Born to a family of modest means, James Cash Penney began clerking in a store after his father passed to help support his family. In 1902, he co-founded his first store at the age of 27.
Penney and his partners grew rapidly, and by 1929, J.C. Penney Co. was a publicly traded company with over 1,300 stores. Penney also acquired varied investments, including Florida real estate developments, purebred cattle and an enormous stock portfolio. His was the quintessential American success story.
Then the Roaring ‘20s came to a screeching halt with the “Black Tuesday” stock market crash and the Great Depression. Penney’s investments collapsed, his stores struggled and his fortune all but vanished. (But the story does not end there!)
When all economic hell breaks loose, what can you count on? To borrow a term from Nassim Nicholas Taleb, what asset has proven to be “antifragile”? Today, we explore how to create a “financial bunker” even when the economy—and many assets—seem to be failing.
With debt exploding on the balance sheets of corporations, governments, and consumers, it’s widely acknowledged that we have increased risk in the financial system. Speculations about the chances of another housing market collapse, a deeper stock market crash, and the severity of the imminent recession are rampant.
What asset is the most resilient to economic storms?
In more alternative financial circles, ala Robert Kiyosaki, gold and Bitcoin have been heralded as “insurance” and a “life raft,” respectively, in case of an economic recession or collapse. But have they provided any meaningful stability?
Gold, currently down about 15% from recent highs, has been volatile lately. If having gold helps you sleep better at night, then by all means have some gold. Yet gold coins are not liquid and do not produce cash flow. In addition, precious metals are highly manipulated commodities, so be cautious about counting on gold or silver for your financial security.
Cryptocurrencies were supposed to create a meaningful alternative to our debt-based banking system and fiat currencies. And how is that going? Recent inflation, volatility, and recessionary pressures—with a good dose of FTX fraud—has obliterated the crypto market.
As of this writing, Bitcoin has lost more than 73% of its value since November 2021 highs. And Bitcoin has fared better than most cryptocurrencies. The FTX collapse has increased support for the government to regulate cryptocurrencies, which would further devastate the asset class. SEC Chairman Gary Gensler (whose ties to disgraced FTX founder Sam-Bankman Fried are under scrutiny) has even called for crypto tokens to be classified as securities.
We understand the attraction to assets outside of the mainstream, and it’s no secret that we are not big fans of Wall Street. Many people share that conviction, even if their retirement plans are filled with mutual funds. So there are definitely advantages to diversifying away from stocks. But where?
Many people believe that banks are the safest place for your money. (We vehemently disagree, which we explain in a special report.) But even if we had 100% faith in the banking system, are you truly happy earning what banks have paid over the last couple of decades?
In the 1930s, Penney lost an estimated $40 million because he used his company stock as collateral for loans. After stock prices collapsed, the banks owned most of his collateral. And as chairman of the board for First National Bank of Miami, Penney was held responsible for its failure in 1930. Eventually, he paid several million dollars to satisfy depositors’ claims.
Hopefully, at this point, you realize that gold coins, crypto coins, NFTs, and even banks might not be your ticket to financial security.
So where can you put money if you want a bullet-proof financial bunker?
There is an asset so incredibly boring you could bet on it for 100 years to come. (A lot of people do.)
It is designed to be a bunker during economic storms, a moat around your castle protecting your family’s lives and assets. Its purpose is to be the asset you can count on in even the worst of circumstances.
World War? This asset has helped millions of families through the toughest of times.
Pandemic? It held firm during the Spanish Flu and the Covid chaos.
Stock market crash? This non-correlated asset has sailed through every market crash.
Housing market collapse? While the subprime mortgage meltdown was crashing the economy, banks bought billions of this asset.
An asset you can bet your life on
The bullet-proof asset we are talking about is life insurance—but not any life insurance. It’s with dividend-paying life insurance from a mutual company that builds cash value. Mutual life insurance companies have paid dividends for over 110 years—sometimes more than 160 years.
Here’s why dividend-paying life insurance is our “financial bunker” asset of choice.
Why “dividend-paying”? Dividends indicate profitability and stability. They prove that a company’s business plan and strategy is working as it should. Dividends also act as a “loyalty reward” to policyholders (or stockholders in a public company).
We watched many companies stop paying dividends during the pandemic. But dividend-paying life insurance didn’t miss a beat. (Dividends are not guaranteed but are historically reliable. All of the companies we work with have paid dividends for well over a century.)
Whole life insurance is the only kind of life insurance that pays dividends. It is also the oldest, most proven and established type of life insurance.
Why a mutual company? Mutual companies are owned by the policy holders themselves. This means there are no conflicts of interest between the company and the policyholders. In contrast, a life insurance company owned by stockholders is beholden to make profits for the stockholders—not policy owners.
Public companies are pressured to “make the numbers” for their next quarterly earnings report and meet their own projections. In 2018, investor Warren Buffett and JP Morgan CEO Jamie Dimon went on record to assert that chasing quarterly profits compromises the long-term health of many companies. CEO’s and corporations are rewarded for hitting short-term goals but not for making long-term investments in the company’s success.
Why life insurance? Life insurance companies are at the top of the list of the highest-rated, most stable companies in the world. Have you ever heard of a life insurance company not paying a claim? Neither have we (aside from the contractual exception of a suicide in a new policy).
When whole life insurance is purchased for a child, the company commits to paying that death benefit 100 years (or more) in the future. No matter what age you purchase life insurance, it is a product designed for generations.
And with a cash value policy, a steadily increasing portion of the policy is available as cash value. Whole life insurance was never just for a “death benefit.” It provides a financial foundation for people throughout their “whole life.”
“A life insurance company should live forever,” said Hugo Wesendonck, founder of Germania Life Insurance (renamed Guardian Life in 1917). “Nothing should be promised that can’t be carried out.” Years later, Hugo’s son, Max Wesendonck, reflected, “My father never made a decision without first asking what effect it would have on the company 100 years from now.”
Life insurance is built to be a financial bunker.
Life insurance saved James Penney’s business during the depression
Almost every investment had failed James Cash Penney. His wealth was all but gone and his stores were struggling. The financial setbacks and stress took such a toll on him that he checked himself into the Battle Creek Sanitarium.
However, Penney still had a “financial bunker.” He was able to meet payroll and keep the stores open by taking advantage of a collateralized loan from his whole life insurance company. Penney and his businesses both went on to make a full recovery.
The benefits of dividend-paying life insurance
Dividend-paying life insurance from a mutual company has a unique set of benefits that are unmatched in any other asset class:
A non-correlated asset. Life insurance is not susceptible to market volatility, fraud or bad economic news. Life insurance is based on actuarial science, not market speculation.
Liquidity. Unlike the “fractional reserve” system used by banks, life insurance companies must keep legal reserves on hand to cover potential liabilities, such as death benefits. That’s why you’ve never heard of a “run” on a life insurance company, like a run on a bank.
A competitive cash alternative. The gains of a well-constructed policy held long term has historically beat bank rates—historically by about 2 percent annually.
No losses, only gains. Gains are locked in and cash value increases are guaranteed every year—even if dividends stopped.
Contractual guarantees. Whole life policies carry robust guarantees such as level premiums that never increase, a death benefit you can never outlive and access to your policy’s cash value.
Tax-advantaged. Gains within a policy are neither taxed nor reported to the IRS as long as the policy stays in force. Policies can create a tax-free legacy for heirs or can be used to create tax-deferred—sometimes tax-free—income for the policyholder.
Privacy and security. Unlike bank accounts, life insurance companies do not suffer frequent cyber-attacks and fraud schemes. In most states, policies also have protection against creditors.
Custom-tailored. You can purchase flexible riders that allow you coverage in case of disability, terminal or chronic illness, and other circumstances.
Use as collateral. Access to cash value (the equity in your policy) for any reason—no qualification needed.
You can access your cash through withdrawals or policy loans. (We recommend the latter to keep a policy growing—if you can pay back the loans.) Unlike bank loans, a policy loan does not require:
- An application
- A credit check
- Income verification
- An explanation
- A “valid” or “approved” reason for borrowing. (Retirement accounts have “rules” regarding allowable early withdrawals. If the government or your employer don’t recognize your financial emergency as valid, you might not get the money.)
Are you ready to build your financial bunker? This is our specialty: helping you build financial security. Contact us for your personalized solution.
Fortunately, James Cash Penney had a financial bunker that helped him when all else failed. After the Great Depression, he led his company as chairman for decades more. He was known as a well-respected business leader, cattle and dairy farmer (really!) and philanthropist. He passed away at age 95 and left a legacy that went far beyond the stores that bore his name.