on May 22, 2005
I came upon an ad by the author, Mr. Andrews in the Sunday Los Angeles Times today - 5/22/05. It mentioned his book as well as a lot of claims to max ones wealth. So, I thought to do a bit of a google search on him and the title of his book. I did finally find a review by a Certified Financial Planner on the Seattle times website: [...]
I thought it wise to share this with anyone intersted and feel that most who read the following may want to hold back on buying his book.
Equity Indexed Life Insurance-I have been approached by several insurance agents regarding using equity indexed annuities to creat an arbitrage using home equity. They are basing their approach on a recent book written by Douglas Andrew-Missed Fortune and Missed Fortune 101- suggesting interest only mortgages and investing the equity in S & P 500 indexed annuities. Invest the max amount allowable under law with the least amount of insurance required, etc. What are your thoughts on this strategy? Have you read or heard about this book and the author? - Cary, N.C.
FP: I just finished reading the book "Missed Fortune". The concept is interesting and may make sense in a very few specific cases, I would be wary of its general applicability. The book fails to adequately address the risks inherent in the strategy.
The first part of the strategy I would be concerned with is the notion that you can structure interest only loans to last a long time. Interest only loans typically have an interest only period of 10 years or less.
The most "attractive" interest rates are associated with adjustable rate mortgages. Most of these have fixed rate periods of 3, 5 or 7 years. So, for the strategy to work as advertised, you will need to refinance (or sell and purchase another home)as often as every 7 years or less. And then you will have to hope that (a) you will qualify for new financing and (b) that today's low rates are available.
The strategy presented in the book assumes that your home interest is fully tax deductable. The analysis does not account for the fact that most people actually only receive a partial deduction since their itemized deductions aside from the home mortgage interest add up to substantially less than the standard deduction (which is scheduled to rise over time).
And finally, the strategy assumes that you will earn a relatively high rate of return on the equity index life insurance cash value. Every projection the book makes has an unreasonably high rate of interest projected for a long time into the future. The strategy prospects for success are highly sensitive to the rate that you acutally receive.
If the insurance policy return is as little as .5 - 1% less on average, the strategy has real problems. And the problems can be huge.
If you are drawing "tax free" income out of an insurance policy through a series of policy loans as shown in the book, the policy surrender value drops steadily. When the policy surrender value drops to zero, which it could quickly if interest rates are less than hoped for, the policy lapses and all the interest that has been credited on a tax deferred basis suddenly becomes taxable income.
The author's answer to this problem is to suggest that the IRS is unlikely to go after a 90 year old for that kind of tax. You wouldn't want to test that theory.
The bottom line is that there is no free lunch. The equity index insurance products ability to credit interest to the cash value is essentially the same as any fixed insurance product. The fact that the interest credit is "linked" to the S&P 500 index is very different from actual market participation. It's just a calculation that happens to use some aspects of the S&P 500 index performance in the formula.
While the products do provide protection against market losses, that protection comes at a price. The price is that they will not and cannot produce long term returns similar to market returns.
For people in the highest tax brackets who are not going to depend on the insurance policy performance to provide retirement income and who will save enough in income taxes to offset the inherent costs in the strategy, there may be a place for this strategy. Aside from this narrow group of people, trhe strategy is almost certainly inappropriate.
People should recognize that this is a very complex strategy with many pitfalls that are not well presented or analyzed in the book. Be very careful!
on June 9, 2006
Ideas in this book are outstanding. Sure opened my mind to a higher level of consideration regarding ways to handle money more tax efficiently. I am OK with the push for Equity-Indexed Life Insurance ... in a bull market environment. What about an extended bear market or a flat market? It's nice to state repeatedly that the stock market S&P 500 80-year average is about 8% and base the entire book's illustrations and models on that. However, we are now in the 6th year of no performance on the S&P 500. PLEASE NOTE I WROTE THAT SENTENCE OVER A YEAR AGO. I HAVE A NEW UPDATED S&P 500 STATISTICAL RETURN ACCORDING TO VANGUARD MUTUAL FUND LITERATURE - THAT THE 8 YEAR S&P 500 FROM MARCH 2000 THROUGH THE END OF MARCH 2008 IS AT 3.8% ANNUAL AVERAGE RETURN - A FAR CRY FROM THE 8% STATISTIC USED BY THE BOOK'S AUTHOR. If you entered the markets (buying the index fund or buying the life insurance with repositioned assets) on January 1, 2000 then as of today you would be looking at a 3.3% averaged 6-yr return AND AS I JUST STATED NOW VANGUARD HAS RELEASED THE 8-YEAR STATISTIC. BOTH ARE ABYSMAL. Today (June 8, 2006) that low return got royally whacked and dropped the S&P 500 to a -3% YTD. The idea of these policies is to maintain that approx 8% average. So far that Jan 2000 purchaser has not nor has any purchaser since 2003 either. What happens if you don't achieve that result and you are 50, 60, 65+? How can you 'fund that bucket' with subpar index returns such as these? The answer is -- you simply can't. You won't have enough years to generate enough cash accumulation to service your retirement needs. It's common sense - it won't happen. It's lovely to say 'you will never lose, no matter what you will always get at least 1% a year.' Great. In the book Andrews gives examples of a minimum of 3% and an unlimited return but most of the policies the agents are using now are one of two companies, one giving a low of 3% at minimum and a 12% maximum cap, the other giving a low of 1% at minimum but the trade-off is they will cap you at 17%. I have a flexible premium Universal Adjustible Life policy from 10 years ago WHICH IS NOT AN EQUITY INDEXED PRODUCT BUT IS ALMOST IDENTICAL IN THE MANNER OF WHICH IT OPERATES and I can tell you even that one has not performed. It is pure life insurance. To most people that sounds great ... till I get into my 60's and 70's and the cash accumulated will not be sufficient to pay the increasing term insurance premiums built into these policies to meet the government requirements. Right now at age 52 my interest at 4% just meets my costs. It won't in about 10 years. It REALLY won't in 20 years. I'll be 72, draining capital and facing a taxable scenario even tho the money will be gone. And this is a 4% return right now for me. Imagine the S&P 500 doing worse than that LIKE 3.8% ANNUALIZED RETURNS, like if it is just flat (a very real possibility) OR ONE RECEIVES AT LEAST THE 1% GUARANTEED RETURN. I will not have enough capital to overfund that puppy which is a moot point because you must fund in the first 5-7 years of purchase to meet the government requirements. That means if I did have the capital, I would have to get a new policy and who knows if medically I will qualify at age 72 to be underwritten for life insurance.
Many of the financial planners that are quite sold on Doug Andrew's concepts present illustrations at 7% and 8%. It never crosses anybody's mind that this just might not be the case AND MORE THAN 8 YEARS LATER IS MOST DEFINITELY NOT THE CASE. The problem with the general public is, they don't know the right questions to ask. So they buy these policies based upon those juicy illustrations, forgetting to read the fine print - there is no guarantee your policy will perform as illustrated. People, you have to be smart. You have to know what they know. I am not saying don't buy these policies. I am saying you must be aware & committed to overfunding that 'bucket' and age has to be in your favor. I myself am not banking on the performance of the S&P 500 in today's horrid economic climate. It really is possible that we are in an extended period of rotten stock market performance AND A YEAR LATER AS I AM AMENDING THIS REVIEW IT DOES CERTAINLY SEEM TO BE THE CASE.
For those of you that have read Robert Kiosaki's RICH DAD POOR DAD (which the Andrews Team recommends) then good for you. Next go read RICH DAD'S PROPHECY. Digest that one. What happens when the first of the Boomers reaches 70 1/2 and MUST start drawing their pension benefits by law? Is anybody really aware just how much money will have to leave the markets? That is really food for thought. Rich Dad projected the years 2012 - 2016 as the beginning of that disaster. Then combine that with today's rising inflation, rising interest rates, pensions going broke, more pensions severly underfunded with no chance of being brought up to any acceptable level (no profits, won't happen) and the world situation especially the capital committment in this country for the war on terror -- oops forgot to mention the very real nightmare of rising health costs AND THE SUBPRIME/CREDIT CRUNCH FIASCO AND INFLATION AND THE COST OF ENERGY/GAS BECAUSE TODAY, MAY 2008, THE NIGHTMARE IS REALLY IN FULL SWING -- take a look at what America will have to do to keep the foreign capital invested in America (because if that gets repositioned into more attractive investments paying higher interest say, the Euro offerings) then we are in BIG trouble. I for one can't figure out where the money is going to come from to make us a SuperPower again. Too many problesm, too much corruption, too much bankruptcy in America on all sides of the equations. So for me, I have to say, while I enjoyed the book and got a lot of ideas from it, I am very very concerned with what I suspect will be non-performance of the underlying insurance policies based upon the S&P 500..
Having said all the above (thank you if you read it) I must tell you I am NOT a permabear. As my financial advisor says, there is always a bull market somewhere in the world, it just might not be in America!! (Try China, Australia, New Zealand, Switzerland, Brazil and Canada ...) I still recommend the book as a good thought provoker.
on September 19, 2004
There are two lessons in this book worth considering:
1. Paying down your mortgage lickety split may not be a great idea as your equity assets aren't very liquid, aren't particularly safe in your house, may actually increase the likelyhood you get forclosed on, and in some environments might not be the best return on your money.
2. Universal life insurance has various tax benefits that may make it a good alternate or supplement to 401K/IRA plans depending on your investment and estate transfer goals.
I give Mr. Andrew one star for each idea. The rest of the book is oversold hype and downright intellectual dishonestly, not untypical of many "finacial planning" books. He constantly says to not pay close attention to the numbers, but rather the concepts. Unfortunately many of his concepts completely fall apart when you look at the numbers, and in some cases his numeric examples are down right dishonest.
First, the good part. The first five or so chapters make a very good case for storing money in a interest bearing side account instead of paying down your mortgage fast. You hear many people say they do this to make more money than they'd save on thier interest. Mr. Andrew makes some excellent points why one would want to do this even without any additional return, or to my mind even a little bit of loss. Namely, extra payments to mortgages are nearly impossible to get back out of the house when you need them. These chapters are definately worth a read in the library, or given the quantities of money involved in a mortgage even purchasing the book before you start extra principle payments on your mortgage. He over hypes a few points in this part of the book, but on the whole very good advice worth one's serious consideration. Where he fails is by making a false case that it is always trivial to find an investment to put your saved money into that will beat the mortgage interest. If it was that easy no idiot would sell mortgages in the first place. Again, to my mind he makes a number of points worth considering even if you only just barely match the mortgage interest rate.
Now the bad. The last half of the book is about using a universal life insurance policy instead of a 401K/IRA for retirement savings. Mr. Andrew does a good job, though a bit long winded, explaining the concept here. He also points out some of the important benefits that life insurance would have over 401K/IRA. Unfortunately he frequently uses very dishonest math to show that life insurance will greatly outpace a 401K/IRA. In one case he doesn't account for life insurance contributions being after tax. In others he double counts tax deductions from mortage interest. In others he assumes one finds the cheapest life insurance and yet doesn't comparatively shop for an IRA plan. To me this is where the book falls apart. The life insurance concept was unknown to me and I'm glad I now know about it. But it was so oversold and the math done so poorly that I had to go do numerous scenarios in Excel, and what I found was that he made very unrealistic assumptions on both sides of the equation and when those imbalences were removed 401K/IRA and life insurance came up about the same. Again, there are situations in which one would be more advantageous than the other, but Mr. Andrew makes no effort to illustrate these. He mearly oversells insurance as a panacea that is for everyone.
In summary, I guess the book is worth its money just for the first five chapters, but I'd check in the library first. And I'll have to give Mr. Andrew for having more content and more sound advice than that "Rich Dad, Poor Dad" garbage - but that isn't much of a complement.
on November 18, 2005
EDITED 12/3/08. Well, for those unfortunate investors who got involved with some unethical insurance hack using this book to manage your finances, it's time to call your attorney. Use interest only mortgages? BANG! Invest in life insurance? POW! This was never a real book, it was always a piece of slimy sales literature disguised to look like a book written by an independent author. Unfortunately, it has caused a tremendous amount of heartache for anyone who followed it's principles. Not surprisingly, the S.E.C was after a group of scam artists based in Denver who were promoting this book's garbage. I would hope this book by now has been proven to be a complete and utter disaster.
Absolute nonsense!!! The only half-truth written in this book is the title because if you follow the principles in this book, YOU WILL BE "Missing" a "Fortune".
This is not a bona-fide book-it is a piece of sales literature to be used by insurance salesmen. The idea is that by distributing this "independent book" instead of a corporate brochure or pamphlet, the insurance agent can tout to prospects that insurance is in fact a "savings plan" and this "independent author's book" proves it. Sneaky isn't it?
This is not a "book on investing"; not when you consider that the author is also an insurance salesman. I wonder why he wrote this book and recruits insurance agents to attend his seminars-could it be to help other insurance agents increase sales???
There is a reason this book says it dispels Money Myths-because insurance salespeople use it to sell more products. Those "Money Myths" are actually common sense, intelligent strategies that every ethical financial professional knows to be true. The reason the book advocates against them is so that unethical persons can sell products against the advice of the investor's CPA and lawyer.
Borrow against your home and buy insurance/investments? Boy, that's a smart idea. So smart that the NASD put out an investor alert to consumers regarding this strategy. See "Betting the Ranch" at NASDR.com.
Life insurance as an investment? Marketing presentations like that have been banned by almost every state insurance commission and the NASD. Go to [...] for more information.
His mathematical "examples" don't add up. Wonder why that is? Because he can't figure out how to make the numbers work...because they don't and never will.
His assumptions are unrealistic. Get 7.75% from an insurance policy or EIA? Good luck on that one. Small detail? Not really when you consider this is the entire premise of his "book".
Wonder why the Seattle Times and Boston Globe blasted this "book"? Because it doesn't make sense.
Wonder why the only people endorsing this book are insurance salesmen? Could it be that this book can help them sell more high-commission insurance products at the expense of your life savings?
But hey, don't take my word for it, show it to your lawyer or CPA. Ask them their opinion.
on September 2, 2004
I got this book on the recommendation of a Financial Planner. The idea of not pouring your wealth into your house equity made a lot of sense. But it droned on for several chapters.
Then when he got to the Insurance. It just did not add up. Some of the examples were confusing at best. Contrived at worst. Figure 18.3 on Page 350 just did not make any sense. I could never get my numbers to match his, which never breeds confidence.
He had the results of a $6000 investment in a mutual fund after 1 year at a 10% yield equal to $6029. Even when I took into account some of his assumptions. (Sales charge of 5% and Management fees of .75) I could never get close to that number. And as I extrapolated this problem over 35 years, the difference became larger and larger.
on July 26, 2006
This book shows how the wealthy made money in the past. It is simply abritrage for the common man. You borrow for less than what you can earn on your money.
Donald Trump said during his troubles in Atlantic City before coming roaring back,that he'd "rather have a million dollars in his pocket and be in debt a million dollars, than have zero dollars with no debt".
Yes that concept can present a problem to a lot of people, that is why it takes homework on our part to understand it thoroughly before jumping in headfirst.
To complicate matters, these policies are complex with TAMRA laws and the like. The participation rates are very important to how your interest is earned. With so many insurance companies now selling these products, each with different twists, it is so important, that A)your advisor knows what he's doing and B) has your best interests at heart and not his. The insurance company that offers the best commssion is probably the worst product, will he put aside his interest for yours.
One of the most important things I learned from this book is that Traditional IRA's are bad, just plain bad. Someone putting away $4000 a year over 35 years (assuming 8% Annual ROR)will pay in the first two years of retirement, all the taxes that he saved on, from then on, it'll be gravy for Uncle Sam.
Some may question the assumptions, but if the markets doesn't return 8% average over the next wherever you have your money is not going to get the returns either.
on November 23, 2005
Being very interested in putting Andrew's strategies to work myself, I have assiduously investigated it. So far, I've not found one single piece of irrefutable evidence that a) what D. Andrew says is false; and b) that his strategies do not work. As with any financial plan, one needs to be very selective in the choosing of the right vehicles to use; just plunking funds in the first product of choice, be it a mutual fund or an EIUL, is not smart regardless of one's strategy. True, Andrew does sell life insurance as part of his financial services, but he also has built his fortune using the same methods he details. Moreover, Andrew has been stringently audited by the IRS (as have many of his clients) with the result being a clean bill of health and the IRS agent who did his audit becoming one of his clients.
After reading the recent November 2005 review of from 'Finance Investigator', I decided to check out his references upon which he builds his case to 'blast' the book, e.g. the NASD report [...] the [...] site, the Seattle Times 'article' [...] and the Boston Globe article [...] The first report from the NASD is not an 'investor alert' as FA suggests, but rather a report about the investigation of the selling of variable universal life insurance, a much different animal than the equity indexed universal life Andrew suggests which has a guaranteed rate of return while VUL goes up and down with the market. In fact the report makes no mention of the concepts and processes proffered by Andrew. The second site mentioned also doesn't talk about Andrew's ideas at all as far as I can find; it almost exclusively uncovers the unethical, fraudulent practices of agents for Northwestern Mutual. The Seattle Times piece is not an article but rather a response to a question by their financial columnist. In it he deftly points towards the potential pitfalls of Andrew's overall strategy of leveraging home equity and one's mortgage to fund retirement accounts using EIUL; it does not 'blast' the book and its ideas as FI suggests. Finally, in the Boston Globe article, the columnist has personal experience that his Universal Life policy has not performed as well as Andrew predicts EIUL would. Fair enough--there is risk with any retirement funding plan and tradeoffs when using one's money.
The methods and vehicles used by Andrew are complex. They take serious study and investigation to understand and employ. As such, any 2-3 paragraph review is inadequate to ascertain their true worth. I, for one, have found great truth to his concepts and have yet to find flaws in his strategies.
on March 17, 2006
Doug Andrews does an excellent job detailing 'a few' strategies to enhance one's finances in the present and in retirement.
This book details a few key ways that someone can leverage the equity in their home into a secure tax-free vehicle that fund retirement. The book also explains how to enhance the return and the safety of todays assets. What I respect most about this book is that 'safety' is a strong theme in every chapter.
The majority of the book details how the idle equity in one's home has much better uses and should be put to work - very true. Mr. Andrews covers a couple strategies for how to do that safely and with minimal tax effects.
There is a couple chapters that teach how to transform a life-insurance policy into a retirement fund. Though this strategy does not apply to everyone's situation (what strategy does?) I can easily see that for many people this would be an ideal solution. Some reviewers have said that other investment vehicles, like Roth IRA's and 401K's are the better investments - but how can you transfer $300,000 of equity into those other vehicles? Some reviewers may have missed the point of the book. TIP: If you read the book and find the life insurance chapters confusing, or feel the numbers are wrong (like I did at first) then read those chapters again at a later time, and it may 'click' for you, as it did for me.
I personally don't like the life-insurance-policy idea. I would much rather buy more real-estate with my equity, but not every homeowner want's to become a landlord like I do - therefore my strategy isn't for everyone either, now, is it?
In short: this book does not provide the solution for everyone and it does not cover every strategy, but that is not the point of the book...this book is a must read, because it will get you thinking in the right directions....
on July 27, 2004
Good thing the book was over 500 pages because many of the ideas were reiterated over and over. There really were 2 main ideas: #1. Keep your home mortgaged for as much as possible and utilize your equity in a side fund that will earn more than your mortgage interest, and #2. Use a complicated life insurance policy/strategy with that money to make far more than you could with an IRA or 401K. At the end of it all, I might agree with some of the reasons for keeping your equity out of your home and in a separate side fund, but the life insurance information was a little too complicated and relied on too many variables for me to trust (and you'd better have a lot of money to begin with for these strategies to work). An interesting read and I couldn't begin to explain how the strategies work in this short review but I wish I had checked the book out at a library. Worth the read if you want to hear about an investing philosophy that isn't mainstream.
on May 12, 2006
If nothing else, the book definitely has me thinking about age old concepts from a different point of view. Was it really wise for us to double up on our $1,600 mortgage every month, realizing that my tax deduction was shrinking annually? Now we are investing the extra mortgage payment somewhere else, with the idea that when the time comes we'll take our savings to pay off the house, or not. Another thought provoking idea was that all the taxes I deferred over the last 22 years investing in my 401(k) will be recovered by the IRS in as little as three years. That's a scary thought. Regarding the Equity Indexed Universal Life Annuities mentioned in the book, I've been reading lots on the Internet, as well as talking to financial planners and insurance agents about these products. I've learned, so far, to step carefully. I read one prospectus, and when I saw the applicable fees charged by this company for the annuity, I was not convinced that Annuities are the way to go. However, more than anything, the book has made me aware that Uncle Sam can't wait for me to retire (three years from now)to get his hands on my (tax deferred) savings. One way I plan to lessen my tax bite is to sell my almost paid off house right before we retire; buy a smaller house for probably the same price, which in California, because I am over 55, will allow me to carry my property tax basis to the new house; pay as little down as possible on the new house, and invest the equity from my old house in a yet to be determined investment; MAYBE we'll put it in a tax deferred Equity Indexed Annuity. Than, most of the money I withdraw from my 401(k) will be offset by my new mortgage, which will reduce income tax. So in essence, Uncle Sam will help me buy about 33% (marginal tax bracket) of my new house, while equity from my old house is increasing in the yet to be determined side fund. Regardless of what we are going to do, having read this book definitely has resulted in me thinking and looking at my financial situation from a whole different perspective. I recommend it highly if you have some net worth and wondering how to maximize your retirement savings.