Tom Dyson: How to Prepare for the Next Crash (and Grow your Wealth in Times of Market Failures)

Tim Mittelstaedt, editor, Income for Life Premium: Tom, we want to go behind the scenes and get the details of what you’re doing with your Income for Life policies.

Now, I know you’re concerned there’s going to be some kind of stock market crash. You don’t like to make predictions, but you do see some things that are worrying. Can you touch on that?

Tom Dyson, publisher, Palm Beach Research Group: Yes. I feel safe in my assets. I’m going to have my Income for Life policies until I die. I’m 39 years old, so I hope I’ve got at least four decades ahead of me.

Now, I don’t know when the market’s going to crash. I don’t have a crystal ball.

But, I do believe in the idea of something called “the business cycle.”

In a free market economy, money gets allocated to where it’s treated best. But when you introduce the government, you get a business cycle. You get a boom… which should be followed by a bust.

But that’s not what happens in our economy… Booms are followed by government intervention. It’s done to prevent the busts from fully occurring.

But it just causes another—more extreme—boom and bust cycle.

And this has been going on for maybe 100 years or so, especially over the last 20-30 years. Former Federal Reserve Chair Alan Greenspan was the architect of the current bubble economy. There’s just never been a full bust.

The best metaphor for this in nature is a forest fire…

You need forest fires to clean out all the weaker trees and dead brush. This returns nutrients to the soil. It allows the oldest, strongest trees to grow and be healthy. That’s what recessions should be: a type of “pruning.”

But our government doesn’t allow this pruning to happen. We’re in a huge buildup of brush. Sooner or later, lightening will strike.

There’s going to be a big fire.

Our economy is now built on layers of bad investments, misallocations of capital, inflation, and debt. The 2008 crisis was a really big forest fire, but the government put it out.

It’s allowed the brush to grow back… thicker than before.

This is what concerns me: At some point, there’s going to be a really bad forest fire—a recession and a bear market in stocks and investments in general.

Tim Mittelstaedt: This really plays into your central strategy with Income for Life, right? Correct me if I’m wrong, but you’re using it as an opportunity fund. When the crash happens, you’ll be able to swoop in and buy a boatload of great assets—at rock-bottom prices.

Tom Dyson: Yes, Tim, as you say, Income for Life is my “opportunity fund.” It’s very safe. My money is tied up in whole life insurance policies, free from the whims of the market. The insurance companies backing my IFL policies have been around through the Great Depression. I’m not worried about their solvency.

So, I know I’m safe, first and foremost. My money is compounding safely.

Then, I’d like an opportunity to buy some really great stocks at really good prices. I’ll use my Income for Life policy to take out policy loans, buy them, and then hold them forever. That’s my retirement plan. That’ll be my legacy. It will basically provide for me for the rest of my life.

Tim Mittelstaedt: There’s a term we’ve coined around here for what you just described, Tom. It’s a concept called “dual compounding.” Can you walk our readers through how it works, using Income for Life with another investment opportunity?

Tom Dyson: Sure. So, I’m compounding my money in my whole life policies. I get dividends. I receive interest. And I’m buying more insurance gradually and over time. My money is compounding tax-free, very consistently, in my IFL policies.

Now, what I plan to do is take policy loans—which doesn’t interrupt my IFL funds compounding in any way—and use them to buy investments that have the highest long-term rates of return.

That could be property… or new startup businesses… or a dental office. It could be anything.

Personally, my favorite long-term investments are great stocks that have hundreds of years of business in front of them. Dominant companies that raise their dividends relentlessly.

To me, that’s the best vehicle for compounding wealth. It doesn’t take any work. I’m compounding my money in great dividend-paying equities. That’s the dual compounding strategy in its simplest form.

I’m compounding through my dividend-paying whole life policies. And I’m compounding in great stocks, to boot.

Together, I’m creating a huge asset… and a river of cash flow for my retirement.

Reeves’ Note: If Tom starts his dual compounding strategy right now, he’ll have $600,000 in income by age 65. He goes on to detail the two other ways he’s used his IFL policy loans for investment: private equity and real estate.