Do you know what the seven points are? Let's take a look at them:
- There are many types of leverage
- Most investors invest in paper assets, assets they have very little control over.
- An increase in returns does not mean an increase in risk.
- Most financial advisors are not investors.
- Financial education increases financial intelligence.
- Leverage can work in two ways.
- When most financial advisors recommend diversification, they are not really diversifying.
Robert thought these were important. Before moving on to higher forms of leverage and control, he believes it is important to recap and review the points covered so far before getting more complex.
Robert talks about two main types of investing: capital gains and cash flow.
Many people invest hoping the value of things like stocks or real estate will go up (capital gains), but this can be risky and lead to higher taxes. Robert suggests that a safer approach is investing for cash flow.
This means making money from things like rental properties or businesses that provide regular income. Using loans to invest in these can bring higher profits and lower taxes. The book teaches that focusing on cash flow and being smart with your investments will lead to better financial success.
Robert asks, 'What is your reason for investing?' He also explains that there are three types of investors based on capital gains or cash
Are you ready to find out what they are?
When you're young, invest in growth funds to make your money grow. As you get older, it’s better to move your money into funds or annuities that provide regular income. This helps reduce risk and provides more certainty as you near retirement.
The first type of investor is someone who invests only for capital gains.
Robert says the first type of investor is called a trader.
The difference between traders in stocks and flippers in real estate is that their investment objective is to buy at low prices and sell at high prices. They are classified as individuals in the "S" (Selfemployed) quadrant, rather than the "I" (Investor) quadrant. While they may make money through their activities, they are not considered true investors. Additionally, in America, traders and flippers are taxed at higher rates compared to those in the "I" quadrant, who benefit from tax advantages designed for investors.
The second type of investor is someone who invests only for cash flow.
Robert highlights the tax-free benefits of municipal bonds and how NNN (Triple Net) properties allow investors to earn income without paying for taxes or repairs, much like tax-free bonds. However, Robert points out that finding high-return NNN properties is challenging, as they currently offer lower returns (around 5-6%). Robert suggests that by using leverage and loans, investors can find higher returns, making triple-net real estate a more attractive option compared to municipal bonds.
