Millionaire By Thirty: When Things Seem Too Good To Be True…

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The overall moral of this book review is that even though a book finds a publisher, it doesn’t mean the advice is accurate or applicable to you. The book Millionaire by Thirty: The Quickest Path to Early Financial Independence by Doug Andrews & Company appears to be very similar to the other Missed Fortune books by the same author. In fact, from reading the reviews all of these books seem to contain the exact same material.

The book starts out innocently enough, talking about familiar concepts like focusing on your strengths, paying yourself first, spending less than you earns, and it even provides an explanation of the “envelope” system of budgeting. However, it then quickly shifts into the two main points of the book, both of which I have issues with. Too bad, I only have a few months until I’m 30 and I could use another $742,000

Housing Prices Always Go Up, Take Out Largest Mortgage Possible!
“Do you rent? Rent is like throwing money down a black hole. It doesn’t matter how much money you have saved or how long you plan on staying in the same place, you should always try to buy a home. If you aren’t going to stay very long you can simply get an adjustable-rate loan with no down payment. Housing prices always go up, so you can enjoy the low interest for a couple of years, and then sell and make a nice profit.

If you are really smart and disciplined, you can even get an interest-only or negative-amortization loan because then you won’t build up any equity at all. Accumulating home equity is bad. Anytime you have any, you should take out a loan on it and invest it somewhere else, like a second home.”

The above are all the dangerous generalizations about real estate contained in this book. Newsflash… Renting can be the best option for many people. Housing prices do not always go up. Thousands of people who bought a home and now have to sell after a few years will have lost tens of thousands of dollars compared to if they had rented.

Don’t Invest In 401ks and Roth IRAs, Buy Universal Life Insurance Instead
Throughout the book, tax-deferred plans like 401(k)s and IRAs are dismissed, saying that you should not contribute to them unless you have at least a 50% match, and maybe not even then. Why? 401(k)s and Traditional IRAs are taxed upon withdrawal, and the Roth versions use contributions that are already taxed. In other words, both types will be taxed at least once. Also, there can be penalties for early withdrawal, even though there are ways around these.

Instead, the book repeatedly hints at a mysterious alternative investment that is completely tax-free: at contribution, during accumulation, and at distribution. This investment turns out to be equity-indexed, universal life insurance.

How are contributions tax-free? It turns out that they want you to take either a larger mortgage or home equity loan, and using that to fund the life insurance plan. Because mortgage interest is often tax-deductible, he counts this as a “tax-free” contribution. Huh?? I could put the same borrowed money into a Roth IRA or anything, and call it a tax-free contribution.

However, it appears to be true that after a few years due to an apparent loophole in the tax law, you can take out “loans” from a universal life insurance policy tax-free. This simply reduces your death benefit when you die, unless you repay the loans. There are withdrawal limits, but can we use this to our advantage?

Equity-Indexed Life Insurance, Risk and Performance Concerns
The pitch is always the same for equity-indexed insurance. You can never “lose” money like it can in a stock market, but if the market goes up your investments will go up with it. There is usually both a cap rate and a guaranteed rate. For example you might get a 15% cap and 1% guaranteed. If the index goes up 30% you get 15%, but if it goes down 30% then you still get 1%. Not bad at first glance.

Catch #1: You Miss Out On Dividends When you invest in an index fund like an S&P 500 index fund, you get both the return of the index (capital gains) and also the dividends that are paid out. The average historical dividend yield over the last century has been ~4.5%. Currently, it is about 2%. Since the index does not include dividends, you are automatically losing that portion of total return. If the total annual return on the mutual fund was 8% and there were no additional costs, then the indexed-return on the insurance balance would only be 6%.

Catch #2: You Don’t Get All The Capital Gains Either
Consider this – If the insurance companies are indexed to the same thing we can buy and they offer us downside protection, this will always come at a price. There is simply no way the annual expenses of such a high-commission, salesperson-promoted product like this can be as low as that of a similar index fund. Details on how each universal life insurance policy tries to “participate” according to stock index vary widely, so I can’t run the exact numbers based on historical returns.

However, you can get an idea of the lost performance from this Scott Burns article regarding an earlier book by Mr. Andrews:

Using a 30-year history of the S&P 500 index ending in 2005 and a common formula for crediting returns, he says that a policy crediting 1 percent in loss years and 100 percent of gains up to 17 percent in good years would have provided an average crediting rate of 9.62 percent. […] Even after subtracting the cost of insurance and other policy expenses, such as the commissions that would enrich all of his disciples, he estimates that your net return would be 8.5 percent…

8.5% sounds nice. Now what was the total return of the S&P 500 from 1976-2006? 12.7 percent annually. If you had $100,000 in a tax-deferred account like a 401(k) invested at 12.7% annually for 30 years, you would have $3,611,748 vs. the $1,155,825 tax-free from the insurance. Even you paid 40% in taxes upon withdrawal, you’d still be over $1,000,000 ahead with a regular 401(k).

Simply put, you give up a lot of potential return. Just because something is “linked” to the stock market, doesn’t mean it will return anywhere near the same amount. If you are truly saving for retirement and are relatively young, then you have a long-term time horizon and do not need such risk-reducing products that include a guaranteed rate.

In all 62 of the 20-year investing periods from 1926 to 2006, an investment in large stocks produced a positive return. The worst return was 3.1 percent annually for the 20-year period beginning in 1929 and ending in 1948. In other words, even investing on the eve of the Great Depression produced a higher long-term return than the guaranteed minimum return of equity-index products.

Arbitrage Gone Bad
Finally, recall that a significant part of this insurance is supposed to be funded by a home equity loan, where you can earn more interest from this investment than you are paying in mortgage interest. Arbitrage! Okay, but if the market only returns 8% including dividends which is 6% without dividends, and you then factor in the expenses of this insurance layer, you are maybe looking at a 5% return max. If you are paying 6% in mortgage interest and earning 5%, you’re now losing money.

Now, there may be a small slice of the population that may be best served by this product. But it’s definitely low on my list, and definitely not until you have maxed out tax-advantaged accounts like 401ks and IRAs. Even after that, I would first investigate either tax-managed mutual funds or a low-cost variable annuity from Vanguard.

Many of the books I read may not be brilliant, but they contain generally good ideas and target a specific type of reader. However, this book is one that could actually hurt more people than it helps. This book is just plain misleading. It would be wonderful if home prices always went up and there was an investment where I could never pay taxes, have no downside risk, and get stock-like returns, but unfortunately both are too good to be true. I’ve tried to lay out my arguments for this briefly, but if you want a better description read the detailed reviews here and here. Clever Dude also shared his thoughts here.

Short version: Don’t read it, don’t buy it, don’t even borrow it from the library.

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  1. Well said. One of the biggest mistakes that I made was getting sold on a Universal Life policy. It may grow tax free, but the upfront admin costs takes 6% of every dollar I put in. After several years, I still have a sizable surrender charge. I’ve traded funding that for solo 401k’s / IRA’s and holding taxable stocks and funds long term.

  2. Thanks Jonathan. I learn from your articles such as these, that the steady slow money is always the honest, safe, best bet when it comes to investing. Not as flashy and exciting as other options, but this isn’t a hollywood dinner party, its my life and my retirment. It is too bad that idiots like Doug Andrew can lead people down such paths.

    I wonder if he used to be a used car salesman, or work for Amway. I bet if you called him, he’s sell you some magic beans too, and a goose that lays a golden egg.

    That’s my retirement plan. I NEED to find that goose.

  3. Well said. Anyone who claims life insurance is a good investment is lying.

  4. Charlie,

    What company did you get your universal life policy from?

  5. clicclic says


    According to the Amazon bio for the author, he is a “…owner and president of Paramount Financial Services, Inc., a comprehensive personal and business financial planning firm.”

    In other words, he’s an insurance salesman who has morphed dull insurance policies into those exciting 3-box-driven “financial planning” systems that leave out all the insane fees associated with this type of “financial planning.”

    Insurance agents are the new door-to-door salesman of the information age. Insurance companies have morphed into financial planning companies, which is infinitely more lucrative because Ole Ben and the Fed keep handing out free money to Wall Street.

    I will say this in his defense though: there is no sense having any home equity when inflation rates crush savings rates. Period. Your equity would be much better served buying more land/properties (as a hedge against inflation) or investing it outside the country (as a hedge against inflation). When money’s cheap, invest it in vehicles that pay for themselves and are indexed to inflation. And I do not mean the stock market.

  6. Ted Valentine says

    More accurate subtitle for Millionaire By 30:

    ” For $20 I will tell you the secret to getting rich quick. (PS – The Millionaire By 30 is me)”

  7. This book sounds absolutely horrendous. It’s obviously written by someone fairly new to the real estate market. The idea that it could never go down is ludicrous. I’m only 36 but still recall the losses people took in parts of California years ago.

    I bet you could find a book with the same theme related to tech stocks in the late 90’s.

  8. Well said. I have a friend who is an aspiring financial professional ( sells financial products) and I always get nervous vibes when he tells me why he wants to sell insurance products versus others. ( bc commissions are pretty good)

  9. Is the first paragraph under your housing heading an actual quote from the book? 100% financing, ARM, prices always go up, your specific situation is irrelevant to the rent/buy decision, equity is bad…is this seriously being published given the current economic environment? I’m speechless.

    I think perhaps the title of this book is not so much indicative of the instructions inside. Rather, it’s an expository label. The quickest path to early financial independence is…1. write a book promising the impossible. 2. trick enough people into buying it. 3. PROFIT!

  10. If Douglas and company truly practice what they preach, they’d better hope for blockbuster sales of their book so they can pay off all the debt they’ve built up on their upside down mortgages.

    “Millionaire by 30, Broke by 31”. Their next book will be about how to use bankruptcy to get out of debt quick.

  11. Thanks for the insight

  12. John,

    I purchased mine through NYL, but recently looked at opening one through AXA. AXA still allowed for up to 6%, but is currently only taking 4%. I’m convinced that there is a place for these types of policies under the right circumstances; I just haven’t got to the point where I have more money than I can figure out where to invest it.

  13. As a long-term play, I’d never buy anything “equity-indexed”. The long-term returns are just going to be horrible, and the downside protection doesn’t even guarantee to cover inflation. Most real-life policies that I’ve seen have a 0% floor.

    I would consider a variable annuity or perhaps variable universal life if you have exhausted all of your tax-deferred options. You really do have to read all of the fine print though.

  14. William G. Peregoy says

    Whoever wrote that book, they sound like an ass….

    Real Estate always goes up? LMAO!!!

    Universal Life Insurance > Roth IRA’s? ROFLMFAO!!!!

    I’m 22, and I wouldn’t mind be a millionaire by 30, but I have much better ideas about how I’m going to do it than these guys…..

  15. This book sounds like a load of crap written by “financial planners” who are actually nothing more than life insurance agents. These guys drink so much Kool Aid, they actually start to believe life insurance is a good investment. They probably have such a limited knowledge on real finance. They learned to sell insurance and never grew intellectually from there.

    Insurance should be used to insure against a risk you are not willing to accept…period…end of story. It is not an investment regardless of how much money you have. The wealthy get slammed into these crappy products all the time. Insurance is a horrible investment.

  16. I agree with Dustin. But I think sometimes it is just hard to wait if you are impatient for a big return on an investment. Just started my journey into the stock market and I am finding it so very interesting. Although it is very time consuming to do all the reading an research that is necessary, I find it rewarding. I have become so interested in my journey and always share what I am learning to friends that I was told I should blog. So.. I did. I hope others will find what I am learning helpful. Stop by anytime!

  17. Hi,

    I’m a “Financial Professional” or “Insurance Sales WOMAN” or whatever you kindly would like to refer to me as…

    Financial products ARE products designed to serve a PURPOSE.
    Insurance was created to generate WEALTH for a FAMILY,
    in the situation of DEATH.

    OF COURSE, there is going to be a COST to insurance.

    That’s like walking into a store and not buying a shirt because the shirt isn’t free, because there is a COST to make the shirt.

    Obviously, that is ludicrous.

    An individual will NOT make millions in Insurance that first year or first few years in purchasing an Insurance policy. Insurance is NOT a short-term vehicle. But it DOES serve a USEFUL PURPOSE if utilized properly.

    There are NUMEROUS Insurance policies out there and they are designed with many different guarantees and Cash-Value Accumulation options.

    BUT if you are looking for INSURANCE (ie. Income Replacement or Wealth Creation at the time of death) then you can’t buy that in a 401K policy.

    Often-times, Insurance is ANOTHER vehicle for individuals who do NOT have ACCESS to a 401k or have maxed out their matched 401K contribution. Insurance then becomes another vehicle for tax-deferred or tax-free income at Retirement (or for any living benefit…doesn’t have to be Retirement, could be a child’s wedding).

    So Insurance can be a GREAT vehicle for Accumulation or Income-Replacement, if utilized in the appropriate situations.

    Can you make a great deal of money in Real Estate?
    Can you LOSE a great deal of money in Real Estate?

    A GOOD Financial Advisor or Insurance Professional will take the time to figure out what works in YOUR particular situation.
    And if you are really in love with your 401K and hate Insurance, a GOOD Financial Advisor will also take that into account and suggest recommendations accordingly.

  18. Carol – sore subject for you is it?
    Jonathan is absolutely right in his analysis of this type of scheme. What you are talking about is completely different. Is there value in insurance as an insurance vehicle? Of course there is (depending on the person) but attempting to use it as a get rich quick scheme is dangerous and rarely effective.
    My close friend is all caught up in this hype right now and I am nervously waiting for the bottom to fall out from under him.

  19. Hallelujah there are some bright financial minds out there that see through the smoke and mirrors that is insurance pitching.

    I’ve been a mortgage broker and real estate investor for six years now. I bought two types of properties. The first type was ones that made cashflow from day one, right out of escrow with positively nothing needed. The second type were speculative over-leveraged houses bought with the intention of reaping large capital gains. These properties did not cash flow and furthermore were bought with time-bomb toxic adjustable notes.

    Guess which properties are now in foreclosure and which ones are still trucking along, despite being upside down?

  20. Permanent insurance is NOT meant to be an ‘investment’ – it is a financial tool. Maxing our your 401k and buying term insurance is very “Suze Orman”-esque. I’d love to see how people who have taken the term and invest the difference approach have done over the past 10 years!!! The TRUE way to wealth is 1) find a way to earn a very large income (preferably via the growth of your own small businesses) 2) live on far less then you make and save a huge % of gross income 3) invest that money in SAFE assets that you can control! I appreciate this site and it’s fun to read… but if you look at 99.9% of RICH people, they got their wealth either from 1) inheritence 2) small business ownership or 3) being HUGE savers. I have still yet to meet ONE person who ever made their ‘wealth’ from how the stock market performed…

  21. Graham Lutz says

    Good Point Dr! Have you read “the Millionaire Mind”? It talks about millionaires and the majority of them make sizable incomes, live below their means, and invest in assets they can control (like their own business!)

  22. I’ve also read this book. I really got sick of it when it stressed the importance of giving up 10% of your income to the church. I just don’t agree with the idea of these local religious leaders driving around in expensive cars…

    Also, the old school idea of making personal payments to purchase a home does not fly at all today.

  23. I read the book… First few chapters were okay..just like Jonathan says…and then wham…buy life insurance. and you can get rich…what the heck…I couldn’t believe what they were trying to sell and that I had wasted my money. I was going to dump the book the local used book store for a book credit…but may just toss it in the fire…don’t want someone to get into a financial mess…..

  24. Aaron @ Clarifinancial says

    When I was supporting life insurance agents, one of the people who worked with me gave me his first book. It seemed to follow the same path: good sound advice, slightly riskier advice that still makes sense, then buy life insurance, buy another house, and more life insurance.

    Having had to rescue several life insurance policies (both whole life and universal life based) from loans blowing up, I have experienced the down side first hand. And in my years of supporting hundreds of life insurance agents, I have never known of a single client following this advice for more than 10 years who was thrilled with it.

    I wrote more about this on my site and on Free Money Finance, but there are a lot of variables that most insurance illustrations don’t take into account or the presentation of this idea tends to glance over. The credited rate could go down or disappear because of systematic risk or risk from the insurer. Even if the average credited rate is the same, it could be more volatile than planned. The internal costs of administration or morality could increase because of a provision written into many contracts by the insurer, lowering your net returns.

    I believe every financial product is suitable for someone, so I’m not saying don’t do this. But people who use life insurance as anything other than a form of protection are subject to a unique type of risk other investors do not have. Historical performance or financial strength have little to do with hedging these risks (as is often presented by “financial advisors”). Understand them for yourself, compare them, then decide outside the presence of sales pressure.

  25. I am very much averse to regulations however shouldn’t there be a code or a panel that checks out these kinds of harmful advice giving books that pry on innocent and somewhat ignorant folks like me? This advise is as bad to my financial health as transfats are for my body but the latter are regulated by FDA! Thanks Jon.

  26. Si @ Leadership Expert says

    Thanks for pointing this book out J,

    From the cover, it would look like any other slightly-gimmicky money guide, but indeed the fact that it promotes such extreme gearing and risk taking, combined with silly high-fee financial products, is just plain dangerous.

  27. I like that you call out the fact that Index funds don’t pay dividends. A lot of research shows that stocks or funds paying dividends tend to have some of the highest returns, so it is definitely something to be considered!

    I personally use retirement mutual funds. I know some people don’t like them, but they’re easy and very hands off on my part so I can focus on other things (like making more money).

  28. I think one thing that might have been missed by this critique comparing the returns of a 401k to a properly-structured life insurance policy is the fact that you can take out loans against the cash value of your life insurance. This can be both good and bad. If you are coming from a consumer mindset this will be your downfall. Your payout will be reduced by the outstanding loan.

    However, and this is what the life insurance proponents suggest, is that you take a loan at an effective interest rate of 2% (4% interest charge – 2% in dividends). Mutually-owned life insurance policies pay dividends by the way.

    Now the only financially sound reason to take a loan against your policy is if you can get a higher return elsewhere, say in real estate or a small business. Now you have your full cash value growing at the same rate within the policy because when you borrow against it you are not actually withdrawing the money. You are simply taking a loan against it. The full amount continues to grow at a conservative rate, lower than a 401k or RothIRA. BUT, and this is where life insurance has the potential to outperform the IRA… The loan you take out can be used to invest elsewhere… If you can get a return on your investment it is like having your money work double for you. Like a bank. This is the infinite-banking concept.

    This concept can work if you actually bank on yourself! That being said. It is a huge IF!! If you want to be a passive investor the IRA/401k route will win out 100% of the time!

    If you are an active investor, then you will have a higher IRR in the long run going with a properly structured mutually-owned whole life insurance policy AND you take advantage of the liquidity offered by that policy.

    If you don’t plan on taking advantage of the liquidity, then you should not bother using it as an investment tool. It is after all just a tool.

    So to summarize, here are the benefits of a properly-structured mutually-owned indexed life insurance policy:
    1-you save up money in a tax-free vehicle and your family can get paid out tax-free
    2-you have access to the cash value of the premiums you have paid into it
    3-you can leverage this liquidity by taking loans to fund other investments
    4-when you die, your family gets a significant chunk of money tax free. up to $5 million by current tax laws. (if you have more than that, you can create a trust to get around taxes)
    5-the benefit to you is the ability to leverage money and liquidity while you are alive. you can’t do this with

    For most people this is a bit too involved to be useful and on most cases I’d recommend just going with the 401k/RothIRA, but if you know what you’re doing and are active, a whole life insurance can give you greater returns comparatively to a retirement account, IF, and only IF you ACTIVELY LEVERAGE the liquidity factor.

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