Cash Flow Management

How repositioning equity can help maximize your wealth potential

Seasoned 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 is the ability to do more with less. Most savers don't know how to use financial leverage. They don't use 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.

Consider 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 comes from 10% of her holdings; or
• The teacher who finds that 90% of the trouble in her class comes from 10% of her students.

Similarly, 90% of people use debt incorrectly and become poorer while 10% of people use debt wisely to become richer.

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

Equity repositioning and cash flow

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

How to create an extra million dollars for retirement

Why is separating equity from your home a valuable decision? The following example will help illustrate the opportunity.

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 of 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 your account - a net gain of over $1 million dollars. Conversely, 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 have lost value if inflation was present in the market. Contact us to find out how you can manage your cash flow and conserve your money, rather than consume it, to build a better foundation for your retirement.

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