JF1998: Changing How You See Life-Insurance With Russ Morgan
Russ’s goal is to teach people how to build wealth without wall street. He shares the first step to building his client’s wealth by looking at the five pillars; Building cash flow, Cash Value, Real Estate, Business, and Lending. Russ will change how you see life-insurance when most people have the Walmart shopping mindset of paying as little as possible with the hopes of big returns, he suggests the opposite and explains an old secret in Whole Life Insurance.
Russ Morgan Real Estate Background:
- Started career in the financial industry, just to be in shock when the DOW Jones plummeted 800 points in 2008
- Now Russ, with his company Wealth Without Wallstreet, helps clients invest their money in something safer, develop financial strategies, and plan for retirement
- Based in Birmingham, AL
- Say hi to him at http://www.wealthwithoutwallstreet.com/
Best Ever Tweet:
“An Insurance Policy when somebody pays a premium, I kind of refer to it more as a deposit. When that money goes into an insurance policy, it’s going to have to buy life insurance. ” – Russ Morgan
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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff.
With us today, Russ Morgan. How are you doing, Russ?
Russ Morgan: Joe, I’m great, man. Thanks for having me on.
Joe Fairless: I’m glad to hear that, and it’s my pleasure. A little bit about Russ – he started his career in the financial industry, and then was in shock when the Dow Jones plummeted 800 points in 2008. We all remember that.
Now Russ with his company Wealth Without Wall Street helps clients invest their money into something safer, develop financial strategies, and plan for retirement. Based in Birmingham, Alabama. With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Russ Morgan: Yeah, Joe. It’s funny when we read those bios… It says “Shocked when the Dow dropped 800 points.” Now it’s just a common occurrence. We’re not longer shocked by that; that’s become normal. Our kids would read that and be like “Well, the Dow does that every other month.”
So yeah, I came from the traditional financial planning background. I was a CFP for many years, and I kind of learned (I guess) the wrong way to do things. It was not the best way to do it, but you’ve gotta learn one way; you can borrow and pay retail, and I paid retail, like a lot of other people.
Then thankfully, I started to think back to a lot of the clients I was helping, whether they were being successful, that they were being successful in things that they understood, not in areas that they didn’t, and that kind of led me in the path where we are. My business partner and I started a company in 2015 called Wealth Without Wall Street. Funny enough, we created a podcast first, and then our company name followed the podcast, but it really spoke to exactly what we did – teaching people how to build wealth. It had nothing to do with Wall Street. Not that we’re against Wall Street in any fashion; we have people that obviously invest in that world, but… First and foremost, invest where you know; most people just don’t understand that, so that’s not where they invest.
Joe Fairless: Well, teaching people how to build wealth – I wanna build wealth. That sounds like fun. What do I need to know about how to build wealth?
Russ Morgan: Well, first, our processes usually fall into five pillars. That’s the way we refer to it. And we start with cashflow. It’s an old strategy, where you actually figure out how much money you have coming in and how much money you have going out. A lot of people don’t start there, Joe. They literally just go to the top of the pyramid and they say “Hey, what’s the most speculative thing I can get my money in?” and they start chasing those gains… And that’s the way to lose money. Warren Buffett always says “The best rule of investing is to not lose it”, so we start with building cashflow, building budgets around our money, finding ways that we can avoid giving a dollar away that we don’t have to, and that starts with better tax strategies.
A lot of our clients are typically frustrated with the amount of taxes they’re paying, so we work on that, get that right. Then they start working on “Well, where’s my dollars going that I don’t get access to?” It may be in 401Ks or IRAs, and they start redirecting those accounts. Then they start moving up the ladder to invest in any things they can control, which would be things like their businesses, their educations… And then secondly they start investing in things with collateral, and obviously that’s where real estate comes in, that’s where people wanna invest in other businesses, or start doing private lending. And ultimately, at the top of it, as I mentioned before, is speculation, and we do have clients that do that… But typically, it’s in smaller quantities, and not the money that is gonna make a difference in their life.
Joe Fairless: Alright, I wanna make sure I have those written down. Will you go through quickly just those five again? Because I got some of them down, but I wanna make sure I’m writing them all down.
Russ Morgan: Yeah, so the five is Cashflow, and that consists of lots of other things. Where they stick their cash; kind of a saving component. Now, our company is big and using cash value life insurance as a tool. Then going into kind of a controlled aspect, which is dealing with things like real estate, and then on top of that, that’s when you get into speculation.
Joe Fairless: Okay. Cashflow, savings, control aspect… What was the fourth?
Russ Morgan: The fourth is speculation.
Joe Fairless: Okay. Aren’t there five?
Russ Morgan: I’m sorry, I compound two things. So the five pillars is cash (like cashflow), cash value, then real estate, business, and lending.
Joe Fairless: Oh, shoot. Okay, alright. Got it. So those are your five pillars: cashflow, cash value, real estate, business and lending.
Russ Morgan: That’s right, yeah.
Joe Fairless: How do you make money?
Russ Morgan: How do I make money – two different ways we make money. We set up our clients with those cash value life insurance policies; that is the primary, core business model that we have. The second is we built a membership community, where people come in and they’re trying to learn that strategy among many others, whether it’s real estate ownership and businesses, or doing private lending. So we have a membership side as well.
Joe Fairless: Okay. And what investment are you most proud of personally?
Russ Morgan: I’d say business. For us, our business is made up of a couple of different areas. One, I’ve mentioned before that we do have an insurance business as a whole, but we’ve grown that business over the last two and a half years almost 300%, and it’s through avenues just like this – doing podcasts… We have a podcast ourselves, and that podcast has led us to taking a traditional business that was [unintelligible [00:06:25].12] like most financial business are, to now kind of an online platform.
Joe Fairless: Cash value life insurance is something that I imagine is challenging to explain… Or if not challenging to explain, then it’s challenging for you to overcome people’s barriers in their mind about that. First off, is that a correct statement?
Russ Morgan: Yeah, definitely. What we’ve learned is so much harder to unlearn, than to not have any exposure to it and to try to learn from the beginning.
Joe Fairless: So, disclosure – I’m not with you all, because we’ve just met, but I have a cash-value life insurance policy, so I’m aware of it and I’m a proponent of the concept…
Russ Morgan: Nice.
Joe Fairless: So what are the ways that you go about — well, I guess first let’s talk about what is it. We’ll start with that.
Russ Morgan: Life insurance as a whole – everybody knows what that is; you buy something that protects you in case you die. We all have that guarantee, but nobody buys the kind that will mostly pay off when that happens. The type of insurance that we use is a specifically designed life insurance contract with a mutual insurance company, meaning that the policyholders are the owners of the company, so any dividends that are paid, are paid to them. And we use whole life insurance, which is just one of the oldest insurance policies out there; it’s just a big, huge savings tool that acts a lot like a bond, a Treasury, a really high-entry savings account.
Joe Fairless: Okay… And why is it special?
Russ Morgan: Well, the special part of it is really in the design, Joe. And obviously, if you own one, you know a little bit about this… But the way that most people life insurance – they have kind of a Walmart shopper mind, where they literally wanna put as little money in and get as big of a death benefit as possible. Well, we do exactly the opposite. We literally try to sell people the most expensive life insurance policy they could buy. We try to put hundreds of thousands of dollars in and try to get the smallest death benefit that the insurance companies and the government will allow us to do it. That creates big, huge cash values, which – most people don’t understand that term, but just think about it as cash. You look in your checking account and you see cash.
I look inside of my insurance policies – they title it cash value, but it’s the same thing. When I call the insurance company up, I get the money deposited into my account like I just did yesterday – it’s something that’s really easy to do. Then I use it, whether I wanna invest in a piece of real estate, if I wanna invest into our business, I wanna buy a new widget, car, whatever it may be – I use that tool that way. The difference is that most of our cash is going through somebody else’s bank, which is the one on the corner that we all know and use, and they’re convenient to us; they give us suckers or Dum Dums whenever we drive by for our kids… But for us, we wanna have our cash at work, and our cash at work can earn 2%, 3%, 4% interest.
Joe Fairless: So you’ve got the cash value of $100,000, and you’re able to get access up to, say, $90,000 or so year one, instantaneously, and borrow against that, while that amount of money is still making a return while you’re borrowing against it, correct?
Russ Morgan: You’re hitting the nail on the head, and that’s probably the thing that excited me the most about this, Joe. Like I said, I started from a financial planning background, so… The first time I ever heard this I was at a conference in New Orleans back in 2005, and the guy who was explaining this had written this book called “Becoming your own banker.” I heard the word “life insurance”, and I thought “This has gotta be the worst idea I’ve ever–” right? Like, who would ever do that? And then he said the word “whole life insurance”, and I thought “Man, these guys are really slow around here, because my grandma may still have one of those policies, but nobody else.”
So it took me a while to get my arms around the fact that yes, my cash needs to stay at work, and every time that I would go buy something – before I started implementing this in 2009 personally – I would just take cash out of my checking account. Then that cash would be invested in whatever it was doing, but it no longer was at work, obviously, in my checking account. But what you said is what I didn’t understand; real estate investors use it to get the power of leverage, they understand the power of other people’s money… But yet, when they use dollars, they don’t actually do that. So whether I borrowed 100% of the money to go buy a piece of real estate and it starts producing cashflow, what do I do? … I stick that into my checking account. Then when I spend it, I’m spending cash that no longer can earn a dollar for me again.
But when we stick it in these insurance policies, just like you said, that insurance policy continues to earn for the rest of my life, or whoever’s life that the policy is put on… Because I can own policies – and I do own policies – on four other individuals; I guess more than that, since I have four kids… My wife, my business partner, and then [unintelligible [00:11:15].07] Seven individuals, I guess, other than myself. And I can borrow against those dollars, and now have the real estate, or business, or whatever my money is at work in, as well as I’ve got the earnings in the insurance policy.
When somebody really kind of put those things together for me, I had that a-ha moment that I was like “Boy, I wish I would have not been so stupid five years earlier.”
Joe Fairless: For me, it was a very challenging concept to grasp. I read two books… One for sure; I think I skimmed another book… And then I had many conversations. I interviewed probably ten people just on the podcast. Not because I was looking at it, but because I happened to interview guests who were focused on it… And I shared this information with a couple people who were more financially savvy than I am, just to make sure I wasn’t missing anything… And then I eventually signed up.
So in terms of how to build a business around it – let’s talk about you from a business standpoint… Someone says “You know what, Russ – this looks great. I’m in for a $100,000 policy.” How much money can you, as a business person who’s offering this to them, make on $100,000?
Russ Morgan: Do you mean me as a life insurance agent?
Joe Fairless: Yeah, because that’s one of the ways you make money… I have no idea – perhaps I should – how much you’re making in this.
Russ Morgan: Yeah. I’m gonna pull out a pen, because I don’t do the math that way, but… The way life insurance is paid – it’s paid through a commissions, and then there’s renewals, which is a beautiful thing. We’ve created a renewal business that creates revenue just like if I bought a piece of rental property.
So an insurance policy, when somebody pays a premium — I hate that word, “premium”, because I put unleaded gas in my truck; I don’t put Plus, I don’t put Premium… But insurance companies use that word “premium”, and I refer to it more as a deposit. When that money goes into an insurance policy, it’s gonna have to buy life insurance. A portion of the money that you put into that policy is going to buy life insurance. Now, it’s hard for me to give you a specific number, because —
Joe Fairless: Ballpark.
Russ Morgan: …whether you’re 30, or 80, in great health, in worse health, and whatever. In most situations, the average client that we have would come in and (say) put 100k year one, and is probably gonna put somewhere in the neighborhood of 25k to 40k a year thereafter. That’s a very typical scenario. And then at some point in time that number would even drop down either to zero, or maybe a much smaller number. In most situations we probably in year one make somewhere around 10k.
Joe Fairless: Cool.
Russ Morgan: And that kind of goes back to your point of… The way that we would design it most likely in year one – that person puts in 100k, designed the way that we would do it, but have access to borrow against probably somewhere in the neighborhood of around 85k of that 100k.
Joe Fairless: Does that 10k approximate profit increase or decrease over the years for you?
Russ Morgan: Oh, significantly down. At year two we’re getting probably about $2,500 maybe, down to $2,000. Somewhere in that range… Which is what is funny to me, because I’m always so transparent about the money part, because that typically is — people read about life insurance and they say “Oh, that’s just this big, huge commission. No wonder those guys who are selling it live in such nice houses”, or whatever it may be. People hear me about being down at my lake house, and they’re like “Oh, that’s how you pay for it.”
Joe Fairless: [laughs]
Russ Morgan: My wife was a dentist, and they’re like “Oh, what kind of car is she getting in? That’s the reason she told me I needed that crown.” But the reality is that you add up the math… So let’s just say somebody over a ten-year period of time gave us $325,000. That’s $31,000 over a ten-year period of time, on 325k, right?
Joe Fairless: Mm-hm.
Russ Morgan: What is that…?
Joe Fairless: That’s $3,100/year.
Russ Morgan: Yeah. So we start adding that up and we start comparing that to the typical investment fund that exists out there, and you start seeing “Okay, well the first year the person had 100k, the next year they had 130k…” You do that at 1%, and you start adding that up every single year. Do you know what happens at the end of year ten? You compare the two numbers and they’re usually about the same at year ten. The difference is after year ten, those renewals and things like that go away for the insurance stage… But they just keep getting bigger for the investment advisors… Except we’re doing the same thing.
So it’s funny that, again, there’s a lot of that on the front-end, but on the back-end it becomes a lot more time management and helping them… Which is fine, because our business is built that way.
Joe Fairless: And if someone puts in 100k year one, why would they want to, in subsequent years, put in more money? Why not just leave it at the initial 100k?
Russ Morgan: There are rules that govern the way these insurance policies are created, and it actually goes back to real estate. It’s funny how everything is connected to real estate… But you may know this – some people don’t; I didn’t know it early on… There were a lot of rules governing the way corporations could operate back in the late ’70s, early ’80s, and it allowed people to actually buy real estate in corporations. And because of the way that tax laws work, they would literally go buy properties that could be negative cashflow, but because of the write-offs with the corporations, they could technically through the tax laws create a profit. I don’t know if you knew that, but that existed.
Joe Fairless: No, I didn’t…
Russ Morgan: So of course, the legislation changed on that, and it changed the way those corporations could be taxed. All of a sudden, those loopholes got changed, or tax codes got changed… So there sits all these real estate investors – and obviously, the tax attorney have to find a way to make money, so they start looking around and try to figure out “Well, where can I put money that has a lot of benefits?” And at the time, life insurance had the ability where you could do exactly what you said; they could take a big, huge lump sum of money, just dump it into the life insurance policy – they call that a single-premium policy – and they knew all the benefits of the life insurance, meaning that once it got in there, it no longer would be taxed. And if they took it out in the form of a loan, it would stay tax-free. And when they died, the death benefit would be income-tax-free to their heirs.
At the time, in the early ’80s – as we all know, that’s when we had super-high inflation, we had interest rates of 12%, 13%, 15%, crazy things, so these insurance policies were earning 8% to 10% tax-free. So for somebody that was in the 50% bracket – which most people by the way don’t realize the top bracket in the early ’80s was 50% – do the math; somebody earning 8% to 10% after-tax was equivalent of earning 20%.
So this was a really big thing. Well, of course, that didn’t last very long. There were two laws that were passed [unintelligible [00:17:55].29] in the early to mid ’80s, that then changed that rule. Long story short – in order for it to be a “life insurance policy”, somebody has to pass a seven-pay test, and that means money has to go in in a very systematic way over seven years in order for it to qualify. So someone can’t just go in and dump 100k in in day one and then say “Okay, I’m done”, without having to then have the rules that govern 401Ks and IRAs happen to them. And our clients are trying to avoid those rules, meaning they wanna access the money without paying penalties before 59,5… And ideally, they don’t wanna pay the tax when they get the money out, so they wanna pass that seven-pay test.
Joe Fairless: Seven-pay – does that correspond to seven years, in this example?
Russ Morgan: Exactly, yes. Seven years is the seven-pay.
Joe Fairless: Okay. And are there any advantages to the policyholder to do it after seven years?
Russ Morgan: Well, it’s funny – that’s a very common answer; most people think of “I wanna stop paying it”, because like we said earlier, it’s a premium, so we think of that as an expense… And early on, people’s mindset is that way, Joe, up to date, I don’t have anybody that stopped. I’ve been doing this for the last ten years, and once they realize it’s a deposit — if you put a dollar in your bank and they added $1,5 to your account, when would you ever stop putting a dollar in, if you had the dollar? You probably wouldn’t, right? You’d just keep doing it.
Joe Fairless: Right.
Russ Morgan: And that’s what happens with these insurance policies. Once you realize “Well, I put a dollar in in year one and I got 85 cents.” If that happened every year, I wouldn’t wanna do that. But that only happens the first couple of years and then I start putting a dollar in and a dollar shows up, and then it starts slowly becoming more than a dollar. So if I’ve got money coming in from, say, rental property, and say my cashflow is 150k for the year – well, I’m gonna consume most of that money, especially if I’m no longer working and that’s my main stream of income, it’s gotta go somewhere.
Well, if I had an insurance policy, for instance, that I could put 150k into, I could pay the premium (the deposit) into the policy, and then I could turn around and take it out in the form of a loan or a withdraw and use it to live on. Well, as long as I’m doing that and it makes financial sense, then I’m gonna keep doing it.
So most of our clients get that, they go on and it’s like “Man, this is really just a cashflow management tool. It’s no different than putting it into my checking account; I’m putting it here.” Now, it takes a while to get to that point, that’s not day one, but that’s what they get to, and it’s like “Oh, okay. Yeah, I’ll keep doing it.” But there are the options, as long as they buy the right types of policies – whole life in particular – that they literally could stop making a premium, they could stop making a payment, and their cash value would still grow. It would grow to equal the death benefit, because that’s [unintelligible [00:20:40].15] created to do.
Joe Fairless: When you’re at an event and it’s maybe a happy hour, and you have not spoken at this hypothetical event, so they’re strangers to you – you to them, them to you – and they say “What do you do?” and you mention this concept, I imagine you get some whacky looks from people, and dismissive comments. What is your approach to those comments and looks, if that is the case?
Russ Morgan: Well, first of all, I probably don’t have that conversation with them…
Joe Fairless: Yeah, you don’t even try to do it. It’s too much.
Russ Morgan: I don’t, because our business is online, so I don’t do that… But I have had those conversations, and it’s very common, Joe — again, it goes back to what do you know. And I always see this as a means, not the end. And I think that’s where people get caught up – they think “Why would I ever put money into an insurance policy that you say earns 3%-4% when I’m earning 25% in my real estate deals, or I’m earning 1,000% or an infinite return in my wholesaling deals?”, or whatever it may be. And I say “Well, that’s what you wanna get to, but your cash has to come from somewhere.” So if you and I came by the same investment and earn the same rate of return, it really comes back to “Okay, where did your money come from?” Yours came from a checking account, mine came from an insurance policy. If I can earn 3% a year and you earn zero, who do you think is gonna be ahead in the long-term?
That usually is a starting point, but there’s a great video I always refer to people to go watch if they haven’t seen it. It’s called “Backwards bicycle.” Have you ever seen that one?
Joe Fairless: No, never heard of it.
Russ Morgan: Oh, it’s amazing. It’s a seven-minute YouTube video; I don’t know if you have kids or not, but I would totally tell you to watch it, and if you have kids, let them watch it. They’ll love it. It’s a guy that happens to work as an engineer. He was trying to teach a point that we have these biases, and we have to know that as we go into things. So what he did is he took a bicycle – actually, the engineers that were working with him created this bicycle that when you turn the handlebars left, the wheel turns right, and when you turn them right, it turns left. So you’ve grown up riding a bicycle, you think “I can figure this out. I’ll power through it.” And he traveled all around the world, proving to people that literally you cannot make one revolution on the chain without falling off. Our brains are not built to do it, and that’s the concept, that a lot of people have learned things one way, they have this cognitive bias, and their brain is kind of in that rut… So sometimes you have to show them there is another way, but they’ve gotta be willing to learn, and if they’re not willing to learn, it doesn’t matter.
Joe Fairless: I will be watching that at the next break, in between my interviews. I’ve already got it up on YouTube. That’s gonna be a fun video, it looks like.
Taking a step back, what is your best advice ever for real estate investors?
Russ Morgan: Best investment advice ever for real estate investors… Follow your actual knowledge in it. Don’t invest in things just because you think others are doing it and they’re doing it well. Follow what you know, and if you don’t know it, go learn it before you do it.
Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?
Russ Morgan: Let’s do it!
Joe Fairless: Alright. First, a quick word from our Best Ever partners.
Joe Fairless: Best ever business deal that you’ve done?
Russ Morgan: Best ever business deal… The partnership that I created with my business partner about four years ago. I left another business opportunity and our business has exploded since then, and it was because I started leveraging somebody else’s talents in areas that I was deficient in.
Joe Fairless: What have you lost the most money doing?
Russ Morgan: Bitcoin, Ethereum, money machines… Things like that.
Joe Fairless: I thought everyone became Bitcoin billionaires with the Bitcoin stuff… What happened to you?
Russ Morgan: I bought the miner, thinking that was gonna be the way, and I bought them right before everything plummeted, so the money I spent on them — obviously, I knew they were gonna go down in value, but when the amount of money that they’re profiting every month is less than they cost to maintain them, it’s not a good idea.
Joe Fairless: Best ever way you like to give back to the community?
Russ Morgan: My wife and I are part of a program called The Fellows Initiative, that’s associated with the church we go to. It’s a leadership and development program. It’s a nine-month program that the students that go through it have to have a host family, so we hosted one of the people from that course for the last three years in our house.
Joe Fairless: How can the Best Ever listeners learn more about what you’re doing?
Russ Morgan: WealthWithoutWallStreet.com. We’ve got a podcast (Wealth Without Wall Street) and other things that we do and talk about are there.
Joe Fairless: I enjoyed our conversation. I didn’t know what we’d be getting into, and I’m glad that we got into the cash value life insurance policy stuff, and just talking about the details there… So if anyone is not aware of it, now you are. And if you were aware of it, you were probably confused about it… Be honest. As I still — actually, I’m not confused on it; I’ll give myself some credit. But it took me a while to grasp the concept.
And I forgot to mention, after doing all that stuff, one important part of what put me over into the category of doing it is an investor friend of mine. He invests with us, and has done so for a while. He did it, and he’s like “Hey, you should be doing this”, so I was like “Alright, fine.” After all the research, a good word of mouth from someone.
I enjoyed our conversation, Russ. I hope you have a best ever day, and we’ll talk to you again soon.
Russ Morgan: Alright. You too, man.