Another big advantage is your ability to access the EQUITY in your investment.
Equity in your investment is the difference between the market value of an asset and the claims held against it.Unfortunately, unrealized equity is not working to make you more money.You can leverage other assets with realized equity to make you rich!
The equity in a saving account is the value of the account since there are no claims against it.You can get to this equity at just about any time without triggering a taxable event.The money earned in the account is taxable, as we discussed in Part 5, but removing the money from the account is not a taxable event.In fact, access to equity in your saving account is the easiest and quickest of all the investments we discussed.
You must sell stock to realize its equity, which is a taxable event for stock bought directly or on margin.When you realize your equity, you must also realize the whole investment.There is no legal way available to the average investor that we are aware of to use your stock, especially when purchased on margin, to leverage other investments.You cannot have your stock and leverage too!
Realizing equity in your 401k account is a little different from just owning stock.Under certain conditions, you can borrow money, realized equity, from you 401k account.In affect, you are loaning the money to yourself.Unfortunately, realizing equity reduces the value of the 401k account, thus reducing your appreciation.In addition, these loans are typically for short-term issues and have significant consequences if you fail to pay it back.Like dealing with taxes, it is strongly recommended that you consult with a tax professionally before you take money out of your 401k to leverage other investments.
On the other hand, you can refinance real estate to realize most of the equity.Refinancing is not a taxable event and pulling out the equity does not reduce the appreciation of the real estate investment.Since there is no taxable event, you can leverage another real estate investment with the realized equity, OPM. This pattern can be replayed over and over again to make you rich.
While you can get access to your money in a bank savings account and stocks much quicker than you can refinance your real estate investment, you pay a heavy price.With real estate investments, you get leverage with the equity!
