Is the “Bank on Yourself” a legitimate investment strategy, or a scam?
"Technically, this doesn't seem like a scam, but I don't think the system is beneficial.  They use a lot of half-truths to convince you that their product is right for you. Some of the arguments presented and my thoughts. Don't buy term and invest the rest because you can't predict how much you'll earn from the ""rest""   Also Don't invest in a 401k because you can't predict how much you'll earn They are correct that you won't know exactly how much you'll have due to stock market, but that doesn't mean the stock market is a bad place to put your money.  Investing in a 401k is risky because of the harsh 401k withdrawal rules  Yes, 401ks have withdrawal rules (can't typically start before 59.5, must start by 70.5) but those rules don't hamper my investing style in any way.    Most Term Life Insurance policies don't pay out  They are correct again, but their conclusions are wrong. Yes, most people don't die while you have a term insurance policy which is why Term life insurance is relatively cheap.   But they aren't arguing you don't need insurance, just that you need their insurance which is ""better"" You need the Guaranteed growth they offer  The chart used to illustrate their guaranteed growth includes non-guaranteed dividends.   They invest $10,000 per year for 36 years and end up with $1,000,000.   That's a 5% return!  I use 10% for my estimate of stock market performance, but let's say it's only 8%.   The same $10,000 per year results in over $2 Million dollars.  Using 10.5% (average return of the S&P 500 over it's lifetime) the result is a staggering $3.7 MILLION.   So if I'm looking at $3.7M vs. $1M, It costs me $2.7 Million dollars to give me the same coverage as my term life policy. That's one expensive Term Life Insurance policy. My personal favorite: Blindly following the advice of Wall Street and financial “gurus” such as Dave Ramsey and Suze Orman got you where you are. Are you happy with the state of your finances? Do you still believe their fairytale, “Buy Term (insurance) and Invest the Difference”?  Yes, I sure do believe that fairytale and I'm prospering quite well thank you. :) While I don't think this is a scam, it's outrageously expensive and not a good financial choice." "Oddly enough, I started to research the ""Bank on Yourself"" strategy today as well (even before I'd ran across this question!). I'd heard an ad on the radio for it the other day, and it caught my attention because they claimed that the strategy isn't prone to market fluctuations like the stock market. It seemed in their radio ad that their target market was people who had lost serious money in their 401k's. So I set about doing some research of my own. It seems to me that the website bankonyourself.com gives a very superficial overview of the strategy without truly ever getting to the meat of it. I begin having a few misgivings at the point that I realized I'd read through a decent chunk of their website and yet I still didn't have a clear idea of the mechanism behind it all. I become leery any time I have to commit myself to something before I can be given a full understanding of how it works. It's shady and reeks of someone trying to back you into a corner so they can bludgeon you with their sales pitch until you cry ""Mercy!"" and agree to their terms just to stop the pain (which I suspect is what happens when they send an agent out to talk to you). There were other red flags that stood out to me, but I don't feel like getting into them. Anyway, through the use of google I was able to find a thread on another forum that was a veritable wealth of knowledge with regard to the mechanism of ""Bank on Yourself"" how it works.  Here is the link: Bank on Yourself/Infinite Banking... There are quite a few users in the thread who have excellent insights into how all of it works. After reading through a large portion of the thread, I came away realizing that this strategy isn't for me. However, it does appear to be a potential choice for certain people depending upon their situation." "I haven't read the book and have no intention of reading it. This definitely looks like a forced savings plan with ""Whole Life Insurance"" as the theme – which is pretty bad for someone who is able to take care of his finances. It would be good for someone who is not very good with his finances and wants to be forced into savings, but then even for those people it would only help a little; there are enough clauses that would make things more bad for him. i.e. one can choose to take a loan, pay only interest etc. No book is going to help you build a savings habit. One has to realize and spend what is essential (it means not buying or doing tons of things) and putting quite a bit away for a rainy day. After this, comes investing wisely..."
I worked at Wells Fargo Home Mortgage right before all the ARM loan stuff hit the news. Everyone on the board was constantly talking about increasing their portfolios.  One of the main ways they aimed to do this was by creating new loan products aimed at non-traditional borrowers (read: people who didn't meet the requirements for their traditional loan products). We had quarterly company-wide meetings to inform us about this kind of thing and it never really seemed like a great plan to me. Two years later, and the banks started failing. Are you suggesting that the banks are using marketing to convince retail customers to buy financial products that they would not normally purchase due to the products' complexity?  While that concerns is certainly valid, I believe it can be applied all the way down to the simplest of securities, e.g. stocks, or even assets, e.g. houses.   That does not mean with should prohibit the sale of these products to retail customers. Again, you are asking people to trust you with their life savings so you can take your 1% and the best you can do is google? You don't have a lawyer or anything? Plenty of advisory shops allow you to set up your own business within their infrastructure. Their messaging always weirded me out.   They keep talking about you not needing a bank, but have no checking savings. Probably because it's low margin. They stick to student loans, mortgages from rich parts of the market for low risk. They tranche them just like old housing mortgages, but I wonder if there are enough high quality customers out there to satisfy the demand of their investors. "Sending your money off to do the heavy lifting is just a stylish way to say ""investing"".  He is saying hold back 6 months of living expenses and don't invest it.   Keep it in cash or some cash-like investment (genuinely safe and liquid).  It's good basic solid advice you'll also get from Dave Ramsey, Suze Orman and any financial advisor worth a darn.    While this is good advice, that does not mean all of his advice is good.  A classic con-man trick is to tell you three things you know are true, mixed with a lie they want you to believe.  They want you to think ""I know 3/4 are true so the fourth probably is too.""" "Let me start by giving you a snippet of a report that will floor you. Beat the market? Investors lag the market by so much that many call the industry a scam.   This is the 2015 year end data from a report titled Quantitive Analysis of Investor Behavior by a firm, Dalbar. It boggles the mind that the disparity could be this bad. A mix of stocks and bonds over 30 years should average 8.5% or so. Take out fees, and even 7.5% would be the result I expect. The average investor return was less than half of this. Jack Bogle, founder of Vanguard, and considered the father of the index fund, was ridiculed. A pamphlet I got from Vanguard decades ago quoted fund managers as saying that ""indexing is a path to mediocrity."" Fortunately, I was a numbers guy, read all I could that Jack wrote and got most of that 10.35%, less .05, down to .02% over the years. To answer the question: psychology. People are easily scammed as they want to believe they can beat the market. Or that they'll somehow find a fund that does it for them. I'm tempted to say ignorance or some other hint at lack of intelligence, but that would be unfair to the professionals, all of which were scammed by Madoff. Individual funds may not be scams, but investors are partly to blame, buy high, sell low, and you get the results above, I dare say, an investor claiming to use index funds might not fare much better than the 3.66% 30 year return above, if they follow that path, buying high, selling low. Edit - I am adding this line to be clear - My conclusion, if any, is that the huge disparity cannot be attributed to management, a 6.7% lag from the S&P return to what the average investor sees likely comes from bad trading. To the comments by Dave, we have a manager that consistently beats the market over any 2-3 year period. You have been with him 30 years and are clearly smiling about your relationship and investing decision. Yet, he still has flows in and out. People buy at the top when reading how good he is, and selling right after a 30% drop even when he actually beat by dropping just 22%. By getting in and out, he has a set of clients with a 30 year record of 6% returns, while you have just over 11%. This paragraph speaks to the behavior of the investor, not managed vs indexed." "Yeah... using let's encrypt for the SSL certs.... which I'm certainly not against, but provides even less guarantee they are who they say they are.  High probability of scam.  EDIT: Port 22 is wide open which gives me even less faith.  EDIT 2: I could not find ""Beam"" or ""Meet Beam"" on the FDIC registry either.  https://research.fdic.gov/bankfind/" "I don't know really is the best investment strategy. People think that they have to know everything to make money. But realistically, out of the hundreds of thousands of publicly traded securities, you really can only invest in a tiny number of them. Of the course of a week, you literally have more than a million ""buy"" or ""don't buy"" decisions, because the prices of those securities fluctuate every day.  Simply due to the fact that there are so many securities, you cannot know what everything is going to do. You have to say ""I don't know"". Also, when you do understand something, it is usually fairly priced. So will you make money on it? ""I don't know"". Only very rarely will you find something that you actually understand well and it is significantly undervalued. You can be looking at a company a day for two years before you find it. But people get trigger happy. They bet on 51%/49% odds when they should only bet on 90%/10% odds or higher.  If you are forced to bet on everything, it makes sense that you bet on everything you believe is greater than 50% chance of winning. But since you cannot bet on everything, you should only bet on the highest quality bets, those with greater than 90% chance of winning. To find such a bet, you may have to shuffle through 100 different companies and only make 2-3 bets. You are looking for something that is at least 2 standard deviations away from the mean.  People are not good at doing a lot of work, most of which yields nothing, to find one big payoff. They are wired to only look at the present, so they take the best bet they can see at the moment, which is often barely above 50% (and with any misjudgment, it may actually be well below 50%). And people are not good at understanding compound/geometric growth. You can keep multipling 10% gains (1.10 * 1.10 * 1.10 ...), but that can all be wiped out by multiplying by one zero, which is why taking a 51%/49% bet is so dangerous (even though technically it is an advantageous one). They forget to adjust for the geometric aspect of compounding. A 99%/1% bet is one you should take, but if you are allowed to repeat it and you keep going all-in, you will eventually lose and have $0, which is the same as if you took a single all-in bet that has 0% chance of winning.  As Buffett says, if you are only allowed to make 20 investments over a lifetime, you will most likely do better because it prevents you from making many of these mistakes." "HSBC, Hang Seng, and other HK banks had a series of special savings account offers when I lived in HK a few years ago.  Some could be linked to the performance of your favorite stock or country's stock index. Interest rates were higher back then, around 6% one year.  What they were effectively doing is taking the interest you would have earned and used it to place a bet on the stock or index in question.  Technically, one way this can be done, for instance, is with call options and zero coupon bonds or notes.  But there was nothing to strategize with once the account was set up, so the investor did not need to know how it worked behind the scenes... Looking at the deposit plus offering in particular, this one looks a little more dangerous than what I describe.  See, now we are in an economy of low almost zero interest rates.  So to boost the offered rate the bank is offering you an account where you guarantee the AUD/HKD rate for the bank in exchange for some extra interest.  Effectively they sell AUD options (or want to cover their own AUD exposures) and you get some of that as extra interest.  Problem is, if the AUD declines, then you lose money because the savings and interest will be converted to AUD at a contractual rate that you are agreeing to now when you take the deposit plus account.  This risk of loss is also mentioned in the fine print. I wouldn't recommend this especially if the risks are not clear. If you read the fine print, you may determine you are better off with a multicurrency account, where you can change your HK$ into any currency you like and earn interest in that currency. None of these were ""leveraged"" forex accounts where you can bet on tiny fluctuations in currencies.  Tiny being like 1% or 2% moves.  Generally you should beware anything offering 50:1 or more leverage as a way to possibly lose all of your money quickly. Since you mentioned being a US citizen, you should learn about IRS form TD F 90-22.1 (which must be filed yearly if you have over $10,000 in foreign accounts) and google a little about the ""foreign account tax compliance act"", which shows a shift of the government towards more strict oversight of foreign accounts." Who would be committing this fraud?  Satoshi Nakamoto?  Good luck finding him.    You can't punish people for speculatively investing just like they couldn't punish many people for the Great Depression since it was mostly the people who fucked themselves over.    Fraud implies an element of deceit.  This cannot reasonably be called a fraud--at best, it could be called a bubble. "From the bank's perspective, they are offering a service and within their rights to charge appropriately for that service. Depending on the size of their operation, they may have considerable overhead costs that they need to recoup one way or another to continue operating (profitably, they hope). Traditionally, banks would encourage you to save with them by offering interest growth on your deposits. Meanwhile they would invest your (and all of their customer's) funds in securities or loans to other patrons that they anticipate will generate income for them at a faster rate than the interest they pay back to you. These days however, this overly simplified model is relatively insignificant in consumer banking. Instead, they've found they can make a lot more profit by simply charging fees for the handling of your funds, and when they want to loan money to consumers they just borrow from a central bank. What this means is that the size of your balance (unless abnormally huge) is of little interest to a branch manager - it doesn't generate revenue for them much faster than a tiny balance with the same number of transactions would. To put it simply, they can live without you, and your threatening to leave, even if you follow through, is barely going to do anything to their bottom line. They will let you. If you DO have an abnormally huge balance, and it's all in a simple checking or savings account, then it might make them pause for thought. But if that's true then frankly you're doing banking wrong and should move those funds somewhere where they can work harder for you in terms of growth. They might even suggest so themselves and direct you to one of their own ""personal wealth managers""." The point of the article is not making your own investments vs. hiring a money manager. It is about passive low cost investments vs. active money managers.  This article is advising people to avoid active money managers because (A) even an extra 1% management fee adds up to a lot, and (B) active managers usually don't beat the low cost passive options anyway. I read an article where this website did an interview with them and concluded its very sketchy and possibly illegal. They refused to give out their FDIC number and they got the high interest rate by selling personal customer information to third parties "So here's the sad truth. He might actually be making a return on his investment. Not because it's right or because the system works, but in all these schemes there are a range of people that actually do make money.  In addition to that, there is that fact that he ""believes"" that he is doing a good thing, and is unwilling to discuss it.  So, if he is making, even a tiny return, and really believes that he is making a large return, or that that large return is just around the bend, your never going to convince him otherwise.  You have two real options; If he will listen, go though and look at money in v.s. money out. If money out is larger then money in, your screwed.  Make sure to point out that he should look at real money in (left a bank account) and real money out (deposited to a bank account). Again be prepared for the fact that he is actually making money. Some people in the pyramid will make money, it's just never as much, or as many people as they make it out to be.  Don't attack the system, attack other aspects. Try and argue liquidity, or FDIC insurance. Again not trying to show why the system is bad, but why a investment in foo instead may be better. If nothing else, go with diversify. Never put all your money in one spot, even if it's a really good spot. At least in that case he will have some money left over in the end. That said, your friend may not go for it. May just put on blinders, and may just stick finger in ears. Move to option two. Respect his wishes, and set boundaries. ""Ok, I hear you, you like system X, I won't bring it up again. Do me a favor, don't you bring it up again either. Let's just leave this with religion and politics."" If he continues to bring it up, then when he does, just point out you agreed not to discuss the issue, and if he continues to push it, rethink your friendship. If you both respect one another, you should be able to respect each others' decisions.  If you can't then, sadly, you may need to stop spending time with one another." "This is colloquially referred to as a ""pump and dump"" scheme. You basically buy up some stock, and then try to pump up the demand through false and misleading positive statements and market activity. You then close your position once market interest is sufficiently high. If your firm has access to high frequency trading mechanisms, you may even be able to front run other market participants attracted by your buying activities.  &gt;I am wondering what is the best route to go down.  Definitely micro-cap stocks. Things listed on the OTC markets, especially penny stocks, have this tendency to attract retail buyers just begging to be scammed. Emerging biotech firms also have a lot of potential due to investors' hopes of successful clinical trials.  I should warn you though, this is very illegal and falls under market manipulation [according to the SEC](https://www.sec.gov/fast-answers/answerspumpdumphtm.html) and can lead to up to 25 years in prison. So make sure you stay small enough to avoid the regulatory radar.  (But seriously, this belongs in r/personalfinance or elsewhere, r/finance isn't the sub you want)."