10 Reasons You Should Avoid Indexed Universal Life Insurance (IUL)
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Welcome to the Stay Wealthy Podcast with Taylor Schulte. I'm your host, Jeremy Schneider, filling in for Taylor from the end of June to the beginning of July. Today, I'm sharing with you why you might want to avoid investing in indexed universal life insurance, also known as IUL. Specifically, I'm sharing the 10 lies told by insurance agents pushing these IUL policies. Today, I'm sharing with you why you might want to avoid investing in indexed universal life insurance, also known as IUL.

Number two, how an actual IUL policy I purchased would do compared to an investment in the same index that policy tracks. Number three, what to do about life insurance instead if you do indeed need life insurance. And number four, I'm going to answer two questions from listeners.

If you or a loved one has been pitched on investing and life insurance and want to know the tricks behind the sales pitch, today's episode is for you. For all the links and resources mentioned in today's episode, head over to youstaywealthy.com slash 158. ♪

So before we get into the IUL, the main topic of the day, let me introduce myself. You might be wondering, who is this guy? Where's Taylor? Well, Taylor, for the last three summers now, has taken the summer off to spend time with his family and recharge and do all those good work-life balance things that we should all be striving for. And he has asked me for the third summer, I'm very flattered to fill in for him for five episodes this summer.

You might remember me from way back in episode 64, which was called Why Rent vs. Buy is the Wrong Question, or you might remember me for the last two summers where I also guest hosted for about a month. So thank you, Taylor, for having me back. I'm very flattered to be here. I'm not here to talk about myself, but if you are new to Who Is This Guy?, let me give you the quick intro.

Again, my name is Jeremy Schneider. I started an internet company in college. I sold at the age of 34 for $5 million, and then I quit my job at the age of 36. I'm now 41. I haven't had a job since then. A few years ago, I decided to follow my life's passion about helping educate on personal finance and investing, which is what I do now. I actually started a brand called Personal Finance Club, which started as an Instagram account in 2019 and has actually now kind of turned into a

small business. I'm not a professional. I don't manage money or sell insurance or anything like that, but I would consider myself a serious hobbyist. And yeah, on Instagram and TikTok, I have about half a million followers now. And that I'm happy to say that keeps growing every year I visit. And that number keeps getting bigger, which is great because a lot of people are learning about financial literacy. So that's who I am, just a serious hobbyist who loves this stuff and flatter that Taylor lets me, uh,

hold the mic for a few weeks here. Okay, so let's get into it. We're talking today about indexed universal life insurance. I'm gonna refer to it as IUL for short, what's often referred to the acronym, of course. First, a disclaimer on insurance.

Insurance is an incredibly broad topic. The critiques I'm going to make in this episode do not cover all insurance products or all people involved in the insurance industry or everyone who buys insurance. It's really targeted towards a specific type of product and a specific type of sales pitch of that product that I've seen kind of run rampant lately.

Many or most of the sales agents that I personally come across are honest and capable, hardworking professionals looking out for the best interests of their clients. But some of the insurance agents I see kind of come off more like salesmen who aren't looking at their best interests. And that is what we're going to talk about today.

So what is indexed universal life insurance? Well, the pitch goes like this. It's basically pitched as an investment. And technically, it's not investment, it's insurance. And technically, it can't be sold as investment. In fact, the vast majority of the policies I've seen sold aren't even sold by investment professionals at all. They're sold by insurance agents. But the insurance agents basically, in my opinion, represent it as investment.

investment. And they say things like, you put your money in and you minimize the death benefit. So you buy a life insurance policy, but not for the death benefit. You buy it to minimize the death benefit and instead make as big of premium payments as possible with the goal of increasing the internal cash value inside of the policy. So when you make these premium payments that make these two large premium payments on these IULs, the cash value inside will accrue.

They tout how the cash value has a 0% floor, which means it can't go down any time. But it does have a high ceiling, like a high upside, where if the market goes up, then the cash value goes up. And it's called indexed universal life insurance because these policies generally track an index like the S&P 500. And so they say, hey, wouldn't it be great to invest in the S&P 500 with no risk?

In the down years, your cash value remains flat. So if the S&P 500 is down 10% in a year, you stay at 0% or sometimes even higher. They give you some modest interest like half a percent. And then the up years, you get as much as 10% or 12% or 13% interest based on how much the index goes up.

They also say you can borrow against the cash value at any time. And they tout this as this great tax benefit where you can have this cash value that grows and grows and grows, and you can borrow against it. They call it infinite banking or be your own bank. And then when you borrow against it, it's this tax-free payment to you from the cash value of your account. And they say then when you die, you don't even need to pay it off because the death benefit of the insurance policy pays it off. And so they're already, if I've lost you, they are a pretty complex system.

insurance product, but their basic baseline sales pitches, wouldn't it be great if you could invest in the S&P 500 with all the upside and none of the downside? And the answer to that question is, of course, that would be great. But if that sounds too good to be true, well, you're right. It is too good to be true. In my opinion, I've only seen these policies sold. They're never bought. No one ever really goes out hunting for an IUL policy. It usually takes the form of

an in-law or an acquaintance from high school or a friend of a friend approaches you and says, hey, this is what millionaires are doing. This is how you build wealth. You should buy one of these and I'm going to sell two. And they often are successful in selling those policies. And so that right there should potentially be a red flag if you're a skeptic as I am. And I also see these policies pushed on

on social media a lot, especially on TikTok lately. There are these TikTok, what I call this army of TikTok insurance salesmen who are just pushing this narrative over and over and over. And young people, new investors on TikTok are having trouble figuring out what's what. Is this real? Should I be doing this? Are millionaires really investing in insurance? Is this the best way to build wealth? Well, no, it's not. The problem with these insurance policies is, well, there's lots of problems. But the problem with like kind of

figuring out the sales pitch is that they're incredibly complex. And when you just watch the sales pitch, it sounds good. And it's hard to tell what's real and what's not. And to really understand

what's going on inside of these policies, you basically have to sign up for their sales pitch, sit through a 60 or 90 minute sales pitch, buy the insurance policy, wait to get the insurance policy in the mail, read all 90 pages of the insurance policy, then do the math on the financial implications of said insurance policy, and then figure out, is this actually a good deal compared to like alternate forms of investing?

How do I know you have to do all that? Well, because that is what I actually did. After seeing all these insurance TikTok salesmen push these policies, I did exactly that. I bought one of the policies and I read all 90 pages of it and I did the math. I made this very detailed spreadsheet based on the details in the policy that they sold me. And this is what I'm going to break down for you today. Like how, what's actually these policies and what is fact or fiction from the sales pitch. Okay, let's get into it.

I'm going to tell you the 10 lies told during the IUL sales pitch. Lie number one is ignoring dividends. So basically, every IUL sales pitch I've seen involves a little table that shows the S&P 500 index going up and down as it does over time, and then the IUL change in cash value. And

And then they demonstrate the power of the floor and the cap. And so the policy I bought actually has a 0.75% floor, which means if the S&P 500 drops, I actually get a positive return on my cash value. And then it has a 13.75% cap. So if the S&P 500 is up 10%, I get 10%. But if it's up 20%, my gain is capped at 13.75%. And then in this chart, it shows the net result of...

these two strategies. So in the actual policy that I purchased and received in the mail, it showed the S&P 500 over the last 20 years having a 7.4% return and the IUL having an 8.7% return. When you work out those floors and those caps and compare them, the IUL actually outperformed by 1.3%. But

That is telling lie number one, because it's ignoring dividends. When you invest in the S&P 500, you don't just get the change in share price, you get the change in share price plus the annual dividends.

And so they're basically misrepresenting an investment in an index fund by saying you would flush these dividends down the toilet. When you include the dividends, the S&P 500 return isn't 7.4%. It's 9.5%. So it actually does outperform this kind of parlor trick of this floor suing. But the IUL doesn't return 8.7%. We haven't even gotten started

which takes us to line number two of the IUL sales pitch, the cherry-picked timeframe.

The IUL salesmen love the 10-year period between the dot-com crash and the financial crisis because it was often referred to as a lost decade where these two major, two of the biggest financial crises in the last 100 years happened to occur about eight or nine years apart in the early 2000s. And then they show a little chart doing their parlor trick of the floor and the ceiling over just those 10 years. In fact, my actual sales pitch, which I recorded in full, by the way, with the agent's permission, included 5%.

this chart showing the IUL cash value return over these

15 years from 1998 to 2012 and the actual S&P 500 return. And it shows the IUL greatly outperforming. That's also not true, by the way, because you don't actually get that return. We haven't gotten to that lie yet. But they love to cherry pick the time frame. And the last 20 years still are kind of a good time frame. It's getting worse and worse as time goes on, but are kind of a good time frame if you're trying to make IULs look as good as possible. Because like I said in the previous lie, the IULs

only underperformed by about a percent per year with this floor and ceiling. But if you back that up and you look at a 40-year timeframe, like a more complete career of investing, that 0.75% floor and 13.75% cap

over the last 40 years of the S&P 500 would return an 8.8% return. But the actual S&P 500 with dividends reinvested, of course, returns 12.3%. So almost a 4% outperformance by an actual investment. But again, IULs don't actually get 8.8% because of lie number three. And lie number three is, I'd say it's the second biggest lie, the second biggest lie, because number four is a big one. But number three is the fees.

These insurance policies are riddled with fees. And in the sales pitch, they literally never mention them. There's fees, fees, and fees, and more fees. Let me get into it. I read again, I read every page of my policy. There's a premium expense charge, which means when you pay your premium, they automatically deduct 6%, in my case,

right out of the premium. So 6% off the top. If this were in the investing world and you were paying a 6% front load, that would be a horrific investment. You would never do that. But every IUL premium immediately has that 6% taken off. There's also a monthly policy fee of $12 in my case. So that means just for having it, 12 bucks a month. It could have paid your entire Netflix bill, but this is just to maintain your policy.

There's also a per unit charge of 0.59 or 59 cents per month. A unit in the life insurance world is basically $1,000 of death benefit. And the insurance agents, to their credit, always say they're trying to minimize the death benefit because they know the death benefit has these huge expenses associated with them. But in my case, the death benefit, if you have a $100,000 death benefit, for example, which is what I had in my policy that was sold to me, $100,000 death benefit is 100 units

at 59 cents a unit, that's another $59 a month in fees before anything even happens with the cash value. Then there's also a surrender charge. A surrender charge is if you decide you want to get out of this, you have to pay an even bigger fee. So in my case, it was $24.91 per unit. That's a $2,491 fee if you want to cancel. And the surrender charge

does go away. In my case, it lasted for 10 years. And after 10 years, it started getting smaller until it finally disappeared in year number 16. That means you're basically locked in without paying these massive fees for 15 years, which is not a really a good way to be locked in. And then on top of that, there's an index account charge of 0.06% per month. That doesn't sound much, but that's kind of equivalent to an expense ratio and an investment.

But it's not 0.06% per year, it's 0.06% per month, which equates to about 0.72% per year. So on top of all the premium fees and the monthly fee and the per unit charge and the surrender charge, they're also charging this extremely high expense ratio of 0.72%. If you were to buy an index fund tracking the same index through a reputable brokerage like Vanguard, Fidelity, or Schwab, all these fees would be zero.

except for the expense ratio, which works similar to the index account charge I mentioned. But instead of 0.72% per year, it'd be like 0.03%, or usually about 0.1% or lower for an index fund. That's 24 times lower just for that fee, and the rest of them would be zero. But wait, there's more. That's not the end of the fees. That takes us to line number four.

Line number four is the cost of insurance. And actually, I said line number four is the big lie. It's actually line number five. But line number four is the cost of insurance. All these fees we've paid, all this money we've paid, we haven't even paid for the life insurance yet. And so when you buy an IUL policy, you are buying a death benefit. And the death benefit is real. If you were to meet your untimely demise, you would get that death benefit, in my case, $100,000. Or I mean, you wouldn't get it because you'd be gone. But you know, your beneficiaries or family or whoever would get it. And

These IUL policies are designed to be enforced your entire life. But the problem is, as we all get older, the cost of insurance goes up and up and up and up. And so when you're young, the cost of insurance is pretty low. So for example, in my policy, a 21-year-old or sorry, 20-year-old male non-smoker, their monthly cost of insurance would be $7.00.

But a 70-year-old male nonspoker would be $116 a month. And so you can see if you're trying to make a $200 premium payment, when you're 20, maybe seven bucks a month isn't that big of a deal. But when you're 70, your entire premium can get eaten to the cost of insurance and need to make bigger and bigger premiums just to keep your policy in force or you lose everything, including the cash value or your cash value starts getting eroded by the cost of insurance.

etc. So that's lie number four, you got to pay for the life insurance inside of this thing, on top of all the other fees, which brings us to what I call the big lie, lie number five, that the cash value and the IUL policy will outperform an investment in an index fund.

Life insurance salesmen shouldn't be saying this. In fact, I think they can often get into trouble if they do. They can't even represent it as an investment, but they often imply strongly or flat out say like they did in my sales pitch to me behind closed doors that it's going to outperform the index fund because of this web of rules set up by the insurance company. But that's not true. When you look, so in my policy that was sold to me, we set up with a $200 investment.

premium payment. And by the way, I just nodded and said, yes, you know, I think insurance agents, when I talk about this, they come after me and say that I'm trying to get them, which I'm really not, I really want an honest look at these things. I just bought what they sold me and it's set up with $100,000 death benefit and a $200 monthly premium.

But out of that premium was taken a $12 premium expense charge, a $12 monthly policy, a $59 per unit charge, a $4.50 cost of insurance. This was actually assuming a 30-year-old male non-spoker. And in total, that would be $87.50 of my $200 premium was immediately getting eaten up by fees. That's an instant negative 44% return on your investment.

The remaining $112 does go to cash value. And that $112 is what actually goes up and down with that floor and ceiling of the IUL policy, which we saw underperforms the same index by about 4% over the last 40 years.

When you take all that into account and you model this over 40 years, I did with a 30-year-old male from age 39 to 69, this IUL policy would end up with a $320,000 cash value at age 69. Not terrible. I like $320,000 as much as the next guy. But if you were investing that $200 in an index fund tracking the exact same index as the IUL policy,

you would end up with $320,000. You would end up with $1.8 million.

So when comparing the cash value of an IUL to an investment in index fund, you actually get about 82% less cash value than you would actual real value in an index fund. The total fees paid for the IUL are about $80,000 over the course of your career. Whereas for an index fund, they're 44,000, which sounds high, but the vast majority of that 44,000 was in the later years when you had millions of dollars. And so your expense ratio was actually relatively high for having millions of dollars in there.

My IUL policy would have taken 16 years to just break even. That means I would be investing in this IUL policy for 16 years just for the cash value to reach the amount that I had put in. Meanwhile, on the next column of that spreadsheet, if you were putting it in an investment, you wouldn't have broken even 16 years later. You'd be up about 5x. So all that stuff together over the last 40 years, if you're modeling it based on the S&P 500,

The S&P 500 has gone up by about 11.9% compound annual growth rate over the last 40 years, whereas this IUL policy only increased in cash value by 5.4%. So it is a dramatic underperformance. So no, your IUL policy will not outperform the index. Okay, that's the big lie. Let's get through the rest. Lie number six, IULs have amazing tax benefits. And so if you can

you know, corner your insurance salesman into admitting that it won't actually outperform, then they'll say they have amazing tax benefits. And this with all these lies is kind of a hint of truth, you know, there is a floor, but the floor doesn't take effect until after it's destroyed by fees. This one also has a hint of truth, where there is a tax law that says if you have a death benefit, it goes to your beneficiaries tax free. And it's nice, because if you are

a young couple or a young family and one spouse dies and the other one gets the death benefit. It's nice to not also get hit with a tax bill with that, right? But they're basically trying to use that to convince you to invest in instead. And if so, first of all, just the underperformance alone, if you are going to get 82% less money, even if it's tax-free, that's not a good deal. And second, they basically imply that there is this huge estate tax on investments that get passed down. And that's not true because...

The current estate tax exemption is actually $12 million for a single person and $24 million for a couple. And so that means you can leave $12 million or $24 million to your beneficiaries without paying any sort of estate tax. And so, you know, the tax benefits are just...

vastly overstated by insurance salesmen. They also say that you can borrow against a tax free, which is true, but you can also borrow against things like your house tax free with like a HELOC or a home equity line of credit because loans aren't taxed. But the downside of loans is you got to pay them back. And so they always talk about this like it's free money, but it's not free money. You got to pay it back or you got to die, which is how they often suggest you pay it off. Just wait until you die.

Okay, lie number seven, rich people do this and so should you. They always talk about how millionaires are investing in insurance. And you can definitely hear stories where there is one off millionaire every now and then who buys insurance, but it's not these policies being pitched. They're buying it for other reasons. They're trying to conflate that. In reality, I'm a millionaire. I'm a millionaire.

I don't invest in life insurance. I know Taylor, I don't know if he's a millionaire actually. He probably is. He's doing well. I don't know. But Taylor certainly is a very established expert in the field. He certainly does not recommend investing in life insurance. One kind of fun data point on this is there's a great podcast called Millionaires Unveiled. And on each episode, they basically interview a real millionaire who has a net worth from somewhere between $1 million to over $300 million and ask them how they did it.

And I actually listened to one episode. And in one such episode, there was a guy with a net worth of about $3.75 million. And he mentioned he had $90,000 in a cash value life insurance policy, which was about 2.4% of his net worth.

The hosts in response to that, who are obviously smart, well-read, experienced people on the topic of millionaires, mentioned off the cuff that in 195 previous episodes, no one had ever brought up investing in life insurance before. So it actually was episode 195, and I'll link it in the show notes. But 194 millionaires talked about how they built wealth. And spoiler alert, it was things like...

starting businesses, investing in real estate, investing in index funds. But they're not investing in insurance. It's just this myth pushed by insurance salesmen. So no, that is not true. Rich people do that and you should too. That is a lie. All right. Lie number eight, infinite banking. Be your own bank. This is how they say, hey, you can build up this cash value. And then instead of borrowing money from the bank, you borrow money from your own

cash value, which on the surface is kind of bizarre, because you shouldn't have to borrow your own money, you can just spend it if you want and put it back if you want. But there's like, again, a morsel of truth here, which is you can borrow against it for a fee, by the way, you have to pay the insurance company to borrow your own money. And then the cash value actually continues to grow at the rate as though it wasn't borrowed against. And so it actually represents a type of leverage. But a

Again, the devil's in the details. First of all, dramatically underperforming the market, the cash value will be so much lower, it just simply won't be worth it. So for example, in the analysis cited, if you were 15 years into this policy, you'd have a cash value, an IUL cash value of $42,000. The pitch says, hey, borrow most of that $42,000, use it to invest in real estate or something, and then the

the $42,000 keeps growing as though it's all still there. The problem is if you had put that into an index fund in a regular brokerage account, you'd have over $200,000. So you could take out $42,000, buy the home, cash,

cash straight up and you still have $160,000 growing as if it's $160,000 and you never have to pay a fee and you never have to pay it back. You can see I'm getting worked up because it's so crazy. And so this whole idea of be your own bank doesn't make sense when the math behind the whole parlor trick of these fees and the floor and cap don't make sense. So no, don't pay a fee to borrow your own money.

Lie number nine, you're doing it wrong. This other cash value life insurance is different. And every time...

I talk about this on social media or publicly. There are insurance agents who say, no, no, no, it needs to be max funded or you bought the wrong type of insurance or it's not properly structured. This myth of the properly structured IUL is like the unicorn that everyone knows. All the insurance salesmen have seen it, but no consumer has ever purchased it for some reason. The policy I received is 91 pages long. It's about half an inch thick.

And it's got a web of rules. And they love to basically say, okay, just need to change these rules and it'll be better. But no, that's not true. And, you know, these policies come in all sorts of different names, like there's variable indexed life and variable life insurance and whole life and permanent life and MPI and all these different types of permanent life insurance. But underneath all these names and all these gimmicks and all these rules, there's a very simple truth.

both the IUL and the index fund get their value from investments in the real world by buying the companies of the world.

And when you buy an index fund, it's a direct line from the growth of the companies of the world to your account. When you buy an IUL, it's routed through the insurance company middleman, where they have to charge you for their profit, charge you for their sales commissions, charge you for their fees, charge you for the cost of insurance, and whatever's left is then put into your cash value. And so no changing of those rules is going to

changed the basic fact that the insurance company is acting as a middleman and profiting because if they didn't, they would go out of business and they wouldn't exist. And so that is the beauty of index funds. It's a direct line with minimal fees. And that is why investing in permanent life insurance is never going to outperform the stock market.

And line number 10, it's just all the other little crappy stuff they don't mention. So to name a few things out of my policy, there's a $25 withdrawal fee. You'd never sign up for that if there was a bank account or even an investment account. There's a quote from my policy that says, we may delay paying you the cash surrender value of this policy or any requested withdrawal for up to six months after we receive your request. I assume it's not usually six months, but the fact that

They can just hold your cash. You know, it's not your cash. It's not your investment account. It's just you hoping the insurance company gives you money. They can also change the fees and they can change the caps whenever they want. So for example, the one I was sold was a 0.75% floor and a 13.75% cap. But my policy says we set each cap at our discretion and you will only be informed in writing of the current caps when you receive your annual policy statement.

And I've heard that many of these policies lure you in with very attractive sounding floors and caps. And then when you get your first annual policy statement a year later, suddenly it's not 13.75% anymore, it's 7.75% or something like that.

And the last kind of crappy thing is my insurance salesman straight up told me that I would get the cash value and the death benefit when I die. But in my policy, that's not true. You lose the cash value and you only get the death benefit. So you're paying for this death benefit every single year and you're trying to accrue cash value. But then when you die, you don't actually get the two things you've been paying for. You just get one of them. Whereas if you were investing yourself, of course, you would get both.

Okay, so those are the 10 lies. Hopefully, you can see through some of this that the sales pitch that you hear from the insurance agents or the insurance salesman is not actually as beautiful as what you get. So the question is, you know, one thing that the insurance policies do give you is a death benefit. Like I said, the insurance companies that back these are generally real, like established insurance companies, and the death benefits certainly would pay out. And so the question is, okay, what do you do about life insurance?

And my first answer to that is, first of all, ask yourself, do you need life insurance? Many of these policies I see sold are sold to people who don't have anyone who depends on them for income. And so if you are a single person with no dependents,

You simply don't need life insurance. You are better off just investing for yourself so you can build up cash so you hopefully won't need life insurance at all. If you do need life insurance, you can buy what's called term life insurance. It is dramatically cheaper. You know, you can get a half a million or a million dollars of term life insurance for like 30 or 50 or 60 bucks instead of paying 200 or 500 or 800 bucks for a permanent life insurance policy.

And so the general strategy suggested by people who understand this stuff, who aren't trying to earn a commission from you, is to buy the amount of term life insurance you need to cover you until your dependents no longer depend on you or until your investments reach a level where you die and would be a windfall to the people around you. And then with all the extra money that you're not sending to the insurance company, you invest. Buy term, invest the rest. That's what you do about life insurance.

All right. So there is my rant on IULs and the predatory marketing of these insurance salesmen that you see either in your network of acquaintances or, of course, on social media. Hopefully it sheds some light on what's going on inside those policies. That's the end of the rant. Now let's get into some questions from listeners. The first question comes from Syed from Texas.

Hi, Jeremy. My name is Syed, and I just got into life insurance and all, and I was wondering, what is the best method to find new clients, just to find people? How do I convince them? Because it is quite difficult. But what is the best method you have found to convince people what is right and what is wrong?

Well, thanks for the question, Syed. I don't know if he's kidding or not. To be totally honest, I make no secret of my dislike for investing in insurance. And it sounds like Syed may be a new young insurance...

insurance salesman who's trying to make commissions. And that's often how these, you know, salespeople operate is they are brought into these insurance agents offices, and then told to work their network of friends and acquaintances and family to sell them this policy. And you can see side seems to be hunting for that commission.

So, you know, first, if that is what you're doing, I would say get out of that business. Like, I don't like it. I don't think it's good for people. I don't think you should be doing it. I don't think you should be hurting people to make your own buck. I think there's ways to help people. But if I'm going to answer that kind of more genuinely, I think the best way to sell things is to

really understand the customer and help them. And so for example, if a single 25 year old person comes to you and wants to buy life insurance, I would try to understand their situation and ask why they want that. And you're probably going to recommend them not buy life insurance because they don't need life insurance. But you might ask them about their auto insurance or their homeowner insurance or other types of insurance needs that they might have and develop a relationship with that person. So over the next 40 years of your career, you can build a bank of business and have lots of, you know, great

customers who love you for telling the truth and helping them with their actual real insurance needs. So for example, myself, I'm a millionaire who spends lots of money on insurance. I have homeowners insurance, car insurance, health insurance. I have an umbrella policy, probably something else I forgot. And my insurance agent, I'm sure, is making plenty of money off me without having to misrepresent his product. And so that's why I'd recommend Syed is operate honestly with integrity, understand your customer, help them with their real needs,

Give them advice not to buy a product if it doesn't make sense to them. I think from that, you can develop real long-lasting relationships with customers and build a bank of business going forward. Thank you for the insurance question. All right, for the next question. This question comes from Nick. Let's listen. Hey, Jeremy. My name is Nick. I'm a huge fan of the Personal Finance Club. I'm also a huge fan of the Stay Wealthy podcast. I'm hoping maybe that you will create your own podcast too.

Cough, cough, wink, wink. So my question pertains to the three-fund portfolio. I know that bond market, non-U.S. international market, and a total U.S. stock market can make up a basic three-fund portfolio. I don't want to overcomplicate things, but I hear a lot of benefits on diversifying the principal part of the total U.S. stock market into things like growth or value-based investments.

index funds just to capture future returns and another bet against possibly inflation as well, too. Would just love to know your thoughts on this. Thanks so much for your time. Well, thank you for the kind words, Nick. And my answer to you on the podcast is why would I need my own podcast when I can do Taylor's podcast for free one month a year? I'm just kidding. Maybe I will have a show one of these days. You never know. We might even go on YouTube. Who knows? But to answer your question about a three-fund portfolio,

A three-fund portfolio is basically a total market U.S. index fund, a total international market index fund, and a bond index fund. And I think you're kind of conflating the...

concept of the three fund portfolio with just three other funds. Why not a growth or value? And the funny thing about growth and value is they're opposite, right? You can break down the whole market into two halves, growth stocks, which generally are more speculative stocks that might go up more in the future, and value stocks, which are hopefully underpriced and are going to perform better because you can buy them at a discount.

And, you know, when you pick both of those, you're not really doing anything except for getting yourself back to a total market. And when you're picking just one of them, you're basically just guessing, in my opinion, you're kind of like sector picking. And I don't like that because it's just opening up yourself to bad investing behavior, like chasing past performance. And a lot of times when I get questions like this, it's they,

based on things like, hey, growth stocks have done really great the last 10 years. Why don't I just buy growth stocks? And the answer is because it's not 10 years ago. We don't know what's going to happen the next 10 years. Starting today, maybe growth stocks can do terrible. And you can look at 2020

22, the current year for an example of that, where in the previous five years, these big tech stocks have been going through the roof and you can jump on all of the hot trends of the Netflix and Peloton and whatever is a hot tech stock at the moment. But when things turn, suddenly things change and the tech stocks crash the tune of 50, 60, 70% when the greater markets are only down 11 or 12% as of the day that I'm

recording this and hopefully by the time you listen to it, the market has rebounded. Great. We don't know. So my answer to you is no, I don't like that. I just think it opens you up to more risk, less diversification. You actually said I could be more diversified. That's not actually true. You'd be less diversified because those growth or value levels

funds or ETFs would be inside your total market fund. And so if you're buying just one, you're either overweighting that specific sector, or if you don't buy a total market fund, you're omitting some of the other sectors, which would be good. And so, yeah, I don't like that. I like sticking to the basic three fund portfolio. If you're going to do it that way, you know, Taylor has talked about there being some evidence that like

small value stocks outperform over long periods of time. I don't hate that. If you do that with a very small portion of your portfolio, like my personal 401k is 90% in a target date index fund and 10% in a small cap value just because I'm willing to accept more of the volatility by overweighting that portfolio.

that sector, hoping that what has happened the last 60 or 80 years with small cap value will continue to happen over the next 20 or 30 years that I care about. But you know, I'm not banking my, you know, not, but in the farm on that, I'm only putting 10% in there because the farm is bet on just the total stock market. So that matches you, Nick. Thank you for the fine kind words. Thank you for the great question.

That is all I have for you today. For the links and resources mentioned in the show, head to youstaywealthy.com slash 158. Thank you for bearing with me as I try to fill Taylor's shoes. And I'll leave you today with my two rules of building wealth. Rule number one is live below your means. And rule number two is invest early and often. See you next week.

This podcast is for informational and entertainment purposes only and should not be relied upon as a basis for investment decisions. This podcast is not engaged in rendering legal, financial, or other professional services. ♪