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The Ideal Economy

MoneyWise / Rob West and Steve Moore
The Truth Network Radio
April 12, 2023 5:41 pm

The Ideal Economy

MoneyWise / Rob West and Steve Moore

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April 12, 2023 5:41 pm

The creation account in Genesis lays the foundation for everything that comes after it in the Bible. But you probably didn’t realize it also forms the basis for the ideal economy. On today's Faith & Finance Live, host Rob West will talk with economist Jerry Bowyer about what God intended to be the ideal economy. Then Rob will answer your calls on various financial topics. 

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In the beginning, God created the heavens and the earth. Genesis 1-1.

Hi, I'm Rob West. Those are familiar words that lay the foundation for everything that comes after it in the Bible. But you probably didn't know that forms the basis for the ideal economy. I'll talk about that today with Jerry Boyer, and then it's on to your calls at 800-525-8255.

That's 800-525-7000. This is Faith and Finance Live, biblical wisdom for your financial journey. Well, our friend and resident economist, Jerry Boyer, joins us again today, and I'm really excited about this. We're starting a six-part series of discussions with Jerry titled, God's Design for Economics and Wealth Creation. And Jerry, the roots of this go back to the 2008 financial crisis.

It seemed like the economy was crumbling, and you pulled the kids aside with an old chalkboard to kind of recenter them, and maybe yourself, on really God's design for economics. Isn't that right? Yeah, that's exactly what happened. So this was around 2007 and 2008, right? There were some signs in 2007 about what was coming. In 2008, it was, I think, pretty obvious that we were in serious trouble. And at that time, I was in a lot of conversations with the Bush White House. I talked to the Treasury Secretary, actually two, I think he got rid of one, and then there was another one. And then I talked with the Chairman of the Council of Economic Advisors, and there were a whole bunch of conference calls with the Council of Economic Advisors about these issues. And I found myself frustrated because I kept trying to talk to them about fundamental principles about how to handle this. And they were very set, not on fundamental principles, but on some kind of quick fix, a bailout, a huge spending bill, which would then be used to recapitalize the banks, or to buy the bad loans, or to have investment directly in the banks.

And this was all really moving in the wrong direction. And what I found is, it's not that I could talk to them and they would hear the reasoning and reject it. Their way of thinking was so alien, because it wasn't principle-based, that they couldn't even hear us. They couldn't even process.

They didn't have the shelving to think from a biblical worldview and from a principle point of view. So out of frustration one day, I just asked Susan to bring all the kids into the other room and pull out the chalkboard. And I said, listen, we're going to talk about economics.

My oldest son said, which parts? And I said, all of them. We're going to talk about all of economics.

I can't control what Ed Lazear, Chairman of the Council of Economic Advisors thinks, or what President Bush thinks, or what Vice President Cheney thinks. I can't get them to see it this way, but at least for the next generation, there's going to be somebody who understands this. And so what we did is we just rolled through. It was about four hours. Chris was the oldest, a teenager, and there was the youngest, Jack. I think Jack was maybe five at that time.

And we just rolled through basic principles of economics. And we did it in such a way as, if the youngest did not understand, we stopped and re-explained so that he was letting us know. He was kind of the slowest member of the group.

Not slow, but just youngest. If he didn't get it, we were going to make sure that he got it before we moved on to the next point. And it just so happens, we kind of had an impulse to have our daughter, Grace, put on a video camera and turn it on and record that. And I happened to mention that to my friend, Vince Burley, from a Ronald Blue & Company at the time. He said, oh, I'd like to get a look at that. So we sent it to him. And then he said, you know what? I think we need to make a recording of this and send it out to every member of the firm. And I thought, well, you can't do that. I'm in a ratty T-shirt. And I think I burped a couple of times in this. You know, kids are asking questions.

Some people are in their pajamas. I don't know if this is going to work. And he said, no, what we're going to do is bring you down here and do a professionally recorded version. And it won't be four hours. It'll be more like 40 minutes. And that's how that video series came about.

I love it. Well, we're going to get to what you shared in just a moment, Jerry. But first, I have to think that there's some listeners out there wondering, how did that go? I mean, I can't imagine getting my kids together for a four hour economics lesson, but they were listening intently, weren't they? Well, they were. And of course, when you've got kids who are under nine or eight, you know, it was a little bit of an effort for them. But they were also homeschooled kids and they were sort of used to that. I mean, you know, we had a blackboard. So and they were interested. They really wanted to know and they wanted to please me. So we ended up going through it.

And I think even to this day, they internalized a lot of it. And I think understand those basic economic principles. So what did Jerry say?

Well, just around the corner, you'll hear it. God's design for the ideal economy. Joining me today, President of Boyer Research and our resident economist, Jerry Boyer.

Stick around. Great to have you with us today on Faith and Finance Live. Joining me today, my friend Jerry Boyer. He's president of Boyer Research. He's our resident economist. And today, the first part in a six part series of discussion titled God's design for economics and wealth creation.

Just before the break, Jerry shared the setting. It's 2008. The financial crisis is occurring. Jerry's a bit frustrated about the lack of response to God's design for economics and how the United States was responding to the financial crisis. So he pulls all of his kids together, seven of them, plus his wife, Susan, and they have a lesson. He gets out a chalkboard and shares God's design for economics and wealth creation.

Jerry, what did you share? What I shared is that the most important fundamental aspect of economics, the truth on which all sound economics must be based, is that in the beginning, God created the heavens and the earth. And that any economics that misses that foundational principle will be a miss in one way or another. That was the main point of what I taught them. Yeah. And you shared, Jerry, that obviously God is at the center, not government, and that when we put God in his rightful place and see people as a blessing, not a curse, that's really the fundamental idea that everything flows from, right?

It really is. And part of that is not just that God created the world, but specifically the way the Bible describes him as having created it. So he created plants with the seed in themselves.

And seed, feeding seed. The idea being that there's a natural multiplication process built into the creation. Not that he just made the world like one would make, let's say, a building, and then it's just dead and it doesn't move. He created a world that continues to grow after he made it. So trees lead to more trees, which leads to seed, which leads to more trees. And that means that there is the possibility of growth. Growth is built into the creation itself.

It's self-renewing. That's part of God's generosity. So that's an important thing. That's why you can have economic growth. You can have economic growth because the creation itself grows.

That's very important. But you can actually get bigger economic growth even than you expect. Because the other thing that has the seed in itself is human beings. We have seed, and out of that comes people, and those people have people, and those people have people. And so those people, like God, make things better.

They improve things. And so not only do we have trees which naturally grow, but humans can come in and they can weed and they can plant in rows so that the trees yield even more. And the fact that the creation yields means that we have the possibility of growth and that therefore people aren't the problem. The creation can grow to keep up with our needs. But on top of that, we, as little images of God, can make it grow even faster. And so we are the solution to the problem.

We are not the problem. And all non-Christian economics eventually ends up with some form of what's called Malthusianism, which is the idea that people are mostly mouths, not mostly minds. So behind communism and fascism and all of the terrible ideologies of the 20th century were the belief that the creation is not generously created by God, and therefore we have too many people. That's not what God says.

He says, I want more people. Go fill the earth and subdue it. That's biblical economics.

Yeah, that's really critical, and it's the right starting point. Jerry, how do you then build on that to see how economies should work in terms of a virtuous cycle of productivity and economic expansion? Well, the virtuous cycle really fits together with this idea that the creation yields. So let's say that you have an apple, you can eat the apple, or you can take the seeds from the apple and plant and get more apple trees. So you have to defer your gratification. I remember I learned when I was a gardener that – Susan actually taught me this – that you have a little bud that, oh, that could be – oh, you have a little flower. Ah, what are we going to do? Well, if you let that flower go, it's going to eventually drop seeds.

Or you can pinch it off, and then it'll give you a strawberry, but it'll give you one, not a whole bunch. And so you're always making this decision, do I eat it all now, or do I defer some gratification to get more later? And that's the investment decision.

We do it in finance now, but it's the same basic idea. When you defer gratification, you get more later. And so that's the virtuous cycle where – and economists talk about something called the production possibilities frontier, which sounds really technical, but it really comes down to this. You can eat it now, or you can defer gratification and invest. Sacrifice now to get more later. In a healthy economy, there'll be more leaning towards underconsumption and more investment. And in the long run, that grows the whole pie.

If you consume it all now and don't defer and don't reinvest, the pie stays the same size. And for thousands of years, that's what was happening. After the fall, you know, they just had a situation where you could only have three or four children.

If you have five children, well, then starvation sets in. There wasn't economic growth until we re-embraced that biblical idea. And Jerry, what was it about the U.S. that allowed it to take off like a rocket ship?

I mean, our soil isn't any different than soil in other parts of the world, so why did we expand and grow the way we did? Because we embraced those ideas. Now, we weren't the only ones, but there was an awakening of this biblical idea of creation, this kind of Hebrew economics.

It starts in the Netherlands, and then it goes to the United Kingdom, and then it comes over to the United States. And we have this wrestling match in the 1700s where, is it okay to grow, is it okay to invest, or is that selfish or stingy? Or, you know, if you're doing that, you're investing, you're investing with all these bad people like Roman Catholics or Muslims, you know, who the Puritans didn't approve dealing with. And they wrestled all that through, and eventually they concluded that reinvesting and deferring gratification gave growth, which actually helped fund the Kingdom.

When we came to that conclusion, theologically, about a generation before the founding of the United States, and that gets hard-coded into our Constitution, and that's why we were able to leapfrog civilizations that were two or three thousand years older. You know, Babylon and Persia, Iran, Iraq, we leapt over millennia of growth to become the great economic superpower of the world. Like you say, no better soil, arguably worse in many ways, not more natural resources, but an acknowledgement of the biblical way of using natural resources in a growth-oriented way to bring glory to God.

Yeah. And Jerry, what about risk levels then in that virtuous cycle where there's productivity and expansion and reinvestment? How does risk then manifest itself? Well, whenever you have reinvestment, you have that risk element, right, which is what if something goes wrong. I could plant a tree and it could wither. I could invest in another country and they could nationalize it.

I could save and inflation could eat it away. So there's always risk when there's a deferral of gratification, which means you need to have good, firm institutions. Like Jesus said in the Sermon on the Mount, a house built on a foundation of stone versus a house built on a foundation of sand.

A house built on stone is low risk. A house built on sand is high risk. But you don't know until the rains come, and then you see which one is washed away.

Up until then, they look pretty similar. And we see in recent examples what's gone on with the banking crises. We find out when the storm comes, which houses are built on stone, which houses are built on sand. So you can't really have that virtuous cycle unless you honor fundamental principles like property rights and soundness of money. Otherwise, people will not be willing to take the risk of deferring gratification.

Yeah, that's really helpful. And I know you also make the point in the video on the ideal economy that giving is critical. It's important that we give back to the God who made us. That's a part of the virtuous cycle as well. Well, Jerry, we know that economies don't always follow God's plan and things can go horribly wrong.

So in our next part of this series, we're going to invite you back to tell us what can go wrong when we don't apply God's principles. Jerry, thanks for stopping by, my friend. My pleasure. Look forward to it.

And I'll defer gratification till then. All right. That's Jerry Boyer, our resident economist.

He's also a contributor at World News at All right. Your calls are next.

The number to call is 800-525-7000. Stick around. Thankful to have you with us today on Faith and Finance Live. I'm Rob West, your host.

Boy, always great to have Jerry Boyer in the studio. So appreciate his insights, his wisdom, always rooted in a biblical worldview. That's just the first part in a multi-part series that we'll have in the coming weeks as we look at what goes wrong in God's ideal economy, how we can get it wrong, and how when we move away from those principles rooted in God's word, we see the manifestation of that as it breaks down. And we're certainly seeing that in our country.

We're seeing that in other parts of the world. We have for thousands of years. But understanding how God designed it all, I think, is always key to keeping us rooted in a biblical worldview as it relates to every facet of our lives.

And yes, that includes our personal finances and economies. So Jerry will be back in the weeks ahead to continue to unpack that for us. But now let's turn the corner and deal with anything financial. Whatever questions you're thinking about, we'd love to tackle them with you today. The number to call is 800-525-7000. We've got a few lines open today. 800-525-7000.

We're going to begin in Miramar, Florida. Hi, Femi. Thank you for calling.

Go right ahead. Good afternoon, Rob. How are you? I'm well, sir. That's good to hear.

I have a question. I have an investor's deposit account. I've had it for about six years now. And it's not gaining as much money as it used to. I'd probably get around like maybe a dollar, probably a dollar and a half per month. Now it's only like 33 cents. I was considering taking that money and turning it into a precious metals account.

Do you have any suggestions on which places are the best ones for that? Well, let's talk about it for a second. So how much money do you have in this account? Over $35,000.

Okay. Yeah, so I mean the first thing you could do, depending on the time horizon for this money, if you wanted to keep it on the ultra-safe end and keep it very liquid, you could move it into a high-yield savings account and at least pull in about $1,200 a year to $100 a month. I mean there's no reason for you to be getting just a few dollars a month or a year, depending on what you're earning, which sounds like it's next to nothing. You can keep FDIC insurance in complete liquidity and still earn $100 a month. But I think the first question is to step back and say what is the time horizon for this money and is it earmarked for a certain purpose? Is it an emergency fund that you need liquid or is it long-term savings that you don't plan to touch for a decade or more? I would say that right now I was just saving the money.

I have no idea what emergency is going to come in the future. That's exactly why I have it saved up. Do you have a liquid emergency fund separate from this or is this really all of your liquid savings? This would be, well I have this and I have like a few thousand more in my checking account.

All right. But that's really your funding account, your operating account if you will. You're paying your bills out of that account, right? So that $2,000 is kind of ebbing and flowing throughout the month? Yes.

All right. So my recommendation, and I'll get to your question about the gold because certainly I want to get you a response to what you called about, but the only thing I would say is we generally recommend you having an emergency fund of three to six months expenses that's liquid and stable, but earning a reasonable interest rate. So that's why I would say putting it in a high yield savings account meets that criteria because right now you can get three and three quarters percent in a high yield online bank savings account with FDIC insurance and it's completely liquid.

Within 24 to 48 hours if it was linked to that checking account you could electronically move money and you're off to the races with whatever you need it for. If you tie it up in gold it's no longer liquid at that point and it's volatile which means it could be doing well if you had to sell it and liquidate a position because you had an unexpected expense which is the definition of the use of funds in an emergency fund, but it also could be down. You know we've had a run in gold here and certainly gold could sell off and now all of a sudden you're selling it at a loss which defeats the purpose of that emergency fund. So I just might consider that as you're thinking about this.

You'd take the total expenses for a month, multiply that by three or six, somewhere in that range is probably what you need to keep liquid and I'd use an online savings account like Marcus or something like that with FDIC insurance. Now as to the question about gold, if you want to buy gold you've got a couple of options. You could buy a tracking ETF that just tracks the underlying movement of the price of gold. It's not like a mining company where you have their own sales and earnings that you have the stock moving based on, but it's purely just tracking the movement of the precious metal. So that'd be a simple way to buy gold and you're not taking physical possessions. So you don't have the dealer markups, you don't have the storage, you don't have any of that. If you want to take physical possession then I'd look for either a local dealer or someone online, I'd read a lot of reviews. I don't have a specific source to recommend to you, but what I would say is you need to really do your homework.

I'd probably look at buying gold coins if you were going to do that, but just count the cost and understand why you're getting them, understand how liquid you need that money, especially if this is really the bulk of your liquid savings and then I think go from there. Does that all make sense? It does. Okay, excellent. We appreciate your call today, sir, very much. God bless you. Let's head to Naples. Hi, Tensley, go right ahead.

Hi, Rob. Thanks for taking my call. I am considering renting a room to a lady from our church who's in need of a place and before I do that I'm just trying to figure out some of the ramifications of that, like how I would go about paying taxes on the income. I am planning on having a rental agreement, but that's probably just going to be an online generic form, but what I need in the way of additional insurance.

I just want to make sure this is not going to cost me more than what it's going to bring into income for me. Yeah, makes sense. All right, good. Well, let's do this.

I'm going to ask you to hold right there. When we come back, we'll talk about that. What does it look like to rent out a room to someone?

What do you do with that income from a tax standpoint and are there any other kind of best practices that you need to know? This is Faith and Finance Live. I'm Rob West. We've got a few lines open today. If you have a question, when we come back from this break, we'll be tackling those. The number to call is 800-525-7000.

Again, that's 800-525-7000. By the way, if you haven't checked out our website, our FaithFi community is alive and well. People are posting questions and ideas and thoughts every day. We'd love for you to jump in and get involved in the conversation with other stewards, forward slash community. We'll be right back.

Stay with us. Thanks for joining us today on Faith and Finance Live. I'm Rob West, your host. We're taking your calls and questions today on anything financial.

Just before the break, we were talking to Tenley in Naples. She's considering renting out a room to someone in need and she's wondering if there's a legal procedure to follow. So just to clarify, Tenley, you know this person and you have reason to believe this is somebody that would be a suitable renter in your case? Yes. My pastor actually recommended her.

She's a member of my church, so I've known her and he recommended it, so I feel comfortable with that. Okay. Got it. All right.

So then at that point, you know, that's half the battle in terms of making sure you're ready for this. You do need a landlord policy that you would want to talk to your insurance agent about. Beyond that, you mentioned about the taxes. You know, if you rent out a room in your house, the same rules apply to you as they do for a landlord who rents out an entire property. All of the rent received is considered taxable income and you have to report it to the IRS. But as a landlord, you're allowed a number of deductions that enable you to either completely or partially offset the rental income. In the case where you're just renting out a room and that is just a piece of your primary residence, you can, of course, only deduct expenses that pertain to that portion that's rented or the percentage of the property, if you will, that's allocated toward, you know, what is the rental room. So, for instance, you couldn't deduct the whole amount of utilities.

You would just have to take a prorated portion. So you're going to want a CPA who can help you with that. Beyond that, you're going to want to write a lease to make sure you understand. You know, it's clearly spelled out what the rules of the arrangement are and, you know, what the that you're protecting yourself, but also clearly defining what is and is not permissible when the rent payment needs to be made.

Pet policies. Is there, you know, a sharing of the utilities, access to common living spaces? I mean, you're going to want some help with that. You can either check with a realtor who specializes in rentals and perhaps pay them for their time, or you could talk to a real estate attorney to help you draft something up. But, you know, I think those are the big ideas. I mean, if this was somebody who was unknown to you, you'd want a rental application and you'd want to do a background check and a screening and that type of thing. But I think the big idea for you is to create that that lease so everything is documented. There's a clear procedure for not only how they'd come in, but under what conditions they'd have to leave and then spell out just kind of all of the various pieces and parts of this and think through kind of how you're going to approach the common areas.

But I think getting some counsel to set this up, both from a tax standpoint as well as a legal standpoint, so you're protected, but also so there's just clarity and communication is going to be really key. Does that make sense? Yes, sir. OK. Good info.

All right. Well, you're doing something really great here, Tenley, and I hope this works out. I'm delighted to hear you're taking some space that you have and making sure you get somebody in it who really has a legitimate need. I know it'll be a real blessing to them, but you certainly want to go into it with a lot of transparency. You don't want to get into it and have to deal with things as they come. You want to try to anticipate as much of that as you can.

And that's for everybody's benefit and protection. So all the best to you. Thanks for calling the program today to Round Lake, Illinois. Hi, Craig. Go right ahead, sir. Hi, Rob. Thanks for having me on. I'm delighted to.

Hey, thank you. So I have a Roth IRA that I established about three years ago now with about fifteen thousand dollars in it. And the first question I have is having lunch with my grandpa last week. And he said that I may have to pay capital gains tax on that when I go to eventually retire. And is that true? On what? On the I bonds or on the Roth IRA? On what? On the Roth IRA.

No. So the way Roth works is you're putting in after tax dollars. So you receive the income in whatever form you pay the tax on it and then you contribute that after tax money. And as long as that money's in that Roth for at least five years, when you begin pulling it out at any time, you can get your original contributions back, whatever you put into it, because you've already paid the tax on it. The government would gladly give it back to you. But anything that is appreciation, whatever the profits and interest and dividends you have that have been accumulating inside that Roth, that all comes out tax free. So long as you're over fifty nine and a half. And as long as it's been open for at least five years, you're not going to pay any tax on that. That's really the beauty of the Roth IRA.

Awesome. And then I had one other follow up question being that, you know, I bonds are a little more lucrative now than, you know, just the general stock market. Is there any way for me to set aside ten thousand dollars from my Roth IRA and put it into an I bond? But I quite honestly, I think you answered my question being that it has to be in there for a minimum of five years.

I haven't reached that five year milestone yet. So. Well, you could you know, the account has to be open for five years. You can take out your original contributions at any time. So if you'd contributed more than ten thousand along the way, you'd be able to get that out penalty free and that wouldn't harm you in any way. I wouldn't recommend it, though.

And here's why. You know, the beauty of the Roth IRA is long term compounded growth. And I think the very best way to grow that is in a properly diversified stock and bond portfolio. The I bonds are attractive right now.

They're not going to be long term. You'd have to take the money out of the Roth because you can't invest in an I bond through a retirement account. And now you've given up the benefit of the Roth, which is that that shelter, if you will, that's going to allow that money to grow on a tax free basis. The I bond is eventually going to revert back to returns that are not very attractive because the Fed, the Federal Reserve is laser focused on getting interest rates back down as close to their two percent target as possible as they do. And as inflation drops, the comp the composite rate of those I bonds is going to drop with it.

So, yeah, it's at six point eight seven right now. And if you invested in it tomorrow, you'd get six months and then you'd get the new rate, which we know in May. And it'll be lower, although it'll probably still be attractive. But if we're talking Roth IRA money, that's money that we're typically thinking about in terms of decades. And if you're looking out decades, I'd much rather you be in stocks and bonds inside a Roth than outside of a Roth in an I bond. Does that make sense?

It does. I will stick with my balanced asset allocation and my Roth and I appreciate your time. I'm happy to do it. I'll just add one quick caveat to that.

If you have money that has like a one to three year time horizon, that's probably the bucket of money that I'm thinking about, not my emergency fund that has an immediate potential need and not my long term savings. But it's that kind of middle ground where I think the I bond can make some sense. Hope that's helpful to you. To Copley, Ohio. Paul, thank you for calling. Go ahead.

Hey, Rob, I got a question for you. I'm 65 and I have a term life insurance policy for two hundred fifty thousand. And I see these ads about they'll buy your term life insurance policy for her cash amount. And I don't really need the policy. I mean, it expires, I think, when I'm 80.

And I do you think are those things real or is it worth looking into? Yeah, I'm just yeah. Here's the thing. I mean, you're going to get such a little amount. I mean, you typically get somewhere between 10 and 35 percent of the amount that you would receive at death.

And, you know, it's just usually not worth it. If you don't need the policy, I'd probably and if it's about to expire, it's going to be far less than that, even. So it really is for a policy that has a good bit of time left on it. And if that's the case, typically you need that death benefit, which is why you have it in the first place. Otherwise, you just let it go. So I'm not a big fan of this. I don't see many cases where it works out to your benefit.

So I'd probably pass on it if it were me. But it's a great question, Paul. And I know they do a lot of advertising. Thanks for being on the show today. Hey, this is Faith and Finance Live.

Much more to come just around the corner. Stay with us. Great to have you back with us today on Faith and Finance Live. I'm Rob West. We're taking your calls and questions today. Let's head right back to the phones, Mount Pleasant, Texas. Hi, Lance.

Go right ahead, sir. How are you today? I'm doing great. I'm 50 years old. I am debt free.

House is paid for, land is paid for. I contribute around 15 percent. Well, actually 16 percent to my 401k retirement at work.

My wife is a teacher. She is one year from being eligible to retire. My tractor is on its last leg and dying. I have zero debt. I have a retirement of around 750,000 vested right now in a 401k. I have a pension that will be eligible to me at 60 years old for some work I did. Long story short, I need to buy a new tractor. My work currently offers a program where I could take a loan against my retirement and pay myself back at nine percent interest. Which is the 3.5 roughly that I'm earning right now on the 401k. Is that a bad idea to use that money to buy that tractor?

Yeah. What is the purchase price on the tractor? With the trade in that I'm going to have, there's going to be about $15,000 difference. Okay. And what other liquid assets do you have besides the 401k? We have a sludge fund that we use for when we decide we want a new car so we pay cash.

For those, I recently bought my wife a new car so it's a little bit lower. And then we have gold and silver. Okay. Alright. And you think based on where this 401k is going to eventually be plus the pension that you'll have and any other assets you're able to sell off when you reach retirement, you should have enough to cover your expenses?

Not counting on Social Security with my current amount taking out four percent and with the pension amount and my wife's teacher retirement, we would be earning around $73,000 a year which is more than I currently make. Okay. Yeah.

Very good. And what's the payback on this if you were to borrow it from the 401k? How much per month would you be able to send back to it? I've got it set for a two-year payback because I'm hoping the markets are gaining by then. Yeah.

Alright. Well, I mean typically I'm not a fan of this because the money comes out of the 401k and so therefore it's not working for you. So I'd rather you maybe ratchet down your new contributions and just use that to fund it but it would require you to take on a loan which you may not want to do and I understand you have this enormous asset there. So I think given kind of where you're at, the fact that you're essentially debt-free, you've got this asset, you're paying it back to yourself.

If you did have to, you know, if you separated from your company and it had to be treated as a distribution, it's only $15,000 of a $750,000 portfolio so it's a pretty insignificant amount of money relatively speaking that you would have to recognize as taxable income. If you're under 59 and a half, you'd obviously have to pay a 10% penalty but that's not likely to happen. It's a pretty short payback period and you're right. You are paying that interest to yourself so that's a good thing. It's kind of a forced savings in a sense that you're paying to yourself as you pay it back. So I think just given everything that I'm hearing and all the assets that you have, I don't think that's a bad idea at all.

I think the key is just try to get it paid back and paid off as quickly as you can. Oh, absolutely. Yes, sir. Thank you very much.

All right, Lance. We appreciate your call today. You guys are doing a lot of things right so congratulations. Thanks for being on the program.

Let's head to Chicago. Jaquina, is it Jaquiana? Is that right? Correct. You got it right on the first try. Awesome.

How can I help you? Hi. So I was just calling because I recently got introduced to something called an IUL. Is that like an index?

Yeah. So I already have a Roth IRA set up. I had a 401k. I flew to the office of Roth once I left one of my jobs and so I did that. And as you know, it's losing money right now.

Not a lot, but enough. But I was introduced to this IUL and I was told that that's more secure than doing like the Roth right now. Because like I said, I'm losing money right now and this IUL will be more secure and I could actually do compound interest and borrow from it if I needed to. And it's more secure than the Roth IRA and I just want to see, is that correct?

Yeah, I appreciate that. How much is in the Roth today, Jaquiana? Right now I have about $25,000.

$25,000? Mm-hmm. Okay, and what is your age if you don't mind me asking? I am 39. Okay, and have you been contributing it to it regularly and did you plan to put another contribution in this year?

I actually have not. I haven't been contributing regularly. Okay, and so what are you doing for retirement currently? Do you have a 401k at work or something that you're contributing to or is this really the only retirement asset you have right now? This is the only retirement asset I have at this time. Okay, and do you have the ability to start contributing to this regularly or a 401k at work if you have one?

I do. I actually do, but again, the way I'm looking at it and I know and I hear you about it. I see your program all the time saying that the market is down right now, but it'll return. So I'm kind of scared to start contributing and losing money because I did that. Like I said, I actually lost money and it's like more like I don't want to put money into where I'm losing it at. So I'm kind of cautious of putting money there, so I have it. No, I hear you.

So let me just talk you through that and eventually at the end of the day, Jacqueanna, you're going to have to make this decision. You're the steward and I'll certainly support you in that, but the idea is this. First of all, it's not a matter of whether the Roth is performing on its own or not. The Roth is just the vehicle that gives you the tax-free growth. You can put any kind of investment you want inside a Roth. Typically, it'd be stocks and bonds, but even inside the stock portion, you could own precious metals through an indexed ETF of some kind.

So it can do whatever you want. Technically, you could short the market, so you gain money as the market falls if you wanted to. So it's really not a function of whether the Roth is a good thing or not. The Roth is a great thing because it's providing you tax-free growth. And at your age, you've got 25 years potentially before you're even thinking about retirement. And then if the Lord tarries and you're in good health, you're going to need probably several decades beyond that. So we're talking about 25 to 45 years that this money could be in here before you need it.

So you've got a long runway. The question is, what are the investments to go in it? And that's where you're either going to win or lose in the short term based on the investments you select. But again, if we're properly diversified and we're playing the long game, you should do well.

What's the problem with the IUL? Well, the problem is it's not as favorable on the tax treatment as the Roth IRA because, again, you're getting tax-free growth. Number two, yes, you get downside protection, but in exchange for that, you give up some of the upside. So there's caps on the returns to limit your upside, and that's how the insurance company makes money. So they're able to protect you from losing money, but you give up some on the upside. And really, when you look at the market going back to the 1920s, again, all those ups and downs, ebbs and flows, the way you make money is, in some of those years and decades, the market's up dramatically. Well, if you don't have that in your portfolio because the insurance company is, in a sense, throttling that for you, well, then you're not going to have as good a long-term result because you've given that up.

So why would you invest in a Roth IRA and then deploy that in the market right now, given the uncertainty, given the volatility? Well, the reason is because the market's on sale. You know, when you go to the store to buy some clothes, you don't want to buy at full price. If you don't have to, you'd rather buy at a discount. And you could look at stocks today, which is just a small piece of ownership in a real company with sales and earnings, you could look at stocks today as selling at a discount. Now, could they go further down after you buy them?

Absolutely, and they probably will because I think we'll test our October lows of last year when we get into this recession. But you're not looking at it about this year or next year or five years from now. You're looking 25 years down the road for this money, and the very best place for you to build wealth, if we look at all the data going back to the 1920s, is not in an insurance product. It's in the stock market, especially inside a Roth IRA where you've got tax-free growth and you'll eventually be able to pull all those gains out without paying any tax whatsoever.

And if I were to have to guess, you're going to be pulling them out at higher tax rates, which again, you won't have to pay. So from that standpoint, I understand why the IUL is attractive, but for somebody your age who has the ability to contribute over the next 25 years to a Roth IRA and invest that in the stock market and get the full upside potential, even though you're taking the downside with it, I still think that's going to be your better option every day of the week. But if you said, Rob, I just can't stomach it and I feel much better in this indexed universal life, then I would say, go right ahead, and I wouldn't fault you for that. It's just not my preferred option. Does that make sense?

That does. Do you recommend I take some and invest a little bit in the IUL just to see how it goes and then leave the rest there? Is that something that probably is better?

I wouldn't do that. I would buy insurance for death benefit. So the reason you get insurance is to offset a risk. So if you're married and you've got somebody depending on your income, you need a life insurance policy, but I'd get a term policy, not the indexed universal life.

I'd do your investing in a stock portfolio like a Roth IRA, and I'd keep insurance companies for life insurance, for a death benefit to offset a risk and not for your long-term savings. That's just my perspective, Jacqueanna, and I hope it's helpful to you, but at the end of the day, I don't think that's your best option. Thanks for calling today. We appreciate it. Folks, that's going to do it for us. I have an amazing team that makes all this possible. Thanks to them, and thank you. Faith in Finance Live is a partnership between Moody Radio and FaithFi, and we'll see you tomorrow. Bye-bye.
Whisper: medium.en / 2023-04-12 18:42:19 / 2023-04-12 18:59:48 / 17

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