These kinds of secret income pitches get sent around all the time, and that’s been true ever since Stock Gumshoe started publishing in 2007 — some of our very first articles were about deciphering the “secrets” behind schemes described as “801k Plans” (because they’re “twice as good as 401k plans“) and other terms that are lost to my faltering memory.
And now the latest crop of these pitches is getting Gumshoe readers intrigued, so it’s time to take another look. The two pitches that we’re being asked about now are the “Second Income Plan” or “Corporate Retirement Plan” from Nathan Slaughter at High-Yield Investing (pitch is here if you want the source), and the “IRM(72)” from The Crows Nest (you can see that pitch here if you’re curious).
So what are they talking about?
Well, there are likely different stocks they’re suggesting to their readers, they don’t hint around much about the specific stocks… but the strategies are simple — the “Second Income Plan” and “Corporate Retirement Plan” are teasing this strategy based on the premise that it’s like the original employee stock ownership plans (ESOPs) of 50 years ago, but can now get income for non-employees of select companies… and the IRM(72) “hook” is the power of compounded income… but they’re both simply teasing direct stock purchase plans (DSPPs) and dividend reinvestment plans (DRIPs).
That’s right — the “magical” growth of income they tease in these pitches, with a single share of stock bought for $50 that turns into $80,000, is, for all real purposes, simply the most optimistic outcome from the combination of “buy and hold” and “reinvest your dividends,” with the kicker of “keep making regular small contributions” to sweeten the pot.
Here’s a snippet from Jimmy Mengel:
“IRM(72) Retirement Plans
“They’re 100% legal and can generate up to $1 million more cash than Social Security, IRAs, 401(k)s, and even Obama’s new ‘MyRAs’
“I’m referring to a censored program that allows you to collect anywhere from $500,000 up to $1 million from a one-time investment through what I call the IRM(72) plan.
“And even though IRM(72) retirement plans can generate up to 10 times more cash than IRAs, your typical 401(k), or even Obama’s newly proposed MyRA (a short way of saying ‘My IRA’)…
“Most people haven’t heard about IRM(72) plans for one simple reason.
“Companies that offer these plans are forbidden to advertise them to the public.”
The “one time investment” stuff is disingenuous — you’re certainly not going to invest $200 into an “IRM(72)” and turn that into $500,000, not unless you’ve got a few centuries to compound those dividends (we’ll get into a couple examples in a minute) — but exaggerated hype in the ads doesn’t necessarily mean that a strategy is without merit.
The “72” part refers to the “rule of 72” — which is a shorthand way to calculate the time it will take for your initial investment to double if earnings are compounded. The rule of 72 is not precisely accurate, but it’s simple and it matches reality pretty well in most cases — basically, you just take the number 72, divide it by the annual percentage growth rate you expect, and the result is the number of years it will take for an investment, compounding at that rate, to double.
So if you expect an annual dividend of 5% and think that payout is stable and you will reinvest the dividends, your investment should double in about 14 years. The idea is to do better than that, of course, by picking better companies with growing dividends and, hopefully, companies that are providing returns above and beyond the dividend as they grow their business, but that’s the basic way to think about compounding returns.
And no, Einstein probably did not actually call compound interest the “eighth wonder of the world”, but the sentiment is often attributed to him… and that doesn’t mean it’s not powerful — money that earns money that earns more money is how fortunes are often built, even if it takes a long time to get up to critical mass (and even if, unfortunately, you don’t get much of a kick from “safe” compound interest like CDs when interest rates are low).
And here’s a bit from Slaughter:
“Some companies offer the best type of retirement plan. And for those lucky enough to work there — it’s a near guarantee of retiring rich and early…
“For the most part, this unique type of retirement plan is only available to the employees of those companies.
“But what many people don’t realize is that some of these companies are required by law to also make the plan available to their employees’ families… and as a result to ordinary folks who have NEVER worked for these companies!
“It’s all part of a little-known S.E.C. regulation that removed the restrictions on these programs, providing equality among American industries.Are you getting our free Daily Update
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“That means regular folks like you can take advantage of these plans too, even if you’ve never worked a single minute for one of these companies.
“In short, you can tap into the same kind of benefits that many of America’s most well-off retirees are already getting — and you don’t have to be on the payroll.”
Slaughter’s references to a few companies and their “retirement plans” are references to employee stock purchase programs, or employee stock ownership plans (including the Peninsula Newspaper Company, which was the first ESOP in the 1950s when the owners were trying to find a way to retire and leave the company to their employees), and those have indeed been wealth builders for many employees over the years — often because, in the case of some companies like Wal-Mart or McDonald’s, they’ve been benefits exercised at little to no cost by very low-wage workers who wouldn’t otherwise have been buying stocks at all. Of course, over the years many companies have also essentially forced their