Leveraging Bank’s Money for Personal and Business Gain

How to Leverage Bank Money for Tax-Free Income and Double-Digit Returns

This strategy involves leveraging bank loans to create tax-free income for life, often resulting in double-digit returns. Let's explore how this works and the potential benefits.

Leveraging Bank Loans for Financial Growth

The concept is straightforward: you make a one-time contribution to a high-interest-earning account, and the bank matches your contribution year after year at a lower interest rate. This creates a situation known as positive arbitrage, where you earn more from your investments than you pay in loan interest.

Here’s how it works in detail:

1. Initial Contribution: You start by making a single contribution, say $100,000, to a high-interest account.

2. Bank Matching: The bank matches your contribution every year, increasing your money significantly.

3. Positive Arbitrage: You earn interest on the total amount (your contribution plus the bank’s matching funds), which often results in double-digit returns. This is more than the interest you pay on the loan, creating positive arbitrage.

4. Tax-Free Income: When you start taking income, it’s 100% tax-free. This means it won’t affect your income tax, even if you have a 401(k) or IRA, nor will it affect how your social security is taxed.

Historical Performance

To understand the potential of this strategy, with every person we speak to, we do a look back at market performance over the past 35 years, from 1989 to today. This period includes:

• The rise of the market in the 90s.

• The dotcom bubble.

• The 2008 financial crisis.

• Most recently, covid.

Despite these ups and downs, this strategy has shown resilience, demonstrating how leveraging the bank's money can work in both good times and bad.

The 35-year look back also takes into consideration market rates, interest rates, and loan rates. While no one can know exactly what will happen in the future, the past 35 years are a decent indication of future performance.

Individual Use Case: Maximizing Personal Wealth

As an individual, you might already be putting money into stocks or real estate. Whether you are putting your money in other assets or not, this strategy will work for you. With this strategy, you could use the money you earn to place into other asset classes, i.e. stock market, bonds, real estate, etc. Over the course of many years, earning money in more than one place simultaneously, fueled by the power of compound interest can turn these gains into substantial wealth.

Example:

• Initial Contribution: $100,000

• Bank Matching: Annually, leading to an investment base much larger than your original contribution.

• Earnings: Your investments plus additional double-digit returns annually, tax-free.

• Result: Over time, this can result in millions of dollars in tax-free income.

Business Use Case: Enhancing Emergency Funds and Employee Benefits

For business owners, this strategy can transform how you manage your emergency fund. Typically, an emergency fund sits idle, losing value to inflation. By moving this fund into a high-interest-earning account matched by the bank, you can earn 12% or more per year, while keeping it liquid for emergencies.

Additionally, you can set up similar accounts for your employees, providing them with a valuable benefit through a one-time contribution.

Example:

• Emergency Fund: Move your business's emergency fund to a high-interest account with bank matching.

• Earnings: Instead of earning nothing, your emergency fund now earns double-digit returns while remaining liquid.

• Employee Benefits: Set up similar accounts for your employees, enhancing their financial security.

No Need to Repay Loans

The best part of this strategy? The loans never have to be repaid during your lifetime. When you pass away, the loans are paid back in one lump sum, ensuring your estate or business isn’t burdened with debt.

Conclusion

Leveraging the bank’s money to create tax-free income and double-digit returns is a powerful strategy for both individuals and businesses. Whether you're looking to maximize your personal wealth or enhance your business's financial management, this approach offers significant benefits.