Cash Flow Management

Repositioning Equity can help maximize your wealth potential

Differences between Savers and Investors
Experienced investors use leverage and other people’s money (OPM) to create their wealth. Savers also invest but they invest from a saver’s point of view – mutual funds, 401Ks, stocks and bonds. A well informed and disciplined investor can gain much higher returns with much less risk and less money, but doing so takes leverage. Equity repositioning can help provide you with financial leverage.

Leverage: The ability to do more with less.
Most savers don’t know how to use financial leverage. They don’t use their debt to their advantage and they don’t use it to get richer. Investors, however, use smart borrowing techniques to make their money grow faster.

Here are some examples of the 90/10 rule:

• The salesman who finds that 90% of his sales come from 10% of his customers
• The portfolio manager who finds that 90% of her gains come from 10% of her holdings
• The teacher who finds that 90% of the trouble in her class comes from 10% of her students
• 90% of people use debt incorrectly and become poorer while 10% of the people manage their debt wisely and become richer

According to a recent study, 67% of Americans have more of their net worth in their home equity than ALL other investments combined. If you think about it, anyone who has 67% of their investment portfolio weighted in a single investment is taking a major risk. The best path to reduce risk and increase your financial security is the become financially educated, take control of your investments and create a more balanced portfolio.

Equity Repositioning and Cash Flow
It is important to not remember that when you reposition your equity, you are NOT spending it. Rather, you are putting it into different investments. Keeping assets and investments liquid so they are easily accessed means that you can maintain flexibility to take advantage of market lows and highs. Undisciplined borrowers who use home equity to consolidate credit card debt are only creating a bad cycle of debt. The key thing to remember is that debt managed wisely can be good.

Create an extra million dollars for retirement
Assume that you separate $200,000 of home equity using a mortgage with a 5% interest rate. If the $200,000 grows at a conservative rate at 6.75% per year, it will be worth $1,419,275 in 30 years. After deducting the $216,000 in interest payments and the $200,000 mortgage, you still have $1,003,275 left in your account – a net gain of over one million dollars. If the same $200,000 were to sit idle in the home for 30 years, it would not have earned a dime and would actually lose value if inflation was present in the market.

Contact Us to find out how you can manage your debt and conserve your home equity to build a better retirement plan.