Tax-Free Millionaires Podcast Episode #3
[00:00:00] Welcome to the third episode of the tax-free millionaires podcast. I'm your host Reed, Scott. And in today's episode, I'm going to introduce you to one of the hottest new financial products I've seen in the last decade. It basically allows you to use other people's money to fund your tax free retirement. In the last episode I introduced the concept of the super Roth. Which allows you to build tax-free wealth using stock market indexes. With a guarantee you can't lose your principle. And without the income. And contribution limits of a regular Roth account. Now in this episode, I'm going to show you how to get someone else to pay for it. And I'm going to walk you through an example of how you can get over 30% annual returns. Using other people's money. To create smart leverage. And finally, I'm going to share with you my stock pick of the week.
So be sure to stick around. You're going to want to hear about a stock that is poised to take off and is one of the key players in building out the AI hardware revolution.
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Now, if you listen to my last podcast, I introduced the concept of the super Roth, which allows you to invest in stock market indexes and have all of your earnings grow tax free.
Like a Roth account. But with three big advantages over a traditional Roth. Number one. Unlike a Roth account. There are no income or contribution limits. You can put as much money as you want into this super Roth every year. And it doesn't matter how much money you make. And unlike investments in a Roth account. With their are subject to the ups and downs of the stock market. If you invest in stock market index is inside the super Roth. You are guaranteed.
You won't lose money. So for instance, if you invest in the S and P 500 index inside a Roth account, and it goes down by 20%. You will lose 20% of your portfolio. But if you invested in the S and P 500 index inside the super Roth, and it goes down 20%. You won't lose a dime. You are guaranteed. You can't lose principle. And third, and [00:02:00] this may be one of the biggest advantages of all.
When you access the cash inside your super Roth. You don't actually have to take money out like you would in a Roth account. You can just borrow against the cash value of your account. And there are no taxes to pay since it's considered alone. And under section 77 0 2 of the internal revenue code. Loan proceeds are not taxable. This creates a tremendous advantage of a regular Roth, because you can keep the full cash value inside the policy growing tax-free. While you borrow on a, at a lower rate of interest than what you're earning in the policy. This creates a tremendous amount of tax-free wealth through arbitrage. Okay. So that was a super rough. But this week, I want to tell you that despite all those advantages of a super Roth over traditional law, That I believe you can do more. Actually, I believe you could do better. And it's almost like the commercial.
If you remember the commercial. I don't, I think it was Pepsi where they had a guy sitting in an office and he [00:03:00] was being given a raise by his boss. And the guy says, Anne and his boss keeps telling him more benefits and the guy just keeps going and it just keeps getting , better, better benefits, better raises more money car. Vacations. I think that's a funny commercial, but you know what. That's a commercial.
It's not real, but what I'm going to tell you, Israel, despite all the advantages of a super Roth. Over traditional Roth. I actually think you could do better. And here's how. What if I told you that you can have someone else fun juror, super. Broth for you. And you can use the money that you would ordinarily be putting into the super Roth for anything else you like that's right.
Someone else is going to fund your tax-free retirement. And if you read rich dad, poor dad. Robert Kiyosaki talks about using smart leverage. But I'm going to show you how to use smart leverage in a way rich dad, poor dad, never even thought about. And here's the best part. You don't have to be a landlord to get 30% plus annual [00:04:00] returns on your investment. That's right.
You have no liability. If someone slips and falls on your property. No need to make any repairs on the property. No need to get eviction orders. If someone doesn't pay the rent. And no worries about our real estate market crash, like in 2008. Just constant tax-free growth, no muss, no fuss and no leaking toilets. How is this possible? The best way to show you is through a comparison. Now for years, we've been able to get mortgages to buy real estate.
But what if you need a mortgage to fund your retirement account? Now you can, and it's even easier than getting a mortgage to buy a piece of real estate. So banks will find your super Roth for you. And they actually want to do it. Believe me, it's actually easier for them then. Funding real estate. It's easier to fund your super Roth than it is to put a mortgage on your house or any other piece of real estate.
And here's why. Now last week I explained the super Roth is a special type of investment grade max accumulation index insurance policy. [00:05:00] Or an index universal life policy. It's designed to invest in the market, but pays a death benefit. If you die prematurely. So even though the policy is designed to accumulate your principal tax free, there is a small portion of the policy that goes to a death benefit. And if you die early, The death benefit guarantees the bank's going to get paid. But if you live more than 15 years, they're going to get their money back with interest as well. So it's a win-win for the bank.
They can't lose. And it's a win for you because all the tax-free growth that has accumulated in the policy after the bank has been paid off is yours to keep. And it keeps getting bigger and bigger. The longer you live. It becomes a huge amount of tax-free money that you can use to supplement your regular taxable retirement accounts. Basically the bank is buying the super Roth for you.
And you're betting you're going to live longer than 15 years. Which is when most policies pay off the bank loan. Now, why do banks like this? Because insurance companies. [00:06:00] Issue insurance policies and that policy doesn't burn down. It isn't subject to a real estate crash.
There's no danger of a phony inflated property valuation. And no pumped up appraisals. There's nothing to appraise. In fact, nothing to worry about for the bank. They are just simply put on your policy as an additional insured. And if you die, they get paid. If you don't die, they get paid. And banks know that insurance policies are the safest investments in the world and insurance companies actually have more money than the backs. So they're happy to do these deals.
In fact, these smart leveraged super ROS are so easy to get that you don't even need to worry about working with a bank. Insurance company does all that for you. They already have the relationship. They take care of the bank loan paperwork. You are automatically going to be approved for the loan. If you are approved and insurance policy. There's no loan application, no appraisal process, nothing for you to do, except the standard insurance company application. And a physical exam if necessary when you buy the insurance. [00:07:00] Nothing additional for you to do all of it's taken care of by the insurance process. And this is so much less complicated. Then getting a loan to buy real estate. The simplicity is because the loan guaranteed. As guaranteed by the insurance policy in the bank knows the insurance company is going to pay them. There's nothing for you to do, except sit back, stay healthy and accumulate tax-free dollars. Now there's some bad news, right?
You don't get to you don't get off without making any payments to your retirement account. You do have to make half an annual premium for the first five years. But then you're done. You never make another payment. The bank takes over the rest of the funding process. You don't paint anything else after that first five years, the bank keeps paying for you. And in year 15, they're out, they're done.
And now it's all yours to accumulate tax-free for the rest of your life. And that tax-free account just keeps growing tax-free for as long as you live and just like a Roth account, you are never required to take out any RMDs. You can let the money keep [00:08:00] accumulating you tax-free. But even better than a Roth, you can leave the money and accumulating tax free while you borrow against it and use the money for whatever else you like. So you can keep earning it seven or 8% per year.
Tax-free. And use that low interest loan. To even buy more real estate. Or whatever else you like. The arbitrage created by the tax free loan. Allows you to create up to three times more tax-free wealth than a traditional Roth account. And remember, unlike a regular Roth, the super funded, super Roth is also created with mostly other people's money.
The bank, not yours. Now why is this a big deal? Let's look at the rates of return. This gives you on your super Roth. I use an example of a 40 year old. Male who purchased a super rough policy with a $1.5 million death benefit. Now, if he were to do that on his own, it would cost him $58,000 a year, over 10 years or $580,000 total to fund a [00:09:00] Superbowl. However. If you use bank financing, you only need to pay 28,500 for five years or total. Of $142,500. This is a savings of $438,190, which you can use for anything else. Maybe you use it as down payments on real estate investments.
So you can still build your real estate empire if you want. Or you can open a business, whatever you want. The bank is going to pay that 430, $8,000 that you would otherwise need to pay. Now here's the incredible deal. When this 40 year old in this example is 65. The bank will have been long paid off and the tax-free cash that's left in the account. We'll be worth over $800,000. Now remember that's tax-free money. So unlike a regular IRA, there's no tax on the payments coming out. Which means if you were in a 25% tax bracket, that $800,000 in your super Roth. Is equivalent to over 1 million, $60,000 in a regular [00:10:00] IRA or 401k. But unlike a regular IRA or 401k, you never have to take out required distributions.
So it just keeps growing. Tax-free. So in this example, when this Person you started off as 40 when he turns 75. That $142,500 investment is now worth $1.5 billion. Tax-free. At 80 it's worth or 2.2 million tax-free and so on and so forth because he doesn't have to take out. Any distributions. And if you did all that without having to fix a toilet deal with a bad renter or buy it dollars. Dollars for the property. Imagine the stress free investment. And unlike real estate, you don't have to do a 10 31 exchange or get a loan on the property to access your equity.
All you need to do is get a tax-free loan against your policy value. And unlike the real estate loan, you have no requirement to ever pay that loan back or ever make one single loan payment. All that tax regrowth is yours. To having to hold for Richard enricher tax-free. And if you want [00:11:00] to take out tax free loans on your Superbowl to buy even more real estate. You could do that, except unlike trying to take out your equity of appreciated real estate with alone. If you take out a loan on your super Roth, you won't have any actual loan payments.
So your cashflow will actually be higher. This gives you even more leverage because your cashflow is greater than if you had just had real estate alone. So there we go. Rich dad, poor dad with the smart leverage, super broth. You can actually buy even more real estate. And then if you just dependent on real estate alone. So as Mr.
Kiyosaki preaches, you're now a richer dad with even more smart leverage than just buy a real estate. So maybe I should write a book. Maybe I should call it Richard dad, but you know what? I've already written the book and it's called tax-free millionaires. And it will be available in the next 30 days on Amazon. So everyone in my Facebook group will be eligible to get a free copy of that book once available. So if you'd like to be on the list to get a free copy of that book, [00:12:00] join my Facebook [email protected]. Forward slash groups. Ford slash tax-free millionaires. And you'll be sent a link with instruction on how to get a free copy of the book when it's released.
Okay, by the way. What's the actual annual rate of return on this investment, just so you can compare it with your maybe how your financial advisors is doing for you on the retirement accounts. He supposedly managing. It depends on how long you live because the annual return becomes larger and larger.
The longer you live. And the example I just used, you would invest a total of $142,500. By the time you were 45, that's it. You were done. And the account grew in this example to over $800,000, by the time you were 65. You made $800,000 on an investment of 142,500. And if we use this 20 year holding period for your $142,000 investment. It means you made a return of over 23%. per year. Now remember that's a [00:13:00] tax-free return, which is equivalent to an annual return in a traditional IRA. Of over 30%. So in other words, your financial advisor would need to be getting you an average and return of over 30% on your IRA or your 401k each and every year. In order to match. the return on your leveraged super broth. Now, because this is tax free growth and you are never required to take out RMDs and it just keeps growing every year. The annual return actually keeps getting larger and larger.
The longer you live. So by the time in this example, you were 75. The annual return on this same investment. Is actually over 31% a year. Or the equivalent rate in a traditional retirement count of over 42%. Again, assuming a 25%. Combined federal and state tax bracket. So just to be crystal clear, because this is hard to believe you would need to earn each and every year for 30 years, an annual return of over 42% each and every year. To be able to even match the return on this smart [00:14:00] leverage investment. So to put that in total return. That means you would have to get a total return over 30 years of 1050 2%, which is the equivalent of 1400% in a taxable account. Assuming again, you're in the 25% tax bracket. We're 42% a year. For over 30 years. in a taxable account. To be able to have the equivalent rate of return in a super broad. And remember that is also with the guarantee that you can never lose principle. Those rates of return are before we even factor any arbitrage you make earned by borrowing. At Laurie ventures, then you're earning in the account.
By the way in case you're wondering. Even when we're buffet has not done anywhere near that rate of return on a consistent year, over year basis. So I believe by anyone's standards. This would be qualified as smart leverage. So at this time, you may be asking why haven't I heard of this before? I don't know why you haven't heard of this, but I do know that financial [00:15:00] advisors do not get paid.
If you invest in this type of smart leverage, super broad. For every dollar you take out of your investments to put into a super Roth, that is one less dollar that they do not have under management to charge a fixed annual fee on. So even though you could be getting guaranteed rates of return in excess of 30% a year. It won't be your financial advisor.
One bit of good personally. Do I know this is the reason you haven't heard of this. No, I do not. But I do know that the big financial institutions like JP Morgan Merrill Lynch. And the thousands of independent financial advisors all over the United States do not make a dime when you put your money in a super raw. So you might want to rethink the concept. The financial industry is pushing on us, that they are independent financial advisors. There's definitely a conflict of interest and you need to be aware of it. It's also, if you're dealing with an insurance agent, these types of sophisticated, smart money solutions may be beyond the scope of many insurance agents. Many insurance agents are not experts in designing and managing leverage [00:16:00] solutions. Now tax-free millionaires.
We work with our clients every year to make sure that they are maximizing your returns, not just settling for average, it's something we teach. At tax-free millionaires. So I, again, I invite you to get on the list for a free copy of my book. Tax-free millionaires and you can do that. By joining my free Facebook group. At facebook.com forward slash groups. Ford slash tax-free millionaires. So now that we talked about the use of smart leverage to supercharge the returns inside your super Roth, it's time to get to our stock of the week.
Sick. On every episode of my podcast, I give a breakdown of one stock. I like, and why I like it. But first. I have to give you a following. Disclaimer. The stocks I discuss on my podcast are for entertainment and educational purposes only. And I'm not making a recommendation to buy or sell. You should always do your own research before purchasing or selling any stock or options, and you should never rely on anyone else's opinion. Including mine. Any losses that you may incur.
If you purchase a sell, a stocks or options [00:17:00] that are discussed on this program are your responsibility alone. And neither I read Scott tax-free millionaires, Scott wealth advisors. Or anyone affiliated with me or this program? We'll be liable for your losses, if any. I very often only investments I discuss on his program.
It could personally benefit the market price of a stock increases. However, I'm not paid by anyone for mentioning his stock work company. And I'm not being paid a commissioner endorsement fee for discussing any stock on this program. Without another way. I want to discuss an interesting stock in what I like to think of is the infrastructure segment of the AI revolution. It's a segment of the market that I like to invest in.
And I believe this company is poised to take off. As this entire sector. On AI infrastructure continues to soar. If you listened last week, you know that I compare the AI infrastructure space to the pick and shovel sellers in a gold rush. There were tons of prospectors that went broke, looking for gold in the gold rush.
Only a few made it. [00:18:00] But the suppliers have picks and shovels got rich, no matter what happened to the individual prospectors. And I consider the software companies in the AI race to be the prospectors. They are all trying desperately to add AI functionality to their software, to make their product. Different and unique. So that end-users will buy it over competitors, but in reality, they're all competing with each other just to maintain your relevance. And the underlying AI pick and shovel providers like Nvidia AMD and data center owners like Google, Microsoft, and Amazon get rich. Now the stock this week is a stock or a company that is firmly in the pick and shovel category. In fact, they actually supply the suppliers to the prospectors.
They are even one layer deeper.. than the first layer of infrastructure companies like The video and AMD.. And the major data center suppliers. The company I'm talking about this week is Lam research with a stock symbol of L R C as in cat X. Lamb is currently selling at around [00:19:00] $70 per share, but that is after a recent 10 for one stock split. Before the split, they had risen to over $800 a share, and I believe they can get back to that level again. Not immediately, but over the next few years, Lam research is a key designer at manufacturer of wafers or microchips. That the chip manufacturers use to ensure that all of their chips are of high quality uniform shape and size and lambs products are essential in the manufacturing of Silicon chips. Without companies like lamb, the major chip makers could not make their chips.
It's that simple and Lam research as patents and technology. That are very hard to replace and essential to the growth of the AI. Build out. Liam has consistently beaten earnings and revenue projections over the last few years. And they did it. Again, in their most recent earnings call. Now Lam has been a great stock for awhile. And you may already be aware of that, but I believe the timing is right to get in right now because after the split. . [00:20:00] The entire, semiconductor industry. has been lackluster for the last couple of months. But I believe we're about to enter a new upward trajectory. And. All the semi conductor manufacturers won't be able to go anywhere unless lamb goes with them. As the recording is podcasts. It's November 15th, 2024 next week on November 20th. The video releases., quarterly earnings. For the last couple of months, the semiconductor sector, as I said, is cooled off. But when the video is earnings, come out, if they already as expected. Going to beat the earnings revenue, which many analysts expect.
We can't guarantee that. But I believe if that happens, you're going to see investors point back into the semiconductor sector and stocks like Lam research will be poised after the split to take advantage of the rising waters. With an after split price of $70 a share. It's a great time to get in on one of those leaders of the suppliers, to the suppliers of the gold rush. The company had a stock split because they wanted to keep their stock [00:21:00] in at attractive price range for most investors. And I believe it's $70 a share is a very good entry point. As I believe this stock could easily break a hundred dollars a share by the end of the first quarter of 2025. Now, by the way. I hear a lot of discussion from the talking heads about whether the current bull market is similar. To the.com era. And they speculate if we are headed for a crash. Now I would probably create an entire separate broadcast about whether the AI revolution is real or a bust. But for right now. Let me point out one huge difference between what's going now in the, on, now in the market. Versus what happened in the.com era.
Today we have good companies. Making AI related hardware and software. And these companies. Most of them are making money more money than they've ever made. And bottom line over time earnings drive stock prices. Not good stories. During the.com era accompanies. We're not actually making money. You had huge valuations based on [00:22:00] projected future growth. On hundreds of companies that had never made a dime. Today we have projected earnings and future growth. They are good stories, but they're on companies that are making more earnings, higher earnings and revenues than they've ever made. Because companies need to invest in AI. And the amount of data that needs to be crunched and the data centers and all the hardware and software that's associated with that. Is. Incredible. And most companies are raising or spending a larger portion of their capital expenditure budget on AI related technologies. Not because it's nice to have because it's essential for them to compete.
And if they don't do it, they're going to be out of business. So that's it. The stock prices are driven by market's belief of future earnings. And it's hard to keep believing in future earnings when there are no earnings to begin with. Today we have earnings. It's a big difference. Now does this mean we can't have a market correction?
Not at all. The market may very well. Correct. That could happen tomorrow. And it has happened this summer, by the [00:23:00] way, the S and P 500 index went down over 12%, which is pretty good correction. Probably will happen again. The difference is. On the longer run, there may be periods of month, two months, three months, even six months where you have corrections. But unless we have some catastrophic event, like a war or another pandemic. The earnings and projected future earnings are driving this market. No matter what you believe, however about whether the market's going up or down, you should always protect your investments with good risk management, such as stop wall system puts. Never risk more than you can afford to lose.
And we teach fundamental risk management in all of our investment courses to tax-free millionaires, which we'll be launching all of these courses over the next quarter. So stay tuned for that. Okay. That's it for today's show. Thanks for listening and make sure to tune in on our next show while I'm going to discuss some unique ways to leverage your portfolio returns. And I'll be giving you my stock of the week.
Pick. Be sure to catch it. And if you want to make sure you get on the wait list for the book and our future courses [00:24:00] at the tax-free millionaires. Then join our free Facebook [email protected] forward slash groups. Ford slash tax-free millionaires.
Thanks for listening. And I hope you'll join us on the next broadcast. Take care.
