Wealth, Debt & Protection
Once you find yourself in a position to start creating wealth in your life, it is vitally important that you are set-up in such a way that will provide as much protection for that future wealth as possible.
In order to grow their wealth quickly most people use debt. This may sound contradictory, but if you look at the example:
You have $100,000 and would like to invest. You decide to put this money in a term deposit, paying 5% interest for 12 months. After 12 months you have $105,000. Alternatively, you can use the $100,000 to put down a 20% deposit on a $500,000 property. On average, property increases by 10% every year, so at the end of 12 months (ignoring any income or expenses with your property) your property is now worth $550,000 - a return of 50% on your initial investment. This is what debt and “gearing” can do for you investment portfolio.
You can see the benefits here, the key is to find the balance between what is going to allow your wealth to grow, without using more debt than you are comfortable with.
Of course, if you are borrowing to make money you need to make sure that you understand the risk, and have risk management strategies in place.
Risk management involves adequate insurance, and structuring, both of which need good advice from a professional, tailored for your individual situation.