Podcast Episode #7
Welcome to the seventh episode of the tax free millionaires podcast. I'm your host Reed Scott. And in today's episode, I'll be showing you a much better way to create a tax free college education saving account for your children, much better than a 529 plan. And as always make sure you stick around till the end where I'll be giving you my stock pick of the week.
This is Reed Scott again, and welcome to this episode of the Tax Free Millionaires podcast. Today, I'm going to introduce you to a little known technique that in my experience, not only outperforms a 529 plan to build tax free savings for college, but it is much safer as well. I'm sure everyone's familiar with a 529 plan.
The term 529 stems from section 529 of the Internal Revenue Code. Which was added in 1996 as part of the Small Business Jobs Protection Act. These plans are sponsored by the states and can be used for qualified educational expenses only. They allow anyone contributing to a 529 plan to name a beneficiary of the plan and that beneficiary will supposedly benefit by the fact that state and federal governments do not levy taxes on the growth inside the plan.
As long as the funds are used for a qualified educational expense. Now this sounds great in theory, but you should know there are A few limiting things about these accounts that I had to find out the hard way. First, the plants have very limited investment options. They can invest in index funds, bonds, and other types of funds that are supposed to be invested in a way to prevent them from being exposed to too much stock market risk.
They invest in mutual funds which are diversified across many industries. So that if one sector of the market goes down, the other sectors will offset their losses. Unfortunately, there's no one actively managing these accounts to prevent your entire account from going down with the market. And in 2008, During the Great Recession, and again in 220, we saw market downturns of over 30 percent in some cases.
Additionally, what you may not know, is that the funds inside a 529 plan automatically switch from mutual and index funds when your child turns 14 or 15, into bond funds, or more conservative investments, from 15 till age 18. 18 or college age, this automatic switch is supposed to protect your child's precious college funds from being hit by a market downturn.
As they approach the time we'll know they will start to need funds for college, but what they really do in my experience is prevent your account from recovering. From a downturn that's happened before your child has turned 14 or 15. If the account was hit by a market correction before age 14, when the account switches to bonds, there's no way your account is ever going to earn enough to recover before your child is of college age.
Now, financial advisors will tell you, well, this is automatic and it can be changed, but in my experience, they don't tell you this until it's too late. Until you ask, why isn't my fund making any money? Now imagine what happened to parents who had 529 plans in 2008. When we had the Great Recession, in fact, you don't have to imagine, let me give you my actual experience that I had with my daughter's 529 plan.
I contributed to a 529 plan for 14 years. My total contributions into the plan after 14 years were 117, 600. When my daughter was 18 and needed the money, it was only worth 89, 500. A loss of over 28, 000, or 23 percent lower Then the actual amount of money I can had contributed. Now, what is the value of a tax free savings account?
If there's no gain to be taxed. Now, this loss was due to several factors. First of all, he can't never perform that well to begin with, even though my advisor told me I had one of the best funds in the country and my experience. It only averaged about 5 percent a year. Sure, it had years when it was up 12%, but that didn't make up for the down years.
So the average was about 5%. Then on top of that, when the market crashed in 2008, the account lost over 30 percent of its value in less than a month. Then after my advisor assured me the account would recover with the market, It never really did. It continued to get mediocre returns of five to six percent.
And the final straw was that my advisor told me it had automatically switched to bonds two years after the market crash because my daughter had turned 14 and they automatically switched all the accounts into lower performing bond funds because supposedly that was to make sure the account didn't have any exposure to market risk right before needing the money for college.
They didn't seem to be concerned with market risk at any other time, so why now? Of course, I wasn't even aware this had happened until a year after it occurred, and the only reason I found out about it was because I asked my advisor, why isn't my account balance increasing by any more than the amount that I'm putting in every month?
At this time, he told me about the automatic switching to bonds. I immediately had him switch back to mutual funds, or the account balance would have been even lower when my daughter needed it for college. But even after switching back to mutual funds, the account never earned more than 6 percent a year, which wasn't nearly enough to make up for the loss that had already occurred in my account due to poor investment choices and passive account management.
I would have been much better off Just putting the money in a bank savings account and earning a half a percent of interest a year and paying the tax on that interest. At least I would have had my original $117, 000 instead of a $28,000 loss. Now how did this happen? What I found out, since having a 529 plan, is that your fund choices, even in the best performing 529 plans, are extremely limited.
And secondly, these funds are passively managed, which means they aren't really managed at all. There is no one monitoring these accounts to protect your principal. And I can tell you from personal experience, there's no guarantee you won't lose money. When the market starts to crash, no one is selling you out to protect you.
They just let it ride with advice that don't worry, it will all average out in the long run. Well, when you're trying to get money for college, you don't have the long run. You have a limited amount of time to increase your funds. I think it's incredible that the financial industry promotes these accounts as safe and conservative ways to save for your children's college education.
When in fact, they expose the accounts to complete and 100 percent market risk. After I lost my shirt in this 529 plant, I was determined to find a better way to save tax free for college without fear of losing money, while still getting tax free growth. And even though it's too late for me, I wanted to make sure my clients didn't get sold a bill of goods like I did.
Well, the good news is I've found a better way. And not only is it better than a 529 plan for creating tax free money for college, but it beats any tax free investment I have seen in my 20 years as a tax attorney and wealth coach. The reason it is so much better than a 529 plan is that it allows you not only to invest in the stock market indexes tax free, but it also guarantees you can't lose money.
And just like a 529 plan, you can access that growth tax free for education. But even better, you can access it tax free for any reason. It doesn't have to be limited to education. You aren't limited to using the money for a qualified educational institution or any educational institution. You can use the money to travel around the world.
If you want by second home, make a tax free gift to your children as a down payment on their first home, invest in real estate, or just have more tax free money in retirement. There are no restrictions on how you can use the money tax free, whatever you use it for, it will always be tax free. So what is this tax free miracle?
I talked about these, uh, This approach before this investment alternative, but it's a max accumulation index universal life insurance policy. Now, I know that when most people think about insurance, they think of money that is paid out at a death at the death of the policy owner as a death benefit. But that's not what I'm talking about here.
This is designed as a max accumulation policy. It's very different. It puts most of your premium payment towards investments that grow tax free inside the policy and spends a The minimum amount allowed by law to buy insurance. If I had known at the time I opened a 529 plan for my daughter that I could have structured this specially designed max accumulation index universal life policy instead, I would have been far, far ahead.
First of all, I don't know. This indexed universal life policy is not like an ordinary indexed universal life policy. Um, it is designed as a max accumulation policy. Now you can design these in several ways, but the max accumulation design is what allows for that tremendous investment growth. And then under the Internal Revenue Code, Section 7702, you can access the money tax free as well, in the form of tax free loans.
Now back in the 1980s, when these policies were first created, and people figured out that they could earn and then have access to the money tax free, just like a super type of Roth. Well, people started pulling all their money out of IRAs and 401Ks and moving them into this type of indexed universal life policy where they could not only grow the account tax free and invest in stock market indexes, but they could also access the money tax free.
This was like a Roth, except it didn't have the restrictions of, uh, You couldn't make too much money or you could only have a limited amount you can contribute every year. So the financial industry didn't like this, neither did the IRS. They weren't happy about losing money to insurance products. So Congress was lobbied heavily by the financial industry.
Uh, especially financial advisors to change the law, and that's what happened in 1988. The amount of money you could contribute to these types of policies was limited under the Tamra Act, the Technical and Miscellaneous Revenue Act. However, there is an exception, and that exception, if properly applied, can allow this max accumulation policy to be a tremendous tax free wealth creation vehicle.
An indexed universal life policy can still allow a large amount of money to accumulate tax free. But the difference is that now, the money cannot be put into the policy all at once, like you could do before the Tamra Act. Now you must fund the policy over time, like you would fund a 529 plan anyway. And if you fund it over time, it still allows a huge amount of tax free money to accumulate.
So when the law changed to stop people from funding these investment vehicles all at once, they became less popular. And people kind of forgot about it, because you had to be patient and fund them over time. But when you compare it to a 529 plan, which is also funded over time, it's a hands down winner.
And it can be an excellent part of a tax free savings strategy, especially when the Indexed Universal Life Policy has a guarantee that you cannot lose principal, which I'll explain in a moment. Another nice advantage of this max accumulation policy is that unlike a 529 plan, you don't have to name a beneficiary.
You don't even have to have a child at all to have this max accumulation policy. So, you don't need to wait till your children is born. And, if you're going to have more than one child, you don't have to wait till each child is born. Uh, let's say you're planning on having two children, and you wanted to have a 529 plan for each of them.
Well then, you would be able to fund the first one when the first child was born, and then you might have to wait however many years until you have the next child before you could open that second 529 plan. So each child would have to be born before you could create their individual plans, but with the index universal life policy You can set it up far in advance of when any child was born and since the money accumulates tax free And then can be accessed tax free for any purpose not just college It's better than having separate 529 plans for each child because you can set it up all at once and allows you to have tax free growth for a longer period of time.
And if you never have Children or don't have as many as you planned, that's tax free money for you to do whatever you like. So, since the money can be used for any purpose, it doesn't matter if you never have that second child or even the first. It makes sense to put more money in sooner rather than wait until each of your children are born.
So, instead of putting in, say, 5, 000 a year into a 529 plan when the first child is born, and then waiting until the second is born to put in another 5, 000 a year, you could put in 10, 000 a year now. Before you even had that first child and this max accumulation IUL design family bank is what I would call it.
You, uh, you were talking about using it and comparing it to a 529 plan, but it's really a tax free investment vehicle or family bank that could be used for any purpose, not just college education. So if you put aside a thousand dollars a month, now that extra money that you put into the tax free policy could be used tax free for any purpose, regardless of whether you have one child, two children, three children or not.
Uh, if you don't have another child, you can use that tax free money, uh, to invest in anything you like. Maybe real estate, start your own business, buy a second home, or just have a much bigger tax free pot of money to supplement your other retirement accounts. I usually advise people to keep contributions to the tax free family bank at 20 percent or less of their net household take home pay.
Now, if you're concerned about not being able to access the cash in an emergency, don't be. You can usually get the money from the tax free family bank in the form of a tax free policy loan within three business days. The only caveat is that you should not plan on touching that money for at least three years after you set up the policy, uh, in order to allow the time for the cash value to accumulate tax free so you have something to borrow against.
It takes at least three years for the policy to build up enough cash value to borrow against. And once the cash value has accumulated, you can borrow against that, uh, cash value and get the tax free cash out As I said, within a matter of days. This beats keeping cash in a bank savings account with less than 1 percent interest.
A small amount of the premiums you pay is used for insurance. But the maximum amount allowed by law is invested in a variety of market indexes so you can get better rates of return. Unlike being invested directly in the market, however, Your money is guaranteed by the insurance company never to be less than your principal balance that you had at the beginning of the year.
And unlike a tax deferred retirement account, you don't need to be 59 12 to access the money penalty free and tax free. What kind of rates of return can you get inside this max accumulation tax free bank? Well, as an example, you can invest in indexes like the S& P 500, which has averaged an annual rate of return for the last 20 years of around 8 percent a year.
And As an example, uh, if a 34 year old parent started contributing to a max accumulation indexed universal life policy, uh, or what I call the tax free family bank. Let's say they were 34 and they had a 5 year old child. And they started, they set up the family bank instead of a 529 plan. And they made contributions of 1, 000 a month.
Or 12, 000 a year for 13 years. Now they planned on having two children, but they only set this up when they had the first child, but it didn't matter because again, the money is not limited just for college. So they contributed for 13 years. And by the time the child was 18 and the parent was now 47, there would have been over 241, 000 in the account.
To borrow against when he needed to take money out or when the parents needed to take money out to start paying for the college, uh, child's college expenses, this assumes a 7. 5 percent average rate of return, which is less than the S and P 500 average return. Now in my book, tax free millionaires. I've included a spreadsheet that shows exactly how one family's tax free bank was able to not only pay for both of their daughters college educations, but it also gave them a huge pot of tax free money they could use for any purpose in retirement.
In the book, I not only show you how the tax free family bank can create an incredible amount of tax free wealth for college, but I also show how it can create a large amount of tax free money for other purposes, like financing a business or just having a large amount of tax free dollars. That could be three times more powerful than a Roth account.
So the tax free family bank is better than a 529 plan, in my opinion, for four big reasons. Number one, it enables you to participate in the stock market indexes with market upside and tax free growth. Number two, it protects you from downside market risk by guaranteeing you can't lose money. If I had this feature for my daughter's savings, uh, or my daughter's savings instead of a 529 plan, I could not have lost 28, 000 to the market correction.
Number three, the family bank allows you to access tax free growth tax free, just like a 529 plan, but without the restrictions. And number four, and this is a really big one. It allows you to access all that tax free growth, tax free, without reducing the value of your account. This is an incredible advantage over any other type of tax free investment I'm aware of.
Now, what do I mean when I say it allows you to access the money without reducing the amount of the account? How is that possible? Well, remember when I said you can access the money through tax free loans? Well, when you take out a loan against the value of your account, that means you are Not taking a distribution from the account.
You're just borrowing against that value. And when you borrow, you don't reduce the value of the account. The full value of your account remains inside the account, earning money, just like it was before the loan. And if you're earning money at 7. 5%, the interest on the loan in the example I give was 5. 5, which is what the current loan is value.
Now you're making 2 percent on the money. On your own money. This is called arbitrage, and it's a way to create even more tax free wealth that is not an option on almost any other type of tax deferred or tax free investment, including a Roth. You can do this with a 5, you can't do this with a 529 plan, and you can't do it with a Roth account.
In either account, either a 529 or a Roth, You can have tax free growth, and you can take the money out tax free. But when you take the money out, it reduces the size of the account. And therefore, there's less money remaining inside the account to earn money on. This is not the case with the tax free family bank.
The policy loans, you continue to earn the full 7. 5 percent In this case, that was the example, you could earn more, you could earn less, that depends on the indexes you invest in. You're going to earn that full amount on the full principle while you pay a lower rate of interest on the loan. This is arbitrage, which is the ability to borrow for less in one area and make more in another.
Now banks and insurance companies have been doing this for years. It's a safe way to make money, and now you can do it as well. So arbitrage, as I've already explained, is just the difference between what the policy is earning and what you're paying on a loan. The other nice benefit is not only do you not pay tax on the loan proceeds, but you also have no loan payments and no requirements to ever pay the loan back.
Now, if you took out loan on equity in real estate, for example, You would have loan payments and a requirement to pay the loan back. With the tax free family bank, you, if you never pay the loan back, it's simply deducted from the policy value at your death, but that's okay because you didn't purchase life insurance for a death benefit.
Anyway, in this case, you purchased it as a tax free investment vehicle. And that's what it accomplished. And again, unlike a 529 plan, there is no requirement to use it for education. If you don't use it for education, you can use it for anything for yourself, for your business, for investing in real estate.
And unlike a Roth account, you're not limited on the amount of contributions you can make every year, and you don't have to be a millionaire. You don't have to be 59 12 to get the money out. Now in a Roth account, you could be less than 59 1/2. It depends when you put the money in and other factors. But with the tax free family bank, none of those other restrictions apply.
This ability to use arbitrage creates new and tremendous source of tax free wealth that is certainly not available in a 529 plan. And even if you chose a 529 plan that didn't lose money, like I did, you still will not be able to create new wealth with arbitrage. And you certainly don't have the flexibility to use it tax free for any purpose.
With the Indexed Universal Life Cash Value, you can borrow against that value and use that money for any purpose, tax free. You could get a, uh, use it as a down payment on a second home, a, uh, first home for your children, start a business, pay off debt, use it in retirement, a legacy for your heirs, or You can use it any way you like, even for grandchildren, it's all tax free.
So how do you do this? First of all, you must make sure the policy is designed properly. It must be a max accumulation design, minimizing the amount of policy money that is going towards insurance. Then you must make sure you choose a company and a policy with the best stock market indexes available to choose from.
Some companies have better choices than others. And this is where we We help our clients make sure they're getting the optimal design with the greatest investment options. Now, I mentioned earlier that you can't lose money with the 529 plan. That's because the insurance company is guaranteeing your principal.
Now, how can they afford to do that if they're also paying you stock market returns? Well, they want something in return for this guarantee. And I happen to think it's a good trade off. And what they want is, if you're investing in the S& P 500, for example, and it goes up 20 percent this year, the insurance company says at the beginning of the year, before you even make that decision, this year we're going to cap you at, say, 10%.
In other words, if the market goes up 20%, You're only going to be credited 10%. We keep the difference. Now that cap changes every year. It could be 10, one year, 12, another, and the different indexes have different cap rates and some indexes have no cap rates. So that's where we help our clients. But the fact of the matter is, because the insurance company is guaranteeing you can't lose money, they're also taking some of the upside.
That's a trade off, but when you consider that you could make 10% inside the policy tax free and s and p 500 have that tax free growth and tax free access and a guarantee, you can't lose money, I think that's a pretty good trade off because if you invest inside a Roth account, for instance, and it goes down 20 and the index goes down 20%, you've lost 20% of your principal.
And we're talking about money. We're trying to save for a specific purpose. Your children's education. Now, I invested in something that I thought was safe, and I found out it lost money. And that was not a good deal. But with this, I couldn't have lost money, and I could have made money as well. And it would be tax free growth.
To me, that's a great trade off. So, um, A financial advisor, by the way, will probably not want you to use a max accumulation policy. Now, this is my opinion. Maybe they do. But, uh, The reason they may not want you to do this is because unless they also have an insurance lines license, they'll lose money because you won't be, they won't be able to charge you an annual fee on assets under management because the money you use to fund the tax free family bank will no longer be assets under management, which is how they're compensated.
So this is why you don't see a lot of financial advisors talking about this in my opinion. And even if they're an insurance agent, they need to be pretty sophisticated to understand these types of tax free family banks. And even if the financial advisor doesn't care about losing their annual fee and they're just a very, uh, uh, altruistic person who wants to see your family do well, it would be unusual to find one with experience in designing and management of these tax free family banks.
You must use someone who not only knows how to design the policy, but also will help you every year in selecting and allocating your investments to the best allocations, performing indexes. Once you have a knowledgeable agent that knows how to fund the tax free family bank, what is the right funding level?
Well, I can't show you on this podcast, but in my book I include an illustration that shows you what happened when a family started funding their tax free family bank with about 17 percent of their take home pay after taxes, and after they had made sure all their other fixed costs were paid. This was not a financial hardship for them, and it allowed them to contribute a greater amount of money into the tax free family bank.
In the example I use in the book this family had a combined gross annual income, husband and wife together, combined income of 250, 000 a year. They calculated that they could afford to fund the family bank at a rate of 1, 000 per month. Worked out to about 17 percent of their net take home pay after they paid taxes.
They had one child when they started the family bank and they had originally planned on making a contribution of 500 a month to that child's 529 plan. But when they found out there was no requirement to have both children born yet to make contributions to the family bank, they decided to go ahead and fund the family bank for two children, even though their second child was not born yet, Now, this made sense for them because, again, since the money could be used for any purpose, even if they never had that second child, it didn't matter because the money was going to be tax free for the family for whatever they wanted to use it for.
Now, obviously, if you can't afford 1, 000 a month, you wouldn't put in that much. You'd put in less. But this is what they could afford, and as I mentioned, it worked out to be about 17 percent of their net take home pay. Okay. Um, some people don't fund the policy properly because they think they might need to hold more money out and for an emergency.
So they want to keep an emergency fund. But as I said earlier, you can access the money within three days as long as you've waited that first three years to build up the policy value. And if you're covering all your other expenses, this is money that you'd put in a bank anyway. So why not put it in a family bank where you're going to get a much better rate of return than what a bank's going to give you.
In this example in the book, when the father was age 46, and his first daughter was getting ready for college, he started, uh, thinking about his first loan. And at age 47, he made that first loan. And then he made a second loan about four, three years later when his daughter, uh, second daughter was getting ready for college.
So within a relatively short time frame, the family had all those college expenses hitting him all at once. And yet they had prepared by this, uh, for this by the time the husband, uh, Was 47 by contributing every year for at the rate as if they had two children since the husband opened it at age 34, by the time the husband was 54, they ended up having taken out over $370, 000 in policy loans that they used to pay.
for the college expenses of their two daughters. And even with that, their children had some scholarships in a small amount of, in a small amount of student debt. But very small, only one student, uh, only one child had a small amount of student debt. Uh, because they had been proactive and had built up this tax free family bank, the $370, 000 was taken out in the form of tax free loans, and the interest on the loans accrued, and they never paid that loan back.
So the interest on the loans kept accruing at a rate of five and a half percent, but they were earning over four, over seven and a half percent. So even with the interest accruing on the amount they borrowed from the family bank, they still had a net cash value in that policy when the husband was 54 of over $52, 000.
So it was still positive, even after the last child had graduated from college. Now in the example I use in the book, this family had so much success with the Tax Free Family Bank that they decided to keep contributing 1, 000 a month to the bank, even after their children had finished college, because they loved the idea that they could build up this tax free wealth for any purpose.
So they decided this would be an excellent way to supplement their tax deferred retirement plans and a great way to have tax free money for anything. So, and that was a good idea because their, the wife's father ended up needing a lot of long term care. And the family was able to contribute to those expenses because of the tax free family bank.
But this couple who had started out creating just a college savings account, realized that the tax free bank would be better than buying long term care insurance for their own long term care needs in retirement. Because if they had bought a long term care policy for themselves, they could have only used those benefits tax free for a long term care event.
And if neither one of them had a long term care event, that money would have been wasted. But with the tax free family bank, they were accumulating money tax free inside the bank, and they could use that money for long term care instead of getting a specialized long term care insurance policy. And unlike a long term care insurance policy, if neither of them had a long term care expense, it didn't matter.
The money was still available for them to use tax free. So this is another reason why Uh, why they kept making contributions to the family bank even after their children's college expenses hadn't been paid for. In fact, this family kept making contributions until the husband retired at age 65. At that time, he stopped making any further contributions to the plan.
But of course, the money in the tax free family bank kept growing tax free. And like a Roth account, there was no requirement to ever take out a distribution. So it just kept growing. And by the time the husband was 75, there was over 1. 1 million of tax free cash available in the Tax Free Family Bank, even though they had never paid back any of those college loans or any of the money they had borrowed to pay for the wife's tuition.
So by the time the husband in this scenario was 80, there was over $1.8 million of tax free cash in the tax free family bank. But remember, they had stopped making contributions when the husband retired at age 65. So there was no longer any outflow, the policy just kept accumulating earnings tax free. I believe this is incredible.
And I don't know why any 529, or I don't know of any 529 plans that are going to be able to do this. And even if they were, you're not going to be able to use that money for anything but college education without paying taxes. Here, with the Tax Free Family Bank, you can use it for any purpose. So do you think 1.
8 million is enough? In retirement, might make life a little easier for this family. Not only for the couple, but for their children or grandchildren as well. And what if this gentleman had a long term care expense? Could he use it for that? Absolutely. As I said earlier, they could use it to pay for anything.
Any medical emergencies, any expenses. But if they'd ever had that event, it just kept accumulating tax free. They could use it for vacations, to finance a vacation home, to help their children buy a home, to help their grandchildren. For more information, visit www. FEMA. gov Uh, it, it doesn't matter. It's still going to be access tax free.
And that's a lot of this growth is due to the power of arbitrage. It's a tremendous way to build wealth and tax free wealth for you and your family. Now if you'd like to learn more about how to create the tax free family bank, I've created a course on how to do it and you can find out about that at tax free millionaires.
com Forward slash courses courses and on the courses page, you would select the course entitled how to create a tax free bank for any purpose. Again, that's it. Tax dash free millionaires dot com. At the top of the page is a tab for courses. And if you go to that page, you'll see a course entitled how to create a tax free bank for any purpose.
Okay. So that's it for today's program on how to beat a 529 plan for creating tax free money. Now it's time to talk about making money in the stock market. As my regular listeners know on every episode of my podcast, I give a breakdown of a stock I like and why I like it. But first, I have to give the 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 upon anyone else's opinion. Including mine, any losses that you may occur.
If you purchase or sell stocks or options that are discussed on this program, are your responsibility alone? Neither I read Scott tax free millionaires, Scott wealth advisors, or anyone affiliated with me, or this program will be liable for your losses. If any, I very often own the investments I discuss on this program.
And I could personally benefit if the market price of the stock increases. However, I am not paid by anyone for mentioning any stock or company, and I'm not being paid a commission or endorsement fee for discussing any stocks or companies on this program. With that out of the way, I want to discuss an interesting stock in what I believe will be one of the next big growth areas of the market, and that growth area is in the fintech sector.
Now, on my last episode, I also discussed a fintech stock that I liked. It was called Upstart. And this week, I'm also going to be talking about another stock in the same sector. Why am I discussing two stocks in the same sector back to back? Because as you know, the Fed is already starting to cut interest rates.
And whether they do it slowly or quickly, the financial sector stocks are already starting to see improvement. Just because of the direction of interest rates. They're now going down. And the financial sector is going to benefit from that. They've been suffering over the past three years. Now they're going to be on the upside.
A number of financial stocks that utilize technology are also benefiting. And the financial stock that I like that is really using technology, uh, smartly is, uh, It's called SoFi, and anyone who watches sports or football on television is probably familiar with the name SoFi because they sponsor the Los Angeles stadium, the football stadium, where the Rams play.
It's called SoFi Stadium, um, and their stock market symbol is the same as their name, S O F I. Their name is actually SoFi Technologies, Inc., and that's because they really use technology. They're not just a traditional bank. They're, they are purely an online bank. But what makes this online bank so special?
Well, SoFi was founded in 2011 at Stanford University, primarily ] as a technology platform to make it easy for college students to get the best student loans. Since that time, it has added more and more financial services for its client base of upwardly mobile professionals. So they started off for college students, those students have graduated, they're now out in the market making money.
And they've got a lot of disposable income. Sofi has taken advantage of that by creating an entire line of financial services products. They also acquired a national bank charter charter in 2022, which allowed them to operate as a full service bank and led to the build out of their national digital footprint with their sofa sofa, invest platform.
And Galileo digital technologies platform. There's sophisticated technology platform offers credit cards, direct lending, including mortgages, home equity loans, and through SoFi invest. They also let their clients or their customers trade stocks, ETFs, and cryptocurrency. And through its Galileo technology platform.
Sofi offers a cloud based financial services platform that enables other companies to build and manage digital banking services for their clients. Companies that want to build out and profit by adding financial services to their customer base can now use the Sofi infrastructure, Galileo, to rapidly deploy and private band new financial services, like their own company credit cards or financing of the purchase of their products.
Now, even the traditional brick and mortar banks, like. Bank of America and Chase lack the technology expertise to rapidly deploy digital financial services like SoFi. And a lot of the mid sized old brick and mortar banks have used SoFi to build out their own digital platform without having to invest in building out these services themselves.
They can plug into SoFi's digital infrastructure, And maintain their own private branding. This has allowed SoFi to grow to over 9. 4 million total customers across all platforms. Now, back in 2021, before SoFi had any of this, they didn't have a national bank charter. They hadn't built out this technology infrastructure.
At that time, before they had any of this, the stock was selling at 2465. That was before the fed started raising interest rates. And when they started raising interest rates, the stock dropped to as low as 4 and 77 cents in 2022. Their stock price now is hovering around 16 a share. So it has recovered, uh, quite a bit, but nowhere near their peak.
In 2021. Now bear in mind when the stock price was at 2465, that was before again, they asked you to edit a national bank charter and all the technology services I've just listed because of this. I believe their stock price has a lot of upside and not just back to 2021 peak of 2465. Traditional brick and mortar banks like Bank of America and Chase are envious of SoFi technologies.
SoFi has all the services of these huge behemoths with almost none of the expenses of the brick and mortar companies. And SoFi has the technology intelligence that these traditional banks are only now beginning to develop. In fact, Chase has been buying SoFi stock aggressively over the last year. What does this tell you?
Perhaps nothing, but perhaps a large bank would like to acquire SoFi to gain access to their technology platforms and expertise. But even if they don't, SoFi is well positioned to take advantage of the lowering of interest rates over the next 12 to 18 months. SoFi is a completely different company than the one in 2021, whose stock was selling at 2465 a share.
They've gone national, expanded their services to every area that even the largest banks have. And in 2021. They were an online specially financial services company, but today they are an online financial behemoth and compete with any of the biggest banks without the legacy fixed cost structure. Yet the market is still pricing them like they're still a specially online bank.
I believe 2025 will be when the market starts to appreciate what SoFi has done over the last three years. And I believe their stock price will start to reflect that appreciation. Obviously, they're a very attractive acquisition candidate, but they don't need to be acquired. They have built out an impressive technology stack that is starting to return impressive earnings.
I believe so if I can easily be trading in mid 20s range by summer of 2025 with or without a larger bank trying to acquire them. But as always, whether you buy SoFi stock or any stock, always protect your stock positions with sound risk management. All right, that's it for today's episode. Make sure you tune in for our next show, where I'll discuss more unique ways to leverage your portfolio returns.
And I'll be giving you another stock of the week. Be sure to catch it. And if you want to make sure you get my podcast schedule and get on the wait list for my new book, which will be out this month, Tax Free Millionaires, Then be sure to join our Facebook group where you'll automatically be on the list to be eligible to get a free copy of the book.
And you can join my free Facebook group at facebook. com forward slash groups forward slash tax free millionaires. Thanks for listening and have a great week.
