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Seven ways to wealth

Discussion in 'Investing Strategies' started by Simon Hampel, 27th Nov, 2005.

  1. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Article in the SMH: Seven ways to wealth

    ... in summary, the seven "ways" they suggest are:

    1. Time in, not timing
    2. Miracle of compounding
    3. Rent, don't buy
    4. Recycle debts
    5. Pay yourself
    6. Tax
    7. Diversify

    Nothing terribly interesting really - good common sense for the most part ... although people here might disagree with some of the suggestions.
     
  2. Simon

    Simon Well-Known Member

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    What does recycling debt mean?
     
  3. Simon

    Simon Well-Known Member

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    Simpler than I thought...

    4 RECYCLE DEBTS

    Nobody ever got rich by staying out of debt. Not paying it back perhaps, but certainly not avoiding other people's money in the first place.

    It's how you use the debt that counts. When used for an investment, so that the interest is tax deductible, it's called leveraging because it magnifies your gains. Or potential losses.

    Because ordinary old common debt such as the mortgage or credit card isn't tax deductible, it's expensive and so a potential wealth hazard.

    Your mission is to recycle common debt into deductible debt. One way would be paying off the common debt mortgage as quickly as possible, while paying the bare minimum on an interest-only investment loan.

    Or taking out a margin loan to buy shares, and using the dividends to pay off the mortgage.
     
  4. Mark Laszczuk

    Mark Laszczuk Well-Known Member

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    Simon,

    You can also use debt recycling like so:

    Use the equity in your PPOR to invest into an income producing asset (like Navra) and use the income from the fund to help pay down the loan. Access the new equity every twelve months and continue until the loan has been paid off.

    Essentially you are swapping non-deductible debt for deductible debt. It's a strategy we recommend to clients.

    Mark
     
  5. Nigel Ward

    Nigel Ward Team InvestEd

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    I think "recycling" is a bit of a misnomer...rather I'd call it "recharacterising" the debt.

    or swapping bad debt for good debt.

    N.
     
    Last edited: 28th Nov, 2005
  6. Simon

    Simon Well-Known Member

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    I have done 6 of the 7 points. We own our PPOR outright and use it to fund other investments.

    When will the money start rolling in Sim?
     
  7. Mark Laszczuk

    Mark Laszczuk Well-Known Member

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    Hahahahaha Nigel, I prefer to swap bad debt for good debt, but each to their own! Hahahahaha.

    Mark
     
  8. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    One thing they didn't really mention is how long it will take.

    Try: decades.

    Assuming your correctly diversified portfolio grows at an average of 10%pa, you would require 7.2 years for your investment to double in value. Now depending on how much money you had to start with, and how much you plan to end up with - it will take some multiple of this to build your wealth.

    Unless you can speed up the process somehow (which is what Steve specialises in - showing people how to do it more quickly).

    But either way, unless you know next weeks Lotto numbers, I would suggest you keep doing what you are doing, and let time to the heavy lifting for you.
     
  9. Nigel Ward

    Nigel Ward Team InvestEd

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    D'oh! another homer moment...!
     
  10. Tzaki

    Tzaki Well-Known Member

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    Yep, gotta love em! :D

    Unfortunately most people do this in life and then wonder why they are broke!! :eek:
     
  11. kennethkohsg

    kennethkohsg Well-Known Member

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    Dear All,

    1. Beside the point of the Suburb Benchmark House Price Index, I also take home from John FritzGerald's book, "7 Steps to Wealth", the importance of having a copy o f the bank valution report.

    2. I said this, having the hindsight and successful experience of re-negotiating with my bank to revise and to increase its bank valuation price realsitically for my house at Lot 1664, 15 FitzGibbon Road, Rockingham from A$325,000 to A$365,000 within a period of less than one month in August 2005. By having a copy of the bank valuation reort, I was able to effectively challenged its first bank valuation report accuracy with existing comparable sale data both for the recent land sales in the same suburb as well as for the recent increase in the house construction costs in WA.

    3. This is especially so during a fast rising market conditions as was last reported in the Perth property market in 2005.

    4. Without a copy of the bank valution report, our house value can be easily and deliberately "under-valued" by the lending bank to increase its lending security and lower its risks at our/the borrowers' expense.

    5. While this may seem quite commmonsense, yet I know many investors do not bother or actually ask for or/and insist for a copy of the bank valuation report from their lending bank, when their properties are being valued by the bank-appointed valuers.

    6. To the best of my knowledge, I was told that only St George Bank does have this practice of giving a copy of its bank vlauation report to its customers upon their request. However, the other major lending banks reportedly do not have this practice unfortunately.

    7. For your kind update, please.

    8. Thank you.

    regards,
    Kenneth KOH