Life Insurance Book Review

At some point in our lives we’re all going to need to deal with loans.  Whether it be homeowner loans, business loans, or car loans, they’re something that we all make use of to enhance our lifestyle without large outlays of capital.

For my money, car loans are a neccessary evil early in life.  Most  20 year olds simply can’t afford the many thousands needed to buy their first automobile.  A car loan makes that a possibility instead of being out of reach.  That also explains why car leasing is such a hot commodity these days.  In years past, I’ve done both and much prefer the loan.  At the end of your series of payments you own the car, and to me that’s worth something.  Of course, as we get older and start to become a bit more financially stable, car’s can be bought outright - absolutely the way to go if you can manage it.

Secured loans or home owner loans are a great way to increase the value of your house through renovations.  Not only do you increase the future value and saleability of your home, but you get to enjoy the enhancements immediately. It’s hard to go wrong sinking money into your own residence.

And while I’m no fan generally of being in debt, business loans make sense for a lot of companies, particularly for those starting out.  In my first business I used this technique to secure a large range of inventory.  That inventory allowed me to fill customer’s orders faster than my competition and gave me the edge I needed to grow a strong business.  Paying a bit of interest on stock you’re turning over rapidly can be a great thing.  For example, say you take out a loan to buy $1000 of inventory, with the intention of paying back that loan at 5% at the end of the year.  Very simply, lets say that costs you $50 to do that.  Now, if you sell the product at a 10% markup, and can turn over your inventory 10 times in that year (buy $1000 of inventory, sell it, use it to buy more inventory) you’ve made the full $1000 back to repay the loan, plus pay the $50 interest, plus you’ve got $950 left over.  And that’s ignoring compounding completely.  In short, business loans can be a good thing.  Conversely, when you run a business like I do, having absolutely no business debt is a great feeling as well. But if running a startup that takes some initial capital, I wouldn’t hesitate to look into business loans.

Exchange traded funds are a burgeoning investment vehicle.  Wikipedia indicates that the number of these funds has blossomed from less than 100 to over 400 in 2006 - a sure sign that these are something to be watched.

Basically exchange traded funds are investment vehicles where the return is linked to some sort of index.   So unlike a traditional individual stock where your investment ebbs and wanes with the specific company, with these your returns are linked to the underlying index.  For example you might invest in a fund that tracks with the Nasdaq.  Your returns on that fund would then be correllated to the performance of the Nasdaq.

There are at least two distinctive advantages of these types of investments over traditional mutual funds investments.  First, these funds can enjoy more favorable tax treatment (depending on your jurisdiction).  Secondly, ETF’s generally have a lower expense ratio. Over time these lower expenses can compound significantly, resulting in a higher return.  That spells more money for the investor.

The website www.etfguide.com also has more details on ETF versus mutual funds.