Jerry Fetta (03:06):

Yeah, for sure. I own a company called Wealth Dynamics. What we do is we help families become financially literate. We help them build solvency. Then we help them achieve greater levels of financial freedom in their lives. Really, the goal is for them to share that with other people. Money is something we should learn about as kids growing up even.

(03:24):

Then so for me, I didn’t learn about it at all, so I grew up lower income. I was a food stamps kid. My parents, we lost our house, cars got repoed, all sorts of things. Money was always a topic for me that was a pain point. As I started getting older and realizing it’s a non-optional system, like you’re going to have to deal with finances in one way or another as an adult in the modern world, that’s really when I got into my company, Wealth Dynamics.

(03:49):

Then I started more in the traditional retail side of the industry, as a financial advisor doing retirement plans and mutual funds and all the normal stuff. As I learned more, it evolved into what I do now, which is more based on historically what the top 1% of wealth have actually done and mimicking and applying a lot of those same strategies for the everyday person.

Rebecca Hotsko (04:10):

As I mentioned, I really was drawn to your approach, because it is different than what most people do. And so, I wanted to dive more into it today. But I am wondering, so you teach clients how to improve their financial circumstances. There are, I guess, two schools of thoughts of how to do that. You can increase your income or you can reduce your expenditures, or a combination of both. I’m just wondering what your approach is and how you teach your clients that piece.

Jerry Fetta (04:39):

Definitely we focus more on the income. It used to be a Dave Ramsey-endorsed local provider back in my early years, and it was very much budgeting, reduce, live below your means. I tell people now you can budget all the way down to homeless, it’s not going to build wealth. It doesn’t mean you shouldn’t budget. If you look at Fortune 500 corporations, they all have a budget, they all have accountants, they have all these things. But the main thing that they’re focused on is they’re focused on their top-line income. If I earn more, my means can increase.

(05:07):

And so, my philosophy behind it now, always earn more than you spend and always earn a lot. And so, as long as I’m earning more than I spend and I’m keeping my income high and always growing, then the budget is something I should have, but it’s not the main thing.

Rebecca Hotsko (05:21):

Can you talk a bit about what you think are, I guess, the most important factors to building wealth that you think maybe most people are not using or underutilizing?

Jerry Fetta (05:32):

Yeah, so this one I call it the triangle of wealth. It’s very simple and it’s something that I think gets overlooked because it is so boring. But it comes down to three things, and it’s earn, save, invest.

(05:42):

Now there’s a lot of different nuances on how do I earn and how much and where do I save and what vehicles do I use and which investments do I select. But at a very basic level, if I earn income and I save it and I invest it and I do that consistently, it’s going to turn out with me having more money than I started.

(05:59):

It’s like with exercising and dieting. I just need to make sure that I burn more calories than I consume. There’s a lot of different methods and ways of doing that. Generally, though, if I stick with that, I’m going to make progress with my physical condition, just like generally with my financial condition.

(06:14):

So where I see a lot of people going wrong is with earning, that’s something that we almost get taught as a bad thing. It’s either don’t earn too much, or if you are earning, it should be passive. Just earn income. If you’re focused on growing your income, whether it’s passive, active, W2 wages, business income, it doesn’t matter. Just focus on growing the income.

(06:35):

Then the other part is saving. This is something that I saw early in my 20s. The top 1% of wealth historically save about 40% of their gross income, and they’ve been doing that for the last hundred years. And so, when I saw that number, that’s substantial. It’s a big percentage of my income coming off the top, and that’s in addition to paying taxes.

(06:54):

And so, that really is the linchpin. If I earn a lot, I need to be able to save 40% or more. Then the question then becomes, well, where do I save that?

(07:02):

And so, for example, I used to put it in things like retirement plans, in Wall Street, and banks. For me, now it’s a lot more in things that I can control. So I like to use life insurance. I like to use gold and silver, things that I actually can … They’re tangible. I can see them and feel them and control them. I also can borrow against them as well, which is a strategy we can talk about in a little bit.

(07:23):

Then the investing piece is I like to invest for passive income. If I’m trying to save 40% of my income and I invest in something that produces more income, it helps me get there faster, because that new income that I’m earning from my investments, it cycles back through. It increases my savings rate. This whole triangle goes in a revolution.

(07:43):

A lot of people get bored with that and they look for shortcuts. It’s kind of like if I’m looking for shortcuts, maybe I find them, maybe I don’t, but for sure this works. And so, that’s the main fundamentals that I teach and stick to.

Rebecca Hotsko (07:56):

I’m going to use that earn, save, invest guideline to form our conversation today. You mentioned passive income streams. I think that’s a convoluted term because we hear that you need multiple passive income streams. But what do you think are the best ones to utilize, especially if someone, say, already has a full-time job, they can’t maybe do a side hustle or something of that nature? What do you recommend are good passive income streams?

Jerry Fetta (08:25):

Yeah. So this is a really interesting one. So I say the word passive, but really there is no such thing as truly passive income. That would be income where I’m basically dead and somehow I still make money, and I have no effort put out or no attention on it.

(08:40):

There’s a gradient scale of less passive and more passive. So less passive, I’m working road construction with a shovel all day and that’s trading a lot of heavy effort and time for money. More passive would be something like lending where I loan money out on investment, I get paid interest income. I do need to be aware of it and there might be a little bit of work put into it, but it’s a lot less than other options.

(09:02):

That’s the first thing to look at. So I always gravitate towards more passive. Obviously when I’m doing investments, for me as a business owner, when I’m looking at exerting my time, I have to look at return on time invested. My hour of time has a certain dollar value to it. And so, I really have to look at … And this is whether a business owner’s doing this or somebody that’s working a day job, I have to look at how much is my time worth and am I getting that value for that hour exchanged? And so, I could go do all sorts of investing, but if it requires my time, it’s taking me away from my business, which is where I get my highest return on time invested.

(09:36):

I’m always thinking about more passive. Then it also does need to be something that’s secure and reliable. Every investment’s a good idea till it isn’t. That’s the thing to look at is, okay, I can say I’m going to get passive income, but is this something that long term it will pan out, I’m not going to lose money, it’s going to preserve my principle that I’ve invested? These are all considerations.

(09:57):

So to lead into the answer on your question, that’s how I view it. I’m very big on, when I do my own investing for passive income, secure private lending and also seller-financed real estate. Those are both forms of mimicking exactly what a bank does with a mortgage.

(10:12):

When you buy a house, the bank is not asking to be your partner. They don’t want to cut up the profits. They’re just like, “Hey, borrow my money. If you don’t pay, we’re going to secure it with the house. The house is collateral. But just pay me my interest income every month.” The reason being is they have a business to run. They’ve got their return on time invested other places in their business. And so, that interest income for them is a very passive and reliable source.

Rebecca Hotsko (10:36):

I have heard you talk about how you prefer investments that generate income versus capital appreciation. Can you talk a bit about why you prefer that and maybe the pros and cons of either strategy?

Jerry Fetta (10:51):

Totally. Yeah. So basically I mean those are the two main types of investments. Sometimes you’ll get a blend of both. So when you look at income investing, it’s the idea of I’m going to buy an asset and it’s going to pay me every month or every quarter, whatever that mode of payment would be.

(11:06):

It, again, comes down to the passive thing. If it’s passive, that’s great. That’s what I want. And so, that, again, helps me obviously increase my income rate, increase my savings rate, reinvest a lot sooner.

(11:16):

The equation that I try and solve for financial independence, it’s called PI greater than SET, passive income greater than savings, expenses, and taxes. And so, if I get X amount of dollars invested and it’s giving me a certain annual yield, let’s say it’s 10% or 12% per year, that’s going to spit off a certain amount of passive income and allow me to cover that savings, expenses, and taxes without ever having to sell an asset and without ever touching my principal. If I build the savings into it, then I’m always reinvesting that 40% on top and it’s always expanding and growing. That’s how you create generational wealth.

(11:52):

So that’s why I like the income side. I’m also a very simple guy, so I don’t like having to time markets, determine when to buy, when to sell. I don’t like having to do capital gains tax planning because I got out of an investment and now there’s a tax burden that I’ve got to focus on. I don’t like things that can be manipulated, so things that go up and down. Generally, there’s a lot of manipulation in those markets.

(12:14):

That’s why I gear towards the income side. On the appreciation side, it really is just the idea of I’m going to buy something and I’m going to sell it at a higher price than I paid. Not to say that that model is wrong. If you base it on intrinsic value, then that’s very valid. You can say, okay, I’m going to buy this business. Because of the earnings in the business and the profitability of it, it has this value and I know that I’m going to be able to get more than that later.

(12:35):

The problem lies in the fact that there’s a lot of knowledge and understanding that goes into being able to calculate and understand the value of something in relation to the price of it. I don’t think most people have that knowledge, and most people don’t go that deep. They look at what’s trending on Reddit or Twitter or what did Elon Musk say to buy. Then they’ll just go buy it and they hope that they can sell. Sometimes they can, sometimes they can’t, and it’s either a win or a lose scenario. There’s a lot less control there.

(13:01):

The other aspect too is if I continually have to sell assets to generate income, I’m actually putting myself at risk of running out of assets. At some point, if I sell all the assets, there went my income source. Then there’s the factor of timing. Am I selling at a high price or a low price? There’s also taxes that I have to then consider. There’s just a lot more that goes into that style of investing.

(13:24):

Not to say that appreciation is bad, but for me, the income side is much better and much easier to handle. For the average person, that’s going to get them a lot further than trying to time out markets and buy and sell.

Rebecca Hotsko (13:36):

I agree. It’s an interesting approach because it also just has to do with the time value of money, where if you’re getting paid every single month from your investment, that money is worth more today than in the future. And so, maybe you can do something better with it today. So I thought that was a really interesting strategy that you had.

(13:54):

We’re going to dive more into what you invest in and your strategy in a bit. I want to jump back to the savings aspect first, because you mentioned 40%. That is quite a large number. I’m just wondering, for a lot of our millennial listeners who might have debt of some sort, how do you think that they should think of saving and being able to reach that high level of savings to achieve financial independence, or just achieve their goals earlier when maybe they have debt to pay off? How do you think about that situation?

Jerry Fetta (14:27):

That’s a really good point to bring up, Rebecca. I’m a millennial. I’m 30. Our generation, we’ve been loaded down with the most unsecured debt that I’ve ever seen, between student loans and credit cards and all this easy money. Then after the fact, it’s like, “Okay, great. I’ve got six figures in debt and I’m trying to figure out life. What do I do?”

(14:45):

Debt basically for us as consumers, we look at it and we’re like, “I have this payment.” The bank doesn’t look at it that way. For them, it’s an asset. In this equation, the debt actually does exist as an asset. We’re just on the wrong end of it.

(14:58):

That’s the first thing is I teach people to change the way you think of it. Right now you’re the asset. You’re producing the income for the investor. What if you could flip it?

(15:06):

Now the problem lies in the fact that with the way that our dollar works, it’s fiat, it’s not backed by anything. The dollar actually is debt. It’s borrowed into existence. One is not necessarily better than the other. The interest rate on the dollar is the inflation rate. Right now that’s about 9%. So it’s the equivalent of saving money is having a 9% credit card that you’ve got an outstanding balance on, and it’s just going to go down by that rate. That’s the interest that we’re paying.

(15:32):

I teach first things first is if we’re trying to build wealth, we can’t have consumer debt. We do need to get rid of it because that’s taking our income away and that’s our ability to save, invest, and do all the other things we talked about. The problem is if I take cash and throw it at debt, I’m never going to see the cash again.

(15:48):

You mentioned time value of money. So as soon as I pay off that dollar of debt, I’m also never going to be able to invest that dollar ever again. It’s gone for the rest of my life.

(15:56):

Most people don’t think of that. When I had debt, I didn’t consider that. So I was doing pay off my credit cards and do this all as fast as I possibly could. then I would get done and what would happen is I would be broke. then something would happen and I would have to go right back to the debt. I never really got out of that cycle.

(16:12):

That’s the way to view this and think about it. Obviously increasing income is going to help quite a bit. The strategy that I use for getting people out of debt is actually to buy it back as an investment. Are you familiar with using life insurance as like a banking system?

Rebecca Hotsko (16:27):

I wasn’t until I found out about you. And so, that is exactly why I wanted to have you on today. Please explain that to us. I thought it was so fascinating.

Jerry Fetta (16:37):

Basically what we’re looking at is … So there’s a very specific type of life insurance to use. It’s called high early cash value, dividend-paying whole life insurance. That’s a mouthful. I just call it the sacred account. That’s basically what that means.

(16:51):

But it’s basically you set up a life insurance policy where you can contribute funds, and the money that you put into it goes directly into a cash savings account. Those are going to grow typically at about a 3% to 5% annual rate. So it’s much higher than what you’re going to get at the bank.

(17:05):

It’s guaranteed against loss. It’s guaranteed to grow. It’s protected from taxation. It’s protected from creditors, lawsuits. It’s protected from a privacy standpoint. It’s known as a unilateral contract, meaning if I put money in, I’m the only party that can touch or access that contract. So it’s a very safe place to put money.

(17:23):

However, what I can do is, it’s growing at that 3% to 5% rate, I can borrow against it and it’s still going to earn 3% to 5%. When I borrow, I can go then use that to pay off my debt. So if it’s making 3% to 5%, my cost to borrow might be somewhere between 1% and 3%. So let’s say, on average, I’m making 4%, my cost is 2%. There’s a 2% profit spread that I make on borrowing against my own life insurance policy.

(17:47):

So when I have debt, what I will do is I’ll fund policy, and then I’ll line my debts up by balance sides. I’ll go smallest balance to largest balance. As soon as I’ve got enough money in that life insurance policy to pay off the smallest debt, I’m going to borrow against it, I’m going to pay that debt off completely, like one fell swoop and it’s gone.

(18:05):

The minimum payment that I used to make, I’m going to pay my policy loan back instead. So now I’ve taken my income, my debt to income ratio, I’ve lowered that and I’ve increased my savings rate, because that payment that used to go to a bank now goes to my bank. And so, I’m actually building up savings with that instead. Then the money that I was using for this the whole time grew while I was using it. It never left.

(18:27):

So if I go through this progressively, by the time I pay off the debt, I’ve handled all of it, it’s gone. All of the payments I used to make are now converted to savings, and then the money that I used to pay off all that debt is still in the account growing like it never left. So I’m out of debt, my savings rate has skyrocketed, and I have more money than I started with at the end of this.

Rebecca Hotsko (18:47):

I think there’s just so many interesting things about that strategy. I’m curious, why do you think most people don’t know about this or maybe utilize it? Is it because it’s hard to find an underwriter or an insurance company that will do that kind of policy?

Jerry Fetta (19:03):

Yeah, that’s definitely one of the reasons. So there’s a few of them. So the first one is the number one buyer and owner of these life insurance policies in the country are actually banks. They’re using this as their own reserve system. And so, they’re not going to sell it to others because others would then use that instead of the bank.

(19:21):

So there’s a lot of incentive for the banks to use it and have it, but not for others to be able to find out about. They would rather have people putting money in checking accounts and savings accounts and mutual funds.

(19:31):

The second one is the insurance companies, there are a few of them. There’s about a dozen of them that can design it this way. That’s also a factor is you’ve got to find the right company, somebody that will design it correctly. Then the other part is the design itself. It’s not an easy strategy.

(19:45):

From an agent standpoint, if you’re working with an insurance agent, it’s not common knowledge on how to design these. When you put a policy together, an agent will make a commission. When they design it the way that I’m talking about, they take about a 300% pay cut because they’re reducing their commission in order to increase the cash value.

(20:02):

If an individual agent is in the business, they know about it, that’s an ethical decision of do I make less money to do the right thing. If the consumer doesn’t know it’s an option even, who’s going to know? I just sell the more expensive one and don’t tell people about this.

(20:17):

From a sales management standpoint, there’s not a sales office in the country that’s going to teach their producers to sell something that makes less money for the company. The insurance underwriters themselves, they’re not one way or the other on it. They’re going to design whatever you tell them to design. It’s the sales offices, the agents that either don’t know how to do it because there’s not the financial incentive for them to learn it and to distribute it as a product or they do know how to do it, they’re just not willing to take that 300% pay cut.

(20:45):

Those are some of the reasons and factors. When you dive into it, and you’ve probably seen a little bit now as you started looking at it, you start seeing it more and more. So there’s little pockets and groups of people you can connect with and they’re using it, they know all about it, and it’s like common knowledge. But for the general populous, it’s not something that many people know about at all.

Rebecca Hotsko (21:03):

Do you have any details on maybe, since you’ve been doing this for so long, like a particular company or policy design, what we should be looking for?

Jerry Fetta (21:12):

The company I like to use is called Guardian Life Insurance Company. My firm actually sets these up and designs these for people. If you’re listening, you can reach out to us. Send me an email and we’d be happy to get you some info on it.

(21:24):

And so, for me, I’ve had a couple of different companies I’ve used for my own personal policy in the past. Guardian in particular, I like them because they’re more technology-friendly. So it feels more like a login on a bank and you’re just dropping money into an account. There’s a lot less paperwork. It’s less cumbersome.

(21:41):

Some of the other companies I’ve worked with with my own personal policy, it looks great on paper and then I’m like, “Okay, well, how do I put money into this?” They’re like, “Well, print out this form, fill out five pages, sign it, mail it to us, and send us a check.” I’m like, “I can’t tell you the last time I’ve had to send someone a check. That’s super inconvenient.”

(21:59):

With Guardian, I can log in. I just type in my password, I hook up my bank account, and then I can dump money into it. I can take loans out of it and it just wires it right to me.

(22:08):

That’s a big aspect of it, is we mentioned why people don’t know about it and the agents and all this stuff. But it also comes down it’s got to be easy to use. If it’s something that I’m going to interact with this frequently, then it needs to be something that’s simple for me to use, it’s easy to do, and I don’t have this back off on, oh man, I’ve got to log in and hassle and deal with the thing to get the money out of it.

Rebecca Hotsko (22:29):

That’s really interesting to me. So you talked about when you buy a life insurance policy, it’s used as a savings vehicle because you’re earning that 3% to 5%, you said, just on what you put in. Then you said that you can borrow against it to pay down your debt. Can you talk a bit about other options of what you can do when you borrow against that money? How do you use it to build wealth?

Jerry Fetta (22:54):

This is where it gets fun, because paying off debt is like that’s a one-time thing. You should be done with that and hopefully never have to go back to it. So last year … And I’ll share some of the strategies I’ve done personally.

(23:05):

Last year, I self-financed my car with it. I’m a business owner, and so I was going to buy a new car to get a tax deduction. So I got an Audi e-tron. And so, what I did is I took a policy loan and I used that to purchase the car. Then instead of making a car payment to the bank, I paid that back to my policy. And so, the money that I used for the car is still growing like it never left. Plus, I’m making that payment to myself instead of them.

(23:28):

Then there’s a tax deduction, it’s called the Section 179 deduction. If you’re a business owner, you can buy a vehicle that weighs over 6,000 pounds. You can write off up to 100% of the purchase price.

(23:38):

So I used that strategy on it as well. And so, I was able to get a tax deduction, drive an awesome vehicle, and then also have the principle of growing and making the payment to myself instead of the bank.

Rebecca Hotsko (23:49):

That strategy is really interesting. I’m wondering, so when you are taking out the loan and borrowing against your policy, are there any, I guess, restrictions of how you have to pay it back, or how does that work?

Jerry Fetta (24:02):

It’s completely flexible. So this part’s good and bad. Technically, with a life insurance policy, you never actually have to pay it back. The reason being is there’s a death benefit when you pass away. If you have an outstanding loan, the death benefit will just pay off what’s remaining. That gets touted as you can take a loan and never pay it back.

(24:19):

I would never do that. It’s the equivalent of owning a grocery store and saying I never have to pay for groceries. Well, technically I do. I’m just stealing from my own store. So I should always pay the loan back.

(24:31):

Now basically I can pick how I do that. When I do a loan, I’m typically going to do it for one or two reasons, either, like I mentioned at the beginning, I’m paying off debt. And so, if I did that, I’m just going to take the old minimum payment that I used to have on the debt and I’m going to set up an auto loan repayment once a month and it’s just going to draft out of my checking account and pay my policy loan.

(24:50):

The second thing I’m going to look at is if I’m doing an investment, the income generated by that investment, I’m going to use that to pay off my policy loan. So I might do a real estate deal, like a private lending deal, for example, where I’m making 12% interest on $100,000. That’s going to pay me $1,000 a month.

(25:06):

And so, that $1,000, I’m just going to pay that every month towards my policy loan. Then that’s going to service my loan for me while I’m making interest on the real estate. Then obviously the profit on the life insurance, too.

Rebecca Hotsko (25:17):

So I have a couple follow-up questions on that. So I guess the way to think about this, if it makes sense, is the interest rate that you have to pay back on your loan, is that lower, I guess, typically than other loans? Is that another perk about borrowing against your policy is that you get a lower rate?

Jerry Fetta (25:38):

That is typically going to be lower. Now it’s not always going to be. I’ve seen car loans at 0%. Those are certainly going to be lower. The main thing to look at is the rate that you’re borrowing at is a lower rate than what the policy grows at. And so, if I’m growing at 3% to 5% but my interest only costs me, let’s say, 2.5%, then I’ve got that spread of profit there.

(25:59):

That’s really where I would take a loan is regardless of the rate, if I’m making money on the loan, it’s almost like I’m getting paid to borrow the funds to use it for smart things, whether that’s paying off debt or whether that’s investing.

Rebecca Hotsko (26:10):

Let’s also talk a bit about the cash value that grows in the account. It grows at 3% to 5% per year. Do you ever take that money out or do you just leave that? That’s like your long-terms investment or savings.

Jerry Fetta (26:26):

I leave that there. So you can take it out and it’s treated just like any sort of investment or account would be. If I have money that I’ve taken out that’s less than the amount that I’ve put in, that’s considered my basis. It’s the money that I put in the first place. And so, that’s not taxable. Now if I’m taking out more than I put in, then it’s gain, and that’s where it’s taxable.

(26:47):

This is where the loan strategy comes in. Loans aren’t taxable. So I’m always going to just borrow against the account and avoid the taxes altogether. This is a strategy when you look at the wealthy, I know Elon did this last year with his stock. Very few people know this.

(27:01):

Apple, their headquarters is set up in Ireland, because Ireland at the time was a tax haven. So they’re set up in Ireland where their headquarters receives all the profits. Anytime they need to bring money back to the US, they do it through loans. The reason being is they don’t want to pay the taxes to the United States government to bring the money back into the country.

(27:17):

That’s always a way out of taxation and it’s a way to have liquidity on funds. I can borrow against them. You can do this with life insurance, you can do this with stock, you can do this with a house, you can do this with gold and silver. The reason I like this with life insurance is life insurance is guaranteed not to lose. So if I take a loan against stock, the price of the stock might drop, and then I have a margin call where the bank’s saying, “Hey, we loaned you X amount of money and your stock’s not even worth that anymore. You need to pay up or we’re going to sell.”

(27:43):

And so, that can never happen with the life insurance policy design this way. So I don’t have to think about that and I can just have the funds there growing and borrow against them anytime.

Rebecca Hotsko (27:52):

That’s so interesting. So I’m wondering, for our listeners who primarily are long-term stock investors, is a potential strategy for them to buy a policy and then take out a loan and borrow against it, and then use that money to invest, say, in the stock market and hope that … I guess this is where maybe a potential risk comes in, but you hope that you will earn a higher return in your investment versus what you’re paying back each month?

Jerry Fetta (28:20):

You definitely could, and you hit it on the head. It’s the risk … And this is everyone’s own gamble if they want to do this or not. But it’s the risk of does the stock perform at a rate higher than my loan? If I’m buying, let’s say, Home Depot stock and it’s going to pay a dividend and I know it’s stable, that’s probably less risky than me putting it into a micro-cap tech stock and it’s very up and down, or trying to buy Dogecoin with it, for example.

(28:45):

Those are things you could do. The other aspect of it too is if it is yielding a dividend, you could always service your loan with your dividend. So if you’re doing a blue chip stock, that’s a great way to have a dividend come through and still be able to pay some of that policy loan down with the dividend income. Then you don’t necessarily have to rely on if the market’s up or down to sell and repay.

Rebecca Hotsko (29:04):

So I’m also wondering how this account works in an inflationary environment. I’ve heard you talk about how you’re actually locking in your purchasing power. Can you talk a bit about that?

Jerry Fetta (29:17):

Basically in an inflationary environment … And you have to realize that with a fiat currency system we have now, it’s always going to be an inflationary environment. The more money we print, that’s how our economy works, the more inflation is going to happen.

(29:31):

With an account like this, I am locking in the purchasing power from a standpoint of contributions. When I’m doing $1,000 a month, that’s going to buy me units of death benefit with the insurance company, and that’s locking them in at today’s price.

(29:44):

So if I have a whole life contract that, let’s say, I’m locking in 65 years of contributions, in 65 years, I’m still getting the price of what my death benefit was today. And so, I’m locking in the value.

(29:57):

The death benefit is actually what produces the dividend income as well. So it’s like my dividend is attached to that death benefit, and I’m buying units of it similar like I would with shares of stock. I’m locking in the ability to buy those at today’s price based on the contract that I entered today.

(30:12):

That definitely helps you get more buying power on the front end. On the back end, generally speaking, inflation is going to be somewhere between 4% and 6% is what they’re saying, like midterm CPI is. Usually, if you look at real inflation, you can see charge that say it’s probably double what CPI says.

(30:29):

But with that, really, I want to make sure that I’m not losing above and beyond inflation. Then I’m offsetting inflation usually with my active income on my passive income. So a lot of times what will happen is people will try and beat inflation through investing. They’ll take on more risk, and then they’ll actually lose money because of that risk. That’s a greater rate than the inflation would’ve been if they would’ve just left it in the bank or not invested it in something riskier.

(30:53):

When I’m investing, I’m looking at, okay, if inflation went up, let’s say, by 10%, I want to increase my active income by 10%. I want to increase my savings rate by 10%. But I’m not necessarily trying to increase my investment returns by 10%, because I’m adding in dollar for dollar and amount of risk with that. And so, that’s increasing the chance of losing money. Whereas with my active income, there’s no risk there. I can just go earn more and save more and I’ll be fine.

Rebecca Hotsko (31:18):

Yeah, that was my thinking behind the account, because it only technically earns 3% to 5%. If inflation is above that, you’re still off a bit. But then it’s the trade off if you invest somewhere else and you perhaps lose that money. It’s just, and you’re saying, a stable, safe way to make sure you’re getting that fixed percentage during this time.

Jerry Fetta (31:41):

Yeah, exactly. So if you put it in the account, and that’s the only thing you do with it, it outpays inflation. It will keep you safe. You know you won’t lose, you won’t have taxes. There’s a lot of other stuff it does. But you do need to … And this is where it encourages you to utilize the funds, when we say we want to save for the purpose of typically investing. And so, that’s where we can beat inflation and produce more income and expand rather than leaving it in the bank, which is what most people would do. This is not that kind of a system.

Rebecca Hotsko (32:10):

Then what do you teach your clients about how to use this account, as well as their 401ks, as a savings vehicle? So how do you figure out which one to prioritize?

Jerry Fetta (32:23):

I’m not actually a big fan of the 401k. So the reason being is the 401k, basically it relinquishes control of money. So if I would’ve used a 401k, I wouldn’t be where I’m at today because I can’t have that money till I’m 60. So what I look at is instead of doing the 401k … Because the 401k, the benefit is you get the free match. That’s actually a deferred compensation plan by IRS law. So you’re not actually getting a free match.

(32:48):

When employers were surveyed, they said that for every dollar of match they’re giving, they’re reducing wages by at least 90%. It’s your dollar that you’re getting, but you’ve got to give up a dollar to have it, and then you can’t have either of those dollars till you’re 60. In the meantime, it’s in whatever funds you have, whether those are good or bad.

(33:05):

I’m not a huge 401k fan. If you can self-direct the 401k, I think that’s a little bit better, just because you can do more alternative strategies. If you want to do stocks, great. If you want to do real estate, you can do that too. But it’s not locked up on a short menu of fund options.

Rebecca Hotsko (33:21):

Now I’m interested to move a bit more onto the investing side of things. I’ve heard you talk about how you aren’t a fan of investing in the stock market. I’m just curious if you can elaborate on that and what your preferred method of investing is.

Jerry Fetta (33:38):

Basically for me, with stocks, I used to be a financial advisor. So I did stocks, bonds, mutual funds, all of those things. When I look at investing, the root of that word actually means to clothe your capital. So that’s the etymology of what the word means. I think about clothing. When I pick out clothing, there’s a few points that I’m going to look at and it actually would be the same for my money.

(33:58):

Number one is I wouldn’t pick out clothing that I didn’t like. Most people would agree with that. I wouldn’t pick out clothing that I didn’t understand. I wouldn’t pick out things that didn’t fit me. I wouldn’t pick out things that didn’t fit the purpose of what I would be using them for.

(34:12):

A great example of that, I’m from Alaska, but I live in Florida now. I wouldn’t wear Alaska clothing to Florida and I wouldn’t wear Florida clothing to Alaska. It just doesn’t fit what I’m going to be doing there.

(34:22):

I wouldn’t overpay for the clothing, and then I would wear vital clothing first. I would wear underwear before I worry about my Gucci belt or any of those accessory items. Same thing with investing is I wouldn’t invest in things I don’t like, understand, that don’t fit me, that don’t fit my goals, that are overpriced, and that are not vital. And so, when I look at stocks, for me the first point is, okay, do I like this?

(34:44):

I don’t like the stock market. Having been a financial advisor, there is a lot of manipulation that happens with it. It’s also not something that I have a great degree of control over. So I’m very big on control. I’m very big on investing in things that I can see, touch, visit, have, et cetera.

(35:00):

Then the understanding part, I had my serious licenses, but when it comes down to it, I still can’t explain to somebody in a simple language what a stock is. It’s almost like fiat currency where a company can issue more and more and more of it. Sure, I have voting rights, but if I go to Apple and I say, “Here’s all my stock,” they’re not letting me make decisions at Apple.

(35:20):

There’s a certain degree of, I think, with most people, they don’t actually understand the stock market well enough to be like, “I’m investing in it.” Now if you do, great. That’s one of the prerequisites to investing in anything is you should have an understanding of it.

(35:32):

So that’s the second point. For me, it has to fit me. So I’m trying to build passive income, and so stocks aren’t a great way to do that. I can get dividend yielding stocks, but if I can get … Let’s say I do a real estate deal that pays me a 12% to 14% income, on a really good dividend stock, I might get 4% to 6%. And so, I’ve got to have a lot more invested to get that yield off of a stock than I might in a real estate portfolio. So it doesn’t quite fit me and it doesn’t quite fit my goals.

(36:01):

Then the final two is the pricing. Warren Buffett’s very good at this, determining values on stocks. If I were to invest in stocks, I would definitely be a value investor and I’d be looking at it from a mathematical standpoint. I don’t think most people do that. I think a lot of people look at more the speculative side of it and what they think is going to happen versus looking at the fundamentals of a company and understanding its industry, the economy, because it really is a business you’re investing in. It’s do I understand the business?

(36:29):

Then, finally, is it vital? So I like to invest in things like food, water, clothing, shelter, stuff that’s going to be around no matter what. And so, in today’s environment, those do exist, but more of the attention is put on some of the stocks that are newer, they’re more up and coming, and they’re maybe not as vital as far as an industry or a market sector. They could be more speculative or exploratory.

(36:50):

Just subjectively, those are my reasons for not doing the stock market. I know people that have. They do very well at it. But I think those six points, whether it’s stocks or real estate, someone should be able to check those off.

Rebecca Hotsko (37:02):

I think it’s just, to your point, that you find what resonates well with you and you stick to your strategy. And so, that’s, again, why I wanted to have you on, because your approach is different and it works for you. There’s some other people that might resonate with this more. Maybe they don’t have time to analyze stocks all day or they don’t want to, or maybe it doesn’t actually just interest them and another way interests them more. There are ways to make as much money doing a different approach.

(37:28):

You do talk about gold and silver, though, as investments. So I’m curious to know how you invest in those if it isn’t, I guess, the stock market.

Jerry Fetta (37:38):

The first thing … So I look at it more as a store of value. So I don’t look at gold and silver as an investment as much. Most people, it’s either going to be a store of value or it’s going to be a speculation. And so, when I’m looking at it as a store of value, I’m trading paper currency for a real asset, very much akin to if I was buying acres of land. So I look at buying ounces of gold the same way.

(37:59):

For example, I think it’s in the early 1900s. Men’s suit costed one ounce of gold. It was about $20 at the time. Today a men’s suit costs about $1,500 to $2,000 for a good one. That’s also about one ounce of gold.And so, it maintains its purchasing power over time. It’s something that is a real asset. It is 6,000 years old. It’s been the longest existing store of value currency.

(38:22):

So these are all reasons why I like it is it has a great deal of predictability. No matter what currency you price it in, an ounce of gold will always be an ounce of gold. There’s always going to have value.

(38:32):

Then, similarly, if it’s an acre of land, if we were on a totally different currency system, an acre would still be an acre. It would still have the same uses and the same purposes. So that’s why I like it as a store of value.

(38:43):

Similar to the life insurance, you can borrow against gold and also you can lease gold out for income. So I do both of those strategies. So when I buy gold, it’s never just to hold it and hope the price goes up. I know long term it will. Short term, it’s going to do whatever it does. I borrow against it and I know that long term I’m going to have my growth on it.

(39:02):

Usually if I’m buying, it’s a minimum of five years that I expect to keep it for. Then I’m going to take loans against it and invest for income in the meantime, or I’m going to lease it out and just have it generate its own income while I keep it.

Rebecca Hotsko (39:14):

Can you talk a bit more about that? I am not familiar with that strategy at all. So can you just go a bit deeper into how you’re doing that and then how you’re borrowing against it?

Jerry Fetta (39:24):

With gold, basically there’s a lot of different ways to buy it. I like to buy the actual physical thing. So I will actually buy whether it’s one ounce bars or kilos. My favorite are kilos because it’s like in the movies. You see these giant bricks. So I like doing those. Those are fun.

(39:37):

But basically you’re buying generic investment-grade bullion. I stick mostly with gold. Some people might do silver. I don’t really do like the commemorative coins or the collector’s items. Those are known as numismatic gold. I won’t say don’t do them, but if you’re doing that, it’s because you’re trading based on collector’s value, not necessarily based on trying to get the best cost.So if I’m buying bullion, it’s the same no matter what. So I can get the cheapest price. Then basically I’m sending that typically to a vault and that vault is going to hold it as collateral. Then I can borrow usually about 75% of the value on a line of credit. My cost of interest might be 4% or 5% total net interest cost.

(40:20):

Then long term, when you look at gold from the period of time we’ve been allowed to own it in the ’70s until today, it’s averaged about an 8% to 10% compounding annual growth rate. Long term it’s that. Short term, it could be up, it could be down. It’s got a standard deviation of about 15%. So this can go up 15% above or down 15% below. Then its max drawdown is about 30%. So the worst year it ever had was a 30% loss.

(40:44):

I’m looking at it from the standpoint of on a graph, I know the trend is going to be about 8%, it’s going to yo-yo 15% up or down, and then worst case scenario, it’s going to drop about 30%. So I’m going to take a loan against it and I’m going to basically invest in something that earns me a higher interest income than when I’m paying on the gold loans. If I’m paying 4% and I do an investment deal that’s making me 12%, I can service my loan and pay down that line of credit with the income.

(41:08):

Then if there is a margin call … Because gold can go down in price, that’s that standard deviation, that’s where it’s different than life insurance. If it does go down in price and they say, “Hey, you need to collect your loan to value ratio,” I can either do that through ping down the line of credit or by purchasing more gold.

(41:25):

Gold dropped, I’m just going to go buy more, because now it’s at a cheaper price. I can buy more units of it. Then when it comes back up, I’m better off.

(41:32):

That’s the gold loan aspect. That’s how I like to do those. Again, usually I’m not going to do this with silver. Silver is a lot more volatile. So the standard deviation on silver is about 25%, but the compounding annual growth rate’s about the same. So I’m getting about the same annual return but with a lot more risk and volatility. If I was trading, maybe I would do silver. But with buy and hold gold is the way that I like to go on that. That’s on the loan side.

(41:58):

So leasing is a little bit different. So I’m still buying physical. Basically with leasing, I’m buying the physical bar, and then there are intermediaries that will find that need to lease gold from someone else. That could be a bullion dealer and they need that to fulfill orders. It could be a jewelry shop and they need that to create product. But basically I’m going to lease it to them. They’re actually going to take possession of my gold and they’re going to use it. They might even sell it. They might melt it down.

(42:27):

At the end of the lease, they owe me back the ounces that I gave to them, not the dollars. So the ounces of gold came up … So let’s say the dollar price of gold came up, they have to pay me back … If I do a kilo, that’s 31.10 ounces. They still have to pay me back with a kilo, even though that kilo costs more than what I leased out to them.

(42:45):

Now while they’re leasing it, they’re also going to pay me interest. So they’re going to pay me typically 2% to 3% interest per year. So I’m getting the appreciation of the gold. So long term, that might be, let’s say, 8%. Then I might make another 2% to 3% in income on top of that. And so, that’s how the leasing works.

(43:03):

Now you’re not going to do this with just anyone, you’re going to do these with big, well-known lessees, essentially. You’re going to insure it and it’s going to be a legit deal. But that’s a great way to get gold to yield income.

Rebecca Hotsko (43:15):

That’s a really interesting strategy. I’ve never heard of that before either. And so, when you’re leasing your gold, are there any other risks involved or, I guess, other things investors might want to know?

Jerry Fetta (43:28):

So if you’re leasing gold out, the biggest thing to know is they can … You’re not getting back the same literal bar you gave them. They can sell yours, they can melt it down. So they do owe you that bar back. You do have insurance on it. There is collateral posted against it.

(43:44):

So it’s similar to the way car dealerships operate. They have all those vehicles in their inventory. They don’t own those. They’re typically renting or borrowing that from a manufacturer. And so, when they sell it, they have to pay it back to the manufacturer. It’s very similar with gold.

(43:58):

So as long as you can wrap your mind, okay, I’m going to give them a kilo, they owe me a kilo back, it’s just not the same bar. They did get rid of it. They do owe it back in the end of the term. If they don’t pay back, I do have insurance in place.

(44:11):

That’s probably the biggest risk is if they don’t pay back, then there’s probably some time involved with the insurance claim and having that pay out. Those are the main risks with it.

(44:20):

Again, this is not something you would do with your coworker. You’re not going to let some random person do it. You’re going to do it with JM Bullion or these big dealers that are very well-known and there’s not a high chance of them not paying you back.

Rebecca Hotsko (44:34):

Is it pretty easy to set up a deal like this? Is there any way that you would maybe not have a deal go through or something?

Jerry Fetta (44:42):

So as long as you go through a reputable lease provider, you’re going to be okay. If you try and piece it together on your own, that’s where it could get a little bit sketchy. Not only is there the actual financial transaction happening, there’s legal paperwork, there’s collateral, there’s insurance.

(44:59):

I would liken it to buying a rental property. I might see it on paper and I’m like, “That looks like a really good idea.” But then I go and buy it and there’s property management and taxes and the tenants stole the copper out of the walls. There’s a bunch of weird stuff that could happen versus if I do that with somebody that’s well-known, I don’t have the same risks because they’ve already established their systems. They’ve got all of that figured out.

(45:19):

If you’re going through an established provider, it gets rid of a lot of the extra risk. If you’re doing it yourself, you could potentially make more money because there’s not another party involved collecting a fee or managing things. But at the same time, you don’t have the same expertise potentially, and there could be more risks because of that.

Rebecca Hotsko (45:35):

I guess the other piece, so you said you lock in a price beforehand, and then you get also paid interest. What is the interest typically that you get on that?

Jerry Fetta (45:47):

Generally, that’s going to be about 2% to 4% a year. That can change with supply and demand and also with interest rates. So if there’s a very high demand for gold and a low supply, you have the benefit of saying, “Hey, I know you guys can’t get very much gold elsewhere, so I’m going to charge a higher rate,” or if interest rates naturally are higher, you can have a higher rate as well. It could be more, it could be less. But 2% to 4% is a safe average.

Rebecca Hotsko (46:13):

So if someone has some money lying around right now, savings isn’t an issue, where is the best place to invest right now that millennials should be considering, whether it’s alternative investments or something else? What do you think?

Jerry Fetta (46:28):

My answer is always going to be you are your own best investment first. And so, I think that gets overlooked a lot. I mean investing is fun. So don’t get me wrong. It’s fun to look at assets, it’s fun to buy things. But when I invest in something that improves my skills and my abilities, even today when I do that, the returns on that investment are always greater than whether it’d be gold, private lending, life insurance, whatever it could be.

(46:51):

So if somebody hasn’t maximized their skill set yet, whether that’s their profession or whether they’re in sales and they want to improve at that, or they’re a marketer, or whatever it might be, I would put the money there first and I would get as good as you can get at the thing that you do to produce and generate your active income. That’s going to give you the ability to have more capital to invest in some of these passive opportunities.

Rebecca Hotsko (47:13):

The last thing, I have also heard you talk about opportunities in alternative investing. Is there anything else in that space that we haven’t talked about yet today?

Jerry Fetta (47:23):

Oh, there’s a ton still. I mean there’s foreign currency trading, there’s life settlement investing, there’s oil and gas, there’s seller-financed real estate. It’s a whole world of other types of investments.I think for me, coming from Wall Street, that was what intrigued me the most was this is not stuff that’s talked about often. And so, a lot of people, we go with what we’re used to just because that’s what we hear about. We don’t always know that there’s other things out there.

(47:49):

So I was someone that once I learned, I didn’t know you could do this or this or this or this or that these were even options that existed. Then I was like, okay, well, I don’t want to just stick with the main thing because that’s what I learned and that’s what everyone says you’re supposed to do. I want to explore and see what I do like the best.

(48:03):

And so, there’s a whole world out there. A lot of this stuff, if you start researching, you’ll just find more and more of it. It’s exciting. It’s kind of like we talked about. Find the stuff you like, find the stuff you’re interested in that makes sense for you.

Rebecca Hotsko (48:15):

I might have to bring you back on and we can discuss some of those more in detail. I do think it’s so interesting to learn about these alternative investing strategies, just because if inflation stays this high range, we can expect real returns will be close to zero. So where do we achieve our yield over the next decade then? We can look to other stock markets, but there are some other methods that just might resonate better with people.

(48:40):

And so, I’m really glad that we had you on today and that you could talk about some of these with us. I would really be interested in discussing some of those other strategies with you in the future as well.

Jerry Fetta (48:51):

Yeah, that would be awesome. That would definitely be its own podcast episode in itself. So I’d be happy to do that.

Rebecca Hotsko (48:57):

Thank you so much for joining us today. Before we close out the episode, where can the audience connect with you, learn more about you, your work, and everything that you do?

Jerry Fetta (49:07):

So on social media, if you go on Instagram, you can find me just @JerryFetta. So just my first and last name. And so, I’m pretty active on there. If you want to send a message or connect, go ahead.

(49:18):

You can also go to my website. I do have a couple of books, so if you want to get a free copy, I do have my book, Blueprint to Financial Freedom. So if you go to jerryfetta.com/b2fpromo, you can grab a free copy of that. Then from there, if you want to connect with my team, send us an email. We’ll always be happy to answer questions. Let us know you heard us on Rebecca’s podcast and we’ll make sure we get a consultation set up for you and answer whatever questions you have.

Rebecca Hotsko (49:42):

Perfect. Thank you so much, Jerry.

Jerry Fetta (49:45):

My pleasure. Thanks for having me on.

Rebecca Hotsko (49:47):

All right. I hope you enjoy today’s episode. Make sure to subscribe to the show on your favorite podcast app so that you never miss a new episode. If you’ve been enjoying the podcast, I’d really appreciate it if you left us a rating or a review. This really helps support us and is the best way to help new people discover the show.

(50:07):

If you haven’t already, be sure to check out our website, theinvestorspodcast.com. There’s a ton of useful educational resources on there, as well as our TIP finance tool, which is a great tool to help you manage your own stock portfolio. With that, I will see you again next time.

Outro (50:25):

Thank you for listening to TIP. Make sure to subscribe to We Study Billionaires by The Investor’s Podcast Network. Every Wednesday we teach you about Bitcoin, and every Saturday we study billionaires and the financial markets. To access our show notes, transcripts, or courses, go to theinvestorspodcast.com.

(50:46):

This show is for entertainment purposes only. Before making any decision, consult a professional. This show is copyrighted by The Investor’s Podcast Network. Written permission must be granted before syndication or rebroadcasting.