Investment Banking

Investment Banking

Investment Banking: Think Like a Banker to Build Wealth

We believe that thinking like an investment banker can help you become more profitable and advance your financial goals faster. The way you approach your finances mentally lays the foundation for your actions. By adopting an investment banker mindset, you open up opportunities to create wealth in ways that bankers and businesses do.

Investment Banking vs. Retail Banking

In the past, investment banking and retail banking were more closely linked. But in the 1930s, the Glass-Steagall Act separated these industries. Investment bankers focus on deal-making – mergers, acquisitions, IPOs, and other complex financial transactions. Retail bankers handle everyday customer needs like checking accounts and loans.

Many who work in retail banking today don’t fully grasp the big picture of banking, as they don’t see the investment side. Investment bankers are the strategic dealmakers working behind the scenes.

Key Skills of an Investment Banker

To think like an investment banker, you need to develop these skills:

1. Objective thinking
2. Understanding complex situations
3. Competitiveness
4. Deal-making and networking

Objective vs. Subjective Thinking

A key difference between investment bankers and retail bankers is the ability to think objectively about finances. Retail bankers often struggle to manage their own money well because they can’t step back and look at it objectively.

To become your own banker, you must learn to view your finances objectively, as if you were managing someone else’s money. This allows you to make strategic decisions based on facts rather than emotions.

The Time Value of Money

Investment bankers understand the time value of money in a way many people miss. For example, you can borrow money at a higher interest rate while saving at a lower rate and still come out ahead due to the time factor.

Let’s look at an example:

• Borrow $50,000 at 6.75% interest over 10 years ($574 monthly payment)
• Save $50,000 earning 3.5% interest over 10 years

At the end of 10 years, you’ll have paid about $18,000 in interest on the loan. But your savings will have grown to over $70,000 – a profit of about $2,000.

This works because your savings compound over time, while your loan balance decreases as you make payments. Banks use this principle to their advantage constantly.

Building Your Own Banking System

To think like an investment banker in your personal finances:

1. Build capital reserves, even while paying off debt
2. Use life insurance policies as a place to store capital that continues growing
3. Borrow against your policies to finance purchases or investments
4. Pay yourself back with interest
5. Let your policy values continue compounding

This allows you to avoid losing the opportunity cost when you spend your savings. Your money keeps working for you even as you use it.

Real-World Examples

Some of our clients have used these principles brilliantly:

• Erica used policy loans to purchase her dream oceanfront condo and later her office building
• David uses policy loans as a “floor plan” for his car dealership, paying interest back to his children’s policies
• Linda paid off high-interest credit card debt using policy loans, then surprised her daughter with a house down payment

The key is to start thinking objectively about your finances and understanding how to use the time value of money to your advantage. It may feel challenging at first, but keep practicing. As you develop the habit of thinking like an investment banker, it will become easier and more profitable.

Put on your banker’s hat and start viewing your finances strategically. You may be surprised at the wealth-building opportunities you discover.

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