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Highlights from this episode include:

  • The little-known secret weapon of top professional investors and how you can use ti to generate wealth (5:30)
  • How getting into debt can secure your financial future (6:18)
  • An uncommon use for home equity that can rapidly accelerate your retirement savings (10:02)
  • How to ensure your mortgage refinance doesn’t make you a slave to your house payment (7:52)
  • Why a poorly set up HELOC can destroy your child’s college plans (12:37)
  • How to create your own bank so you never have to beg for a loan again (15:46)
  • Why paying income tax should make you ecstatically happy (18:29)
  • The only reason to ever borrow from your 401k (and how to do it without losing all your savings) (21:50)
Read Full Transcript

Do you hate the thought of working past 55 or 60? Do you hate not being able to live the life you deserve today? Do you hate not knowing what your financial future looks like? It's time to stop doing what you hate, here's your host, Mr. Harold Green.

(00:19): Oh, hello. Hi everybody. This is Harold Green and it is time to stop doing what you hate. Welcome to the show. Hopefully everybody is having a fantastic week. I am doing okay here in the islands and on the Island of a wahoo. Well, very interesting week Mara COVID cases or, you know, on the rise and men is, it's just not cool, but they're shutting the beaches down and things like that. And just trying to force people, you know, not to do the large gatherings without their mask and things like that, but it's a, it's a little bit disappointing to kind of see things go backwards. But I, I, I do understand, but I don't understand. And so I'll just kinda, I'll just kind of leave it at that, but thanks for tuning in. I want to get into today's show and a little bit, the title is or the wise investors secret weapon.

(01:13): That's right. The wise investors secret weapon, but I want to take a minute and drop some props and some kudos and shout outs or whatnot to one of my clients that came on board probably about a year or two ago, maybe, maybe a year and a half Brian Beyonce. And you're out there listening. I just want to say shout out to you big props for referring in quite a bit of new clients over the last two to three months. So very grateful for that. Extremely excited to be working with those new clients. And as you guys know, in the financial planning industry, investment advisory industry referrals are a great thing because it saves us on cost of paying the thousands and thousands of dollars that it takes to put out marketing and different things of that nature. So I want to say a thank you, Brian, for referring people in.

(01:59): And so I'm excited about that today. Show the secret investors or the wise investors secret weapon, sorry for getting that messed up. We're going to be talking about using debt in order to create wealth. And I know it's not a it's not a new topic it's been out there for, for tons and tons of years. And so I also use debt to help build wealth inside of the rapid retire program and using debt to build wealth requires a lot of calculated assumptions and things of that nature. And so the risk is very, very, very calculated. It's not just something that you go off and do. And so I haven't talked about the rapid retirement program in a while. And so I just kind of want to tie some things in there and have to put the disclosures out there. So in using the rapid retire program, there can be no guarantees made that you will be in a position to retire seven to 10 years or sooner or any specific period.

(02:55): And the results of the program will vary by user. So people do have different results in the program. And we're also going to be talking about investing here. So past performance is no guarantee of future results. All investments, including real estate are speculative in nature and involve substantial risk of loss. And I encourage our investors to invest carefully. I also encourage investors to get personal advice from their own investment advisor and to, and to make independent investigations before acting on information that I publish or put out on my show. So I want to get into using debt to build wealth, but I want to do a little bit of a recap and talk about the different types of debt. So we have good debt versus bad debt. And I was reading an article on us, wealth management. You guys can kind of go to their website and then just kind of click through it and see if you can find that article.

(03:50): It's like a long you know, hyperlink. I don't want to say it on the show, but just look up, I'm using debt to build wealth and you should be able to find their article. And it talks about a strategic use of a debt may help you achieve your short and long term financial goals. But one of the biggest problems I find is that people do not know how to properly use debt or how to properly structure debt in order to accomplish their goals. And so credit card debt, we talked about that in a previous show, how there's trillions of dollars out there in credit card debt, which is bad debt for the most part because people carry it and has super high interest rates. Car loans are another example of bad debt. Sometimes 401k loans if they're used in properly is bad debt. And so I feel like our country's just kind of drowning in bad debt and our government.

(04:43): I think they're the goalpost or their standard barriers in this because they're right now barring against our future and just kind of dumping it out there, hoping that it stimulates the economy and on and on and on, but that debt has to be paid back someday. And no one's really calculating out how much it's going to cost us in the future to borrow as much as we are borrowing now. And so getting into this, I want to talk about margin investing because I do believe that using margins, it's one of the most phenomenal ways to buy into stocks for investing and building your net worth. And I'm going to give the analogy of someone that I talked to recently that took on a large and considerable amount of debt in order to buy an investment property. And one of the questions I asked them, I said, do you think in your life, you would be able to save basically a million dollars in order to purchase the place you just bought?

(05:45): And they said, no. I said, basically what you did is you went, you found the property and then you went to the bank and you said, Hey, give me a loan for X number of dollars in order to buy this place. And the main looked at the numbers, they looked at the property and they said, okay, we're going to give you this loan. Right? So imagine you said, you know what? I don't believe in debt. I've read different places where they said, you want to get out of debt as fast as you can. And then basically they took debt and they lumped it all together. And assuming that it means bad debt, but when there's underlying assets, then it's not so much of a big deal unless you bought the wrong underlying assets. And so I said, where did you buy that? Did you buy that place in a good neighborhood?

(06:26): Or did you buy that place in a bad neighborhood? They said, well, it's in a pretty good neighborhood. Right? And they said, well, exactly. And so you wouldn't go borrow a million dollars and then buy a place in a very bad neighborhood because you're probably going to lose your investment depending on where it is and the values are going to go down and you might end up upside down in that property. So I want to start talking about the different types of debt out there, and some of the uses for this type of debt. I want to talk about home equity lines of credit. And you know, right now there's a big boom. I'm getting probably two to three phone calls a day almost, or emails about refinancing properties and things of that nature. Some people are at 4% and a, the lenders and brokers out there offering like 2.2, five or 2.37, five or two, you know, 2.5.

(07:19): And depending on your planning, it may be a good idea to refinance your property and take advantage of the super low interest rates. Right? And so you definitely want to look at your long term financial plan and then make sure if you do refinance, there's not a lot of high closing costs and things of that nature. And one of the things I recommend is if you're going to do it, make sure you continue to pay the same monthly payment that you're paying right now, based on your financial plan in order to get that, that mortgage paid off sooner. And that would be the reason for refinancing anyway, unless I less and less and less, you're going to take that cash savings and put it somewhere else and put that money to work. And that's what I normally do for myself is I get my interest rates or get my rates down and get my payments down as low as I can, because I want to take that savings.

(08:05): And I want to put that money somewhere else. And you guys know me, I'm going to put it in the market. And I put some of it in my life insurance policy, because I do want to have some cash reserves so that I don't have to go back to the bank and take on any loans for my cars and take on any loans for other things. And so I use a program called bank on yourself, and it's a life insurance program where you put cash into a policy and then you borrow and then you pay yourself back so that you don't have to pay the banks any money on the, you know, any interest on the outside. So refinancing is definitely, probably a good thing right now for a lot of people. If they have interest rates that are in the fours, if you're down in the threes, then you might want to consider that it may not be worth restarting the clock all over again, because if you're only lowering your rate by a point or so, or a percent, then that that might be a a hundred dollars or two.

(08:53): But if you're saving five, six, $700, then it just very well be a, or it may be a, a good idea is what I'm trying to say. All right. So let's go look at the home equity line of credit on the house. Some people have taken on lines of credit on their homes and they use their home equity line of credit, kind of like a, you know, like a credit card or like a slush fund buying all different types of crazy things. And I back when the house housing market crashed and the financial we had the financial crash back in some years back, one of the biggest things we saw was I saw homemaker witty lines of credit with credit cards, debit cards, attached to the home equity line of credit. And it just kind of induced the spending of the uncontrollable spending and the urges that people had because they had access to money.

(09:43): And that was a very bad thing because it ended up causing a lot of problems. So how do you properly use a home equity line of credit on your house? And so one of the things I talk about is how to use the home equity line of credit to speed up the mortgage on the house in order to, to get it paid off faster. This requires you to really understand it, your cashflow. Okay. So when you look at your cashflow every single month, so you have three or $4,000 extra to put aside, and you're just kind of saving that right now. Or in some cases you're throwing that at your mortgage in order to bring down the payment on the house. One of the things I suggest to people who want to do that is get the biggest home equity line of credit that you can get and then transfer your mortgage over to the home.

(10:31): Like we had a line of credit because in some cases you'll get like 1% for the first year and then 2.75 for the next three years or something like that. And one of the things I love about the home equity line of credit is it's extremely flexible. So if a transfer a hundred thousand dollars on the line of credit and the interest rate is 1%. So you can kind of see right there, you're only going to pay basically a thousand dollars in interest or so for that year. And so let's get back into paying the house down. Pastor Asheville is three or $4,000 a month. One of the things you can do is you can take $30,000 out of your line of credit, and then just throw that at your regular mortgage payment or your, your principal balance. And then from there, you take your surpluses every single month and you throw those at your home equity line of credit.

(11:16): So by doing, doing that you speed up that process. And so every time you get that home equity line of credit down to zero, you can go take another 30,000 whatever, and throw it out that, throw that at your house. And so that's probably a more efficient way to do that. It's just my opinion. And you may want to run the numbers on that. I just love the flexibility and the home equity line of credit, because if something comes up and I don't want to take the $3,000 that month and throw it out the line, I necessarily, I don't have to, I'm not locked in. And so you only really want to be locked in. And so your, your, your primary mortgage at the lowest possible rate that you can, but you hilar do you want to have that as a, just a non locked line where you're making the payments based on the interest rates, and it's not fixed for 10 years or 15 years, cause then you pigeonhole yourself into eating into your cashflow.

(12:04): And so you definitely want to watch out for that. Some people do use their home equity line of credit to pay for college, but in some cases that may not be a wise idea depending on your overall financial situation. Because colleges in the past have looked at people's home equity line of credit, depending on if it's a private school or a public school, they've looked at the home equity line of credit and they include the home equity line of credit in your expected family contribution for the institutional numbers, which is very different than the federal numbers. So the federal numbers is just based on your taxes, your income, and what you put into your 401k and your investments. A number of people in this school and number of family members. Whereas the institutional side, they take all of that into consideration your 401k contributions, and they take your home equity.

(12:48): And they add that into your expected family contribution because in the past, a lot of people have used their home equity line of credit to fund education, which if that's your only option, that's your only option, but there's better ways to do that. And if you're, if you're out there and you have kids that you want to put through college, and you're considering using your home equity line of credit, I want you guys to give me a buzz and see if we can find a work around so that you don't necessarily have to do that because it's, it could be a very horrible thing for you. Another use for the home equity line of credit. Some people put their cars on the line of credit, and then they pay the car off in the line. We just pay cash for the car. That may be an idea, but you want to run the numbers to make sure that you're not hurting your long term financial goal.

(13:31): For me, honestly, I don't really care about paying off my house. My goal is to build my assets so that my assets generate enough income to cover a mortgage on my house. And any other thing that I want to do a lot of times, we get lost in trying to create a, a situation where there is no debt, but that's why we have reverse mortgages because a lot of people that are senior citizens, they have no debt, but at the same time, they don't have a way to generate the revenues that they need in order to cover the rising cost of things in the future. So they kind of pigeonholed themselves into having a house that's fully paid off. And I was talking to a client, I think it was yesterday. And I was kind of going through a scenario that I had ran through my mind the other day.

(14:13): And it's something that just kind of popped in my head. And it was two people talking and you know, they're both retired and one person said, Hey, my mortgage is paid off. And I don't have to worry about it anymore. And what about you? And the other guy says, no, I don't, my mortgage isn't paid off, but I have the money sitting there to pay it off. If I want, I'm generating tons of income on my investment servicing all year. And so I can comfortably pay the mortgage. And the other person says, well, if that's the case, why don't you just pay the house off and not worry about it? And the other person said, well, maybe you're right. And I'm sitting there thinking in my mind, because I've heard that conversation in real life before from certain people. And it's about style points, you know?

(14:53): And so some people were having a home that's fully paid off or having no debt like a badge, but if you don't have any income, right. And something happens, this is what has to happen. You got to go back into debt in order to get what you need. And so we want to be very careful and having these, you know, these ideas floating around out there are these I don't know what you call them, but these mindsets probably in regards to having a house fully paid off, having no debt and so on and so forth, again, there's good debt and there is bad debt. So the next thing I want to look at is life insurance and taking loans on life insurance. So one of the things that, you know, and talking about the bank in herself program and using cash value yeah. And your life insurance Dee to pay down or to borrow and then pay back.

(15:38): It's a very, very, very interesting concept as a fact. So many things in our country have been started using loans from life insurance policies. And you may want to just Google famous people who use life insurance or famous people who use loans from life insurance policies. And I'm sure you're going to find some very interesting stories out there. One of the most famous as Walt Disney used alone from his life insurance policy, you know, to cover, to start, I don't know if it was to start Disney, but, but there's, there's just a lot on that for me. I use my life insurance policy as a dual purpose thing. Okay. Number one, it creates an estate for my family. That's tax free. Number two, it allows me access to my cash that I can borrow and do different things with it. So a while back, I borrowed quite a bit of money from my life insurance policy and I invested in the market.

(16:31): And then I do different things with that money in order to pay down debt on my house or pay down debt on my home equity line of credit. And so that's also built into the rapid retire program and as predicated on generating as much income as I possibly can in order to do the things I want in life. So grow the asset, generating income, pay down debt as life killing is like, I don't want to kill the goose. That's laying the golden egg. So versus me taking lump sums of money and throwing it at debt, I'd rather grow the asset, generate income, pay the taxes on it. And then from there, do what I want. So some clients came in the other day and they had a very, a very big tax bill because of some transactions that had taken place. And, you know, we had already recovered the amount of taxes that they were going to pay in their investment portfolio.

(17:21): So the money is definitely there and they can use that money to, to cover the taxes. And, you know, they were just in the mindset that, Oh my God, we got to pay taxes. And you know, said, you know, you made a lot of money. And I said, you just have to get used to paying taxes. There, there are some ways around it, but in some cases they just have to bite the bullet and pay the taxes, especially if you've made the money. And I'd said, that's not necessarily a bad thing. You know, if you owe $20,000, you made a hundred thousand dollars that you really didn't have to work for. And you got to pay $20,000 of that in taxes, but you get to keep 80. I mean, you made a hundred thousand dollars without having to do anything for it. It was no hustle, no bustle, no side hustle or anything like that.

(18:02): It was just investment performance. And it did well for you. And I told him, I said, you got to kind of get used to that. We're, we're building your portfolios to make you as much as we possibly can. And that's going to generate some time short term capital gains. That's going to generate sometimes long term capital gains. And so, you know, we, we use the same tax professional and I was kind of joking. And they were saying you know, the tax professional told them, Hey, you know, you want to start paying estimated taxes and you want to start doing this and that. And so I picked up the phone and I said I was joking. I said, Hey, did you run all that by me first? You know? And, and a lot of times I don't like for other professionals to try to give my clients advice because they're not giving them advice based on the financial plan.

(18:43): They're giving them advice based on what they see right there in front of them. And so I always tell clients, yes, go to the, see the tax pro. Yes. But then run all that back through me so I can plug in the numbers and make sure everything is lining up with what we needed to do. And so that's just a, how I like to work. But back using the life insurance policy to take monies out of that and then invest in different things. I think that is a very wise idea. As a matter of fact, that is how my business actually got started in Japan. I don't know too many if too many people know about this, but Japan, Japan is very big on using life insurance for a lot of different things. They have life insurance policies for college. They have life insurance policies for cars.

(19:25): They have life insurance policies for weddings. They have life insurance policies for travel, you know, and so these policies mature at a certain period of time, and then you cash them in and you take the money and go and do what you want. Because for the most part, the Japanese society, they're real big on saving, saving, saving, and just maybe the last 20 years or so. They kind of gotten into the stock market a little bit more, but most of them have the passbook savings and they have tons of money sit in the bank. They have tons of money sitting in life insurance. And one of the interesting things about loans in Japan, if you were to buy a house, you could technically get a 40 year mortgage on your house. You could get a half a million dollar house and, you know, take 40 years to pay for it.

(20:07): So they, you know, they, their system is a lot different than ours, ours. And you know, they have a, what they, I can't say the word, but it's a term for Japanese ladies who sell life insurance. And so these ladies it's kind of like selling Avon or Tupperware. They actually go to the corporations and they go to the lunch rooms and they sell life insurance. Those, you know, they're allowed to do that. They go right in, they pick who they want to talk to and they sit down and they start talking about life insurance, right. In the company's lunchroom. And the United States. We have no such thing because it's, you know, they're, they're pretty aggressive, but honestly it's a really unique system. And so that saves them from having to take on a lot of credit card debt. Japanese don't have a lot of debt, you know, they may have a mortgage on the house and that's about it.

Another interesting thing about the mortgages is if they work for good corporations, there are lots of borrow money from their corporation to buy their house. So you've got your 401k with the house. You got the mortgage with the house, and that's why in Japan, it's imperative to get into a great company, get into a great high school, get into a great college, get into a great company because there's so many benefits to that. And again, it's just a very, very different society. The next thing we want to get into is the 401k. And a lot of people do take loans on their 401k. And when clients talk to me about borrowing on the 401k, I tell them, look, the only reason I think you should borrow on your 401k is to take advantage of buying appreciating assets on the outside. Like if you're going to put a down payment on a rental property, that's a good idea.

(21:36): All right. If you're going to take the money out and invest it in the stock market, outside the 401k, based on your level of risk, that's a good idea. Why, because a lot of 401ks have very underperforming mutual funds. They have very limited choices. And so if you could borrow on your 401k and buy some stocks in the outside world, outside of the 401k, that could be a very, very impressive thing. You know, think, for example, if you woulda took a hundred thousand dollar loan or whatever on your 401k and bought Tesla three or four years ago, I mean, how many times could you have paid back that 401k loan and the interest, and still have tons of cash in that portfolio from just buying Tesla stock and I'm not advocating you guys go do that. I'm just running through some ideas with you that you should and talk to somebody about and see if that's something that's right for you.

And so when you're using loans to buy stocks, that is a very, very complicated, risky, risky thing where you're going to have to run your calculations and make sure, Hey, you know, if the, if the value of the stock goes down, can I afford to continue paying down my 401k loan? If something were to happen, do I have the cash and do I have surpluses? And so you're going to have to sit down and run this through your financial professional. If you don't have one, call me (800) 852-1440 one, and we'll run these numbers and make sure this is something that is right for you. So 401k loans, good and bad debt, make sure you're not using your 401k loan for a consumer debt. If you needed a hardship loan on your 401k, then that's a whole different ball game there's withdrawals. And now you can take without having to pay penalty as long as it's related to COVID and things like that.

(23:07): All right. The last thing I want to talk about is I want to talk about using margins and your investment portfolio to buy stocks. One of the interesting things about the margin loans that are at some of the brokerage houses could be anywhere from three or 4% to as high as eight or 900%. And depending on what you are buying you, using the margin to buy stocks could be a very phenomenal thing for your portfolio. Let me give an example of how the margin loan works. Okay. So let's say you have a hundred thousand dollars your portfolio based on the rules of that brokerage platform, they couldn't allow you to borrow another a hundred thousand dollars on margin in order to buy stocks. Again, I talked about the disclosure. You definitely want to run this by your professional and make sure the numbers line up with what you need.

(24:01): Okay. And you can afford to do this, and you have the proper risk tolerance. So a hundred thousand dollars on margin, a hundred thousand dollars in your portfolio. And so you start investing. One of the things you gotta be careful of is you have to make sure that you are buying stocks that, you know, have a good probability of appreciating over the next three or four months. All right. So if you're going to be doing short term investing of going in and out of portfolios or in and out of stocks, that's what I do with my clients. We pick our target and we say, okay, Harold, I'm going to take $20,000 of margin, or I'd say the client, we're going to take 20,000 margin and 20 yeah. 20,000 margin. We're going to buy XYZ stock. Okay. And we're going to hold it for X number of percent.

(24:45): So for example, if we want to get 20% out of a particular stock, basically as soon as we get that 20% or selling that stock, and then we're putting that money back into the portfolio and we're rotating and, and doing different things now, depending on the client's situation, right? You're only allowed to take margin loans on non-qualified funds, that's joint accounts, individual accounts. You can't take the margin from one understand on your Roth IRA. You can't take a margin on your, on your IRA account. It's only four individual accounts, joint accounts non-qualified funds. All right. So with that being said, if you're constantly going in and out of positions, one of the things you're going to have to pick their fours, you're going to have to prepare for the taxes. Okay. So short term capital gains that's stock that you buy and sell within a year.

(25:32): It's going to create gains that are counted towards your income as earned income. So if you're in a higher tax bracket, this may not be a good strategy for you. It just kind of depends on your stomach for paying taxes. And it kind of depends on the percentage of returns. So for example, we took a hundred thousand dollars. We bought Tesla stock, it goes up a hundred percent. We just made what, a hundred thousand dollars. So now we have $200,000 sitting in that portfolio and we're going to have to sell some, pay off the margin loan, pay off the taxes, and then rotate that money and do something different. If you're doing it for the long term, that might be a good idea, depending on your situation, where after a year you sell that stock. And then you're going to pay long term capital gains at the new pay, the taxes on that.

(26:14): And then you rotate that money and you do something different. So margin investing can be a very powerful part of your investment portfolio depending on your goals and your dreams. And it also depends on the market. And one of the things I talked to clients about is if you're using your margin to buy stocks that have a great propensity to appreciate, I, again, I think that's a phenomenal thing, but you're going to have to choose wisely because there are a lot of stocks out there that are, are hit. And right now there are a lot of sectors out there that are hit and miss right now. And no one really knows where this market is going to head. And but I do have some ideas. They're not guaranteed ideas, but I've kind of put these ideas into place a while back, like right when the market crashed and I kind of tested the idea and it actually worked.

(27:03): And so a lot of the portfolios are up really big because we rotated a technology at the right time. We rotate it to technology back in may or so, and rotate it out of these other things that, you know, they're good stocks, but right now they're just kind of treading water. Some of the well known stocks are just treading water. Boiling has its issues. And there's just, there's a lot of them, the cruise lines have their issues. There's just quite a bit of stocks out there that just, it will take them time to come back. And then if you're going to be doing margin investing, you got to make sure you're not jumping on these fads and things like that because you could lose your money. So you definitely want to talk to your investment provider and, and, and your, your investment advisor, and then just know, make sure you are putting the right game plan in place.

(27:46): So just to do a brief recap, there is good debt. There's bad debt. All right, you want to make sure that you're not using your margins to buy bad stocks. You want to make sure you're buying good quality stocks. And you want to look at, you want to look at the financials and make sure that everything is lining up the way it needs to. We talked about the mortgage on your home, what that looks like, what you should be looking for a home equity line of credit, how to use that to pay the house down faster. We talked about life insurance, how to take loans out of life insurance policies and do different things with that. And we also talked about the 401k loan, good idea, bad idea, what to do with that money. And so these are all ideas that should be part of a long term financial plan.

(28:26): And if you guys don't have a long term financial plan and you're just tuning in, hear me for the first time. I want you to go to my website, retirenowretirewell.com. Download the rapid retired brochure, fill out the game changer form, send that in. And then I will work with you to build a plan that will help you stop doing what you hate. So it's been good sharing with you guys today. I know I went kind of rapid fire on you, but we have any questions. Give me a call or fill out the form, get in touch. And I'll sit down with you guys and, and help you get from where you are today to where you want to be in until next time you guys, I want you to stay safe. And then one, two, three, let's get it.

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