Call KIS
In my quest to become financially independent, I’ve been looking at many different ways to increase my net assets. One method that is often used is leverage. In some cases such as students, it’s unfortunate and is actually a worrying trend, just look at this chart from the Wall Street Journal:
What I’m considering though is something I’d personally consider less risky. I’m thinking about borrowing some money in order to invest it in the markets, what many would call investing on margin. It seems like many others are doing it these days:
Why Would I Do This?
It’s fairly simple in fact. If I’m able to pay 3% or so on my mortgage for example and expect to make more than that in the markets, it would make sense to increase my assets by borrowing more. Over a few months or even 2-3 years, the stock market returns might not outperform whatever debt I’d pay. But as I increase the amount of time that I do this, it becomes more and more likely that I will be making money out of this strategy.
When I met financial advisers a few months ago, this was one of their primary recommendations. Why? Because they said I had the right profile. Look at the result of investing $100,000, paying 3% and making 4.5% over 25 years:
$91,000 is significant. The results would certainly be different (could be better or worse), but I don’t think it’s unreasonable to expect to make 1,5% more on the investments than what is paid on the margin over 25 years, right?
Is This For Everyone?
I’m sure that any of you could answer this question. No, of course not. There is obviously risk involved in such a strategy so this would be a good strategy for investors that:
-Can and are willing to support above-average risk (being young, having decent revenues and assets are some of the factors)
-Understand the strategy (I understand that my investments could decline over 1, 2, 5 years and maybe even longer)
The benefits are significant though as I would be using other’s people money (OPM) to increase my own assets.
How Would I Do This?
I will likely start doing this later this year. At first, I will probably take some money I had expected to pay back my mortgage with and reinvest it. My business partner told me this was not really leverage and I guess technically he is right. But if I had planned to pay back $20,000 of my mortgage later this year and reinvest it instead, I will be more “leveraged” than I had anticipated.
Over time, I might start investing on margin. For example, my investing accounts are margin accounts, so I could technically invest more than what I have in the account. I’ll have to get a better idea of the interest rates involved.
What Kind Of Investments?
It’s unlikely that I’ll be making riskier investments with this strategy for now. I’m much more likely to buy dividend stocks or ETF’s than doing picks such as my long term speculative stock picks. I certainly could but for now I’m trying to give myself the best odds of coming out ahead using this strategy.
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About Those Tax Havens
Date posted: 05.21.2013 (3:00 am) | Write a Comment
I’ve seen many smart people such as Jeffrey Sachs write about this but I still do not see many ways to do it being discussed. It’s much easier said than done.
Oh and let’s all blame Apple please.. it’s far from alone, here are others escaping the 35% corporate tax rate:
Effective tax rate
Apple = 9.8%
Google = 11.9%
Yahoo = 11.6%
Amazon = 3.5%
One article that seems to explain some of the challenges of what governments are trying to do was written on Baekdal. If you’re interested in the subject, I recommend it! It’s an incredibly complex issue and there has to be a global solution (which seems like a daunting task) if Apple and others wants to make sure it does not lose its “tax advantage” while competitors continue to get it…
Should be a very interesting debate!
more:
-Seven tax avoidance techniques used by Apple
-Apple’s web of tax shelters saves it billions
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