The Value of “Collateral-Worthy” Assets
- When is a dollar more than a dollar, or an asset more than an asset?
- When you can borrow against it.
The ability to use an asset as collateral when wanted or needed is a test of its strength.
What is the significance that your 401(k) can’t be used as collateral, but your home or your insurance policy can?
The wealthy borrow against – or leverage – their own assets as a standard rule of practice. They do it wisely and cautiously, but with an appreciation for how leverage can multiply their profits and allow them to control more assets than simply their cash.
Leverage helps increase the VELOCITY or “movement” of dollars through your asset. It also helps your dollars do more than one job, and when you multiply the JOBS your dollars do, you’re using strategies that tend to multiply your DOLLARS as well.
It is no accident that both real estate and cash value insurance (such as whole life) are two types of assets perhaps most often and most easily leveraged, and also assets commonly invested in by high net worth individuals and high value corporations.
While a certain strata of Americans are socking their money into lottery tickets and mutual funds (granted, better than the lottery tickets), the wealthy are building equity and ownership in assets they can use and control.
Remember the Prosperity Ladder? Ownership is the action that takes people from Comfort to Prosperity. And leverage often creates the opportunity for ownership, whether it’s leveraging your way into a home with a mortgage or leveraging your way into permanent life insurance benefits with your first policy payment.
Once equity is built, the asset can then be leveraged to help secure an additional asset. This is how the velocity of money increases, which is a very, VERY good thing.