Why Control is More Valuable than Rate of Return

Scott and Cameron talk through the importance of control and rate of return in your financial life. 

They emphasize the significance of retaining control over your money as often as possible. Ensuring your capital is ready to be used whenever an opportunity or emergency arises takes precedence over chasing a slightly higher number.

Magnify Wealth always focuses on building your financial foundation. Financial education, savings and maintaining control come first and foremost. 

Transcript

Cameron Gannon (00:35)
Hello everybody and welcome to the Magnify Wealth Podcast. I'm Cameron Gannon. I'm here with our host Scott Gannon. Scott, today you know what I want to talk about? I want to talk about the relationship between control and rate of return. Which of those two features are more important to you?

Scott (00:57)
Well, I guess in a perfect world you have both. The problem is usually when people are chasing rate of return, they're not in control. If you think of what the masses or most people do with their investment dollars or their savings is they put it in a place where they relinquish control.

And that could be a mutual fund, a stock, a bank, wherever. Or just lending it to like a friend or whatever. So you can only exercise so much control when you're chasing a rate of return. What I like to do and what we like to do and what we teach here around the infinite banking concept is keeping control of your money.

What a lot of people don't realize is the most, the wealthiest people in the world, they never use their own money for anything. Why? Because they want to stay in control of their own capital. So what do they do? They use other people's money to take advantage of opportunities and keep their own money safe and secure. And that's really what we're, what we try to do for our clients. I'm going to read actually a definition here and the definition of why we use infinite banking. 

So there's a definition between banking and investing. So investing is intentionally separating your control of money with the expectation that additional money returns in the future. So it comes back with friends. And for the most part, if you're a good investor, the good results will come. You'll have your ups and downs, but for all intents and purposes, you do not have the control you're looking for.

Now banking conversely is intentionally keeping your flow of money permanently in an environment where you have complete control and accessibility. The infinite banking concept, what we use to help people with their investing is a way to maintain control of your capital.

So I assume that answers your question, but we certainly could go on and on all day with this, I'll point out a few more factors unless you have a further question on that.

Cameron Gannon (03:10)
Well, well, I guess I'll, what I'll get you to do is talk a little bit about why the infinite banking concept allows you to stay in control of your money because you know, you could say putting the money, your money under your mattress is keeping it in control. But again, well, you know, then what, what comes next?

Scott (03:30)
Okay, so let's park that question for one second. I just want to just, I guess, further address why control can actually make you better off. So when you, we'll use the example, throw money at the stock market, when you put money in the stock market, again, you're relinquishing control. You hope your money comes back with friends, but that's not guaranteed.

And for the most part, if you're taking risks, then you shouldn't expect to have guarantees. But if you're in control, then you can pick and choose your opportunities. And you can take advantage of the bigger opportunities. There's two types of, well, there's lots of investment out there, but there's efficient markets, which the stock market is considered the most efficient vehicle for equity investing out there.

And so it should be because there's always a ready buyer anytime you want to sell and there's a ready seller when you're when you're you're to buy. That is the definition of an efficient market. And efficient markets don't give a lot of opportunity for outsized returns. If you participate in any inefficient such as real estate or individual businesses, those are the markets where if you see an opportunity and you can calculate that you can do better.

If you're in control of your money, you can take advantage of those opportunities. Understand this is all about controlling your capital. It's not about having, you know, you can have your money invested, sure. But if you do, what if it's not the right time to take it out? Or maybe it's locked in a registered plan or something like that. Those vehicles give you much less control over whether you can take advantage of an outside opportunity, whether that be you know, buying a rental property or doing some private lending or investing in someone's business, somebody you know that has a great idea. 

The best opportunities come when somebody has a great idea and someone has money. And if you're in control of your capital, you can be that someone with money to participate in those outsized returns.

Now, I said I was going to park that for a minute. You have to remind me again. So defining why we want to be in control.

Cameron Gannon (05:47)
Why explain why infinite banking is what allows you to be in control versus just, you know, tuck your money under your mattress and you always have it right under where you sleep.

Scott (05:58)
Okay, so yeah, so there's various vehicles like you just mentioned. You could put your money under your pillow or under your mattress, or you can put your money into a bank account, or you can put your money in a specifically designed cash value, dividend paying, life insurance policy. And what those do is they provide you with a liquidity mechanism. So they do a bunch of jobs.

And the biggest thing is, is it gives you a note size return on cash on a tax free basis and has no reverse gear. What that means is it doesn't go down. So as you put your money in, if you put, you know, you've got $50 ,000 in there today, tomorrow it's going to have $50 ,000 and a hundred dollars or $50 ,500, whatever you're putting it, you know, whatever it's growing at.

The reality is, is it'll never go down. Doesn't matter what the stock market's doing, doesn't matter what the economy is doing, it doesn't matter what the insurance company's doing that houses your policy. It is, once you have cash in there, it is guaranteed to always be there. And that's what the true definition of control is, knowing that your money's gonna be there if and when you want to utilize it.

And that's the vehicle we use for infinite banking. So the process of infinite banking simply means that you're taking over the banking function from your bank. So you look at your savings account. So why is it better than a savings account? Well, for one thing is the lending provision, again, going back to what I mentioned there about...

The really wealthy people, what do they do? They use other people's money to take advantage of opportunities. They don't use theirs, they use other people's. So we want to do the same thing. And if you put money into a bank account, bank could offer you, say, a line of credit or a loan against that cash. We got to apply for it. It's going to have payments. It can be called. And frankly, it can be declined.

If you have, and it's, and of course the interest that you gain in a bank account is taxable. And if you're in a top tax bracket, that could be in excess of 50%. So you're helping the, you're the government's a bigger partner than yourself in the top tax bracket when it comes to interest income. So.

If we reverse gear and say, okay, let's why an insurance policy? Well, the insurance policy gives you a cash return on steroids, so to speak. So, you know, if you're, if you're sitting right now in today's environment, where, what are we at? May of 2024, then yeah, you can, you can probably get, you know, if you really wanted to push your bank savings account that pays you two or three or maybe 4 % fully taxable, of course, in an insurance policy.

And this is, these are lagging rates and that's probably not a different subject for another podcast, but you can probably count on depending on your age and your smoking status and health and so on, you can probably count on somewhere between four and four and a half percent tax free return forever. And that will provide you with the capital you need.

Cameron Gannon (09:11)
the control.

Scott (09:12)
The bigger part, again, control. Yeah, so I went down the interest rate rabbit hole there, but the more important part of that than the interest is that control because within this insurance policy, it is contractual that you have what's called a loan provision. That's how you use other people's money, use the insurance company's money. So what that means is you don't apply for anything. You order it.

So at any point in time, you have X number of dollars in an insurance policy. You want to take advantage of an opportunity. Three to seven business days, you got money in your bank account. All you have to do is order it. The only question they're going to ask is where do you want it? Now there is an interest. Well, there's no specific payback period. So there's no set payments or due date. We always encourage people while they're actively at work.

Cameron Gannon (09:53)
And then how do you pay it back?

Scott (10:07)
To endeavor to pay off your loans, but it really depends on the opportunity you're taking advantage of. If you're doing something short -term like a real estate flip or something like that, just say borrow the money and ignore it. Ignore it until your flip is done and then pay it back. Actually, I think we talked about it in a prior episode there, that that's one of the first things I did as a real estate investor with the use of my insurance policy. Yeah, I didn't make any payments on it but I paid it off after after we sold the property. Excuse me. So, go ahead.

Cameron S. Gannon (10:43)
No, no, no, go ahead. I have a little thought experiment I want to get to when you're done with what you're saying now.

Scott (10:47)
Okay. Okay. So, so the idea here is, is about that control and that, that is again, I'll go back. I did a little tangent on interest rates, but what's more important is when you borrow that money, it's, it is important to understand that you are paying an interest rate for that. You will pay interest on the loan. And the first question I usually get when I say that is why am I paying interest to borrow my own money? And that is exactly what you're not doing. 

The idea here is why we call this the asset multiplier method or magnify your wealth is we're not using our own money. The insurance cash value or the money inside your insurance policy is still growing 100 % what it was at before. So for instance, if you had 100 grand sitting in there and you borrowed 90, your interest is still that 4 or 4.5 or so interest rate I just talked about is gaining from 100 ,000 not 10 in that example. So you use the 90 you pay an interest rate because again it's not your money it's the insurance company's money but it is an order away if you don't have to apply.

Cameron Gannon (11:55)
A little thought experiment for the audience here is, you know, if you finish our podcast and you move on to another one and you see the Dave Ramsey show and you sit down with the Dave Ramsey show and he yells at you not to put your money into insurance because you can get 12 % of the stock market.

Scott (12:15)
All right.

Cameron S. Gannon (12:16)
If you got the chance to sit down in front of Dave and Dave could tell you exactly where that 12 % is and you know for sure you're going to be able to get that 12 from Dave, wouldn't it still make sense to put your money in the assurance first?

Scott (12:31)
Interesting concept, for sure. So this, yeah, this goes back to, you know, I had this conversation about a day ago, actually. It was a day or two ago with a client in regards to introducing me to other people. And it's like, I don't, it doesn't matter if you have an advisor. I'm not looking to replace what you're doing. The concept of infinite banking is an add -on.

So you can actually improve your position, i .e. the Dave Ramsey experiment there you just mentioned. So if you were to have money that you're gaining growth or you're happy with the mutual fund you're holding, what we do is we say, okay, let's pull some out, put it in the insurance policy, cycle it back in. We don't have to get rid of what you have. All you want to do is add on.

So long and short of it, the long and short of it is anybody can do this. And if you have cashflow or capital, you can get started. Exactly. Exactly. And in fact, actually in that scenario, what we just talked about, if you had an investment, if it's in a non -registered account, what you're actually doing is creating a tax deduction for yourself as well. So you'll have a growth.

Cameron Gannon (13:30)
So what... and you're just putting yourself in control of it.

Scott (13:56)
Inside the insurance policy, plus you'd have that investment and you'd have that interest expense, which would be tax deductible. I show an example. Yeah, exactly. If you're investing. But the key here is to act like a bank. It goes right back to what I talk to people all the time about. One of the first things I talk to people about is...

Cameron Gannon (14:04)
Assuming you're investing with it.

Scott (14:23)
is to act like a bank. What does a bank do? A bank lends money. All right, so if you go put $1 ,000 in the bank and they give you 3 % and then they turn around and lend it out at 6%, we'll say, like this is a real simple example, just double. Their rate of return is 100%. Nine out of 10 people think it's three, but it's actually 100. And the reason...

Cameron Gannon (14:47)
More importantly, more importantly instead of the focusing on that return too is they're in complete control because they've never used a dime of their own money.

Scott (14:58)
Exactly, right back to the control number again. Exactly. So we just, we, yeah, that's just it. We control the money or you control your own money and we look for those out -sized returns. So it's okay to sit on your money as long as it's still growing.

Cameron Gannon (15:17)
Any more? Any other closing thoughts before we let our audience move on with their days?

Scott (15:18)
in a tax -efficient manner.

Closing thought. So I guess the closing thought I'd have is anybody that believes that they are doing everything that they're supposed to do, I'd definitely suggest talk to someone like ourselves and really get to get underneath the, or get into the weeds of the numbers because when we talk to people,

Odds are they're leaking money to the tune of, I mean, the average is anywhere from one to $5 ,000 a month, the people are just squandering. They don't even know it. And we know how to capture that. And if nothing else, you know, it's a half hour to have a look -see. Give us a call.

Cameron Gannon (16:12)
Well, thank you everybody for listening in to the Magnify Wealth podcast with Scott Gannon. Have yourselves a nice day. See you later.

Scott (16:23)
Thank you.