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It’s the ultimate contrarian investing quip — penned by none other than the great Baron Rothschild:
“The time to buy is when there’s blood in the streets, even if the blood is your own.”
In other words, you’re often going to find the very best investment opportunities during what seem like the worst of times. And as long as you stick to “buying when others a fearful and selling when others are greedy,” you can make a lasting fortune.
This kind of advice is easy to absorb, but deceptively hard to put into practice here in the real world…
Because it glazes over the most important part of the investing equation. The capital.
Sure, downturns are a great time to lock in investing opportunities. But they are the worst possible time in terms of liquidity. It’s not uncommon to see credit markets seize up, business lending freeze, and stocks dip down far enough that it’s disadvantageous to sell.
So even if a downturn does present you with a potentially massive investing (or business) opportunity, there’s still this massive question of funding.
Fortunately, we have life insurance to fall back on.
Even in the worst of times, your life insurance policy will be there for you, with favorable terms and easy approval for borrowing against the cash value of your policy.
And when I say the worst of times, I want to stress that I mean the very worst of times.
Times when other businesses are running out of cash, stocks are crashing, and some of the biggest opportunities of a generation are about to unfold before you.
That’s where James Cash Penney found himself in 1929, in the early days of America’s Great Depression…
Of course, Penney probably didn’t feel like he was on the verge of a life-changing opportunity. Quite the opposite. His retail empire was teetering on the brink of failure, and with it his health.
As you may have guessed, his chain of retail stores bore his name — JC Penney’s. Originally a partner in a small chain of stores called Golden Rule, Penney eventually went into business on his own, opening some 1,400 stores all across America.
By 1924, Penney reported earning an outrageous sum of $1 million annually. And he enjoyed spending is money almost as much as he enjoyed earning it. Penney owned a lavish home in Miami Beach, his own line of dairy farms, and 120,000 acres of sunny Florida real estate.
He was on top of the world until October 1929. The crash wiped Penney out almost immediately.
With sales in freefall and credit all but evaporated in the height of the financial panic, he borrowed a substantial amount against the cash value of his life insurance just to cover day-to-day operations as consumer spending gradually stabilized.
I realize that might not sound like much of an opportunity — borrowing against your life insurance to keep the lights on — but this was the Great Depression. Survival of the fittest. And Penney’s loan helped keep his empire afloat while 86,000 other American companies (including numerous competing retailers) went out of business.
Penney’s health and business both gradually recovered, and he was able to pay off the balance of the loan in short order. A few years after that, he would teach a young Sam Walton how to wrap packages during a visit to a store in Des Moines, Iowa. Sam Walton would of course go on to found Wal Mart.
Penney’s life insurance story is amazing for a number of reasons, not the least of which being how his policy helped him survive one of the worst market crashes in world history.
But even beyond the years of the Great Depression, his loan against the cash value of his health insurance helped keep his business open and pave the way to building generation wealth for himself and his family.
To this day, JC Penney is a national retail chain with 656 stores across 49 American states and Puerto Rico. Even though is retail empire is gradually being overwhelmed by the popularity of online shopping, Penney’s entrepreneurial spirit (and his flexible life insurance policy) helped him build a fortune that will grow and pay dividends for generations more into the future.
The availability of these funds can be absolutely life-changing when you need them the most. But there are other critical advantages to borrowing against your life insurance…
For example, a loan against the cash value of your life insurance won’t come with the same strict payment schedule as a traditional business loan. You won’t have to worry about the approval process either.
As long as there’s sufficient cash value and the terms allow for it, the money is yours to borrow. Interest will accrue against the cash value of the policy over time, and you can pay when you’re ready.
For someone like Penney, that level of accessibility and flexibility is critical. It gave him on-demand access to quick cash for the few months that he needed it. As business came surging back, he could pay the loan off on his own time.
And since you’re just borrowing against the cash value of the policy, the policy itself continues to grow and compound all on its own. So while you’re borrowing to grow (or just sustain) your business, you can still be growing the value of your life insurance policy at the same time.
And at the end of the day, this is all happening within the context of a life insurance policy with a specified death benefit.
That means even in the event of a disaster or worst-case scenario, if Penney’s health rapidly declined before he could pay off his loan, then the balance would simply be deducted from the remaining death benefit before it was paid to his beneficiaries. No penalties, no defaults, just a nominal deduction before your beneficiaries receive the policy’s proceeds tax-free.
There’s a truly priceless advantage to the flexibility, accessibility, and tax benefit of taking out a loan against the cash value of your life insurance. And it shines most when markets are at their worst.
Ready to see how this could apply to your wealth plan? Click the big yellow Clarity Call button and let’s map it out together.
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