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The Value of Debt: How to Manage Both Sides of a Balance Sheet to Maximize Wealth by Thomas J. Anderson (25-Oct-2013) Hardcover
Virtually every CFO of a large company recognizes that both assets and debts can be sources of financial strength. Yet the vast majority of high-net-worth individuals are either perilously over-leveraged or, more commonly, tragically under-leveraged.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, the way CFOs do.Viewing amortization as the enemy of good financial sense, with only a few notable exceptions, 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.Taking a Strategic Debt approach to personal wealth management, he emphasizes the need to appreciate the value of "Indebted Strengths" and for acquiring the tools needed to take advantage of those strengths for increased liquidity, flexibility, leverage, and survivability.But, as he explains, before you can begin to leverage your indebted strengths, you must first determine your optimal debt ratio, or what he refers to as your debt "sweet spot." To that end, he describes methods CFOs use to determine their companies' debt sweet spots, and he shows you how to apply those methods in finding yours.
Hardcover
First published January 1, 2013
34 people are currently reading
183 people want to read
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Displaying 1 - 13 of 13 reviews
May 28, 2017
The strategies in this book are only applicable when you have significant money in a non-retirement brokerage account so it's quite different from other personal finance books that don't cover this.
Treat your personal finances like a company and use debt for leverage and flexibility. When you can borrow at low interest rates and generate a higher rate of return you're "capturing the spread" in a positive manner and coming out ahead. You need to wipe out any "bad" debt before you can use the strategies in this book such as credit card or high interest student loan debt.
The debt you do carry should be low interest mortgage debt and a loan from your investment broker guaranteed by assets held in an after-tax non-retirement account. You can "pledge" those investments as collateral while still owning them and making a return from them while using the loan money at a low interest rate for other purposes such as buying a vacation home or airplane.
The book has the repetitiveness of a self-help book but the advice is sound. To make the ABLF (Asset Based Loan Facility) work you really need to have at least $500k (and preferably $1M) in your after-tax non-retirement brokerage account so these strategies are clearly not applicable to a lot of people. But if you can do it and understand the risk you'll get more out of your money.
Treat your personal finances like a company and use debt for leverage and flexibility. When you can borrow at low interest rates and generate a higher rate of return you're "capturing the spread" in a positive manner and coming out ahead. You need to wipe out any "bad" debt before you can use the strategies in this book such as credit card or high interest student loan debt.
The debt you do carry should be low interest mortgage debt and a loan from your investment broker guaranteed by assets held in an after-tax non-retirement account. You can "pledge" those investments as collateral while still owning them and making a return from them while using the loan money at a low interest rate for other purposes such as buying a vacation home or airplane.
The book has the repetitiveness of a self-help book but the advice is sound. To make the ABLF (Asset Based Loan Facility) work you really need to have at least $500k (and preferably $1M) in your after-tax non-retirement brokerage account so these strategies are clearly not applicable to a lot of people. But if you can do it and understand the risk you'll get more out of your money.
June 15, 2017
Borrow at low interest - invest in assets - leverage to borrow and reap the benefits of borrowing against assets. All assumptions based on one has enough dough to begin with else its hard to replicate this model
August 31, 2021
TLDR - don't pay down your mortgage.
The book is pretty repetitive, just convincing you that debt can be good & bad, with examples. I assume most readers are already familiar with & interested in debt.
It would be more interesting if the author discussed more practical applications of acquiring & managing good debt. I found the author's downside scenarios and the value of liquidity very valuable, though.
The book is pretty repetitive, just convincing you that debt can be good & bad, with examples. I assume most readers are already familiar with & interested in debt.
It would be more interesting if the author discussed more practical applications of acquiring & managing good debt. I found the author's downside scenarios and the value of liquidity very valuable, though.
August 3, 2020
This particular book has a couple of obvious agendas, and while I did not have a problem with either of them, it is worthwhile to discuss them openly so as to let the potential reader know if either of them are dealbreakers. The first of these agendas is to promote a view of one's own personal balance sheet as if one was a company, seeking to use one's assets in order to have smart debt that reduces tax liability and that provides very low interest rates because the loans are themselves organized in such a fashion as to be ordinary and thus not risky for banks. Similarly, the book is written in order to serve a particular approach to borrowing money called an Assets-Based Loan Facility (ABLF) which provides a lot of capacity for borrowing that remains unused, but which capacity itself can allow for considerable flexibility in how to deal with opportunities for investment as well as personal disasters. Not all people will be either temperamentally suited or will have the sort of resources to approach their personal finance like a business, but those who are will find much of interest here and may wish to read other books by the author.
This book is a relatively short one, even with its four appendices it is still between 200 and 250 pages and a quick read at that if you have an interest in this sort of material. The book begins with a foreword, acknowledgements, and introduction. After that the author discusses the value of debt in the management of wealth (I), with chapters giving an overview of the philosophy of strategic debt (1), the basic idea of limiting costs, impacts, and duration of financial distress (2), as well as an overview of strategic debt practices (3). The author then moves on to discuss the Assets-Based Loan Facility as a means of debt management (II), with a chapter on the value of such a facility (4). After that the author explores various scenarios for financial success (III), including obtaining long-term wealth amplification through capturing the spread (5), holistic financing of the expensive things that the reader presumably needs and wants (6) , the generation of tax-efficient income in case of retirement or diverse (7), where alimony is far better on a tax basis than child support is for the person paying it, as well as a conclusion that discusses what the book is really about (8). After that there are four appendices that discuss the varieties of debt (i), strategic debt practice for the young and those with limited assets (ii), limiting the risks of investment (iii), and some examples of ideal debt ratios (iv), after which the book ends with a glossary, bibliography, information about the author as well as the book's companion website, and an index.
This book is really aimed at what we would consider the middle class or upper middle class reader who owns a home, and who has at least some interest in entrepreneurial thinking on the personal level. The author works from the understandable and praiseworthy assumption that it is noble and good to not pay any more taxes than one has to based upon the rules that are set up by government, and that people can gain a great deal of personal profit from thinking of their own personal business as a business with income streams and expenses and capital investments and the like. The author notes that a certain amount of a certain type of debt is ideal and that there are mistakes that are often made by people in either seeking to avoid debt altogether and thus avoiding its benefits or being over-leveraged and thus vulnerable to downturns. The book demonstrates the value of debt and the way that it drives the production of wealth for those who are wise and shrewd enough to use it well, operating under the assumption that the author and the reader are both at least capable of being that shrewd and that the reader has no moral objections to financial shrewdness in principle.
This book is a relatively short one, even with its four appendices it is still between 200 and 250 pages and a quick read at that if you have an interest in this sort of material. The book begins with a foreword, acknowledgements, and introduction. After that the author discusses the value of debt in the management of wealth (I), with chapters giving an overview of the philosophy of strategic debt (1), the basic idea of limiting costs, impacts, and duration of financial distress (2), as well as an overview of strategic debt practices (3). The author then moves on to discuss the Assets-Based Loan Facility as a means of debt management (II), with a chapter on the value of such a facility (4). After that the author explores various scenarios for financial success (III), including obtaining long-term wealth amplification through capturing the spread (5), holistic financing of the expensive things that the reader presumably needs and wants (6) , the generation of tax-efficient income in case of retirement or diverse (7), where alimony is far better on a tax basis than child support is for the person paying it, as well as a conclusion that discusses what the book is really about (8). After that there are four appendices that discuss the varieties of debt (i), strategic debt practice for the young and those with limited assets (ii), limiting the risks of investment (iii), and some examples of ideal debt ratios (iv), after which the book ends with a glossary, bibliography, information about the author as well as the book's companion website, and an index.
This book is really aimed at what we would consider the middle class or upper middle class reader who owns a home, and who has at least some interest in entrepreneurial thinking on the personal level. The author works from the understandable and praiseworthy assumption that it is noble and good to not pay any more taxes than one has to based upon the rules that are set up by government, and that people can gain a great deal of personal profit from thinking of their own personal business as a business with income streams and expenses and capital investments and the like. The author notes that a certain amount of a certain type of debt is ideal and that there are mistakes that are often made by people in either seeking to avoid debt altogether and thus avoiding its benefits or being over-leveraged and thus vulnerable to downturns. The book demonstrates the value of debt and the way that it drives the production of wealth for those who are wise and shrewd enough to use it well, operating under the assumption that the author and the reader are both at least capable of being that shrewd and that the reader has no moral objections to financial shrewdness in principle.
February 29, 2020
Overall it's worth a read.
It's definitely not for everyone especially on the topic of debt.
I do like the idea that the author has emphasise a lot that this book is not for everyone.
But the key point is rather simple- It's always good to have a Strategic Debt Philosophy.
Not only that the author has clearly illustrated with many examples that it's really great to have debt as long as you can understand and manage it.
This may not be a common book that will be well liked by the public but if you're keen to be really wealthy, you definitely need to know the tricks on how the rich got richer!
It's definitely not for everyone especially on the topic of debt.
I do like the idea that the author has emphasise a lot that this book is not for everyone.
But the key point is rather simple- It's always good to have a Strategic Debt Philosophy.
Not only that the author has clearly illustrated with many examples that it's really great to have debt as long as you can understand and manage it.
This may not be a common book that will be well liked by the public but if you're keen to be really wealthy, you definitely need to know the tricks on how the rich got richer!
October 24, 2019
Author espouses a common-sense philosophy of intelligently using debt to structure your personal balance sheet, like how a CFO would for a corporation. While a bit repetitive, this wisdom is worth internalizing and remembering, as it can really impact your wealth through time. He recommends striving for a 25% debt ratio. 4 Indebted strenghts: increased liquidity, increased flexibility, increased leverage, increased survivability. Make sure you have an asset-backed lending facility in place, and pls don't pay down your mortgage.
June 23, 2023
I wish some of the examples were more accurate. But a good thought provoking book on what an ideal debt ratio looks like for a personal balance sheet.
Read
November 22, 2023Good book that discusses the advantages of having an ABLF (asset backed loan facility) so you can use your assets to secure a line of credit with preferable interest rates.
Things i learned...
-Avoid amotization as much as possible. There is a reason companies only offer bonds that are interest only and are not amotized. Amotization decreases flexibility with minimum payments.
-The value of an item is independent of how it was acquired via the type of financing (bought with cash, loan, mortgage, etc)
-ABLF increases debt capacity.
Things i learned...
-Avoid amotization as much as possible. There is a reason companies only offer bonds that are interest only and are not amotized. Amotization decreases flexibility with minimum payments.
-The value of an item is independent of how it was acquired via the type of financing (bought with cash, loan, mortgage, etc)
-ABLF increases debt capacity.
October 6, 2013
This book provides a unique perspective for leveraging debt to help maximize wealth. Many very intelligent business and community leaders make decisions in their personal finances that shy away from debt and fail to take advantage of the tools available. The author carefully describes the principles you need to utilize what he defines as "Indebted Strengths" and explains in very simple, easy to understand terms how to apply the innovative concepts to maximize your personal wealth, minimize your tax burden and have credit available immediately for those scenarios you can't predict. While these concepts are new to personal finance, they are grounded by the backbone of how all businesses structure their balance sheets and for almost every controversial statement - he backs it up with an amazing amount of detail crediting the sources in footnotes.
What I liked the most reading this book was the number of "ah ha" moments I had learning new things about debt, borrowing against my assets at seemingly ridiculous low rates and how all these tools would allow me to pay significantly less taxes. The book also provides clever ways to analyze common family questions like should I buy a rent or buy a vacation home and if I do buy - how I can do that in a way that lowers my monthly cost significantly.
The Value of Debt is a must read for anyone who has a mission of growing their personal net worth. The author has a brilliant gift for writing and is able to explain complex topics in such a way that people of all levels will find it a beneficial read. But arguably the most important part of this book is the concepts have the potential to revolutionize personal finance and everyone from financial advisors to individual investors should give these ideas serious consideration.
What I liked the most reading this book was the number of "ah ha" moments I had learning new things about debt, borrowing against my assets at seemingly ridiculous low rates and how all these tools would allow me to pay significantly less taxes. The book also provides clever ways to analyze common family questions like should I buy a rent or buy a vacation home and if I do buy - how I can do that in a way that lowers my monthly cost significantly.
The Value of Debt is a must read for anyone who has a mission of growing their personal net worth. The author has a brilliant gift for writing and is able to explain complex topics in such a way that people of all levels will find it a beneficial read. But arguably the most important part of this book is the concepts have the potential to revolutionize personal finance and everyone from financial advisors to individual investors should give these ideas serious consideration.
June 17, 2014
Great read on a topic not often covered by financial professionals: the optimal debt ratio for an individual. The author applies many of the same principles and theories of corporate finance to an individual's holistic wealth management strategy. He recommends a 25% debt ratio (total debt/total assets) as optimal. Asset backed loan facilities (ABLFs) and mortgage debt represent the primary ways to have a personal "line of credit". Mortgage debt is often the best line of credit because the interest is tax-advantaged.
Other notes:
"Return on paying down debt is exactly equal to after-tax cost of debt"
"Value of an asset is 100% independent of the financing in place around that asset"
Other notes:
"Return on paying down debt is exactly equal to after-tax cost of debt"
"Value of an asset is 100% independent of the financing in place around that asset"
May 30, 2016
Get in Good Debt!!
I recommend this book to everyone!! It's helped me to understand how important a balance sheet is in my personal finance and accounting, my investments view of things has changed in a incredible ways
Chapter after chapter is full of goods and instructing on how to run your financial decisions.
I recommend this book to everyone!! It's helped me to understand how important a balance sheet is in my personal finance and accounting, my investments view of things has changed in a incredible ways
Chapter after chapter is full of goods and instructing on how to run your financial decisions.
September 13, 2016
Ideas I don't see elsewhere, but very repetitive book.
Best if you have at least enough after-tax investments to take advantage of an asset‐based loan facility, which is a main focus of his strategies.
Best if you have at least enough after-tax investments to take advantage of an asset‐based loan facility, which is a main focus of his strategies.
January 28, 2015
best book on the subject of wisely leveraging debt in personal wealth management. nothing out there is more comprehensive.
Displaying 1 - 13 of 13 reviews