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The Value of Debt: How to Manage Both Sides of a Balance Sheet to Maximize Wealth

The Value of Debt: How to Manage Both Sides of a Balance Sheet to Maximize Wealth

Thomas J. Anderson

ISBN: 978-1-118-75877-9 November 2013 272 Pages


A New York Times bestseller and one of the Ten Best Business Books of 2013 by, this book brings a new vision of the value of debt in the management of individual and family wealth

In this groundbreaking book, author Tom Anderson argues that, despite the reflex aversion most people have to debt—an aversion that is vociferously preached by most personal finance authors—wealthy individuals and families, as well as their financial advisors, have everything to gain and nothing to lose by learning to think holistically about debt.

Anderson explains why, if strategically deployed, debt can be of enormous long-term benefit in the management of individual and family wealth. More importantly, he schools you in time-tested strategies for using debt to steadily build wealth, to generate tax-efficient retirement income, to provide a reliable source of funds in times of crisis and financial setback, and more.

  • Takes a "strategic debt" approach to personal wealth management, emphasizing the need to appreciate the value of "indebted strengths" and for acquiring the tools needed to take advantage of those strengths
  • Addresses how to determine your optimal debt ratio, or your debt "sweet spot"
  • A companion website contains a proprietary tool for calculating your own optimal debt ratio, which enables you to develop a personal wealth balance sheet

Offering a bold new vision of debt as a strategic asset in the management of individual and family wealth, The Value of Debt is an important resource for financial advisors, wealthy families, family offices, and professional investors.

Foreword xi

Acknowledgments xv

Introduction xvii

Part 1: The Value of Debt in the Management of Wealth 1

Chapter 1: Strategic Debt Philosophy: An Overview 3

How This Book Can Add Value to Your Life 3

The Five Tenets (or Action Principles) of Strategic Debt Philosophy 4

Chapter 1: Summary and Checklist 14

Chapter 2: The Basic Idea: Limiting the Costs, the Impacts, and the Duration of Financial Distress 21

Risk of Financial Distress 22

The Direct and Indirect Costs of Financial Distress 23

The Impact of Financial Distress: Five Levels 24

The Duration of Financial Distress 25

The Four Indebted Strengths: A First Look 26

The One Thing You Must Consider! 26

Chapter 2: Summary and Checklist 29

Chapter 3: Strategic Debt Practices: An Overview 33

Understanding and Taking Advantage of Strategic Debt Philosophy 34

Achieving and Maintaining an Optimal Debt-to-Asset Ratio 37

Calculating Your Debt-to-Asset Ratio 41

Should Your Primary Residence Be Included in Your Debt Ratio? 43

When to Pay Down Your Debt, and When Not To 45

Advanced Practices and Scenarios 47

Chapter 3: Summary and Checklist 49

Part 2: The Assets-Based Loan Facility 53

Chapter 4: The Value of an Assets-Based Loan Facility (ABLF) 55

What an ABLF Is and How It Works 56

The Many Advantages of Having an ABLF in Place 59

Why Virtually Every Company Has a Line of Credit 61

Surviving Storms and Other Natural Disasters 62

The Criticality of Being Proactive and Assessing Risks 64

Family Finances: First Bank of Mom and Dad; Elder Care Bridge Loan 67

Taking Advantage of Opportunities and Distressed Sales 68

Average ABLF Usage and the Win-Win-Win Scenario 70

Chapter 4: Summary and Checklist 71

Part 3: Scenarios for Success 75

Chapter 5: Long-Term Wealth Amplification through Capturing the Spread 77

The Basic Concept: Inherent Risks with Great Potential Rewards 77

Three Key Factors to Consider 79

Some Scenarios for Capturing the Spread 83

Synching with Your Investment Strategy 93

Chapter 5: Summary and Checklist 93

Chapter 6: Holistic Financing of the Expensive Things You Need and Want 99

A Better Way to Buy: In the Company of Holistic Financial Thinkers 99

Four Principles When Financing the Purchase of a Desired Item 100

A Better Way to Purchase a Vehicle (or Almost Anything Else) 108

Purchasing a Second Home: Pluses and Minuses 111

100 Percent Financing: The No Down Payment Real Estate Purchase Option 117

Chapter 6: Summary and Checklist 119

Chapter 7: Generating Tax-Efficient Income in Retirement or Divorce 123

Introduction: Three Goals (and Some Disclaimers) 123

An Opening Scenario for No Taxes in Retirement 124

Borrowing Versus Selling to Access Your Money 125

A Better Alternative to a Familiar Story 127

Tying It Back to Capturing the Spread 128

Revisiting Tax Issues 130

Making Use of Strategic Debt Strategies and Practices in Divorce 138

Chapter 7: Summary and Checklist 143

Chapter 8: Conclusion: What This Book Is Really About 149

What We Hope You Have Taken Away 150

Strategic Debt as a Financial Engine over the Decades 153

Paradoxes of Plenty: Some Surprises in Maintaining an Ideal Debt Ratio 158

Investing in the Future: A Cautionary Reminder 162

A Final Thought 164

Chapter 8 Summary: A Recap of the Book’s Significant Lessons 164

Part 4: Appendixes 169

Appendix A: The Varieties of Debt 171

Appendix B: Strategic Debt Practice for the Young and Those with Limited Assets 175

Appendix C: No Guarantees: Limiting the Risks of Investing in a Crazy World 185

Appendix D: Some Examples of Ideal Debt Ratios 209

Glossary 225

Bibliography 229

About the Author 231

About the Companion Website 233

Index 235