The Backup Plan

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future money trends: greetings and thank youfor joining me at futuremoneytrends.com. i'm here with garrett gunderson. he’s with freedomfasttrack, and he’s the author of killing sacred cows: overcoming the financial mythsthat are destroying your prosperity. garrett, thank you so much for joining us today. garrett gunderson: yeah, i’m looking forwardto the conversation. future money trends: garrett, ever since iwas a young boy i always knew something was wrong with the 401k. it’s people like youwho actually go out there and show people what’s wrong with it. i noticed in yourbio, on your website, that it talked about how conventional finance advice is more thanjust wrong, but it’s actually a hindrance

to your wealth. so my question is, “whatis wrong with the current mindless model of automatic deductions into the 401k account?”according to dave ramsey and others, not to bash him or what he does, they talk aboutputting it in mutual funds. it will be 12% and at the end of the day you’ll have alarge number, like the ing commercials, you know a big number to draw off of. garrett gunderson: you're right. i would startby saying that i’m not a fan of mutual funds, and i'll say why. but the way that you canmake mutual funds even worse is to put it inside of a 401k. now i start with two questionsany time someone's doing a 401k, or wants to know about it. i say, “do you think taxesare going up or down?” and what do you think

most people say? and i'll say do you planon being more or less successful in the future, and pretty much everybody says more successful.and i have to tell you, they better be because inflation is going to be so tough on them,that if they don't have a lot more money than they think they need, then they're going tofind themselves with so much less purchasing power. so how in the world are they goingto be in a lower tax bracket, unless they have more tax deductions, which is unlikely,or they have a whole of a lot less money, which isn't a good situation. it's almostlike the financial planners, like some of the ones that you've named, are admittingthat their planning for failure because they're telling them that they're going to have alot less money in the future. well thirty

years ago if we asked someone what a goodamount of money to have in the future would be, they might say a half a million dollars,or maybe they were extreme and said a million. but i'm telling you, if you can't earn anotherdollar other than your retirement account, and you live off that for thirty years, fivehundred thousand or a million dollars isn't going to get you anywhere. especially whenit's sitting inside a 401k and it has yet to be taxed. i really think the governmenthas their eye on that. i don't care what political persuasion we're talking about. there's arepublican in new jersey who said, “i don't know why we're concerned about the tax deficit,we haven't even hit the 401k's yet.” and so i think it's a sitting duck, and it's actuallyfbl, which means it's for your benefit, meaning

you're not the owner, you're the beneficiaryof the plan. you've now given your money 100% to the government, and they can choose whatthe rules are going to be upon distribution. future money trends: yeah it’s very scary,it’s like taking a loan out without knowing the interest rate. a lot of people will listento what you just said and say, “hey that makes a lot of sense garrett, however my companydoes a 401k match.” what do you say to people who get up to 100%, such as some of thesegovernment workers, in their 401k plans? garrett gunderson: first i would ask them,when do they get that money? if they've put money in and it get's matched, number oneis it vested? or when is it vested? number two, is if taxes go up, and we look at thetax history. so from 1913 until today, there's

really only been about a decade where taxeshave been lower than they are even now, because the average marginal rates in the top rate,in the 66% range. and today it's a good 20, 30% lower than that. so yeah, maybe you geta match, but what happens when you take that out? and what is that match really doing?there's kind of this match myth, even time magazine had an article that said wise timeto retire the 401k. and it showed that when you put money in and it gets matched, theolder you are and the less sufficient it is, and it's not actually a 100% rate of returnbecause they haven't matched your old dollars. so that match dollar might only really makea few percentage difference over a really long period of time. and here's the biggerconcern, we don't know what the fees are inside

of that program that start to eat away atthat match, because they haven't been disclosed since... finally there's legislation makingit become disclosed. the next thing is, you don't really get that money until the future.so what happens if the market doesn't perform when you go to get that money? did you reallyget to enjoy your benefit from that match at that point? or even worse, because you'vebeen enticed to do something that maybe wasn't the best for you, what if there were otherthings that were more important, or better opportunities, but now you've lost your moneyup in to that program that you couldn't get access to? so there's just too many uncertainties.and i think it's harmful, this mindset of free money. nothing's free, there's majorcosts to putting that money in there, even

if there is a match, and if you're with asmall enough employer you can probably convince them just to pay that much so you can manageyour money on your own. and we've seen people do that over and over again. now big corporationsmay not be as flexible, but i'm telling you it's not what most people think it is. ifthey really put the math to it, and if they saw what other alternatives they have... imean, maybe getting a match one time might make sense, but why get in to something ifyou don't know how to get out of it? or if you don't know how it's going to perform,or what risks you're taking. there's just too many unknown variables. future money trends: garrett does your dislike,and exposing problems to the 401k expand to

the roth 401k and the roth ira? garrett gunderson: i guess i don’t haveas strong a feeling, but i still wouldn’t put a penny of my money in it. because ifyou read the fine print of the roth it says it's tax deferred and, under certain circumstances,can be withdrawn tax free. what that means is, they could add a sundry tax that wouldsay if you had too much money in there, or such x, y, z distribution in a given year,they might choose to start adding taxes, and they reserve the right to make the changes.so what i like more about a roth is you can specifically maneuver quicker, get the moneyout, and you get your principle back without tax or penalty. so you may only be payingthat penalty on the interest or the additional

tax money interest you earn if you withdrewit early, so you have a little bit more flexibility. but still what are you investing in insideof this roth vehicle? and who controls it? it’s still the government. and what differentfees would be involved in the administration of that wouldn't be involved in some othertype of investing plan. so it's kind of like it only has 70% of the problems, instead of100% of the problem. future money trends: yeah, it’s such a mindlessactivity too. i know people with old 401k’s from old employers that don’t even knowwhat’s in them. from all the people you’ve talked to, how many people actually know whatthey’re investing in? garrett gunderson: i can’t even think ofmore than a handful that are crystal clear

about it, unless they went self-directed,and then they specifically chose the investments. but neil ka buto interviewed me because ofmy position on 401k's. i thought he was going to take my side, he actually didn't becausehe said it was mindless, and he actually listed that as a benefit. and he said it should beonerous to get to our money, and i was baffled and i actually thought he was joking aroundor playing devils advocate, but he wasn't. he was serious about it. so most of it's mutualfunds, and here's the problem with the mutual fund. if the market's going down, like jeffry'sin it, he managed the magellan fund in the 90s, and he knew that the market was goingto have some turmoil and trouble, so he moved everything to cash or bonds. well he get fired,and fidelity got sued, because it was a gross

fund, and you can't move out a gross stockeven if it's not the right place to be. so they get their fee whether you make moneyor not, yet they're teaching us to take high risks to get high returns. but they take almostno risks, and they get the returns whether the market performs or not. i think they'replaying by different rules than they're teaching, and that mutual fund holds a bunch of companiesthat people might not ever want to support. they don't know what's going on in the boardrooms of those companies, they don't know why it would earn a rate of return, and theydon't even know who the fund manager is. that's a lot of risk, because we're so far removedfrom that investment. but they've convinced us that enough people are doing it that it'sjust the safe, right, thing to do. i mean

the talking heads might say, “oh yeah, itsgoing to average 8% over the next 20 years.” well how do they know that? that average isn'teven a reality. that's not taking in to account volatility, or fees, or anything else, andthe fees are astronomical in most of these programs. mutual fund fees plus the adminfees for the 401k, that's a double dipped essentially on your money. future money trends: you’ve mentioned thefees, which is a huge part of why this is wall street’s cash cow. i wanted to askyou; essentially you have the american middle class buying on the first and the fifteenth.they’re basically bringing in fresh buyers for the stock market traders. there’s someoneon the other side of that trade. have you

seen any numbers or data how maybe there isanother way wall street is cashing in on this thing besides just the fees? garrett gunderson: if you think about whythe 90’s happened, as far as a big run-up in the market, it's because you were ableto track a ton of people's money that weren't ordinarily putting money in the market. becausewe went away from pensions, which i think is maybe a good thing because i think pensionsare the worst thing, they make a 401k look minor in problem. but now that people hadto start contributing to this, it was pretty predictable where the money was going to go.some of it's going to go to the smp 500, and so there were people who profited massivelyoff of that. and i kind of look at it like

a poker game. and as a poker game, we're sittingat the table with these institutional investors, these hedge fund managers, but we don't knowthat's who they are. and what happens is they let us win just enough for a few years, orfor however long, and then one day they decide to play their cards, and they take all themoney. and what happens is the news reports that as a loss in the market, but it's nota loss. money doesn't evaporate, it transfers hands because of an ignorance tax. and 401k'sare one of the best ways to get people to participate in this ignorance, or this transferof wealth, because we don't know what's going on because of this auto-pilot philosophy.and when you think about it, it's the most brilliant things the institution's have everdone for them, not for us. because number

one, not only do they get your money to invest,they get the government's money, because it's pre-taxed. if they want you to keep the moneythere as long as possible, well they've got restrictions. and they use the word penaltybecause people are afraid of that word, so they don't want to take money out. so nowthey've got the money in even longer, that restriction lasts until at least 59 and ahalf, they're talking about extending that. and when people go to take the money out,they hated paying taxes, that's why the put money in the program. they still hate payingtaxes in later years, so they never even take it out, and if they don't take it out by 70and a half, they get levied with a 50% penalty on their minimum required distribution. thisis a work of art, and it's like a deception

beyond belief that people have fallen preyto this thing. because it takes only a little bit of critical thinking to go, “why ami doing this?” people have money go down the drain in this, but they don't open theirstatements because their neighbors are doing it as well, and they go, “oh that's justwhat the market does.” well other people have, like paulson's making $25 billion whensomething happens in the market where it goes down and these other people think everyoneelse is losing. no, some people are gaining that are in the know, and people in the 401k'scontinue to stay ignorant. future money trends: okay, you brought upsome great points, things that i’ve never even considered. for instance, as far as moneygoing to 401k’s, it is not going to something

else. who knows what people could be buildingor doing with this money. this leads me to ask what are the alternatives that you suggestto people, instead of contributing to a 401k? garrett gunderson: here’s the problem too,let me give a little more philosophy for the practical people here. if we watch cnbc forexample, when i was on cnbc they didn't invite me back because they didn't like what i hadto say because it was against their advertisers. but everything's complicated if you watchit, and listen to it, for the average person. i mean heck, i'm in finance and sometimesi'm like, “what are they even talking about right now?” but then every commercial'sabout retirement planning. so what they're getting people to think is investing equalsstock market, retirement equals stock market,

like it's synonymous. there are no other optionsand because, as far as people are concerned that's what investing is, they don't evenconsider other alternatives. but even more important than that, is they don't take careof their stability and securities today, in the name of funding a 401k. so rather thansay, “do i have the liquidity in my saving? do i have a little bit of precious metals,like gold and silver, inside of my safe? do i have the proper types of insurance, on thecatastrophic levels, that i can transfer my risk so that when some financial surprisehappens, which is inevitable in our lifetime, it won’t be financially devastating?”people don't think about those things first because they think they need to chase some...get the compound interest working, that the

sooner i can get money in the 401k the better.and because of that deception they end up robbing from it anyway because they have tohandle short-term cash flow pinches when these surprises come out, and start to become financiallydevastating. and so it's really even worse than what we originally think of the marketunderperforming, the fees that are involved, when we look at the behavior of the individual.because they didn't take care of themselves properly up front, they end up having to utilizethat, and pay interest to get to their own money, or pay a penalty to get to that moneyplus the taxes. so they're really at a disadvantage the first day they put the money in this,before they've got six month's liquidity in their savings, a little bit of insurance,not like...i'm just talking about catastrophic

coverage that limits their liability, likeupper-limits on a health savings account. just for stuff, that if there was a majorthing, that they are not completely devastated. and if they start there then they can startthinking about investing, but a 401k should be the last place they put it. because itdoesn't benefit them today, it doesn't create more cash flow, it doesn't create more certainty,it for sure doesn't create more stability, but definitely doesn't create more liquiditybecause there's so many restrictions and rules. so i know i went off on a little diatribethere before i get to the answer, but that's step one – stability, and security, andliquidities today. future money trends: real diversification,obviously you’re right. everyone hears the

word ‘diversification’ and they thinkit’s a balance between bonds, stocks and mutual funds. but you’re talking about cashflowing businesses, cash flowing real estate, physical things in your own life that youmanage and control, correct? garrett gunderson: yeah. for me i have oneinvestment, it’s my company. and i put my money in to that, and when i don't put mymoney in to my company i just keep it liquid. because here's another lie, it's ok to bein cash. because we think we always have to be invested. seasoned investors will sit oncash for a time until they know what to be invested in. they don't just see the firstopportunity and jump on it. and everyone has to learn their investment dna, where do theyhave knowledge, and where do they have interests?

i know that there's some technology that'sgoing to be a good investment, but i don't invest in it because i don't keep up on technologicaltrends, and i don't have any level of genius around technology. and i don't want to bea daily money manager of my own dollars, but i want to be responsible for any money thati invest, to know when it's a good time to sit on cash and be on the sidelines. mostpeople can't answer that, which means they shouldn't be investing in things that haverisk and volatility. they should stay in more stable, more guaranteed, things. so i investback in to my business, and i even got out of real estate just because it was too muchof a distraction. but if someone's really great at real estate, they have a passion,they have a knowledge, that can be a great

asset because they have a little bit morecontrol over what value they create with that. if someone's not good at that, they shouldstay away from it. but you know what? in my business, when i invest in it, i can increasemy cash flow, i can increase my equity, and i can see what's going on in that boardroomand have influence over it. you don't see apple, when they're sitting on a bunch ofcash flow, going, “we need to diversify this money by just putting our money in thefmt500, or putting our money in to the dow.” they go instead and say, “we’ll sit onthis, and we'll buy companies that we can actually do something with, or we'll re-investin to our company.” and you know the time they finally start really using that cashis recessionary times where everybody else

is in a little bit of a cash crunch, and theyscale back, and they pick up major market share. that's the difference in investingin reality, versus investing as an individual that's taught and trained by people that makemoney on transactions, not on real investing and big philosophy. future money trends: yeah it’s such a greatpoint you’ve brought up right now. even in my own life i’ve struggled with thatdesire. we’ve all been conditioned, apparently you’ve broken free completely, to make moneyand then re-allocate that, and distribute it to other investments, besides where youmight be making money in which could be a great business. i want to close this out withretirement itself. this is a 20th century

invention, pretty much, and i don’t knowhow it is going to work out for baby boomers. it looks like not going to work out at all.the idea of golfing and endless vacations is not going to happen to them. i just wantto know how do you see your life playing out. do you think of retiring, or do you just keepdoing what you do, since you obviously love doing it? garrett gunderson: i think states like californiaand illinois are about to implode because of this retirement philosophy. where theywork somewhere, because they felt that there was some golden handcuff called a pension,that one day they can go and live the good life and retire. but you know what? there'sonly so long i can sit on a beach. i went

to hawaii a few weeks ago, it was fun, buti was ready to come home. i enjoyed it then i came back to life. i'm taking mini vacations,like i'm heading to italy and venice next month, venice, italy, and then to monaco,next month for ten days. i'm just living what most people wait for thirty years today, andthen i come and i enjoy my work when i come home. and i invest in the things that i reallyenjoy and that i love, and that i really want to be part of. and see, why not do that? becausewhen people retire they lose control over their money because they no longer earn it,they're reliant upon the markets to earn it. they don't have the quality of relationshipsthat they thought because now they're afraid, because interest rates that don't cooperate,they might not have as much money to do the

things that they wanted to do. so they mightstart cutting back which can hurt relationships. or they lose purpose, they lose that excitementfor life, and it can really hurt their health or what their enjoyment in life is. so i'malready living what i would consider retirement, i just hope to do it more and more efficientlyyear by year. but i build memories along the way, because you can never get back the memoriesyou never have. and i had two business partners die when they were 35 years old, a plane crashed.so i'm not about to wait until i'm 65 to finally enjoy life, when maybe my body starts breakingdown, or i don't feel like travelling. i'm doing some of that along the way. but retire?no way. i retire by retiring from the things i hate doing in my business and finding thepeople that like that. and building a business

allows me to express my passion and my purpose,and my enjoyment, and at the same time financially reward me for it. future money trends: phenomenal advice. ithink it’s food for the soul the things that you’re saying. garrett gunderson offreedom fasttrack, where is the best place to reach out to you, or to use your consultingservices? garrett gunderson: if people go to freedomfasttrak.com/giftthey can get a segment of seven videos. they're short, one's on credit, one's on investing,one's on insurance, one's on business, and just get snippets of things that they cando to improve their financial situation in alignment with the philosophy we've talkedto. so they'll see alternatives to a 401k,

they'll see what they can do to have morecontrol over their cash flow, and get an idea of what we're up to. so i'd like to give thatto them. and then if they want to investigate more, they can also follow links and stuffafter the videos to check us out on a deeper level. future money trends: garrett gunderson, thankyou so much for joining us, i appreciate your time. garrett gunderson: thanks, man. i enjoyedit.