Last week, we talked about 3 key components to having a strong portfolio and peace of mind during retirement: low volatility, consistent returns, and recession-resistant investments — and the fact that you don’t have to give up your lattes to save big! This week, we’ll go over 3 more ways to 80/20 (aka leverage) your money by focusing on the vital 20% of actions that lead to 80% of desired results — in this case, greater savings now and in retirement.
Make sure your interest is compounding.
If you’re not regularly investing money in an account with compound interest, you’re throwing money away. Check out this easy online calculator that shows you the “magic” of compound interest. Albert Einstein reportedly called compound interest “The eighth wonder of the world” for a reason!
While you’re online experimenting with the compound interest calculator, look up the “Rule of 72” which determines how long it will take for an investment to double at a fixed annual rate of compound interest. Simply divide 72 by the annual rate of return for a rough estimate. (If you have a 10% rate of return, you would divide 72 by 10, for an 8.5% rate of return, you would divide 72 by 8.5, and so on.)
This tells us that any amount of money invested at a 10% consistent net return (without any additional deposits) will DOUBLE in 7.2 years. Yep, DOUBLE. If you invested $100,000 at a 10% consistent, compounded net return today, 7 years from now, you’d have nearly $200,000. How many Starbucks coffees would you have to give up in order to double your investment? (Answer: NONE, if you’re making money through compound interest!)
Do your due diligence! (Yes, this is an important one.)
Would you spend 20 hours to make $666,323?
Nobody enjoys doing due diligence, and it’s one of the main reasons people don’t take action and invest. It’s just too much work! Personally, I dread doing due diligence, but once I reframed how I thought about it, my mind completely changed.
Your money needs to be in the right, capable hands, so it’s imperative to know and trust the company or people you’re doing business with. For this, you might need to dedicate a couple weekends to doing your due diligence – including online research, making a few calls, and going to in-person meetings.
Let’s say it takes you 20 hours to find the right investment that produces consistent net returns. For this example, we’ll say you’ve decided to invest $500,000 (a common investment amount for our 1031 Exchange investors, which you’ll read about next) and you plan to have it grow with compounded interest for 10 years at an 8.5% net return. You will have spent 20 hours to end up with a balance of $1,166,323 – netting yourself $666,323 in profit. You’d be earning $33,316 for each hour of time invested in due diligence. Now that’s leverage!
If you’re a landlord, 80/20 your investment property through a 1031 Exchange.
A 1031 Exchange is a tax “loophole” that allows you to sell your existing investment property in exchange for another one of equal or greater value and not pay any capital gains or other taxes on the sale. This could save you tens or even hundreds of thousands of dollars, depending on the value of the property and your tax liability. (If you’re interested in finding out how much a 1031 Exchange could save you on your rental property, check out the “tax savings” page on our website. It’ll ask you for a few simple figures and then it spits out your numbers instantly.)
A standard 1031 Exchange is a beneficial option for most investors, but Hughes Capital has made the 1031 Exchange an even more profitable, attractive investment option through our Equity Edge program.
Through The Equity Edge, landlords can sell their existing property tax free, make twice (or more) the rental income they were making before, and get completely out of the landlord business for good. It’s basically “freedom” with greater profits for landlords! Plus, it follows all the 80/20 rules we’ve discussed throughout parts 1, 2, and 3 of this article series:
- It offers a consistent net return (or in this case, a fixed monthly income) with no volatility
- Investors have the option to compound their profits
- The assets are recession-resistant, having gone through strict due diligence and stress tests
- It’s a method that’s already in place, so you won’t be reinventing the wheel
There’s no other option like this that we’re aware of on the market. I can’t think of a better way to 80/20 (aka leverage) the equity in your investment property than with The Equity Edge.