Have you ever met someone who has had the next great investment idea? It may be a really good friend, perhaps someone that you see on the cocktail party circuit or in many cases it’s your friendly investment advisor, insurance agent, stock broker, financial planner et. al.
I’m not talking about the guy who always has the inside scoop on the latest stock pick necessarily. No…I’m talking about the guy who in 1991 had the inside track on how to make a fortune in the Russian telecommunications business. Guess what?? You can be a part of it for only $100,000.
As we’re sort of famous for saying, “That’ll work out good for someone….probably not you, but someone’s gonna make a lot of money”
There Must Be More
Why is it that as human beings we are so hard wired to believe that there’s gotta be something more out there that I don’t know about? I know this mentality is pervasive throughout humankind and in almost every area of our lives—spouses, jobs, houses, cars…
In particular, I’m more interested in discussing our psychology concerning exotic investments. Why do we think there’s always some hidden pot of gold at the end of the invisible rainbow?
Among the sea of investment options available to all of us, why do we seek out that “one” thing that no one else knows about? Could it be FOMO (fear of missing out)?
Don’t let FOMO get you when it comes to investing. This is a serious problem and unfortunately we’ve seen it more than we should have.
The Psychology of Exclusivity
Brandon and I have witnessed quite a few situations where really smart people are taken advantage of by great marketing. Now, I’m not sure that the marketers really knew they had great marketing but nonetheless they seemed to be really adept at a few things:
The reality is that there really are no secret investments that are going to make you a gazillionaire with no risk, unlimited upside and free from taxes. Those are just unicorns.
When it comes to building assets…less is more.
We’ve worked with more than a handful of people that work in the finance industry where they have access to an unlimited universe of investment options (hedge funds, private equity, etc.). We can tell you this, they don’t invest in complex schemes. In fact, they really like whole life insurance where they have zero market exposure.
I’m sure you’ve all heard this before but this quote is always worth repeating:
Rule No. 1: Never lose money
Rule No. 2: Never forget rule No.1. –Warren Buffet
At least that’s what we believe and our experience working with some very successful people has proven this theory to be true. Sophisticated and complex investment schemes are usually just that, sophisticated and complex.
What’s more, they are obscure and difficult to understand for good reason. It hides who’s making all the money.
Hint: it’s not you.
The Tax Man Cometh
Another point worth making when it comes to investment pitches is to beware of the latest and greatest way(s) to avoid paying taxes. If investment risk makes you squeamish, try going a few rounds with your friendly IRS agent…not fun and potentially very expensive.
We’ve been pitched so many of these ideas over the years and even some that used cash value life insurance as the engine to power the strategy. Now, of course we’re always on board with a strategy that uses life insurance as that’s our specialty, however, we’re not in favor of marketing strategies that seek to sell life insurance without actually bringing up the fact that it’s life insurance.
To clarify…there are some people who pitch things like 7702 private plans, Bank on Yourself®, Become Your Own Banker©, etc. who sort of gloss over the fact that what you’re actually buying is life insurance. Yeah, they mention it for sure, but they sort of get around to it after they’ve gotten you emotionally invested in its wonders.
It’s also worth adding that you’ll either pay taxes now or pay them later those are your only two choices. I have my opinions on both but I’ll reserve those because we’re not in the business of giving tax advice.
In short, complicated plans that seek to gain some sort of upper hand in regards to taxes usually turn to be a headache. Furthermore, it’s usually a number of years later that you realize the plan isn’t going to work out as you thought or as the “advisor” who helped you set it up told you it would. And guess what? That guy, the “advisor” won’t be around anymore (just the way it works) to help you unravel the mess. Also it’s worth remembering that when tax issues arise—it’s your mess, you’re the one that will be responsible for it.
Brantley is a practicing life insurance agent and has been for nearly 18 years. After years of trying to sell like his sales managers wanted him to, he discovered that people want to buy life insurance if you actually explain the benefits.