:08
Like Daniel, an Army veteran is about to get ripped off trying
25:12
to save money for his kid. And like you know, our our
25:15
regulators do nothing so. It's a damn shame, Daniel, don't
25:21
do it. I hope that this was just a
25:23
little bit of tough love. And you know, you, you, it
25:27
doesn't look like you bought it yet.
25:28
So you know, you, you, there's people that lost a lot more
25:32
money if you just bought it. So you can always go back.
25:34
I know I often say like the world is full of Shades of Grey
25:37
and there's always like, you know, even in our last episode I
25:41
was making a case for Edward Jones in certain situations.
25:45
I just don't, I just don't find a new one from this topic.
25:47
I think it's should be avoided. You got excited.
25:52
I get amped. I don't even amped for this more
25:55
second what we got coming. All right, you got scroll.
26:05
Patrol. I've got a video.
26:08
I'm on the Internet. I stay on the Internet, so it's
26:11
not hard for me to scour for these videos of people giving
26:16
financial advice. And Jeremy has not seen this
26:18
video. He's not allowed to click on it
26:20
before we do the episode. So he's going to react in real
26:23
time. He's going to tell us what he
26:25
thinks and we're going to talk about it.
26:26
And he's going to give it a score, a grade, if you will, so.
26:30
Grades all right? I have not seen this.
26:33
What is this strategy that the wealthy do different then?
26:36
So it's called buy borrowed ICE rich people, they go buy that
26:39
shitty duplex I told you about. It's ugly.
26:41
And they buy, you know, something not that exciting,
26:45
maybe a full portfolio of index funds.
26:50
Nothing, nothing that they can show on their Instagram.
26:52
OK, but they buy these assets. And what people don't realize is
26:56
that the folks at the bottom, they work really, really hard to
27:01
buy stuff. But before they can buy that
27:03
stuff, the government takes a huge cut because that is income
27:07
rich people. They know that they are going to
27:09
buy these assets, all right? And this is with money that they
27:12
did have to pay that tax on, but they want to stop paying that
27:15
tax as soon as possible. So what they do is they then
27:19
build this asset portfolio that is monstrous, and then they
27:22
borrow against it. They are going to borrow against
27:25
it because guess what? Debt is not counted as income.
27:29
You don't get taxed on debt you take out.
27:31
They use that debt and then they live their life.
27:34
They get to do their fun things and they often times get
27:36
interest only loans. So they're very small payments
27:38
that you actually have to make back.
27:41
And then the dying part, very key, OK, the estate plan is so,
27:46
so key because what they do is they have this trust, OK?
27:51
So this trust holds all the assets and then that trust
27:57
passes those things, those amazing money making things down
28:02
to the next generation. Tax free.
28:05
It is inherited at something called a stepped up basis.
28:09
OK, so if you are my dad, OK, you buy something for $10, it
28:15
appreciates, appreciates to $1000.
28:18
You give it to me during your lifetime and I sell it.
28:22
The gain on that sale is $990.00 and I have to pay taxes on that
28:28
$990.00. But if you.
28:31
If I give it to you when I die. If you are already dead and then
28:34
you inherit it and then I get it, the asset gets remarked to
28:38
market. What's that mean?
28:40
So the cost that I bought it at is 1000.
28:46
So it's not the 10 that you actually bought it at.
28:49
My purchase price is 1000. So if I buy it at 1000 because I
28:55
inherited it from you at 1000 and then I immediately sell it,
28:58
what is the gain on that? Nothing.
29:01
It looks like I made no money. I don't pay taxes on it.
29:04
That was one of our longest scroll patrols ever.
29:10
So that's Vivian. You're rich.
29:11
BFF Jen has no idea of who I know and who I don't know in
29:14
this space. You.
29:15
You don't. Know.
29:15
I do know her. I mean you.
29:16
Do know her? No, I don't.
29:18
Why would I know that? Why would I think that you know?
29:20
Why do you who? How do you know?
29:21
People, there's not that many like, you know, money
29:23
influencers, at least not. So she's a big person in the
29:27
personal finance. Yeah, you know, like, you know,
29:30
it's bigger than me for sure, but.
29:33
I did not know that you knew her.
29:34
But I think I like, you know, I think I have her phone number.
29:37
I could message her or something.
29:38
We like we like talked before. I think we've met in person
29:41
Anyway, this is not me name dropping Instagram people.
29:44
No one like the random person is no one no one's ever heard of.
29:46
But yeah, I know, I know her and look at that one episode of the
29:49
Personal Plans coming show. We talked about the step up
29:51
basis twice and so you know. I know I'd be doing so.
29:55
That accident, I can't even take credit.
29:56
I didn't know you were going to talk about that.
29:58
Yeah. So I mean, that's a little hint
30:00
that like, yeah, that part of it is definitely true, which is
30:03
just what she said. I said earlier, like if you're
30:06
investing and you have a gain when you die, your kid gets a
30:09
step up basis, which means they don't have to pay tax on all the
30:11
gains, just the gains since you died, which is like this massive
30:15
tax benefit. And you know, and what she's
30:17
saying, to kind of echo the previous segment, she's not
30:20
saying you have to buy life insurance to do this.
30:22
No, that just happens automatically.
30:23
Just in a regular old investment account that happens
30:26
automatically. That said, the overarching
30:30
message here is that rich people do this, what it's called, what
30:35
you say like borrow. It's at the beginning a three
30:39
little. Thing buy buy.
30:41
Borrow, die. So buy a bunch of assets, borrow
30:44
gets those assets and then die. And you know, I feel like it's
30:47
that part of it I really feel like is a little bit gimmicky
30:49
because, you know, rich people don't need to do that.
30:54
They can just sell their assets and spend.
30:57
And the whole point of doing any of that is to maybe like avoid
31:00
some capital gains tax after they're dead.
31:03
And in order to save tax after they're dead for their kids
31:07
sake, they're putting their own, you know, they're leveraging
31:11
their own portfolio and putting their own self at risk, right?
31:14
Because if you borrow too much out of your portfolio, you know,
31:17
let's say you have $1,000,000 portfolio and you borrow half
31:20
$1,000,000 and you spend your half $1,000,000 and then your
31:23
portfolio and the market drops like 50%.
31:25
You're ruined, you know, because the the loan gets called, you
31:28
have to pay back all 500,000 and then your, your remaining
31:31
$500,000 is gone. And, and that's like serious
31:36
risk. If you have like a billion
31:37
dollars and you borrow $500,000, yeah, that's never going to
31:40
happen. It's not going to, you know, if
31:41
the market drops 99.5% or whatever, you know, we're all
31:45
doomed, doesn't it doesn't matter.
31:47
But if, if it's that extreme, you can just pay a little bit,
31:50
you can just pay a little bit of capital gains tax, it's no big
31:52
deal. And so, you know, I don't see
31:54
this like buy borrow, die strategy as like this real big
31:57
hack. It's just, I do feel like it's
31:59
something influencers say to make normal people feel like,
32:03
oh, there's like this big, there's this big loophole I'm
32:05
missing because I'm not wealthy and I don't see it that way.
32:09
You know, I know a lot of millionaires and none of them
32:12
have this sort of line of credit against their investment
32:15
portfolio that I'm aware of. You know, a lot will buy real
32:19
estate investments and use bank loans for that, that are fixed
32:23
rate loans that aren't going to get called if the value of that
32:25
property goes down or something. But I don't know anyone who does
32:29
the buy, borrow die thing. And and you know, lines of
32:32
credit against investment portfolios are generally pretty
32:35
expensive. They're at least like the market
32:36
rate, which is like these days like 6 or 7%.
32:39
And so you're paying interest one fee to avoid taxes, another
32:44
fee and taking out a bunch of risks to do so.
32:48
Doesn't make a lot of sense to me.
32:51
So you know, her, her explanation of the step up basis
32:55
is totally true. And I think that's a great
32:57
thing, you know, for your kids. But I don't think you need to
33:00
like end your life hugely in debt because also, by the way,
33:04
your kids have to, you know, pay off all your debt after, right?
33:07
The debt, the debt is going to come out of the estate.
33:11
So even though there's a step up basis and there might be a
33:12
little bit less tax and paid, you're still going to have to
33:15
pay back all that money. So, you know, I don't plan on
33:18
doing this. I don't know any millionaires
33:19
who do this. Are there some billionaires that
33:21
do this? I, I don't know.
33:23
I don't, I doubt it's really that popular.
33:24
I just feel like I see this kind of hack a lot because it makes
33:27
for like a really buzzy social media thing.
33:30
But yeah, I give this AB. It's technically true.
33:35
You could probably technically do all that, but I don't think
33:37
it's a good strategy. And I certainly don't think it's
33:38
anything that, you know, anyone should be worried about.
33:42
If you are worth 10 or $100 million and you want to do this,
33:49
go nuts. I don't really care if you're
33:51
worth like under $10 million. Don't do this.
33:53
You why would you introduce risk into your own like, you know,
33:56
leverage risk into your own personal finance life to maybe
34:00
save like taxes with a step up basis?
34:02
It makes no sense to me. And giving your friend AB Wow.
34:05
Yeah, I know. If you see this, Vivian, sorry.
34:10
It's a. Doggy dog.
34:12
I said a lot of good stuff in there.
34:14
I don't know, this is just a clip.
34:16
She she's like a great creator. She like is doing extremely well
34:18
like and you know these clips are.
34:20
This like don't can't take it back now.
34:22
Don't. Well, I, I grade what I saw as
34:23
AB, but you know, it might have been out of context.
34:25
Who knows what they're talking about?
34:26
I think it was also like a clicky, like buy, borrow or die.
34:28
What does that mean? It makes you want to watch it.
34:30
Maybe you want to watch it. I watched it.
34:31
I sent it to you, you know? So there you go.
34:33
You gotta do what you gotta do. It's called click bait for a
34:35
reason. Exactly.
34:37
OK. All right, we got a little more
34:38
time. What do we have time for?
34:42
We've got you've got time today. I had time today, I get in the
34:47
comments. We're in.
34:49
I answer. We're on TikTok.
34:51
I feel like the question section is where we answer your your
34:54
friendly mail and then I had time today is where we answer
34:56
your hate mail. Friendly mail makes me think of
34:59
like Blue's Clues. We just got a letter.
35:02
Is that Did you watch Blue's Clues?
35:04
I mean I'm I'm too old for it, but like.
35:06
I mean, I was too, but I I guess because my younger brother was
35:09
seven years younger and maybe I got OK.
35:12
I believe in Isaac. Yeah, I think I'm too old for
35:15
the Blues Clues crowd. I think maybe it's not that
35:18
popular anymore. I just skipped, skipped
35:20
generations in this house. We're a We're a train toy train
35:24
show house in Blippi. Actually, Peppa Pig.
35:28
Peppa Pig is going harder now. Shout out Peppa Pig.
35:31
Well I'm in TikTok. You posted one where you went
35:33
behind the scenes of your fidelity account to show people
35:36
step by step exactly how you invest.
35:39
So at one point in the video you say this.
35:41
That's it. Now My Portfolio looks like this
35:44
and I essentially own a piece of every company on earth.
35:47
I don't sell, I don't trade, I don't speculate.
35:49
I just buy, buy, buy, always acquiring more shares.
35:52
I let compound growth do the work.
35:53
And we had a commenter that had feelings about it.
35:58
Yeah, what did? So what'd the commenter say?
35:59
There might have been some clever editor that I missed, but
36:02
it all makes. Sense we're gonna start the
36:04
video. Got it.
36:05
OK, what did? What did the commenter say?
36:08
So the commenter says now he's quoting you when he says now I
36:12
own a piece of every company on earth.
36:15
ITOT is only U.S. stocks and we got did we have we have that.
36:19
This is the exact emoji. The little like suspicious when
36:22
I raise flat mouth emoji. Guy.
36:25
Yeah. Oh, is it?
36:26
We'll we'll never know because we have this little anonymized.
36:28
I know I'm the one who blacks it out.
36:30
I know, but I I didn't check. All right, So what do you think
36:33
about this comment? So yeah, he said.
36:35
Now he he quoted me in quotes. Now I own a piece of every
36:38
company on earth. And then he said IC OT is only
36:40
U.S. stocks. He is exactly right.
36:43
ITOT is only U.S. stocks and if I was only buying ITOT, I would
36:47
only own US based companies. But like 10 seconds earlier in
36:51
that video, I said that's where I put most of my money.
36:54
You know, with the plurality, the 40%, the 45 percent, 55%,
36:58
whatever is is going to U.S. stocks.
37:00
Maybe 35% is going to international stocks.
37:02
Ticker symbols like IEFA and IEMG are also in My Portfolio.
37:07
I just gave an example of buying one ticker symbol because it's a
37:10
TikTok, not a comprehensive financial plan.
37:13
But I did say to my credit, you know, this TikTok from way back
37:16
when I did say most of my money goes in ITOT and then much of it
37:19
goes in international stocks and some of it goes in bonds and
37:22
some of it goes in cash or real estate or whatever it is.
37:25
And it's a, you know, balanced portfolio that I buy, buy, buy.
37:29
And so yeah, he's he's technically, I don't know why I
37:32
assume every single commenter is a male, probably because they
37:34
are women have better, better time, better things to do with
37:38
their time and send hate mail to, you know, D list financial
37:42
influencers. But yeah, but you know, to his
37:46
he's exactly right. And if I was only buying ITOTI
37:48
wouldn't own a piece of every company on earth.
37:50
But I do happen to buy international ETFs as well.
37:53
And so I think it is to fair to say at least I own AI kind of
38:00
mostly own a piece of every publicly traded company on
38:03
Earth. There are probably some publicly
38:05
traded companies that are super small that don't make it into
38:07
these, you know, these indexes of these ETFs.
38:10
And I certainly don't own a piece of privately held
38:12
companies that are owned by people that haven't sold shares
38:14
of their companies to the public.
38:16
But, you know, I think broad strokes, I think it's still a
38:19
fair assessment to say I own, you know, a piece of every
38:22
publicly traded company on Earth, more or less.
38:25
Well, in fairness, you did reply to him or whoever this person
38:28
is, and they never replied back, you know?
38:31
Oh my gosh. Back and says my bad dude.
38:34
Like I, I don't even know what I responded.
38:36
Probably something similar. And I is that exactly what?
38:38
You just said. OK, because look at that.
38:40
I'm consistent. This TikTok from years ago.
38:41
If there's anything about a Bogle head or an index on an
38:43
investor, it's that we're consistent.
38:45
We just keep buying the same things and we get super wealthy
38:47
over time. How nice.
38:49
And that's why you rich, and that's why we listen to you.
38:52
That's right. That's part of the reason, I
38:55
guess. Well, thank you.
38:56
For listening to you. I wouldn't be listening to you
38:58
if you weren't rich. No one says that's true.
39:01
It's not for my hilarious 5 minutes of stand up I do every
39:05
episode. Is that what we're calling it?
39:07
Stand up. Well, I am sitting down.
39:09
We're calling it sit down. Yeah, OK.
39:12
Great job. And you were.
39:14
You took it nice and easy on that commentary, even though
39:16
they were terrible to you. No, they were right and they who
39:19
who sees TikTok comments and no one on the Internet has ever
39:21
said my bad. So I don't expect them to like
39:23
back pill them sound. They were they were right.
39:25
And you know, maybe they, they blacked out for a second when I
39:28
said mostly, and you know, I didn't put my whole portfolio
39:30
like all this thing we're all, we're all giving each other BS.
39:33
When these other context clips taken taken out of context in
39:37
small short clips. I've said the same words like 10
39:41
times. Anyway, that is a sign that the
39:44
show is over. And so if you want to be rich
39:47
and want to build wealth, remember to follow the 2 rules
39:49
of personal finance Club. Rule #1 live below your means
39:53
and rule #2 invest early and often.
39:55
See you next week. The Personal finance Club show
39:57
is produced by Jeremy Schneider and Jen Mundia, music by Esabalu
40:01
and Homie. Send your questions to podcast
40:03
at personalfinanceclub.com. The Personal Finance Club show
40:07
is Co hosted by Jeremy Schneider who is a co-owner of Nectarine,
40:10
an SEC registered investment Advisor.
40:13
The views expressed on this show are those of the hosts and
40:15
guests and do not necessarily reflect the views of Nectarine.
40:19
Please please refer to hellonectarine.com for all
40:21
relevant disclosures. This podcast is for
40:24
informational and educational purposes only and should not be
40:27
construed as personalized investment advice or a
40:29
solicitation to buy or sell any security.
40:32
Listeners should consult their own financial, legal or tax
40:35
professionals for advice specific to their