Just save the income and teach yourself how to maximise returns whilst keeping the risk of a loss greater than 10% in any year on your investments to a tiny probability… and you’ll be 100% guaranteed to reach your goal.
Why leverage your assets (beyond education debt, own mortgage, start-up or investment property) in an attempt to reach your goal say 5 years earlier, but with a small chance of utterly failing?

You say “he will regress to typical averages”.
I agree that, in c.15 yrs from now, his $10m will have lower average annual returns of around 20% p.a. instead (and 15% p.a. on $100m will be excellent).

You say “I suspect real returns after expenses… it’s much less”.
These returns are after expenses: the portfolio has a 65% turnover rate, so each stock is held for 1.5 years on average and this is for a 7 stock fund only. So the trading cost is around 0.3% of the portfolio net asset value p.a.
The capital is pension money, so it’s pre tax. At 20% capital gains tax, the returns would conservatively be 25% p.a. average.

You say “if he’s done it more via buy and hold… his return wouldn’t jive with what professional[s]… saw in 2008”
Yes, the style is entirely value investing and his returns do not jive with the pros dire results in 2008 because a. he held up to 40% cash in 2007 (due to being unable to find cheap stocks), whereas the pros often have to remain fully invested and b. he did not suffer clients making panic redemption calls on the fund that would lead to forced selling of stocks at the lowest prices.

Ok approx 7 years of returns you are stating. A sub 10 year, especially starting the first year of a bull market is most definitely possible to achieve 30% in that short of a time frame. My point is, if your friend or you think he’ll continue this trend for year 10, 15, or 20 in the future. The trend is not a realistic, he’ll be assimilated closer to more typical averages. Especially with some of the possible headwinds and unknowns coming down the pipe. I would congratulate your friends returns, if in fact they are real. Like I stated before if he’s able to pull this off in the long term, he’ll be on course to be one of the greatest investors of all time!

If you haven’t proof (ie a statement) it becomes more of “the big fish I caught” story. I assume this is an active trading strategy in order to achieve the returns he got. I suspect real returns after expenses (let’s for now not even discuss taxes) it’s much less than the 30% mentioned. If he’s done it more via buy and hold and value investing methodology, his return wouldn’t jive with what professional value investor returns we saw in 2008 (to use a known benchmark). Value investors saw some of the worst returns during that period.

To circle back to why I commented on your original reply. Your friends investment returns is an outlier and not typical returns MOST people achieve, even the “professionals” who aren’t chained by certain rules (ie mutual fund managers and the amount they can invest per company) To say an investor shouldn’t use debt to help amp returns, if the debt pricing and ratio isn’t right is just plain silly. Debt, just like investing, has risks. Both should be used appropriately and wisely.

If your expand statements and it were applied to all businesses and investing some very interesting results would occur. Not using debt in business or investing would lead to more stable but below our historical normal returns. Just what I believe we’ll see in the next 10 years of below optimal returns on the flip side. Too much debt to pay down also leads the same path. My point it should be balanced. To attribute to FS theme there, a yin and yang of debt and investing. Cheers!
Investor Junkie´s last blog ..How Much is 1% Costing You?

Certainly, playing with “credit card 0% interest” and credit rating games is not financial intelligence but instead is an attempt by consumers to game a system that is ultimately gaming the consumer- a farcical situation.

It would be great if the article’s author wrote about finance as the real experts- businesses- handle it. In other words, could managing your personal finance based on how businesses have taught it to the consumer ever lead to wealth?

Note- the more volatile the asset, the greater the return so it’s tempting to borrow at 5% and invest at 30% p.a. average return. But a cash call from a lender at a weak point in the volatility could permanently cripple you. Alternatively, borrow at 5% and invest at 8%… but there is still asset volatility simply due to earning that extra 3% spread, so you’re still vulnerable to collapse but this time earning less returns.
This risk of bankruptcy may only be 1% a year, but add that over 20 years= 20% probability. Too risky.

Beyond debt for an education and own home mortgage, I would only use a max. of 50% debt to 50% own capital if starting a company with *limited liability* protection (and pay off the debt a.s.a.p) or as a shrewd real estate investor (most only think they’re shrewd). This fits with Kiyosaki’s view. Otherwise, avoid debt like the plague.

Certainly, playing with “credit card 0% interest” and credit ratings is not financial intelligence but instead is an attempt by consumers to game a system that is ultimately gaming the consumer- a farcical situation.
It would be great if the article’s author wrote about finance as the real experts- businesses- handle it. Could managing your personal finance based on how businesses have taught it to the consumer ever lead to wealth?

Note- the more volatile the asset, the greater the return so it’s tempting to borrow at 5% and invest at 30% p.a. average return. But a cash call from a lender at a weak point in the volatility could permanently cripple you. Alternatively, borrow at 5% and invest at 8%… but there is still asset volatility simply due to earning that extra 3% spread, so you’re still vulnerable to collapse but this time earning less returns.
This risk of bankruptcy may only be 1% a year, but add that over 20 years= 20% probability. Too risky.

Beyond debt for an education and own home mortgage, I would only use a max. of 50% debt to 50% own capital if starting a company with *limited liability* protection (and pay off the debt a.s.a.p) or as a shrewd real estate investor (most only think they’re shrewd). This fits with Kiyosaki’s view. Otherwise, avoid debt like the plague.

Certainly, playing with “credit card 0% interest” and credit ratings is not financial intelligence but instead is an attempt by consumers to game a system that is ultimately gaming the consumer- a farcical situation.
It would be great if the article’s author wrote about finance as the real experts- businesses- handle it. Could managing your personal finance based on how businesses have taught it to the consumer ever lead to wealth?

If that capital was $10m, the average returns would drag down to say 20-25% p.a. average. I agree with you that Buffett’s returns are phenomenal on $100bn+.
Google “50% per year Buffett return”- Buffett says it’s possible to achieve 50% p.a. average return with sub $1m, but that’s a full time job and you have to be really fanatical about the process.
So these returns follow a power law distribution curve, with average returns on the y axis and capital sum being invested on the x axis. The more capital, the lower the average returns.

Over leverage yes is VERY bad. How much is over leverage? Depends upon a few factors. Debt can amp your returns, but it can also destroy you. exhibit A: banks from 2 years ago. The author never states over leveraging. A good portion of debt is personal debt is consumer debt, not in investments. You are 100% people should not purchase assets that always decrease in value with debt.

I call BS on your 30% return guy. For how many years consistently??? Investing in what? If this “guy” you state gets that amount every year he has to be one of the best investors to ever live! Better than Buffet, who has averaged 23% (if memory serves me correct) Is it possible to get 30% in one year (don’t forget last year the S&P was 22% up YOY) but consistently… ah no.
Investor Junkie´s last blog ..How Much is 1% Costing You?

The article is a clever yet dangerous, as it offers the ‘candy’ of debt but fails to mention what often happens next with borrowing to buy growing assets.

What happens next is you get greater monetary returns, so you take on more debt to achieve even greater returns, you get greedy and overstretch further and then… boom! either revenues slump, recession hits, business has cash flow problem, factory has a fire, porperty market crashes, you have a sudden medical cost, lost job or whatever many reasons for a temporary weakness.

And with debt, there is a high probability that such a moment of weakness for you will *coincide* with the lender pulling the rug from under you with a capital repayment demand.
So you start back at zero with fewer working years left so more of a hurry so seek more debt and, you get the idea.

A guy I know has studied business and investing for a decade and can compound money at 30% per year. So he should borrow money at 5% interest rate and invest to achieve 30% p.a. right? Certainly not.
He achieves 30% p.a. returns because 1. he rarely loses money due to avoiding companies saddled with debt, 2. he is rational enough to know that a little personal debt+ short term success will only lead to him feebly succumbing to using more debt and 3. he knows the simple math that ten years of growth multiplied by zero in the 11th year- thanks to leverage- gives a net worth of zero.

If you’re smart enough financially*, you have no need for debt.
If you’re not financially smart, you should avoid debt at all cost.

* by “smart enough”, I mean you’ll know the difficulties in trying to value a company’s equity when it has a D/E ratio above 0.5, prior to deciding whether to invest.

Beside a mortgage and any loan for your education (good debt), do not borrow and reach your financial goal with 100% certainty… or borrow and have a 5% chance of failing to reach any goal.

Financial services companies want you to take on lots of debt. Companies with over 20% director ownership rarely use debt. Don’t these two facts tell you something?