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Old Father Time at Work

About 35 years ago, a friend who was also a client, asked my advice about how to structure his borrowing and investing following his recent purchase of a house.

Working on the principle that although DEBT is a four-letter word, it is not one of those four-letter words, I recommended a substantial borrowing for life, coupled with a matching substantial investment, also for life.

Those people who grab the Financial Review and read it from front to back page daily, will hate the idea of setting and forgetting (albeit accompanied by an occasional look to see how things are going).

My plan involved having a $100,000 debt, a line of credit secured by mortgage, coupled with a $100,000 investment with interest on the debt drawn and paid annually.

My friend happily lives with his wife and one adult son (the other kids have left home) in the house whose value has increased from $220,000 to $1,200,000. Despite drawing $9,600 annually to pay interest since his son was in nappies, the original $100,000 has just turned into $107,000.

2020 has been a bad year because the investment has dropped $18,000 in value so far.

My mate has no complaints.