Opportunity Cost – Episode 538      

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[00:01] Welcome to the Prosperity Podcast. Prosperity thinkers, we’re going to be talking about an opportunity fund. This is different than a savings account where you just sit there and you don’t get excited. This thing actually makes you money. It gets you excited and it brings people around you. I did not drink a Red Bull right before this. I’m just excited. This is good. I’m ready. Let’s go, Kim. That’s fabulous. The opportunity fund is any place beyond your emergency fund where you are storing cash and liquidity in order to take advantages of opportunity. We have a late friend named Nelson Nash, and he has a sentence that I love, and that is when you are in a position of cash, opportunity will seek you out.

[00:52] And when you are not in a position of cash, obviously you cannot take advantage of opportunities. And when that is the case, of course, you’re not looking for them. So another famous quote from Dan Sullivan, one of my mentors as well as Nelson has certainly been, is your eyes will see and your ears will hear only what your brain is looking for. Well, our human brains, brain science data is proving these days only have space for about four to seven things. So if you’re constantly thinking about debt, debt, debt, I got to get out of debt. What are you going to get more of? If you’re constantly thinking about emergencies, I got to fund my emergency fund. I got to make a bigger emergency fund. What are you going to get more of?

[01:43] And if you’re dedicated every single month at whatever level of the game is appropriate for you, 10 bucks or 10 million bucks. And yes, I mean per month, building an opportunity fund is going to drive your ears to hear and your eyes to see opportunities. And if you’re not doing it, they will not cannot find them. OK, so let’s talk about the components of an opportunity fund, because we can say an opportunity fund could be through a whole life mutual back company. Opportunity fund could be with cash sitting in a savings account. An opportunity fund could be of a property that you’re going to leverage with a loan or it could even be with your watch collection that you’re going to go and turn.

[02:36] What does that look like to you so that we can use these as rock solid principled pieces? I think it’s very important that we use our clue test CLE to identify the appropriateness of where we store our opportunity fund, because the opportunity fund must be liquid and we must be able to turn it on a dime. And so the four examples that you gave, the top two savings account and cash value insurance at a mutual life insurance company are going to pass the clue test, whereas property that you would want to borrow against and or any type of collection or stocks or anything that would have to be sold are not going to pass the clue test. So let’s work it through clue stands. And I had an interesting change in this definition.

[03:31] I’ve used the clue definition for a long, long time, but I’ve got an additional word for one of them now. So clue CLE was control liquidity, use and equity. However, I’m starting to think the L might be better if it identified the word legacy control, legacy, use and equity, because use means use it right away, use it for whatever you want. Well, that’s somewhat the same definition of liquid. So if we have control, legacy, use and equity, let’s take it through the top two and the bottom two and we can just split it into those two categories. The nuances are less important. You’re ready. Let’s do it. OK, so I’ll ask you the question as it relates to cash in a bank or cash in a life insurance company.

[04:23] Do you control it? Absolutely. I would think, yes, there are some strange situations with banks, not life insurance, but banks where they have our money and they want to know what we are doing with our money. Last time I checked the life insurance company, what they do is they go, where should this check be mailed to? It’s not, sir, why do you want twenty thousand dollars? What are you doing with this today? Yes. So I had to throw that in there because, yes, it’s like salt in the wound. It irritates me. It’s my money. Well, I just watched a movie that had a whole bunch of examples on civil forfeiture, and that is something that the banks do get involved in. And I don’t think very many people are aware of it.

[05:11] So we don’t need a bunny rabbit trail on that. But your point is valid. The liquidity. Sorry, not that the control of the dollars is a very, very important element. And I’m so grateful. Father Mother God gave me the clue acronym long, long, long time ago. I’ve used it forever. How awesome it is that it starts with the word see and that we identify that control is a very, very important part of it. So let’s just quickly. So we have it. We’ve got control with that. 100 percent. Yeah, yeah. But let’s hit the second two. So if you have property or stocks or anything else that you think are going to be in your control in order to be a part of your opportunity fund, I’m going to encourage you to look at that with a very careful lens,

[05:59] because I’m going to say you don’t control that to the degree that you think that you do. And the biggest reason is because if that asset that we think we control happens to be down, we are not going to feel in control of it. So with that, we can go on. Exactly. So the the second is use for me just, you know, so I’m comfortable. Second is LL. Yes. On the first one, just so I’m a little comfortable. I agree. We can look into, you know, our Schwab trading account or fidelity or whatever that is. And you’re absolutely right. We have control, but there’s a big but with it if the market is compliant with where we are. And so not full control. So I this it’s a part of me saying, oh, I wish I had it, but I don’t.

[06:52] OK, so next liquidity. The first two. Absolutely. Yep. Liquid ready to go. And we can also use the legacy word with both of those. You know, you can leave your bank account to anybody. You can leave a life insurance policy, of course, to anybody. And the life insurance is designed for legacy. So there’s just some good there. And it’s a fun L word to use whether you use either one. But let’s hit the second two. So with a stock account, with a property, what is the liquidity around? And we know that property is only liquid if the banks say yes. Stocks are only liquid if we are OK, mentally, emotionally and in other ways, either selling them today or margining them. Is there a legacy space? Yes, it’s taxable.

[07:45] We would have to pay capital gains tax or we would have to use something to do to get the property onto the next generation. You know, there’s some step up in basis work, et cetera. But as a general rule of thumb, the legacy space can absolutely be served by all four of those. There’s just some differences in exactly how it happens. Now, let’s go on to the third one. You for use on the first two. Absolutely. We have that control liquid. We can use it for what we want. Which is really nice. So using for using our dollars for an asset that requires leverage only can happen if somebody else says yes. Or using our dollars for selling something only can happen if somebody says yes. So we either have to sell a property, which means we need a buyer,

[08:48] have to sell our watch collection, which means we need a buyer or we need to leverage it. And the bank has to say yes. Or the stock brokerage company has to say, yes, you can have a margin account or you can have a loan against this property. So, no, we don’t get to use it for whatever we want. Yes, that is that is the kicker. Final one E for equity. And what this means is while it’s taking advantage of the opportunity, is it also still growing in and of itself? So you can borrow against a savings account. We have to say that, yes, the savings account could keep growing while you also have it leveraged to take advantage of another opportunity. The life insurance cash value very easily says yes to that.

[09:44] You can and should borrow against the cash value of life insurance to take advantage of an opportunity, assuming that you’re trusting the opportunity is going to give you the ability to pay back the loan as it relates to a property. Absolutely. That is going to keep growing. It home equity, property equity, a business equity, stocks as an equity, all of those things will keep growing while at the same time they are being used for opportunity. The watch collection, I’m not thinking so, but equity is an interesting one, isn’t it? Yeah, I mean, equity. So here’s the deal. Equity could work, but you’re probably going to have to be using it leveraged, meaning you’re going to have to pay a premium on the interest

[10:36] because it’s not something easy. The real estate works as long as you don’t sell the real estate, you’re getting a loan against the real estate. And same with the margin account that works as long as the market’s good. So that’s where it’s tough because a lot of people live their lives in the column, the speculation areas. And those are the cool stories because that’s where if you’ve bought a crypto and your crypto skyrocketed and now you’ve got a margin account and you’ve got X percent return. That sounds amazing until it’s not well said. And so this is such an easy acronym to remember. C.L.U.E. control legacy use and equity or control liquidity, use and equity, whatever one serves you better.

[11:23] And you can use it as a opportunity filter to figure out how your opportunity fund stacks up. I love it. So I’m going to ask you one final question before we wrap this piece up. So now that we’ve talked about opportunity fund, we’ll assume that the listener and someone the age of Robbie, your son, they’ve had the discipline to have an emergency fund that’s met. They’re using a system that’s helping them save their money. They’re using something like currents. They used gravy stack. They’re doing the right things. Now, how do they start to build the habit of finding opportunities and taking advantage of those? They go into learning mode first. Turn those eyes out. Turn those ears on. Start checking out opportunities that they are interested in.

[12:22] And that will help them develop a sense of what is the best opportunity for them. Tom Wheelwright says it well. Is real estate a great investment? Maybe. For some people, yes. For others, absolutely no. Are real estate syndications a better match? Maybe. For some people, yes. Others, no. Is buying a business a good opportunity? For some people, yes. For other people, no. Is buying a super organized franchise business a good opportunity? For some people, yes. For some people, no. Think about the entrepreneur that is super creative. Are they going to buy a franchise business? I hope not. So it’s so important to get the learnings going and test the water so that you can start to say no to the things so that when it is right

[13:09] for you to say yes, you’ve got the learnings, you’ve got the cash in your opportunity fund ready to take advantage of it and you can pull the trigger. I love it. That’s so good. I’m going to tie one piece. This is from a previous episode where we talked about credit and prosperity credit. One thing that you’ve done, Kim, is you’ve stayed consistent for decades and decades. So for all of you listeners that are in the position where you are using an opportunity fund, you’ve got your eyes and ears open so that you can see what’s going on. If you are still seeking for certain specifics, send an email to hello at ProsperityThinkers.com. I would imagine that, Kim, you’ll either know a book, a person,

[13:56] a podcast or something where you can direct to the next step. Hello at ProsperityThinkers.com. Thank you for listening to the Prosperity Podcast. To take control of your money and have it work for you, visit ProsperityThinkers.com.