Top 5 Reasons Why You Should NOT Invest Your Home Equity

Document Sample
Top 5 Reasons Why You Should NOT Invest Your Home Equity Powered By Docstoc
					                 Top 5 Reasons Why You Should NOT Invest Your Home Equity

In the past few years, hundreds of people have invested home equity, only
to lose it all and get into serious financial trouble. With this in mind,
here are five reasons why you should not invest your home equity.
Avoiding these five pitfalls will prepare you to safely maximize the
productivity of all your financial resources, including home equity.

Reason #1: Personal Consumption

If you're going to use any of your home equity to purchase items of
personal consumption, do not touch it. This is the single most prevalent
and damaging pitfall with this strategy. Consumption is anything you
spend money on that does not directly return money to you, such as
clothes, food, vacations, jewelry, cars, boats, etc.

Consumption must be sustained by production, which means creating value
for others in such a way that value is returned to you. When your
consumption exceeds your production, the only logical outcome is
insolvency and eventual bankruptcy.

The Solution: The wealthy never use their assets to consume--they only
consume the profits generated by their assets. Only access home equity to
produce and invest in things that will generate returns. Your home equity
is your golden goose. Don't kill it by consuming it--use it wisely to
enjoy the golden eggs it can produce.

Reason #2: Lack of Knowledge & Chasing High Returns

With home appreciation rising in double-digits, banks giving loans
liberally, and people having access to investments promising high
returns, the exuberance of many so-called investors in the past few years
has only been exceeded by their ignorance.

People were putting money into investments that they knew very little
about, they had no idea where the money went, they had no idea how to
control the investment, and were doing so simply because they were
receiving high returns. That is until it all came crashing down.

The Solution: If you don't know where your money is going, what it's
doing, how it's creating value, what your exit strategy will be, what the
tax consequences are, and how you can recover if it's lost, don't do it.
Also, if your primary reason for wanting to invest in something is to
make money, don't do it. Only invest in things that reflect your
knowledge, abilities, expertise, and passions.

Reason #3: Unsafe Investments

Not only have many people been ignorant about the investments in which
they have invested their home equity, but also many of the investments
themselves have made very little economic sense. The investments didn't
have clear value propositions (they weren't creating real value in the
marketplace), they weren't collateralized (or backed by hard assets such
as real estate), they were speculative, they were based on artificial
demand, and they had poor or no exit strategies.

The Solution: Here are just a few things to consider with any investment:
Is there a real demand for this investment? Is there a clear value
proposition? Is it legal? Is it ethical and moral? Is it collateralized?
How well can you control the terms? Do you have the opportunity to
contribute to its success in meaningful ways, or are you contributing
money alone? What are the tax consequences? Can you create a foolproof
exit strategy? Is the investment self-sustaining, or does it require
ongoing capital contributions from outside sources? How soon will it
create cash flow? Do you know the people involved? Do they have an
established track record of trustworthiness and success?

If you can't answer any of these questions satisfactorily, then either
stay away from the investment or provide viable solutions for any
troublesome aspects.

Reason #4: Investments Removed From Soul Purpose

Soul Purpose is the combination of your inborn abilities, talents, and
passions and that provide a natural direction for your most fulfilling
life. It is your greatest purpose for being on the Earth--the mission you
were born for.

Every thought and action leads you either closer to living your Soul
Purpose, or further away from it. Few people invest in things that align
with their Soul Purpose because they get sidetracked chasing high
returns. Investing out of alignment with Soul Purpose inevitably leads to
mediocrity at best, and failure at worst.

The Solution: What are you great at doing? What things are you naturally
drawn to? What are your dreams? What is your vision of your best self?
What things increase your energy? These are the only things you should be
investing money into. For example, if you have a passion for real estate,
invest in real estate. If your passion is philanthropy, start a non-
profit or contribute to an existing one. If you love cooking and
entrepreneurship, maybe starting a restaurant makes sense.

Creating portfolio income is hard work, and the only way you'll endure
challenges is if what you're doing is an expression of your Soul Purpose.
The best investment is an investment in yourself and your Soul Purpose
through education. Education will help you develop your Soul Purpose and
bring it to the marketplace practically and meaningfully.

Reason#5: Learning the Wrong Lessons

If your investment fails, what's the lesson you're going to learn? For
most, the answer doesn't go further than, "I knew I shouldn't have done
that!" This type of thinking is disempowering and leads people to avoid
future action. They learn to stay away from investing, rather than
learning how to manage it better.
The Solution: No matter how well you mitigate risk, in a dynamic world
things will inevitably go differently than you anticipate. Commit now to
learning the right lessons when things go wrong. Learn what things you
can change about yourself and your approach to increase your safety,
returns, and success. Unfortunate events present amazing opportunities to
become more confident with your investments, rather than cynical and


Investing your home equity can be one of the riskiest strategies if you
do so for personal consumption, to put money into things you know little
about in order to chase high returns, to invest in inherently risky
investments, to invest in anything removed from your Soul Purpose, or if
you will learn the wrong lessons when unexpected events occur.

However, it can also be a powerful strategy that will help you unlock
your financial potential. To do so requires that you never borrow money
to consume, you always have a good understanding of your investments and
never invest to make money primarily, your investments make good economic
sense and your risk is mitigated well, you only invest in things that
align with your Soul Purpose, and you commit to learning the right
lessons when you encounter setbacks and difficulties.