Series: Using Debt To Buy Income(Part 2)

Most People Use Debt To Consumer Junk. We Use Debt To Produce Income.

In part 1 of this series, I discussed the foundation of how option ETFs can provide us with a large stream of supplemental income. I provided several example funds for readers to look at and dissect. If you haven’t read Part 1 yet, I suggest that you go back back and check that out as it lays down the foundation to why a supplemental cash flow is extremely valuable.

Wall Street has brainwashed us to believe that the best investment approach is to lock your money into index funds that they have created. They have a vested interest to keep retail investors afraid of selecting their own investments. Firms like Vanguard, BlackRock, Fidelity, and Schwab all charge unnecessary management fees and rake in billions from investors too afraid to take control of their own portfolio. These firms will continue to take advantage of companies because there is a lack of knowledge on different asset classes and people have a faulty perspective on how money works.

Most people see money as a tool to consume; Work, collect your paycheck, pay your bills, then use the leftovers to ‘treat yourself’. Get the newest phone, pay off that car loan, take a vacation funded by your credit card company, or sign up for another subscription service. Most people become crippled by debt because of the high interest rates that credit card companies issue. However, your interest payments is effectively someone else’s passive income.

Photo by Clay Banks on Unsplash

Using Debt To Buy Assets

Want to get on the other side of the cash register and collect interest? It’s as easy as buying assets that pay you. My favorite asset choice are Business Development Companies, which generate earnings by lending capital and collecting interest or equity in return. There are a ton of different business development companies to choose from. Here’s a small preview of some of the most popular ones that are publicly traded. However, I wouldn’t suggest using debt to buy these specifically because their yields just aren’t high enough for an arbitrage opportunity.

An interesting Idea I want to propose is using margin debt offered from a brokerage account to buy assets with high dividend yields. Assets like the ones I mentioned in Part 1 of the series are perfect. If you aren’t aware, almost all brokerages some sort of margin that can be used against your portfolio balance. It differs for each brokerage but generally speaking, you are able to borrow an equivalent amount to your invested capital; Invest $20,000 and you’ll likely have access to $20,000 in margin debt that can be borrowed against your assets. Interest rates are different everywhere but these are the rates for Fidelity:

Let me demonstrate how you can use debt to create massive income streams! This is exactly what I am currently doing…