Don’t Gamble. Leverage like Buffett

Warren Buffett and other smart investors make money by borrowing to invest in low-risk, low-return securities, sort of like a “specialized margin” account.  Other folks, who don’t have enough borrowing power to play the leverage game (interest rates on margin accounts can be high for the little guy), can only generate profits by investing in riskier assets.

The irony about risk taking is that most of us are in the second group, small investors. But it can also include professional investors such as many mutual fund managers.  If they don’t take some risk, they lose the opportunity to make money. Often time the reason the market will move with a stock  is because the demand for a better return triggers the increase in it’s valuation. This of course drives up the prices of those assets, thus reducing their returns.

That all sounds well and good, but what is the answer?  How can you leverage your funds and take advantage just like the big players?

One way is to look at your money from a different point of view, not as money but as “what is the money for?”  Have you ever considered why investors like Buffett try and make so much money? Does it mean they can eat better, sleep better, take more vacations?

Their goals are different than the goals of most of us. We want and use our money for life’s demands; education, food, housing and retirement.  Their money is for two things: keeping score and their legacy. They mostly do it for status.

So how do we “game” the system?  Like I said, by looking at the reason for using money from a different view.  Why not look at your retirement money not from how much you can accumulate but by how much income it can provide?

Think of your money for its intended use and for most of us that would be retirement income and money to enjoy the security later in life.  There is a way to beat the system, it is easy, simple and the big boys won’t know about it.  Why won’t they?  Because they don’t care, they only care about their reasons for their money.

How would you like to “earn” 5-7% on your retirement account? You can, it is available and it is guaranteed.  How can that be?  Simple, if you use your funds as an income instead of a pile of money, many insurance companies will pay that rate on the funds which will be used as retirement funds. It is called an Income Rider and it is available as an add on with annuities. The amount earned in your account stays in the income accumulation side, the amount you actually can receive as retirement is based on other factors such as age.  Many contracts are different so do your research carefully.

How can they do that?  Insurance companies know how many people will use these funds for this use. They plan for it and they reinsure their liability in the event things change and they pay out more than planned. They insure their obligation to you just like you can insure your retirement income for you and your spouse.

How do they reinsure the retirement obligations promised to you; yes you guessed it, the Warren Buffett’s of the world insure the companies promises.

Want to know more about how these products work, here is an easy to understand video:
https://www.youtube.com/watch?v=ChHaRxguEkM