lol! That's awesome. Just before you posted this chapter I borrowed 4k @ 10% from my business. It's like having my own credit card company. I used the borrowed money to buy equiptment for another business. My partner and I will be refinancing our condo soon. We'll use any equity available to, you guessed it, grow our real estate business. We will create a C Corp to manage the investments and a Limited Partnership to hold the assets. Does this make sense to anyone?
How Do You Determine Which Derivatives Are In-Demand
First, thanks for clarifying the concept of derivatives! I now understand this better than ever. My first thought was that I need to refocus my efforts on creating derivatives, but I instantly ran into the following question: how do you determine which derivatives are in-demand?
For example, let's say I had $1 million to invest in an apartment complex similar to the example in Chap. 8, but I had trouble getting renters because of the market? Perhaps this isn't the best example because I know the market varies in this scenario, but do you see what I mean?
So, how does one go about identifying what is a viable derivative to create?
I find that you really mass around derivative and value in the latter part of this chapter. Some of your examples are OK, while others does not make financial sense at all. Please be aware. Thank you.
I have been trying to create derivatives from my thoughts by being a creative writer, and I have created works that have that potential, based on occasional small sales, prizes and awards, and recognition from other writers and artists.
How can I turn my creative works into money? These are not nonfiction books that are easier to sell today. They are literary works, poems and fiction, that have a much more limited audience, as more and more people seem to be less literate and less interested in putting in the time and effort required for reading at this level.
You could say that part of the problem is that fewer people know the language of literary writing and poetry today, and therefore fewer people have the tools to enjoy it. Spelling, grammar, and punctuation---grade school basics in the old days---are sorely lacking among many adults today. This may also be a fault of our educational system.
So to answer your question, I've been trying to create derivatives from the work that I love to do, the work that is closest to my heart and my true self, and so far have not been successful.
The publishing industry---where I wish to sell most of my work---seems to be in turmoil. More and more books are based on fame, rather than quality. There are fewer publishing houses, and these houses seem to be run by people who are more interested in making money fast than in nurturing writers who might produce work that will hold up for generations.
Also, as another derivative, I started a business to combine some of my creative writing with my art, producing framed and unframed pieces for sale. Again, this business has not drawn customers in the quantity needed to sustain it---though there are some who are awestruck by it.
How do I make the business more profitable, without destroying the quiet time that I need in order to create the art and the writing?
I am not an accountant or a salesman. I could force myself to do that sort of work, but I would hate it, and it would mean the death of my creativity. I am an artist and a writer, and I want the financial freedom to live my life devoted to producing my art and my writing.
So, to take a page from your book, instead of saying that I can't do this, I will ask: How do I do this?
I have been trying for a long time, and have made friends with students and teachers at MFA programs, with community writing groups, even with one bookseller, by volunteering to entertain people at the store one night by reading some of my work and taking questions---all of the usual suspects.
More and more it feels like I am stuck in the 90% group of writers who wish and hope and work and struggle and never make a living at it, let alone produce work with sufficient royalties to be free---which is my goal.
Unfortunately, the things I have learned about making a business work are not things that I want to do, and not things that I am good at doing. Again, I just want to create my art, and invest a very minimal amount of time in marketing/selling and similar businesslike endeavors. My art is the derivative of my thoughts.
I hope you will address this in your book, or separately, if possible.
I own a business which allows me to print money I can use to pay off debts faster and invest in other things to allow me to print more money. Sometimes when a sale is made the customer decides to finance their purchase. I have been able to offer in house financing to some people which means they pay me the sale amount plus interest. It creates a monthly cashflow for me so long as I can keep my inventory in control. If a bad month happens that money still comes in. I have been investing in some select stocks and they have been giving me a return. I have other investments that earn me high interest which allows me to print more money for my family.
Everyone should be doing this. It is not that hard.
The concept is clear to me. But to do it in real life is a challenge. And I am very excited with this chalenge!
I started a business 1 year ago. Explainig in simple terms, I am a ballroom dance teacher in Rio de Janeiro - Brasil. Here we didn't have a place that you could become a ballroom dance teacher in short term. It would take up to 5 years to become a teacher even if you are a good dancer because the informations and the experience you need is spread in many sources.
What I did was to hire a teacher from each source and put them all together in a 1 year intensive course. After this first year, all the students will have to accomplish a 1 year teaching experience at a school, before getting the certificate. This way they have the informations and experience at one source.
I started the business with no money. I contacted some friends that were interested in doing the course and gave them a 30% discount for paying in cash 3 months before the beginnig of the course. With this money I started my company and started to sell the course. It could be payed in 18 installments starting 3 months before the first class, with discount. That gave me enough cash to sublease a classroom at a school just for the course.
The financial projections at the first months were wonderful. I would make more than R$ 100k (50k USD) as profit after 1 year with no money investment (infinite ROI!).
Everything was perfect until the 8th month of the course. I wasn't making a lot of money but I was making enough for my monthly expenses. My profit would come at the end of the course. But the default of payments started to grow and I had to change all my financial plans. Cut down expenses, deal sallaries with the teachears, etc...
I learned a lot about accounting and contractual guarantees during this period. Even with these problems I will have about R$ 50k (25k USD) of profit spread through the next 2 semesters and learned a lot about business. With this experience I am developing 2 other projects that won't need much cash investment at start up.
All the information you give in your books were crucial for me. And this book is making everything clearer.
I am primarily a Real Estate investor, but I also write covered calls on stocks I own for a passive income. Most people would think this isn't making money out of thin air - but I disagree.
My passion hunger to be rich - I can't put my finger on. I can't measure, or weigh it.
My persistance to go against the 90% of people who disagree with the way I do things can't be measured either.
The very, very lucrative relationships I have with my best friends who share an interest in getting richer - can't be weighed or measured.
These are my, and everyone elses most precious assets. These are the things I turn into money. My money comes from my passion, my relationships and my willingness to grow and explore new things.
My very first property, I bought for $136k. I had no money saved. I borrowed the deposit, I looked for government grants, and I got a loan. I revalued that property 3 months later, and had $31k to play with from the bank. That property costs me nothing to own, and pays me about $100 per month. That first property really - cost me nothing of my own money - and that's what financed the rest of my portfolio, including the options I sell. So, if you want to get technical, I am making an infinite return on my initial investment, since everything is nothing down!
Money is truly infinite. Anyone who has used their desire to get something can tell you that.
I have a long way to go, but if for some reason I ever lost everything I own - I know I have my passion, and my education to fall back on, that is the true investment.
We have been working with this concept. It really hitme one day as we were out cutting decorative pieces out of steel to sell. I realised we were printing money.
We bought a car and resold it for a small profit without doing anything to it
We also have a house cashflowing for us.
I have another property we are trying to sell with owner financing avalible.
I can see the value of creative thinking. Soon this way of thinging will get us out of the rat race. As of right now we are just trying to keep our head above water.
I enjoyed reading the chapter, but I felt there wasn't much new information here -- it's the same concept as passive income we've been hearing about in other publications and chapters.
You introduce the idea that using the terms of the financial community is important -- but then use the term derivative in a way that I'm not used to hearing it -- in the financial community, the term usually refers to puts and calls against existing stock -- deriving value from their expected price movements in the future.
I can see how the term applies here in general -- value derived from an underlying asset, but I don't see that usage as standard in the real estate industry, for example -- so I'm not sure it will gain a person much credibility there...
And then, there are few financial terms given in the chapter other than derivative, passive income etcetera -- each industry has its own language that one has to learn when trying to break into it.
You seem to be a big proponent of real estate -- I agree that it can be good, however, people need to understand how to crunch the numbers and do all the research -- which often takes judgment -- and judgment is hard to teach. Often it's taught by experience, and through hard knocks where you lose your investment.
Not be negative, but these are my thoughts on this chapter...
I'm learning about vendor/seller finance as a way to buy properties with very little upfront money and no banks! Also another way is lease options. These strategies are doing really well down under in Australia for the little ozzie battler to get ahead financially. Half the world hundred of years ago was bought & sold this way, as banks back then were a place to put your gold in for safe keeping ?!?!?, way before they worked out derivatives etc....they seemed to have become way too greedy like kids in a candystore.....and now look where it has got us all...so now we can go back to the old way with a modern approach. You just got to get creative and financially educated. Thanx Robert, Donald and my mentor in OZ Rick.
Yes, Robert I applied what I learned from Cash Flow and my library of purple covered books to create a derivative.
First, we applied for a credit card with an introductory limit of $2500 at 0% for 12 months. Second, we went to a public auto auction and bought a super cheap used car. Third, I made few cosmetic repairs and updated the emissions inspection sticker.
Fourth, I financed the car to my brother-in-law for 3 times my purchase price at 19% for 24 months. Fifth, then I repossessed the car several months later for non payment. Sixth, I made a few more cosmetic repairs and sold the car again.
I think I'm finally learning how to use "good debt."
The concept is clear to me. But to do it in real life is a challenge. And I am very excited with this chalenge!
I started a business 1 year ago. Explainig in simple terms, I am a ballroom dance teacher in Rio de Janeiro - Brasil. Here we didn't have a place that you could become a ballroom dance teacher in short term. It would take up to 5 years to become a teacher even if you are a good dancer because the informations and the experience you need is spread in many sources.
What I did was to hire a teacher from each source and put them all together in a 1 year intensive course. After this first year, all the students will have to accomplish a 1 year teaching experience at a school, before getting the certificate. This way they have the informations and experience at one source.
I started the business with no money. I contacted some friends that were interested in doing the course and gave them a 30% discount for paying in cash 3 months before the beginnig of the course. With this money I started my company and started to sell the course. It could be payed in 18 installments starting 3 months before the first class, with discount. That gave me enough cash to sublease a classroom at a school just for the course.
The financial projections at the first months were wonderful. I would make more than R$ 100k (50k USD) as profit after 1 year with no money investment (infinite ROI!).
Everything was perfect until the 8th month of the course. I wasn't making a lot of money but I was making enough for my monthly expenses. My profit would come at the end of the course. But the default of payments started to grow and I had to change all my financial plans. Cut down expenses, deal sallaries with the teachears, etc...
I learned a lot about accounting and contractual guarantees during this period. Even with these problems I will have about R$ 50k (25k USD) of profit spread through the next 2 semesters and learned a lot about business. With this experience I am developing 2 other projects that won't need much cash investment at start up.
All the information you give in your books were crucial for me. And this book is making everything clearer.
I will have to think about this idea to burn it into my brain. For now, let me try to apply this to my network marketing business:
1. The company creates a product with a suggested retail price.
2. Besides the price, the company has created "point" value to the product: This is the first derivative.
3. When a downline member signs up and begins selling products, another derivative has been created.
4. When certain levels of volume have been created, the bonus percentage structure changes, and yet another derivative has been created.
Following your logic that a stock is a derivative of a business then that means an equity option on said stock would be a derivative of a derivative.
I agree that 401(k) plans have severe limitations with respect to the number and type of investment options. In this case, the investor must rely upon his/her employer to offer the best investment types. But the company is still working with a Wall Street-type, Series 7 certified, "financial planner" who wants to make a sale. Incidentally, do your readers know that those certified "Series 7" people - financial planners, investment advisors, stock brokers - are not required to have anything beyond a High School education & to pass the FINRA tests?
Sorry Robert, but you went off-track when you failed to explain how a bank could lend out the same $100 I deposited 10 times. Maybe you thought the explanation would make the subject too complicated, but failure to give the explanation made it un-understandable.
The concept is clear to me. But as I'm a 22 years old student in The Netherlands, creating derivatives isn't that easy. Let me give you an example: also in The Netherlands the real-estate market is under pressure. This means a lot of interesting real-estate in cities like Amsterdam and Rotterdam goes of for cheap prices. I see a lot of opportunities but to get a mortgage for buying a piece of real-estate is not easy in The Netherlands. You have to have a steady income etc, etc.
This is an aspect which I really dislike. So what I do now is investing in the stock-market. And in september I'm open my first business, a fashion store. This fashion store is also a very difficult thing to create at an age of 22 in The Netherlands. A really have pushed myself to the max to get a loan of the bank and a private investor. Off course I've planned it very well and did a lot of investigation and analyzing of the market. I want to use the business to create larger amounts of money which I can't make when working for a boss. The money I'm going to make from the fashion store I gonna to invest in stocks, real-estate and other interesting investment opportunities. So to come back on your question, for me the concept is clear, but to exercise it in real life isn't that easy I found out. Especially on my age. I think it would be great if you could post some cases to get people inspired and give them ways to create money. I've read the book Rich Dad Poor Dad last year and was heavily inspired and therefore my first business is opening now. In my point of view I've created money. Because I've wrote a business plan and the bank and investor lend money to me. Something which in The Netherlands, at this time is really difficult. So I'm also a little proud of myself. But if I see things wrong, please let me know and give me feedback. I want to make sure I understand your concept(s) well. Thanks!
I own a rental property that after all the bills were paid netted me 300 dollars a month. Sound good?
The house is worth 300K and I owe 111K. I went to the bank and placed a home equity line of credit on the home for 200K. The terms may be different as this is in Canada. This changed my payment from 900 dollars a month to 667 dollars a month.
After the re-finance I took the 89K that was left over (The bank gave me 200 and I owed 111K)
and lent it out at 20% as a second mortgage on a cash flowing piece of real estate, Just like the banks do. From that I make 1483 a month plus the original 300 I was making plus the 233 dollars from a lower payment. So before I was making 300 dollars a month. Now I am making 2016.00 a month. It took some work but at the end of the day it is the same house. The person I have lent the money to has agreed to give me the first option to buy his property as a condition of the loan, which is a multi unit I would love to have....If you read this and say "I can't do this you are right" I couldn't either until I gained some financial knowledge..
lol! That's awesome. Just before you posted this chapter I borrowed 4k @ 10% from my business. It's like having my own credit card company. I used the borrowed money to buy equiptment for another business. My partner and I will be refinancing our condo soon. We'll use any equity available to, you guessed it, grow our real estate business. We will create a C Corp to manage the investments and a Limited Partnership to hold the assets. Does this make sense to anyone?
In your example how is it that the bank can lend out my $100 ten times over? I do get the derivative concept.
Yes, I now get the concept. Have I applied it yet? No. I will get there. As you say in your teachings, learn first. I am in the learning stage.
First, thanks for clarifying the concept of derivatives! I now understand this better than ever. My first thought was that I need to refocus my efforts on creating derivatives, but I instantly ran into the following question: how do you determine which derivatives are in-demand?
For example, let's say I had $1 million to invest in an apartment complex similar to the example in Chap. 8, but I had trouble getting renters because of the market? Perhaps this isn't the best example because I know the market varies in this scenario, but do you see what I mean?
So, how does one go about identifying what is a viable derivative to create?
I find that you really mass around derivative and value in the latter part of this chapter. Some of your examples are OK, while others does not make financial sense at all. Please be aware. Thank you.
I only wished that I have known this concept earlier in my childhood.
This is the concept of cash flow and the rental properties that I control now are doing exactly you described in the book.
Rent money -> Management: me -> Mortgage Payment, insurance, tax, reserve -> Surplus is my cash flow, the derivitive
"How do I get my hand on more derivitives?" Just thinking outloud.
I have been trying to create derivatives from my thoughts by being a creative writer, and I have created works that have that potential, based on occasional small sales, prizes and awards, and recognition from other writers and artists.
How can I turn my creative works into money? These are not nonfiction books that are easier to sell today. They are literary works, poems and fiction, that have a much more limited audience, as more and more people seem to be less literate and less interested in putting in the time and effort required for reading at this level.
You could say that part of the problem is that fewer people know the language of literary writing and poetry today, and therefore fewer people have the tools to enjoy it. Spelling, grammar, and punctuation---grade school basics in the old days---are sorely lacking among many adults today. This may also be a fault of our educational system.
So to answer your question, I've been trying to create derivatives from the work that I love to do, the work that is closest to my heart and my true self, and so far have not been successful.
The publishing industry---where I wish to sell most of my work---seems to be in turmoil. More and more books are based on fame, rather than quality. There are fewer publishing houses, and these houses seem to be run by people who are more interested in making money fast than in nurturing writers who might produce work that will hold up for generations.
Also, as another derivative, I started a business to combine some of my creative writing with my art, producing framed and unframed pieces for sale. Again, this business has not drawn customers in the quantity needed to sustain it---though there are some who are awestruck by it.
How do I make the business more profitable, without destroying the quiet time that I need in order to create the art and the writing?
I am not an accountant or a salesman. I could force myself to do that sort of work, but I would hate it, and it would mean the death of my creativity. I am an artist and a writer, and I want the financial freedom to live my life devoted to producing my art and my writing.
So, to take a page from your book, instead of saying that I can't do this, I will ask: How do I do this?
I have been trying for a long time, and have made friends with students and teachers at MFA programs, with community writing groups, even with one bookseller, by volunteering to entertain people at the store one night by reading some of my work and taking questions---all of the usual suspects.
More and more it feels like I am stuck in the 90% group of writers who wish and hope and work and struggle and never make a living at it, let alone produce work with sufficient royalties to be free---which is my goal.
Unfortunately, the things I have learned about making a business work are not things that I want to do, and not things that I am good at doing. Again, I just want to create my art, and invest a very minimal amount of time in marketing/selling and similar businesslike endeavors. My art is the derivative of my thoughts.
I hope you will address this in your book, or separately, if possible.
Creating derivatives is like playing with fire.
You can write a whole book just on these risks.
I own a business which allows me to print money I can use to pay off debts faster and invest in other things to allow me to print more money. Sometimes when a sale is made the customer decides to finance their purchase. I have been able to offer in house financing to some people which means they pay me the sale amount plus interest. It creates a monthly cashflow for me so long as I can keep my inventory in control. If a bad month happens that money still comes in. I have been investing in some select stocks and they have been giving me a return. I have other investments that earn me high interest which allows me to print more money for my family.
Everyone should be doing this. It is not that hard.
The concept is clear to me. But to do it in real life is a challenge. And I am very excited with this chalenge!
I started a business 1 year ago. Explainig in simple terms, I am a ballroom dance teacher in Rio de Janeiro - Brasil. Here we didn't have a place that you could become a ballroom dance teacher in short term. It would take up to 5 years to become a teacher even if you are a good dancer because the informations and the experience you need is spread in many sources.
What I did was to hire a teacher from each source and put them all together in a 1 year intensive course. After this first year, all the students will have to accomplish a 1 year teaching experience at a school, before getting the certificate. This way they have the informations and experience at one source.
I started the business with no money. I contacted some friends that were interested in doing the course and gave them a 30% discount for paying in cash 3 months before the beginnig of the course. With this money I started my company and started to sell the course. It could be payed in 18 installments starting 3 months before the first class, with discount. That gave me enough cash to sublease a classroom at a school just for the course.
The financial projections at the first months were wonderful. I would make more than R$ 100k (50k USD) as profit after 1 year with no money investment (infinite ROI!).
Everything was perfect until the 8th month of the course. I wasn't making a lot of money but I was making enough for my monthly expenses. My profit would come at the end of the course. But the default of payments started to grow and I had to change all my financial plans. Cut down expenses, deal sallaries with the teachears, etc...
I learned a lot about accounting and contractual guarantees during this period. Even with these problems I will have about R$ 50k (25k USD) of profit spread through the next 2 semesters and learned a lot about business. With this experience I am developing 2 other projects that won't need much cash investment at start up.
All the information you give in your books were crucial for me. And this book is making everything clearer.
I am primarily a Real Estate investor, but I also write covered calls on stocks I own for a passive income. Most people would think this isn't making money out of thin air - but I disagree.
My passion hunger to be rich - I can't put my finger on. I can't measure, or weigh it.
My persistance to go against the 90% of people who disagree with the way I do things can't be measured either.
The very, very lucrative relationships I have with my best friends who share an interest in getting richer - can't be weighed or measured.
These are my, and everyone elses most precious assets. These are the things I turn into money. My money comes from my passion, my relationships and my willingness to grow and explore new things.
My very first property, I bought for $136k. I had no money saved. I borrowed the deposit, I looked for government grants, and I got a loan. I revalued that property 3 months later, and had $31k to play with from the bank. That property costs me nothing to own, and pays me about $100 per month. That first property really - cost me nothing of my own money - and that's what financed the rest of my portfolio, including the options I sell. So, if you want to get technical, I am making an infinite return on my initial investment, since everything is nothing down!
Money is truly infinite. Anyone who has used their desire to get something can tell you that.
I have a long way to go, but if for some reason I ever lost everything I own - I know I have my passion, and my education to fall back on, that is the true investment.
We have been working with this concept. It really hitme one day as we were out cutting decorative pieces out of steel to sell. I realised we were printing money.
We bought a car and resold it for a small profit without doing anything to it
We also have a house cashflowing for us.
I have another property we are trying to sell with owner financing avalible.
I can see the value of creative thinking. Soon this way of thinging will get us out of the rat race. As of right now we are just trying to keep our head above water.
I enjoyed reading the chapter, but I felt there wasn't much new information here -- it's the same concept as passive income we've been hearing about in other publications and chapters.
You introduce the idea that using the terms of the financial community is important -- but then use the term derivative in a way that I'm not used to hearing it -- in the financial community, the term usually refers to puts and calls against existing stock -- deriving value from their expected price movements in the future.
I can see how the term applies here in general -- value derived from an underlying asset, but I don't see that usage as standard in the real estate industry, for example -- so I'm not sure it will gain a person much credibility there...
And then, there are few financial terms given in the chapter other than derivative, passive income etcetera -- each industry has its own language that one has to learn when trying to break into it.
You seem to be a big proponent of real estate -- I agree that it can be good, however, people need to understand how to crunch the numbers and do all the research -- which often takes judgment -- and judgment is hard to teach. Often it's taught by experience, and through hard knocks where you lose your investment.
Not be negative, but these are my thoughts on this chapter...
I suppose that the rental income that I receive or should receive from my rental properties is a form of a derivative.
I'm learning about vendor/seller finance as a way to buy properties with very little upfront money and no banks! Also another way is lease options. These strategies are doing really well down under in Australia for the little ozzie battler to get ahead financially. Half the world hundred of years ago was bought & sold this way, as banks back then were a place to put your gold in for safe keeping ?!?!?, way before they worked out derivatives etc....they seemed to have become way too greedy like kids in a candystore.....and now look where it has got us all...so now we can go back to the old way with a modern approach. You just got to get creative and financially educated. Thanx Robert, Donald and my mentor in OZ Rick.
Yes, Robert I applied what I learned from Cash Flow and my library of purple covered books to create a derivative.
First, we applied for a credit card with an introductory limit of $2500 at 0% for 12 months. Second, we went to a public auto auction and bought a super cheap used car. Third, I made few cosmetic repairs and updated the emissions inspection sticker.
Fourth, I financed the car to my brother-in-law for 3 times my purchase price at 19% for 24 months. Fifth, then I repossessed the car several months later for non payment. Sixth, I made a few more cosmetic repairs and sold the car again.
I think I'm finally learning how to use "good debt."
The concept is clear to me. But to do it in real life is a challenge. And I am very excited with this chalenge!
I started a business 1 year ago. Explainig in simple terms, I am a ballroom dance teacher in Rio de Janeiro - Brasil. Here we didn't have a place that you could become a ballroom dance teacher in short term. It would take up to 5 years to become a teacher even if you are a good dancer because the informations and the experience you need is spread in many sources.
What I did was to hire a teacher from each source and put them all together in a 1 year intensive course. After this first year, all the students will have to accomplish a 1 year teaching experience at a school, before getting the certificate. This way they have the informations and experience at one source.
I started the business with no money. I contacted some friends that were interested in doing the course and gave them a 30% discount for paying in cash 3 months before the beginnig of the course. With this money I started my company and started to sell the course. It could be payed in 18 installments starting 3 months before the first class, with discount. That gave me enough cash to sublease a classroom at a school just for the course.
The financial projections at the first months were wonderful. I would make more than R$ 100k (50k USD) as profit after 1 year with no money investment (infinite ROI!).
Everything was perfect until the 8th month of the course. I wasn't making a lot of money but I was making enough for my monthly expenses. My profit would come at the end of the course. But the default of payments started to grow and I had to change all my financial plans. Cut down expenses, deal sallaries with the teachears, etc...
I learned a lot about accounting and contractual guarantees during this period. Even with these problems I will have about R$ 50k (25k USD) of profit spread through the next 2 semesters and learned a lot about business. With this experience I am developing 2 other projects that won't need much cash investment at start up.
All the information you give in your books were crucial for me. And this book is making everything clearer.
I will have to think about this idea to burn it into my brain. For now, let me try to apply this to my network marketing business:
1. The company creates a product with a suggested retail price.
2. Besides the price, the company has created "point" value to the product: This is the first derivative.
3. When a downline member signs up and begins selling products, another derivative has been created.
4. When certain levels of volume have been created, the bonus percentage structure changes, and yet another derivative has been created.
Is that close?
Following your logic that a stock is a derivative of a business then that means an equity option on said stock would be a derivative of a derivative.
I agree that 401(k) plans have severe limitations with respect to the number and type of investment options. In this case, the investor must rely upon his/her employer to offer the best investment types. But the company is still working with a Wall Street-type, Series 7 certified, "financial planner" who wants to make a sale. Incidentally, do your readers know that those certified "Series 7" people - financial planners, investment advisors, stock brokers - are not required to have anything beyond a High School education & to pass the FINRA tests?
"...the problem was greed from the highest levels of banking and the government."
Unless this statement refers to the SEC and those directing the change in the rules were setting up the scenario of inevitable escalation, I disagree.
Greed is not the problem in the sense that stopping greed is a viable solution.
The real 'solvable' problem it seems to me was allowing fractional reserves to escalate so far (if at all.)
I've really enjoyed this book, along with the more outspoken stance you are taking over the years.
Unfortunately I seem to find that I agree with you more AFTER I have experienced it the hard way myself. Ah well :)
Sorry Robert, but you went off-track when you failed to explain how a bank could lend out the same $100 I deposited 10 times. Maybe you thought the explanation would make the subject too complicated, but failure to give the explanation made it un-understandable.
Thanks.
Hi Robert,
The concept is clear to me. But as I'm a 22 years old student in The Netherlands, creating derivatives isn't that easy. Let me give you an example: also in The Netherlands the real-estate market is under pressure. This means a lot of interesting real-estate in cities like Amsterdam and Rotterdam goes of for cheap prices. I see a lot of opportunities but to get a mortgage for buying a piece of real-estate is not easy in The Netherlands. You have to have a steady income etc, etc.
This is an aspect which I really dislike. So what I do now is investing in the stock-market. And in september I'm open my first business, a fashion store. This fashion store is also a very difficult thing to create at an age of 22 in The Netherlands. A really have pushed myself to the max to get a loan of the bank and a private investor. Off course I've planned it very well and did a lot of investigation and analyzing of the market. I want to use the business to create larger amounts of money which I can't make when working for a boss. The money I'm going to make from the fashion store I gonna to invest in stocks, real-estate and other interesting investment opportunities. So to come back on your question, for me the concept is clear, but to exercise it in real life isn't that easy I found out. Especially on my age. I think it would be great if you could post some cases to get people inspired and give them ways to create money. I've read the book Rich Dad Poor Dad last year and was heavily inspired and therefore my first business is opening now. In my point of view I've created money. Because I've wrote a business plan and the bank and investor lend money to me. Something which in The Netherlands, at this time is really difficult. So I'm also a little proud of myself. But if I see things wrong, please let me know and give me feedback. I want to make sure I understand your concept(s) well. Thanks!
I own a rental property that after all the bills were paid netted me 300 dollars a month. Sound good?
The house is worth 300K and I owe 111K. I went to the bank and placed a home equity line of credit on the home for 200K. The terms may be different as this is in Canada. This changed my payment from 900 dollars a month to 667 dollars a month.
After the re-finance I took the 89K that was left over (The bank gave me 200 and I owed 111K)
and lent it out at 20% as a second mortgage on a cash flowing piece of real estate, Just like the banks do. From that I make 1483 a month plus the original 300 I was making plus the 233 dollars from a lower payment. So before I was making 300 dollars a month. Now I am making 2016.00 a month. It took some work but at the end of the day it is the same house. The person I have lent the money to has agreed to give me the first option to buy his property as a condition of the loan, which is a multi unit I would love to have....If you read this and say "I can't do this you are right" I couldn't either until I gained some financial knowledge..