August 10, 2011, 8:39 am

How Uncle Sam is Helping You Getting Rich

by: The Financial Blogger    Category: Business,Investment, Market and Risk,Leveraging Strategies
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uncle samUnless you have been living under a rock since 2008, you already know that: The USA has a debt problem. Okay, so far, nothing very shocking here as half of the planet has a debt problem! However, the USA debt addiction reached critical mass last week with the need to increase their debt limit. On top of this, Standard & Poors dropped their credit rating from the historic and prestigious AAA to AA+ (which is one grade lower). What the hell does the USA credit rating change have to do with anything in your life? I guess you are asking yourselves the question even more if you are Canadian. Well, regardless if you are American or Canadian, the USA is helping you become richer by fooling around with its credit rating. Here’s how:


The Case of Interest Rates

Since the end of 2008, borrowing rates have been at their lowest since I was born (1981 for the most curious of you!). The interest rate has been cut down to the minimum in order to let both consumers and companies breathe and avoid a bigger financial collapse. Having such low interest rates is good for most consumers as;

a)      It lowers their mortgage payments (and enables the smartest, who kept their original payment amount, to pay more capital at the same time)

b)      It creates huge opportunities for those who want to leverage.

As European countries are struggling with their debts and the Americans can’t restart their huge capitalist engine, interest rates should stay at low levels for another year. This means that it gives you the opportunity to use these low interest rates to your advantage. If you look at my net worth statement, I have personally decided to not pay my debts and focus my cash flow on asset creation. I didn’t borrow more money to leverage per se, but I am voluntarily ignoring my debts to focus on adding more assets. Once the interest rates rise again, I’ll probably change my strategy as I will be making more money (from my assets) and be in a better position to clear my debts.


Opportunity on the stock market

I don’t know if you have followed the market for the past 2 months but it is going down week after week. The main concern (for the past 18 months) is again the debt level of many countries, especially the US of A. On the other hand, there are plenty of great companies that have published strong financial results over the same period.


This is what tells me that investing right now is a great idea. If you have missed the gigantic 2009 stock market rebound, you can certainly make a few bucks from the next rebound. When will it happen? I don’t know. All I know is that when you can buy successful companies with strong balance sheets paying high yield dividends, it’s like Christmas during summer time!


Opportunity with real estate

Then again, if both interest rates are low and the stock market is down, chances are that you can also find great deals in real estate. I wouldn’t look North of the Border for this one as the Canadian housing market is not in a bubble according to me. However, many people can’t afford to pay for their homes in the States (since 2007!). So buying a piece of land or a vacation property might be the good timing at the moment.


Opportunity to create a business

If you can create a business and survive the present economic times, your business will skyrocket once the economy gets back on its feet! Tough times are always the best time to start a new business since you will be up and running when the lights come back on.


You can benefit from low interest rates and the fact that people want to get rid of their house/land/condo. Why don’t you become their savior? Many people got rich during the last real estate crisis.


Seizing the opportunity is like surfing:

Are you too afraid to jump at any of these opportunities? You would rather wait until things calm down a little and “wait for the better timing”. Remember this: seizing the opportunity is like grabbing the perfect wave when surfing: if you are sitting on the beach waiting for the perfect wave, chances are that you will see it happen in front of you but you will be 200 feet away and won’t be able to jump on it. On the other hand, the surfer dude who is already in the water, battling with small waves and being crushed once in a while will have a much better shot for the perfect wave.
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Talk about a dividend supermarket. Take a look at Sun Financial, P/E of 9, 5.7% yield, my mouth is watering!

Interesting thought on focusing more on asset creation right now rather than paying off debt. I just chose a similar route. Your reasoning makes sense to me, but still a little unsure about my decision.

lovely post. low interest rates have been heaven for me with rental property investing. and you are right, put the blind fold on and buy stock A B C – chances are you will make out ok overall lol

I like the surfing analogy and being in the waves. I will be paying some higher interest rate debt, but will be looking for opportunities as well.

Rental property is the most powerful asset class imo.

It’s always good to hear a positive spin to the events of late! Most of the news out there seems to be so negative! I definitely agree with the idea that we should try to take advantage of interest rates being low as much as we can in real estate, business borrowing, etc.

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I am refinancing my primary residence loan now and saving $320/month in interest which is nice.

At the same time, I hope investments and real assets inflate!

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