Bank on Yourself’s Silly 9.94% Annual Return Claim

January 13, 2016

If you want a good chuckle, watch this video:

First off, this insurance policy DID NOT have an annual return of 9.94%! It was more like 6%. It’s fine if you want to add hypotheticals in order to draw comparisons to other investments, but you can’t claim that those numbers represent YOUR return. They do not. How it is legal for them to make this claim is beyond me.

That’s not all…

Pay particular attention to the part where Paul Nick addresses “what if you invested in the stock market instead…” (10:17 in the video).

NOTE: He mentions a few times in the video that he’s “bringing some truth to the matter…” Gag!

He simply takes the annual price returns for the S&P 500 Index and plugs them into his spreadsheet and claims that’s what an investor would have received. HE CONVENIENTLY LEFT OUT DIVIDENDS! On top of that, he THEN adds a bogus 1% management fee (who pays 1% for an index fund) AND he taxes annual returns at 25%. His ending balance before the fees and taxes was $223,442. Take a wild guess what that number would have been had he been honest and used the S&P 500 Index Total Return?

Paul Nick's Example from Bank on Yourself

$749,628!!!!!!

That’s over $500,000 more than Paul shows in his example.

As you can see from the following graphic, DIVIDENDS MATTER!

S&P 500 Total Returns vs. Price Returns

I find it funny that he mentions dividends when showing how the insurance cash value balance grew, but left dividends completely out of the equation when he talked about the S&P 500 Index.

Here’s the deal: I know very little about the Bank on Yourself strategy. It could be the best thing since sliced bread (I doubt it). What I do know is that if the people behind it have to lie—and cling to their lies when confronted—in order to make their strategy look better, I don’t want any part of their strategy.

3 responses to Bank on Yourself’s Silly 9.94% Annual Return Claim

  1. Nice analysis, though you neglected to account for the fees and taxes in your table (which is the point they were making in their video).

    I’m with you that a good Vanguard Index Fund will have very low fees, there are still fees nevertheless — probably around 0.2%.

    Also, in a”taxable account” you will have to pay taxes, yearly, on the dividends (I believe).

    I think you’d find that the S&P500 investment would still be superior to the insurance product, even after adjusting for fees+taxes on the stock investment, for this stimulation. However, they claim that their plan is “risk free” which are strong words not to be taken lightly. A 6% risk free return claim makes me take notice…

  2. I didn’t neglect them, I just addressed the first part of his “analysis” of how a person would have done had they “invested in the market.”

    I have attempted to analyze fees (using American Funds Investment Compant of America) and taxes, but the issues are complicated because I’m not sure what tax rates were back in the 70s and 80s (I’m working on this now and will follow up when I have something worth posting).

    Paul Nick took the lazy way out and simply applied a 25% tax on each year’s return without including dividends. We all know mutual funds are taxed on distributions, not returns.

    I’m also not sure why they would assume that nothing is sheltered from taxes. IRAs became available in 1975. Surely, a prudent person would would have taken advantage of an IRA once it became available.

    I’m a firm believer that insurance has its place in a financial plan. I just don’t like people misrepresenting facts (applying dividends to an insurance contract, but not to stock returns).

  3. BTW, I’m using American Funds ICA because it was around back then.