Want To Get Rich? Get Into Debt!

i just a student , university student . but i ma very very poor , i hope i can get rich , i try to buy bond , but in the end fail . even bond also cannot give me good investment , so i guess , if anyone like me here dont know how to manage money , then we better save money in the saving account . safe for your whole life , rich or not is not reallyu important , at least you are safe and can live a better life without worrying you will went broke.
right ?
we cannot playing this kind of gambling games all the times . need to be stable .

What about using a line of credit to purchase the new manual life Income Plus.

You are guaranteed to not lose your principle, you can lock in your gains every 3 years, and you get bonus payments if you dont withdraw any income for a time. Lets say 10 years. It is tax free growth and insured in case of death. From what I know so far you can deduct the interest as interest costs on an investment.

I understand the gains will not be as much, but you will never lose your house or your marriage.

John,

As a Certified Financial Planner I agree with this concept and use it with clients in many applications. The trick is to understand that the concept is risky enough and you don't need to go overboard with the investment risk as well. Build a portfolio that will generate 8 - 10% over time and this is a great retirment savings vehicle.

I too attend Camp Abundance

John- Ken is probably referring to, among other things, this discussion over at the Investor Geeks:
http://www.investorgeeks.com/articles/2006/11/16/l...
and then this one as well:
http://www.investorgeeks.com/articles/2006/11/22/s...

Personal finanace bloggers, like people tend to be either scarcity or abundance minded. The mindset is everything. "Whether you think you can or can't, either way your're right."

For the record, I am of the abundance camp (Camp Abundance), and am glad to see your post about leverage used properly!

John,

It's very difficult to convince people about the power of leverage and debt. I've found that it's almost like arguing religions with other people. You will never convince them that certain debt is good.

If you're investing for the long term and buying stable dividend paying investments (Canadian) there is limited risk in using your home equity line of credit to invest. Not only do you get the tax break from your interest payments, you get the tax break from being invested in Canadian dividends.

Just some food for thought.

StingyFinance

John: Some of those borrowing 90% to buy a house are indeed speculating (just look at all the frantic investors in the US with ARMs who are now looking down the barrel of a gun as the interest rates creep up).

What's more, that's not a purchase on margin -- you're only risking the accumulated equity in the invested asset. What you're proposing is taking secure equity from one investment and risking it on a much more volatile and risky second investment. You're multiplying your reward, but also your risk by an equal amount.

One thing I would never counsel anybody to do is use equity in a principal residence to finance an investment in a tradable security.

Have a look at Benjamin Graham's book, "The Intelligent Investor". Whether you are investing for growth or more conservatively, your first priority should still be protecting your principal.

Warren Buffett got rich following the same approach :)

One man's investment is another man's gamble.

In other words just because you think it is gambling doesn't mean it is for everyone else. Lotteries are legalized gambling, any other sort of investment is only gambling if you do not know what you are doing.

Sure, some big rollers have been wiped out, but you know what? They know how to make money and therefore being wiped out isn't as bad for them because they can get it back.

John is right, the only way to get money more quickly than saving it is to leverage someone elses money. He is also right on with the points of buying a house. Unless you are paying cash, then you are leveraging someone elses money.

Stephen - So I guess all people borrowing 90% to buy a house are all speculating? :)

This is called trading on margin, and it's very high risk.

There are other ways to get rich. A sound investment strategy should be patient and take the long view, and above all, it should seek to protect the principal first.

What John doesn't explain is what happens when your investment depreciates by 12%. Now you have a $42,000 loss, and your principal is almost totally wiped out.

This is how commodities traders and high rollers do it, and MANY more people have been wiped out than have made it big. It's legalized gambling. This is not investment advice, it's an instruction for speculation.

I never would have understood this fully until we did the Cashflow 101 Game. Interesting. I had to explain to Montana.

Very good point Christoph, it's never black and white. The point I was trying to make with this post was to say that the rich never got there using their own money. Almost every one of them used some level of leverage.

Of course there are risks, but if done correctly, the risk can be managed.

Using borrowed money for investments like this is very bad financial advice. First of all - even if the interest is tax deductible it is still interest that you pay. Then - the risk that the financial investment heads the opposite direction is very real and can put your house at risk to be sold by the bank because the debt now exceeds your equity. Go back in time 6 years. So many people did exactly what you describe here and the bubble burst and loans could not be covered and paid off anymore. They went broke and lost everything with the Internet bubble "blowing up" Nasdaq and NYSE.

I am not saying borrowed money should not be used to cover investments, but it is by far not that black and white as described by you.

Christoph

No you don't pay off the loan. You just pay off the interest, which is tax deductible. You are allow to pay interest only on a line of credit. When you sell the investment, you repay the line of credit. As long as the investment makes more than the interest cost on the line of credit, you're ahead of the game.

So you spend the first 7-8 years paying back the loan with the earned interest?