How to get rich with leveraged long/short global equity funds
I’m here to burst your bubble. The only people getting rich from too-technical-to-understand investment products are the fat cats thinking up the hifalutin names and selling them.
I’d wager they don’t invest in them, either.
So why should you?
We like instant gratification, don’t we? We love the idea of investing an amount of money and then we give ourselves something to watch go up. Or, just as easily, and certainly more rapidly, go down.
We love a punt. We love the idea of a big win, heaps of upside.
When the stock market is buoyant, and Joe Public is confident, the stories punters share of making three, four, ten times their money go viral. Then everyone wants some.
Even when sentiment isn’t so positive, the feeling like you’re missing out on the winnings to be had in the global super casino – equity markets worldwide – can be enough to cause you throw yourhat in the ring – filled with money that could be used smarter. FOMO, or Fear Of Missing Out can make it seem like if you don’t have money in the markets, you’re going backwards.
But you shouldn’t feel this way.
Here’s our thinking on investing in products that are so fancy, even the guys who are flogging them don’t understand how they work.
Who’s is control? Certainly not you. The markets are bubbling along nicely, with a quick glance at your phone in the evening, you tally your winnings. Asleep that night, you dream: You’re driving a Bentley, drowning in white gold and bling with fresh $100 notes breezing out of the exhaust pipe. Celebrities fill the spare seats. A sparkle from your white teeth as you smile.
But while you were sleeping…
That annoying kid with the peculiar hairstyle up in North Korea has decided to play with his toys one too many times and The Don, bringing his own brand of hair-flair to the international political stage decided to react with force.
The $50,000 you kicked in, that briefly frothed up to $62,000 is now disintegrated to just $22,000. It was money you were saving for your kids. Scare tactics? Hardly. Speak with anyone who was heavily invested in the stock markets in 2008 and ask them how they felt in 2010.
You have ZERO control over any investment in the stock market unless you are a majority owner of the company and have influence in the direction the business takes.
It’s not just the direction of the company you need to concern yourself with, nor their competitors or balance sheet or a multitude of business variables. What about a terrorist attack, tsunami or political scandal. A financial crisis in a country you’ve never heard of until today.
All out of your control, yet all impact on your investment in the stock market. Hifalutin or simple stock.
Don’t get me wrong, I’m not against the stock market, or diversification. But why kid ourselves we can outsmart the boys in the City who live and breathe numbers all day every day. It ain’t gonna happen.
Keep It Simple Stupid should absolutely apply to your money.
Let’s assume you’re representative of the majority of our clients and have a mortgage of around $500,000, and the interest rate is around, say 4%.
Here’s a simple example:
You’ve got a mortgage of $500,000 and would like to own your home faster (yes, you do!)
The interest rate is 4%
Net household income is $120,000, and you have 10% of that to invest each year (yes, you should!)
Therefore, you put aside $1,000 to invest each month
If you spoke to us, we’d say to do this:
Put that extra $1,000 into the mortgage each month.
Why? You’ll have the mortgage paid off in around fifteen years and save yourself nearly $130,000 in interest.
Paying more off the principle of your mortgage works like compound interest – but in reverse, and in your favour.
Now let me tell you the best thing about owning your home outright; in this example, every year after you’ve cleared your mortgage, you’d have more than $44,000 of FREE CASH FLOW to invest or save. There you go.
Compare this to the punter who makes the minimum repayment on their $500,000 mortgage and invest $1,000 per month into a managed fund, which they kind of understand:
They’d pay $160,000 MORE in interest (wasted money) than you would. Sure, they might get a decent return on their investment over time, but could they tell you how? Maybe not. And they could never guarantee that investment would be around for them when they need it. We already discussed why.
They’d also be a mortgage slave for 25 years – 10 more years than you.
You were smart and paid your mortgage off 10 years faster than they did. After you pay off your mortgage, what happens? Lots of juicy spare cash for you to invest. Smartly.
Something Tim likes to tell his clients who look to him like he’s the rainmaker is; ‘Look, I’m not here to turn you into Gina Reinhart’. If you want blue sky and a get rich quick scheme – Clover Partners isn’t the right partner for you.
We’re a relatively conservative, cautious bunch. We definitely do like the idea of using a portion of your equity to invest in a property – particularly if we can reduce the interest rate on your non-deductible debt to pay off your mortgage faster – because we know how to make property work for you.
Owning an investment property while paying a mortgage is incredibly straight forward. A tenant covers most of the expenses incurred in owning the property. The tax man covers the difference. And yes, you can still afford pay that extra $1,000 into your mortgage each year. I’d like to show you how some day.Want more insight? Give us a call on 1300 823 995 or touch base below