Loans are silent killer. If you want to be successful in creating long term wealth – you must continue reading…

This is one of the lessons I learnt very recently when I was evaluating my wife’s financial journey. I was pleasantly surprised to see that she was getting much better returns after taking all the things into comparison. I am sure, I use a lot more advanced techniques and I have very good risk to reward, and my trading journals are showing a very good picture. Yet my wife who primarily is into very basic things is able to get much better return on investments. Her return on risk dwarfs mine with  huge margin…

So what is the difference that makes real difference?

I was surprised to know that only one item on our balance sheet made this difference – that is I have huge loans and that she has none. Lot of financial teachers have told me that keeping loans is dangerous, But this was the time when I had to prove to myself beyond doubt that it in deed is the loan that makes huge difference.

On side note, another difference maker is my real estate which is not making good returns and that is why I am able to find this unique issue…

Compound interest the real differentiator

If I calculate compound interest for 10 years at 1% per month for 10 years or about 120 months, I would have earned 230% on my investment. Or in simple interest terms almost 23% earning per annum or twice as much!!! If you do it for longer its much higher. Till about recently, you had most of loans at a rate of about 12% calculated on monthly interest which is same as this… So if I take loan @ 12% annual interest calculated monthly for 10 years, the property value has to be at least 3.3 times for me to even make profits…. I really did not know this……

Now since we are talking trading here – lets look at a decent trading system which gives 1:2 risk to reward in terms of outcome and works with about 70% accuracy (a lot of traders call this to be a great system) – This system put to work for 10 years may not even be able to get you same output if calculated on monthly basis…

A trading system with 1:3 risk to reward in terms of outcome with about 50% accuracy also is not able to beat this…

So if you are someone who has huge confidence in your trading system because it gives very good risk to reward not at the time of taking trade but also able to prove with metrics with trade log, you still may not be good enough than some lala who would be giving his money at just 1% interest monthly. And if you are thinking of taking loan at 1% or even 2% monthly interest to trade, you are surely going to be doomed….

I have given all the details in the following video on my calculation and strongly urge you to see it multiple times…

How to get this to work in your favor

I always believed in giving solutions that work. I have been learning and improvising on a daily basis with this strategy. So here is new list of rules that I want to propose you people to add –

• Get rid of any loan that you may have – Leverage does not work
  • There are exceptions as discussed in video – but the risks are not worth
• Sell all the possible property and reduce your loan exposure immediately
• Do SIP (invest rather than trade or even gamble)
• Learn to say no to loans
• Have holistic evaluation of your capital, liabilities and net worth to understand potential risks

In future blogs I will cover detail aspects of these…

If you need access to the google doc in video – please use below request tracker.

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But equity investment is different at the core of it

When you do trading, its a zero sum or negative sum game. For you to earn, someone has to loose plus brokerages and taxes have to be paid. But in case of equity, since underline is continuously making profits, you are generating wealth and it can be positie sum game….

So the best way to earn sure shot wealth is to go for equity based SIP. Of course using techniques I teach or anything else that works best of you…