Maximize Capital; Minimize Crap

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Journal of a Wayward Philosopher
Maximize Capital; Minimize Crap

September 20, 2016
Hot Springs, VA

He achieved success who has lived well, laughed often, and loved much;
Who has enjoyed the trust of pure women, the respect of intelligent men and the love of little children;
Who has filled his niche and accomplished his task;
Who has never lacked appreciation of Earth’s beauty or failed to express it;
Who has left the world better than he found it,
Whether an improved poppy, a perfect poem, or a rescued soul;
Who has always looked for the best in others and given them the best he had;
Whose life was an inspiration;
Whose memory a benediction…
To know that even one life has breathed easier because you have lived,
This is to have succeeded.
” – Bessie Anderson Stanley

The S&P closed out Monday at $2,139. Gold closed at $1,316 per ounce. Crude Oil closed at $43.80 per barrel, and the 10-year Treasury rate closed at 1.70%. Bitcoin is trading around $608 per BTC today.

Dear Journal,

The first leaves of Autumn have begun to fall, and each new morning is now accompanied by a light breeze. Little Maddie seems to share her father’s love of the season, as she enthusiastically gathers black walnuts from the yard to feed the squirrels.

Here, squirrel, squirrel, squirrel… I have an apricot for you!

Yeah, she calls the walnuts apricots. I am not sure where that came from.

Madison has also been debriefed on the proper way to carve a jack-o-lantern, and I test her knowledge daily.

“Maddie, what’s the first thing we have to do to make a jack-o-lantern?”

“We have to carve the top and get the gunk out!”

“And what are we going to do with the gunk?”

“We are going to throw it on mommy!”

…I think you are ready, kiddo.”pumpkin

It is truly the simple things that make this life worth living.

We spend most of our time in these journal entries and especially in the Zenconomics Report discussing complex topics within the world of money, finance, and economics, but that is only because we want to be able to enjoy the simple things. Continue reading “Maximize Capital; Minimize Crap”

The Zenconomics Report August Issue

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Journal of a Wayward Philosopher
Zenconomics Report August Dispatch

August 31, 2016
Hot Springs, VA

The S&P closed out Tuesday at $2,176. Gold closed at $1,314 per ounce. Crude Oil closed at $46.42 per barrel, and the 10-year Treasury rate closed at 1.57%. Bitcoin is trading around $573 per BTC today.

Dear Journal,

The August issue of the Zenconomics Report has gone out to members of our network. In this issue:

Low trading volumes and little volatility in the financial markets this month… The state of the sovereign debt markets… Two large banks pass on negative interest rates to clients… The latest on monetary-financed fiscal programs in Japan… Global investment demand for gold the highest on record for the first half of 2016… All eyes on the Federal Reserve next month… A quiet change to IMF’s special drawing right currency… A correction hits the gold stocks sector… the Zenconomics Report Model Portfolio updates… Two new additions to our model portfolio

This month we added two new positions to our model portfolio which is constructed according to the Beta Investment Strategy. This portfolio is designed to capitalize on the prominent macro trends in the world of finance, and it is built to be fluid and flexible when trends change.

The Zenconomics Report is 100% independent, and all opinions are our own. It is also 100% free, though it is only available to members of our network. For access, simply sign-up using the form below or at

New members receive access to all previous monthly issues, and we will also send you two free reports as a ‘thank you’ for subscribing.

Assess, Mitigate, Implement, and Prosper is a report detailing the concept and implementation of asset allocation. Asset allocation is about strategically spreading your capital out across several different asset classes, and it is a critical part of the Beta Investment Strategy. This report also covers the ins-and-outs of managing an investment portfolio, including the risk management techniques that everyone should understand before putting a dime into the stock market.

The Zenconomics Guide to the Information Age is a 28 page report covering money, commerce, jobs, Bitcoin wallets, peer-to-peer lending, Open Bazaar, freelancing, educational resources, mutual aid societies, the Infinite Banking Concept, peer-to-peer travel, Internet privacy, and numerous other Information Age tips and tricks with an eye on the future. This guide is designed to be very practical – each section is loaded with action items – but it is also written to be entertaining as well.

To financial freedom!

Monthly Market Analysis and a Model Stock Portfolio – Free Newsletter!

Build a small fortune in 3-5 years by capturing this major macroeconomic trend!

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Become a Creator

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Journal of a Wayward Philosopher
Become a Creator

July 8, 2016
Hot Springs, VA

Let them be creators, not followers. Followers have a certain mentality, and independent creators a quite different mentality. We want creators – people who find solutions by themselves, who have their own conceptions of right and good, and who are capable of independent, righteous action. Followers don’t do that. To get the creator mindset, you have to get out of the way and let them rise to the occasion. Make sense? ” – Phillip Donson, A Lodging of Wayfaring Men

The S&P closed out Thursday at $2,097. Gold closed at $1,362 per ounce. Crude Oil closed at $45.14 per barrel, and the 10-year Treasury rate closed at 1.39%. Bitcoin is trading around $652 per BTC today.

Dear Journal,

Wife Rachel took it upon herself to take me out on a date earlier this week! She had recently discovered a picturesque country inn nestled in the heart of Virginia’s Blue Ridge Mountains, and she thought it was just the place for me. So we traveled an hour’s worth of winding country roads even deeper into the mountains of Virginia on a misty Tuesday night. Continue reading “Become a Creator”

Politics is Already Dead

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Journal of a Wayward Philosopher
Politics is Already Dead

October 14, 2015
Hot Springs, VA

The S&P closed out today at $1,994. Gold closed up at $1,187 per ounce. Oil closed at $46.59 per barrel, and the 10-year Treasury rate closed at 1.98%. Bitcoin is trading around $252 per BTC today. My attention is currently focused heavily on the gold sector in the equities market. Many gold stocks were beat up and left for dead, having fallen 90% from their previous high. This sector has steadily traded higher over the past few weeks, including a brief pull-back, potentially indicating the gold sector has formed a bottom. Has the next gold stock bull cycle begun? It could be a big one.

Dear Journal,

Little Maddie celebrates her first birthday next week! Wife Rachel has been hard at work planning the party. She has been very busy picking out decorations, sending out invitations, putting together a food menu, picking out outfits (Madison’s and her own), getting her hair cut, wrapping gifts, cleaning the house, ordering her husband to clean the house, and acquiring all necessary items from the store. I notice a twinkle in Rachel’s eye as she talks about the birthday celebration with excitement. Madison couldn’t care less.

With wife Rachel in frantic planning mode, I take the time to savor the onset of Autumn here in the mountains of Virginia. As the leaves slowly transform into majestic shades of yellow, orange, and red, I casually work to stack wood in the garage and get kindling ready for winter. I sit and enjoy a Harvest Pumpkin Brew as the early Autumn breeze gently blows fallen leaves down the gravel driveway. Soon we will take Maddie to the pumpkin patch, and we will purchase apples from the local orchard to make Apple Cider. What a glorious season!

In my previous journal entry, I suggested that technological advancements were rendering many established institutions obsolete. I want to build on that suggestion from a slightly different angle today. Continue reading “Politics is Already Dead”

The Great Opportunity for Free Markets

submitted by jwithrow.Free Market

Journal of a Wayward Philosopher
The Great Opportunity

August 26, 2015
Hot Springs, VA

The S&P closed out Tuesday at $1,873. Gold closed at $1,138 per ounce. Oil closed out at $39.31 per barrel, and the 10-year Treasury rate closed at 2.00%. Bitcoin is trading around $229 per BTC today.

Dear Journal,

My last entry suggested that the centralized nation-state model looks to have peaked in the 20th century. I speculated that troubling macroeconomic trends related to government interventions will lead to a “Great Reset” sooner or later – probably sooner – as these massive nation-states are forced to ramp up the printing presses in attempts to service all of their debt and unfunded liabilities.

Today I would like to point out that we are approaching a crossroads and there is a tremendous opportunity for the growth of free markets and prosperity if we can shed the 20th century paradigm of centralization. A great golden age for civilization is staring us right in the face, but few have noticed. Why? Because we have placed too much emphasis on politicians, presidents, elections, and democracy and too little emphasis on individual self-empowerment.

For starters, consider the following advancements: indoor plumbing and electricity, refrigeration, cooking appliances, heating & air systems, local and long-distance transportation, local and long-distance communication, and access to information. Each of these items were non-existent, scarce, or unreliable just one hundred short years ago. Additionally, roughly 40% of the U.S. population was involved in agriculture in the year 1900 in order to produce enough food to meet demand. Today that number is around 2% and food is more available than ever. Fresh fruits and vegetables are available at the grocery store year-round. Also, thanks to technological development, oil and gas are now more abundant and cheaper than ever. This has reduced the costs of production and distribution significantly, and it has created competition for the oil cartels and monopolies that have had a strangle-hold on the industry for decades. Continue reading “The Great Opportunity for Free Markets”

The Scary Truth Behind Friday’s Jobs Shocker

by Bill Bonner – Bonner and

On Friday, the Labor Department released a shockingly weak March jobs report. The feds and their cronies on Wall Street spent the weekend trying to put a bag over its head.

Former Pimco CEO and Bloomberg columnist Mohamed El-Erian gave this quick reaction:

The US employment machine notably lost momentum in March, with just 126,000 new jobs added – far fewer than the consensus expectation of around 250,000 – and with revisions erasing 69,000 from the previous two months’ total, according to the Labor Department. The lackluster result ends an impressive 12-month run of job gains in excess of 200,000.

Yes, the employment numbers were ugly. They confirm the other evidence coming in from hill and dale, industry and commerce, households and homesteads all across the nation, and all the ships at sea: This is no ordinary recovery.

Nip and Tuck

In fact, it’s no recovery at all. It is strange and unnatural, like the victim of a quack plastic surgeon.

But the damage was not an accident. No slip of the hand or equipment malfunction produced this horror. It was the result of economic grifters plying a fraudulent trade.

The Dow rose 118 points in Monday’s trading. A 0.7% increase, this was neither the result of honest investing nor any serious assessment of the economic future. Bloomberg attributed it to scammery from the Fed:

New York Fed President William Dudley said the pace of rate increases is likely to be “shallow” once the Fed starts to tighten.

His comments were the first from the inner core of the Fed’s leadership since a government report showed payrolls expanded less than forecast in March.
While data signaling rates near zero for longer have previously been welcomed by American equity investors, concern is building that economic weakness will worsen the outlook for corporate profits.

Get it?

“Shallow” rate increases. Translation: Savers will get nothing for their forbearance and discipline for a long, long time.

Instead, the money that should be rightfully theirs will be transferred to the rich… and to gamblers and speculators… as it has for the last six years.

A Frankenstein Economy

Back to El-Erian who, having seen the evidence of this botched operation, then goes goofy on us. He calls upon the authorities to “do something.”

As if they hadn’t done enough already!

The feds were the ones who injected the credit silicon, hardened the upper lip and created the Monster of 2008.

And then, when the nearest of kin started retching into the hospital wastebaskets, they went back to work. Now, the economy is more grotesque than ever.

But here’s El-Erian, asking for more:

The report is a further reminder of how much more the US economy could – and should – achieve if it weren’t for political dysfunction in Washington and a “do little” Congress that preclude more comprehensive structural reforms, infrastructure spending and a more responsive fiscal policy.

El-Erian is not the only one. One of our favorite knife men, Larry Summers, is suggesting more nip and tuck on the whole world economy.

It was Summers, as secretary of the Treasury between 1999 and 2001, who helped stitch this Frankenstein economy together.

He and his fellow surgeons are responsible for its unsightly lumps and inhuman shape. Their trillions of dollars of EZ credit leaked all over, causing bulges almost everywhere.

Does China have too much industrial capacity? Does the world have a glut of energy? Are governments far too deep in debt? And corporations?And households? Didn’t nearly every central bank in the world try to stimulate demand with cheap credit… thus laying on a burden of debt so heavy that it now threatens the entire world economy?

Poor Larry Summers

Now, Summers waves his scalpel in the air and can’t wait to get the patient back on the table.

He worries that the US should have given the International Monetary Fund more money, which would have “bolstered confidence in the global economy.”

He thinks the world’s problem is that “capital is abundant, deflationary pressures are substantial, and demand could be in short supply for quite some time.”

Poor Larry can’t tell the difference between capital and credit.

Capital – what you get from saving money and investing it wisely – is an economy’s real muscle. EZ credit – what the quacks pump into flabby tissue to try to make things look more fetching – is what has turned the economy into such a freak.

Alas, failing to give more money to the IMF, says Summers, may mean “the US will not be in a position to shape the global economic system.”

That would be a real pity.

Article originally posted at Joe WithrowPosted on Categories Finance & EconomicsTags , , , , , , , , , Leave a comment on The Scary Truth Behind Friday’s Jobs Shocker

The US Has Become a Nursing Home Economy

by Bill Bonner – Bonner and

The key feature of age is that it happens no matter what you think.

What does this mean?

It means the “old countries” – their assets and their institutions, at least the ones that depend on population, income and credit growth – are “fastened to a dying animal” and are not likely to survive in their present form.

Today, these countries, including the US, are victims of demography. Older people get more money from the government. And they pay less in taxes. Old people also slow the rate of GDP, for obvious reasons: They are not adding to output; they are living on it.

As people age, the whole society – its institutions, its laws, its customs, its economy and its markets – ages, too. They all become as familiar, comfortable and shabby as a well-worn shoe.

An economy is not independent of the people in it. The economy ages with them. And when they reach retirement age, the economy gets arthritis.

A Nursing Home Economy

Even the Congressional Budget Office has noticed how government debt slows growth:

Increased borrowing by the federal government generally draws money away from (that is, crowds out) private investment in productive capital in the long term because the portion of people’s savings used to buy government securities is not available to finance private investment.

The result is a smaller stock of capital and lower output in the long term than would otherwise be the case all else held equal (CBO, July 2014, p. 72).

Why does the federal government need to borrow so much? Before the invention of the welfare state, almost all large borrowing was done for war. Since the end of World War II, however, most developed countries – with the exception of the US – have borrowed heavily only to pay for social programs.

But neither debt nor spending contributes to a dynamic, innovative and growth-oriented economy. Instead, they produce an economy that looks like the people in it – old, creaky and in need of around-the-clock care.

As people age, they begin fewer new businesses. “The Other Aging of America: The Increasing Dominance of Older Firms” is the title of a major study from the Brookings Institution. Done by Robert Litan and Ian Hathaway, it showed that American business was becoming “old and fat.”

Taken together, the data presented here clearly show a private sector where economic activity is sharply concentrating in older firms – a trend that is occurring in a nearly universal fashion across sectors, firm sizes and geographies…

An economy that is saturated with older firms is one that is likely to be less flexible, and potentially less productive and less innovative, than an economy with a higher percentage of new and young firms.

Young people try to create new wealth. Old people try to hold on to the wealth they believe they have in the bag. They are less entrepreneurial. They are also, perhaps, more eager to protect their businesses and professions from competition.

Part of the reason for fewer business start-ups is that it has gotten a lot harder to launch a new company in America.

That was the conclusion of a study by John W. Dawson and John J. Seater (“Federal Regulation and Aggregate Economic Growth”). What they found was that there has been a huge increase in economic regulation and restrictions in the US since World War II. They point out that these regulations have an economic cost. Like debt and demography, regulations reduce output.

In fact, they estimate that had the level of regulation remained unchanged since the year I was born – 1948 – today’s GDP would provide every man, woman and child in America with about $125,000 more in income per year.

A Glorified Ponzi Scheme

It was Alexis de Tocqueville who observed that democracy was doomed. He said it would soon degrade into tyranny. As soon as politicians realized that they could win elections by promising the voters more of other people’s money, it was just a matter of time until they overdid it.

Had he imagined how old people would get, he wouldn’t have been so optimistic.

As things developed, politicians noticed two important things: that young people (especially those who hadn’t been born yet) didn’t vote… and old people’s votes could be bought fairly cheaply, at least so it appeared at first.

When the US Social Security program was first put in place, for example, the typical American male could expect nothing from it. He was expected to live to 61. He’d be dead before benefits kicked in. But as the 20th century led to the 21st, his life expectancy increased, and so did the burden of old people.

Early Social Security participants paid in trivial amounts and got a very good return on their money. My mother, for example, only worked a few years at a low-paying job, from which she retired in 1986. She has been collecting Social Security ever since.

“Don’t you feel guilty about getting so much more than you put in?” I teased her.

“Not at all. That’s just the way the system works.”

The way the system works would be illegal for a private annuity plan. It would be labeled a Ponzi scheme. Its promoters would be fined or put in prison. The money that goes into the system is not locked away in wealth-producing investments so that the cash will be available to finance the retiree’s pension. Instead, the contributions of new participants are used to pay benefits to old ones.

This has the obvious and fatal flaw of all Ponzi schemes – eventually, there is not enough new money coming into the system to meet its obligations. This point was reached in the US system in 2010. Since then, the system has been running an annual deficit.

You’ll see why in the chart showing the retirement-age population.
















Everybody knows Social Security, the Affordable Care Act, veterans’ pensions and other support programs are dangerously underfunded. What is not appreciated is the effect that this has on GDP growth and stock market prices.

The crankshaft of age leads to the universal joint of social spending, which then goes to the axles of debt. Finally, where the rubber meets the road, the wheels turn more slowly.

This is not just a problem for government finance. Companies make money by putting out products and selling them. But when people grow old or population growth declines, so do both supply and demand.

Then, companies earn less money. Their shares are worth less. Personal incomes go down. Capital gains retreat. And tax revenues fall, too.

When this happens in an economy that is already deeply in debt, it triggers a crisis.

Article originally posted at

Fourteen Lessons for the Federal Reserve

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Excerpt from The Folly of the Fed’s Central Planning:

1. Increasing money and credit by the Fed is not the same as increasing wealth. It in fact does the opposite.

2. More government spending is not equivalent to increasing wealth.

3. Liquidation of debt and correction in wages, salaries, and consumer prices is not the monster that many fear.

4. Corrections, allowed to run their course, are beneficial and should not be prolonged by bailouts with massive monetary inflation.

5. The people spending their own money is far superior to the government spending it for them.

6. Propping up stock and bond prices, the current Fed goal, is not a road to economic recovery.

7. Though bailouts help the insiders and the elite 1%, they hinder the economic recovery.

8. Production and savings should be the source of capital needed for economic growth.

9. Monetary expansion can never substitute for savings but guarantees mal–investment.

10. Market rates of interest are required to provide for the economic calculation necessary for growth and reversing an economic downturn.

11. Wars provide no solution to a recession/depression. Wars only make a country poorer while war profiteers benefit.

12. Bits of paper with ink on them or computer entries are not money – gold is.

13. Higher consumer prices per se have nothing to do with a healthy economy.

14. Lower consumer prices should be expected in a healthy economy as we experienced with computers, TVs, and cell phones.

All this effort by thousands of planners in the Federal Reserve, Congress, and the bureaucracy to achieve a stable financial system and healthy economic growth has failed.

It must be the case that it has all been misdirected. And just maybe a free market and a limited government philosophy are the answers for sorting it all out without the economic planners setting interest and CPI rate increases.

A simpler solution to achieving a healthy economy would be to concentrate on providing a “SOUND DOLLAR” as the Founders of the country suggested. A gold dollar will always outperform a paper dollar in duration and economic performance while holding government growth in check. This is the only monetary system that protects liberty while enhancing the opportunity for peace and prosperity.

Employing the Infinite Banking Concept

submitted by jwithrow.infinite banking concept

Yesterday we examined the merits of the Infinite Banking Concept. Today let’s look at some IBC strategies to build capital and mitigate inflation.

If you combine the Infinite Banking Concept with a fundamental asset allocation model you have the makings of your own personal central bank. If one were so inclined, just like a central bank, one could establish tangible reserve requirements and use the policy’s ever-growing capital base to purchase tangible assets. Your job as Chairman would be to continuously acquire assets based on your allocation model as your central bank’s capital base grew in size to maintain your specified reserve ratios.

The possibilities with this strategy are endless!

The hardest part of employing the Infinite Banking Concept is being patient enough to capitalize your policy over the first several years until the policy becomes self-sustaining.

Imagine a world in which more people take control over their financial destiny by using the Infinite Banking Concept as an integral part of their financial plan. This strategy has the power to mitigate the boom-bust cycles created by the Federal Reserve and the fractional-reserve banks because people employing the IBC strategy would not have much need for traditional bank financing.

The power of the Infinite Banking Concept can truly be unlocked if families were to implement this strategy generationally. For example: what if parents were to set up IBC policies for their children as soon as they were born?

The IBC policy would have the opportunity to grow for twenty years or more, and the next generation would automatically have a large pool of capital available to them upon their maturation into adult-hood. This pool of capital could be used to finance specialized education or to start a business with no student or bank loan necessary.

The child would also receive a substantial death benefit payment down the road when the parents were to pass on from this world. That death benefit could then be used to set up larger IBC policies for future generations so the family’s pool of capital would continuously grow over subsequent generations. Every single one of your children and grandchildren would have access to a significant pool of capital to help them build self-sufficiency and resiliency.

Talk about an individual revolution!

A generational implementation of IBC in this way could gradually transfer the power of the purse away from governments, central banks, and Wall Street and back into the hands of individuals where it belongs. This would cause the financial sector to shrink tremendously, which would free up capital for more productive purposes across the board.

You see, the financial sector doesn’t really produce much of anything. It is more like the money changers of old in that the financial sector does little more than temporarily warehouse capital and then move it around, siphoning off small fees at every stop along the way. The financial sector certainly plays a very important role in a developed economy, but that role should be much smaller than what it is today.

So how do we know that the IBC strategy will survive the Great Reset? The answer is that we don’t know anything for sure.

But life insurance companies have a built-in inflation hedge as they can charge higher premiums to new customers on an ongoing basis as the currency loses value. Additionally, if the currency were to completely collapse, it is highly likely that life insurance companies would re-value their policies in terms of a new currency or maybe gold (we should be so lucky). Also, if you operate your personal central bank wisely and use your capital to purchase precious metals and other real assets, then you have a currency hedging strategy already in place.

Hopefully this chapter has done the Infinite Banking Concept justice, and you can see why we think it is a powerful tool for individuals disciplined enough to devote the time and resources necessary to capitalize a policy.

The Infinite Banking Concept

submitted by jwithrow.infinite banking concept

Before you can see why we believe so strongly in the Infinite Banking Concept (IBC) you must change the way you think about life insurance. The purpose of structuring an IBC participating whole life insurance policy actually has nothing to do with life insurance itself. Whole life insurance policies, when structured correctly according to the Infinite Banking Concept principles, are powerful vehicles for warehousing capital. This is what we are primarily interested in.

Typical IBC policies are structured such that 40% of the premium paid supports the base policy and 60% of the premium buys additional paid-up insurance. The large amount of premium going to purchase additional paid-up insurance serves to both grow your insurance policy (add to the death benefit) and it builds cash value much more quickly than standard whole life policies.

Your life insurance cash value is simply equity in the policy; it is not physical funds in an account. This gives life insurance cash value advantageous tax and legal treatment and it largely shields the cash value from creditors, plaintiffs, and corrupt government departments.

To illustrate this legal advantage think about what would happen if someone were to win a civil suit against you. The first thing that they would come for would be your bank accounts. The court could then force you to liquidate any investments in a standard brokerage account to pay the plaintiff’s claim and your capital base could be wiped out very quickly.

The court could not make you liquidate your life insurance cash value, however, because it is just equity in the policy. The primary way to access the cash value is to borrow against it and the court cannot force you to do this in the same way the court cannot force you to borrow against your home (domestic cases between spouses may be different as the court may determine one party to have an ownership claim already).

Now the court could enable the plaintiff to take an assignment of the life insurance in the amount necessary to satisfy the claim, but this would only pay out in the event of your death. Meanwhile, your cash value would continue to grow uninhibited and you would still have access to that capital at any time for any reason.

In addition to legal shelter, it would be much more difficult for the government to change the tax laws regarding life insurance cash value than for qualified retirement accounts. Qualified retirement plans (401k, IRA, etc.) are creatures of the tax code – these plans were specifically created within the IRS legal structure.

Life insurance, on the other hand, has been in existence for centuries in some capacity. The first American life insurance company was founded in 1787 and many life insurance companies that are prominent today were founded in the early-to-mid-1800’s. Contrast this with the IRS which was not unleashed on America until 1913.

While it is impossible to eliminate risk in this world, building capital in whole life insurance policies based on the Infinite Banking Concept is a way to mitigate legal risk and IRS risk, especially when compared to qualified retirement plans.

So now that we know our cash value is relatively safe from those who would steal it from us, let us examine the capital building merits of the IBC strategy.

Your cash value grows in two ways: when you pay the premium, and when the life insurance company pays a dividend. Paying premium into the policy guarantees that you will have a specific cash value at specific intervals in time.

Your life insurance agent can run illustrations for you depicting the cash value at the end of each year and this value is contractually guaranteed as long as premiums are paid. The guaranteed cash value illustration enables you to know, to the exact dollar amount, what your minimum cash value will be in a given year. This illustration depicts the cash value established by your premium payments (base+paid-up additions) and the figures assume that a dividend will never be paid.

Your agent can also run non-guaranteed cash value illustrations that estimate cash value based on the assumption that the company will continue to pay dividends at the current schedule. The non-guaranteed cash value illustration depicts the same contractual figures as the guaranteed illustration with the addition of annual dividends based on the current dividend rate. Dividends can add substantially to the cash value of the policy over time.

Whether or not dividends are actually paid out depends upon the company’s annual death benefit costs and investment performance. Mutual life insurance companies pay a dividend every single year unless they are in serious financial trouble and every single policy holder will receive a dividend if one is issued. Dividends are small in the policy’s early years, but can become quite substantial in the policy’s later years.

For example: we have an IBC policy illustration that estimates a dividend in the amount of $1,659 in year 5 of the policy and it estimates a dividend of $21,076 in year 25 of the policy. And just for fun: the dividend estimate is $69,951 in year 40 of the policy.

This same illustration depicts a guaranteed cash value of $17,288 and a non-guaranteed cash value on $17,667 after year one. After year five the guaranteed cash value is $95,936 and the estimated non-guaranteed cash value is $101,192. Year 25 depicts a guaranteed cash value of $804,112 and a non-guaranteed cash value of $1,048,247. And just for fun again: the guaranteed cash value after year 40 is $1,511,993 and the non-guaranteed cash value estimate is $2,662,316.

This illustration is based on an annual premium of $24,000 with 40% of that supporting the base policy and 60% buying additional paid-up insurance.

The point is you can generate an internal rate of return within the policy itself. This rate of return will be conservative and it will not wow you, but guess what? There is absolutely no risk to principal
whatsoever. This is huge!

This strategy allows you to know exactly how much capital you will have available to you at any particular point in the future so long as you keep making the premium payments. Once the policy is big enough you can also take policy loans to make the premium payments if need be. In fact, capitalizing a policy for as little as five or six years could be enough for policy loans to perpetually support the premium going forward.

The primary risk with this strategy is that the life insurance company could fail at some point in the future. This rarely happens, however, because mutual life insurance companies are very conservative organizations, unlike the Wall Street firms. The prominent mutual life insurance companies in operation today have survived the Great Depression as well as the crash of 2008. And they didn’t need any bail-outs or subsidies, either.

One reason for their strong financial history is that mutual whole life companies do not have shareholders. Accordingly, these companies do not need to resort to excessive risk taking to try to constantly pump up their stock price. Instead, the policy holders own the company and they are quite happy with a conservative risk appetite.

Additionally, the stronger life insurance companies in the industry have historically done a good job of taking over a failing company on the rare occasion when this has happened. In this scenario, the stronger life insurance company assumes all outstanding contracts of the failed company so as to maintain the conservative reputation of the industry.

Hopefully the power of the Infinite Banking Concept is starting to become apparent to you. Tomorrow we will look at some ideas on how to employ the IBC strategy as well as how you can mitigate the inflation risk inherent in standard life insurance products.