Surviving has been a focal point for business owners everywhere over the past year. How are you expected to survive, let alone grow your business with the dark cloud of uncertainty hanging over your head? Well, we can work with what we got, leverage.
Nothing about leverage is new, but it is a concept that when properly implemented can help your business succeed, expand, or even help survive the worst of times. As the owner it could also increase your portfolio at a faster rate, with more security, and with an overall higher value.
There is a reason you typically only find professionals using leverage however, and it’s a pretty simple one. Without time, a proper plan, or an understanding of leverage it can lead to some devastating results. Both potential profits and losses are magnified. Scary isn’t it?
The good news is that it doesn’t have to be scary at all, leverage exists all around us and in many different ways. The worst thing you could do is give into fear and have your money sit stagnant. If you’re expecting your employees, partners, and anyone else involved with your business to work without be asked, then why are you not asking the same of your money?
If you haven’t been utilizing leverage to protect your business against recession, stagnation, or unwanted events (e.g COIVD), then it’s time to start. Let’s protect wht you have while you keep moving forward.
Want to be like Warren Buffet?
Unless you’ve been living under a rock for the past 50 years, we’ll assume you know who Warren Buffet is. However, you may not realize that a good portion of his success has come from utilizing responsible leverage over the years. The key concept is being responsible as I’m sure you’ve never heard anyone refer to Buffet as “Gunslinger” or “Gambler.” This will look different for every individual portfolio, but it does boil down to being prepared. With leverage you could buy a house with a mortgage, use a loan to scale your business with more production, or use it to invest like in this case. Regardless it is by no means a fool proof way to earn more, you need to be responsible and have a plan.
One key thing to keep in mind when using leverage is that it cuts both ways – you can lose money at a much faster rate as well if you don’t manage the risks properly. For example, you could mortgage more than you could afford in monthly payments, leading to you losing the house. On the business side you could fail to sell those additional products you produced leaving you in debt. Finally, with the investment, it could quickly go in the wrong direction, leading you to cover the loss.
This is why leverage is used so widely by professional investors, whose sole purpose is making sure that they can balance risk versus reward and meet their investors’ objectives. Leveraged Forex investments are relatively cheap and incredibly easy to use, giving them a significant advantage over leveraged stock picks. In fact with Forex it is possible to leverage a trade 500:1, which means a trade with $10,000 is actually giving the trader $5,000,000 of leveraged trading ability. Just because something is leveraged doesn’t automatically equal a win. Therefore we cap our max leverage at 10:1 which is way more sensible and still can provide a powerful return on the right trade(s). In the examples provided below you can see ALL of our trades that were executed during October 2020, all at 10:1 leverage.
As you can see, this translated to a 2.4% return for each client instead of the 0.24% return it could have been without utilizing leverage.
Not to be considered as future guidance. Past results don’t predict future performance.
Diversify: Protect against Dennis the Menace
If Leverage is your offensive plan for growth than diversification will need to be your defense to further protect your business. Diversification and making use of your corporation to invest for tax sheltered growth instead of investing in your personal name is a benefit that you can utilize, alongside leverage as a business owner.
We as a company will never suggest using funds that are needed for operating the business on a day-to-day basis. This strategy is designed for built up profits that are intended for long-term growth, not a swing for the fences approach. Although it is possible to utilize leverage 400:1 and make $300 million off a single trade like Andy Krieger did, we prefer a conservative approach previously shown in the trades above. Our hope with this approach is to accomplish a year over year target set between 15 to 30%, which we may not hit or even exceed in some years.
In the case of diversification consider it like a multi-pane or mosaic window: if a stone from the neighborhood kid were to go through it, only that specific pane would need replacing not the entire window. Without diversification you’re risking just one stone to shatter your entire plan. This applies to 100% cash based accounts/plans as well! Do the right thing for you and your business, diversify and utilize leverage as the powerful tool it’s meant to be.
Stress, Success, Security
Running a small business is stressful, time consuming, and extremely difficult in the best of circumstances. As you know businesses don’t survive because of the best product, timing, luck, or even because they’re the best in their field. They work because of a dedication that cannot be matched and a plan that evolves around them.
Consider leverage another tool in your toolbelt that can get you where you want to go. To protect yourself and employees from the risks involved, strongly consider a diversification strategy across multiple investment avenues. Register for our webinar today and learn what options you have alongside other local business owners.
Not wanting to wait that long? Speak to us today during a valuation session and start moving forward now.
Risk Disclaimer: All investments involve risk. You should carefully evaluate any investment and the associated risks to determine whether it is suitable for your individual situation. Canadian Wealth Strategies does not and cannot under any circumstance provide tax, legal or accounting advice. The material on this website and associated social media accounts have been prepared for informational purposes only and should not be relied upon in any way for tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors if you are unclear in any way. Price fluctuations in the forex market are normal and to be expected, sometimes dramatically. We have taken every reasonable precaution to mitigate against these risks and those measures are laid out plainly in our investment guide and/or in associated documents we designate. However, there may be additional risks which we could not know or reasonably foresee. All reviews are the express opinion of the individuals that wrote them and do not necessarily reflect the views and opinions of Canadian Wealth Strategies. Do not assume you can achieve the same or similar results. Past results do not in any way determine future performance. This is not a guaranteed investment. If you feel unqualified to assess the risk of this investment, we recommend you consult a professional.
This blog is a matter of opinion by the author and does in no way promise, guarantee, or hold CWS to any future predictions that may or may not have been presented. This is not meant to be take as financial advice.
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