Making Money Off of My Credit

When I was young and foolish, I would apply and get credit cards and make money off of them. I would buy discounted corporate bonds and have the interest from the bonds pay the interest and principal on my credit cards. I would also put up the credit card funds in a Margin account allowing me to buy more bonds giving more interest. 

When I was moving into my 30s, I was floating about a Million dollars in credit making about $27,000 per year profit. 

Darnell Preparing for a big social event

In fact, I was making money using no money of my own. This money came in  handy when Westinghouse Electric laid me off and I had to move from Pittsburgh to Harrisburg, Pa. When I moved, I moved into a new house in a White upper class community in the suburbs of Harrisburg.  

One neighbor could not understand how I got a home in the middle of an exclusive area especially at such a young age. He was bold enough to come over and ask me how I was able to afford my house. I told him that the government was trying out a new welfare program and they wanted to find out how long it would take me to trash this property. The man moved to another area in just a few weeks after talking to me.   

Darnell living in Glen Hazel in the City of Pittsburgh at age 2.

If I was 25 years old today, I would borrow $1,000 from a Visa Card, charging me 26% interest, paying it off in 12 months. I would buy a closed end high income fund like Dreyfus High Yield Strategies Fund (DHF) in a Share Builders Account buying full and fractions of shares. I would buy it around $4.25 per share giving 11.29%. I also suggest setting up the account to automatically reinvest the monthly funds dividend. The Sharebuilder's Account would be ideal for such transactions.

I would pay off the $1,000 loan over 12 months at 26% interest, paying a total of $1,293.33. With this investment I stand to have $93,548.14 by age 65. This speculation would have cost me $293.33 at age 25 years old. Instead of buying some life insurance policy, this can be my life insurance policy. If I would buy this in my IRA, I would pay no taxes on this money until I withdraw the money. My $293.33 is an investment expense and is deductible from my income tax.   

What is the risk?

We are talking here about bond funds not bonds. Bonds mature, funds do not. Your fund price can go down as well as up.That means you have market risk. The bonds purchased by the fund my not have the same interest rate as current bonds. This means that your funds yield may go down as well as up over the years. This means you have inflation as well as interest rate risk. 

In all, your return in 40 years may be less or more than $93,548.14. This is why we call this transaction speculation, not investment.