Here is wishing you all a merry Festivus, the holiday for the rest of us.
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Monday, December 22, 2008
Merry Festivus
Leveraged Investments
I found this example on a post entitled Borrowing to Invest Vs Saving to Invest on John Chow's blog of how a leveraged investment can not only make you more money, but is no more risky or cost any more than the standard “save and invest” method of investing for your future.
The Money Saver
The saver is someone we’re all familiar with. He likes to save a certain amount of money every month into investments so he will have a nice nest egg when he retires. He likes to avoid debt at all cost because that is what everyone who don’t know squat about finances tells him.
Let’s assume our saver socks away $500 per month, every month for 20 years, into long term investments (stocks, bonds, mutual funds, etc). Let’s also assume our saver average a return of 10% per year. Some years will be up, some will be down but over the long term, 10% is about what the stock market has returned to investors.
At the end of the 20 year period, and after socking away $120,000, our saver has a nice retirement nest egg of $378,015. Not too bad!
The Leveraged Investor
In this scenario, our investor wants to be like the saver and put $500 per month into long term investments. However, instead of putting the $500 directly into investments, he goes to his bank and sets up a home equity line of credit for $120,000. He takes the $120,000 and uses it to buy the long term investments. So, instead of spreading the $120,000 out over 20 years like the saver did, the leveraged investor borrowed $120,000 to invest everything right now.
Every month, our investor needs to make a payment to the line of credit. Payments can be as low as interest only to as high as the entire outstanding amount. Interest on a line of credit is generally done at Prime. Let’s assume it’s 5%. Prime is a lot lower than that right now but over 20 years, it will average out. If our investor pays interest only on the line of credit, he would need to pay $500 every month to maintain the line.
Because the $120,000 was used to buy investments, the $500 interest payment is tax deductible so our investor can look forward to a $6,000 tax write off every year. That will result in a $3,000 tax refund if our investor is in the 50% tax bracket. If our investor was smart, he’ll put this refund back into investments. But let’s assume he’s just blows it on women instead.
Comparing The Numbers
If we assume our leveraged investor makes the same 10% return as our saver, that $120,000 will turn into $807,299.99 in 20 years. At this point the investor can take out $120,000 to pay off the line of credit and will be left with a net of $687,299.99.
By taking average of good debt, our leveraged investor managed to build a nest egg nearly twice the size of the saver, with the same $500 per month. In addition, the $500 per month the investor paid was tax deductible, while the saver got no tax benefits. Had our investor put the $3,000 yearly tax refund back into investments instead of blowing it on women, he would have made $996,307.49 at the end of 20 years. Women are expensive!
Most financial planners won’t tell you about leveraged investments because they are prevented from doing so. Unless you’re an Accredited Investor (net worth over $1 million or income over $200,000 per year for the past two years) a financial planner cannot legally show you some of the more sophisticated investments available to people with money. This access to higher yielding investments vehicles is one more reason why the rich get richer. It was never a level playing field.
I am not sure if this is possible in the UK, but is well worth looking into.... another new years resolution....
The Money Saver
The saver is someone we’re all familiar with. He likes to save a certain amount of money every month into investments so he will have a nice nest egg when he retires. He likes to avoid debt at all cost because that is what everyone who don’t know squat about finances tells him.
Let’s assume our saver socks away $500 per month, every month for 20 years, into long term investments (stocks, bonds, mutual funds, etc). Let’s also assume our saver average a return of 10% per year. Some years will be up, some will be down but over the long term, 10% is about what the stock market has returned to investors.
At the end of the 20 year period, and after socking away $120,000, our saver has a nice retirement nest egg of $378,015. Not too bad!
The Leveraged Investor
In this scenario, our investor wants to be like the saver and put $500 per month into long term investments. However, instead of putting the $500 directly into investments, he goes to his bank and sets up a home equity line of credit for $120,000. He takes the $120,000 and uses it to buy the long term investments. So, instead of spreading the $120,000 out over 20 years like the saver did, the leveraged investor borrowed $120,000 to invest everything right now.
Every month, our investor needs to make a payment to the line of credit. Payments can be as low as interest only to as high as the entire outstanding amount. Interest on a line of credit is generally done at Prime. Let’s assume it’s 5%. Prime is a lot lower than that right now but over 20 years, it will average out. If our investor pays interest only on the line of credit, he would need to pay $500 every month to maintain the line.
Because the $120,000 was used to buy investments, the $500 interest payment is tax deductible so our investor can look forward to a $6,000 tax write off every year. That will result in a $3,000 tax refund if our investor is in the 50% tax bracket. If our investor was smart, he’ll put this refund back into investments. But let’s assume he’s just blows it on women instead.
Comparing The Numbers
If we assume our leveraged investor makes the same 10% return as our saver, that $120,000 will turn into $807,299.99 in 20 years. At this point the investor can take out $120,000 to pay off the line of credit and will be left with a net of $687,299.99.
By taking average of good debt, our leveraged investor managed to build a nest egg nearly twice the size of the saver, with the same $500 per month. In addition, the $500 per month the investor paid was tax deductible, while the saver got no tax benefits. Had our investor put the $3,000 yearly tax refund back into investments instead of blowing it on women, he would have made $996,307.49 at the end of 20 years. Women are expensive!
Most financial planners won’t tell you about leveraged investments because they are prevented from doing so. Unless you’re an Accredited Investor (net worth over $1 million or income over $200,000 per year for the past two years) a financial planner cannot legally show you some of the more sophisticated investments available to people with money. This access to higher yielding investments vehicles is one more reason why the rich get richer. It was never a level playing field.
I am not sure if this is possible in the UK, but is well worth looking into.... another new years resolution....
Monday, December 15, 2008
What we searched for in 2008
Towards the end of the year Google, publishes it's Zeitgeist, letting us know what internet users are searching for on their search engine.
As usual there are some pretty obvious terms as well as a few interesting ones:
The most searched term for Google users in the UK was Facebook while the BBC came second and its iPlayer service was the fastest rising query. Social networks accounted for four out of the top 10 global fastest-rising queries while the US election held everyone's interest all around the globe.
Fastest Rising Search Terms (Global)
1. sarah palin
2. beijing 2008
3. facebook login
4. tuenti
5. heath ledger
6. obama
7. nasza klasa
8. wer kennt wen
9. euro 2008
10. jonas brothers
A nice feature of the Zeitgeist is that you can look into what people are searching for in different regions around the globe. Unfortunately for me they don't feature Zimbabwe, but the statistics for South Africa are still fairly interesting:
Top Newsworthy Searches from people in South Africa
1. load shedding
2. fifa 2010 world cup
3. beijing olympics
4. barack obama
5. global warming
6. euro 2008
7. xenophobia
8. adt (home and office security service)
9. zimbabwe election
10. cope (congress of the people political party)
For me it was interesting to see that the elections in Zimbabwe were obviously pretty important to the people of South Africa, it's a pity that their government did not seem to feel the same way and continued with their stance of "quiet diplomacy"
Top Sports Teams (South Africa)
1. the sharks
2. kaizer chiefs
3. the lions
4. mamelodi sundowns
5. bafana bafana
6. orlando pirates
7. stormers
8. the springboks
9. cheetahs
10. proteas
You can check out all the most popular terms from around the globe on Google's Zeitgeist
As usual there are some pretty obvious terms as well as a few interesting ones:
The most searched term for Google users in the UK was Facebook while the BBC came second and its iPlayer service was the fastest rising query. Social networks accounted for four out of the top 10 global fastest-rising queries while the US election held everyone's interest all around the globe.
Fastest Rising Search Terms (Global)
1. sarah palin
2. beijing 2008
3. facebook login
4. tuenti
5. heath ledger
6. obama
7. nasza klasa
8. wer kennt wen
9. euro 2008
10. jonas brothers
A nice feature of the Zeitgeist is that you can look into what people are searching for in different regions around the globe. Unfortunately for me they don't feature Zimbabwe, but the statistics for South Africa are still fairly interesting:
Top Newsworthy Searches from people in South Africa
1. load shedding
2. fifa 2010 world cup
3. beijing olympics
4. barack obama
5. global warming
6. euro 2008
7. xenophobia
8. adt (home and office security service)
9. zimbabwe election
10. cope (congress of the people political party)
For me it was interesting to see that the elections in Zimbabwe were obviously pretty important to the people of South Africa, it's a pity that their government did not seem to feel the same way and continued with their stance of "quiet diplomacy"
Top Sports Teams (South Africa)
1. the sharks
2. kaizer chiefs
3. the lions
4. mamelodi sundowns
5. bafana bafana
6. orlando pirates
7. stormers
8. the springboks
9. cheetahs
10. proteas
You can check out all the most popular terms from around the globe on Google's Zeitgeist
Wednesday, December 10, 2008
Seth Godin's Funnel
Seth Godin, Funnel? Seth who and what funnel you may ask, it will all become clear in a few minutes, so let's Start with the who:Who is Seth Godin?
No he is not a Jean-Luc Picard stunt double or a mentor to all those with a shave head (me included), he is according to Wikipedia an American author of business books and a popular speaker with appearances at Google, TED and a number of charities. Godin popularized the topic of permission marketing.
He is also the creator of Squidoo - a community website which allows users to create pages which are called "lenses" on subjects on just about anything.
What About The Funnel?
Seth's funnel is a theory whereby instead of spending tons of money on advertising and marketing your company or product as in the traditional way, you can turn it all around and use the power of people to turn the "funnel" into a megaphone, thus getting people to shout about your business or product.
The web is an excellent place to do this and it can even be done for free especially with all the social media sites out there, the Facebook, Myspace, Squidoo and Flickr's of this world.
Seth goes on to say about his funnel: "Once you see the funnel, it's easy to understand how valuable your existing customers are, and easy to think about how you want to spend time and money in promoting and building your site. Most marketers are running a flat campaign. Embracing the funnel changes the way you treat people. And treating different people differently is what consumers demand."
You can download his ebook for free: Flipping the Funnel and in my book, even though it was published in 2006 is still highly relevant and a must read for anyone interested in marketing.
Friday, December 05, 2008
Google releases Friend Connect
It has been announced on the Official Google Blog that Google Friend Connect is now available
After expressing my interest by signing up a few months ago, I received an invitation yesterday for Friend Connect from Google.
The invite basically said: "We appreciate your interest in Google Friend Connect and would now like to invite you to try the service. You can get started by visiting our homepage and clicking the "Set up a new site" button."
So what is Friend Connect?
Friend Connect is another way of keeping in touch and connecting with people that have similar interests as yourself. It hopes to make easy for people to instantly connect with other people on websites that they already enjoy and visit.
The goal of friend connect is to foster an open social web by using common standards like OpenID and OAuth. Websites that use Friend Connect on them will become OpenSocial containers, capable of running applications created by the OpenSocial developer community. So because it is open source, we should see many different applications being developed in the future, so who knows where all this will go..
It will be interesting to see in a year or so if Friend Connect has become the next big thing.
After expressing my interest by signing up a few months ago, I received an invitation yesterday for Friend Connect from Google.
The invite basically said: "We appreciate your interest in Google Friend Connect and would now like to invite you to try the service. You can get started by visiting our homepage and clicking the "Set up a new site" button."
So what is Friend Connect?
Friend Connect is another way of keeping in touch and connecting with people that have similar interests as yourself. It hopes to make easy for people to instantly connect with other people on websites that they already enjoy and visit.
The goal of friend connect is to foster an open social web by using common standards like OpenID and OAuth. Websites that use Friend Connect on them will become OpenSocial containers, capable of running applications created by the OpenSocial developer community. So because it is open source, we should see many different applications being developed in the future, so who knows where all this will go..
It will be interesting to see in a year or so if Friend Connect has become the next big thing.
Tuesday, December 02, 2008
New Forest Lapland park a Scam
Last week I went with a work mate to the New Forest Lapland park in Dorset to do some filming. Described on their website as a "winter wonderland" it was meant to be the backdrop to the Christmas version of Jokers' Masquerade TVWe arrived to a pretty desolate scene, but the fact that we had been given permission as "journalists" to come a day before opening, I initially put it down to the fact that they probably still had some setting up to do.
Once we were inside, things did not get any better. Their "tunnel of light" was merely a path between some trees with a little fake snow on them, a few plastic polar bears and some Christmas lights above. The nativity scene (pictured) looked to be in the middle of a huge muddy field and as such we decided not to trudge through it. I was particularly put off by the Husky pen, to me it seemed that these poor dogs had been chained in the middle of a field for who knows how long.
We decided to get what shots we could out of the place and leave as quickly as possible.
We did not have to pay an entry fee, but Ian told me that it was to be about £25 to £30 - I am sure that you could find much better places and things to spend your hard earned money on this Christmas.
Since it has opened there have been many complaints about the place and it has even been reported on the BBC and the Southern Daily Echo and blasted in the Essential Travel blog - I can easily understand why!
Check out the December edition of JMTV, some of which I filmed at Lapland New Forest in Dorset.
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