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Wealth Accumulation
Fidelity Funds has
stated that, hypothetically, $10,000 invested 20 years
ago (6/30/83-6/30/03) in the S & P 500 would now be worth
$100,375
(Advertisement, Oakland Tribune, 8/19/03, read their full
disclosure).
Assumptions:
- $100,000
in accounts receivable, credit line $100,000*
- Earning
at the rate above, tax deferred
- Cost of
credit averages 9% annually over the period of 20 years
- Borrower
in the 40% tax bracket
-
Long term capital gains tax at 15%
|
|
With
Forward Funding |
Without
Forward Funding |
20 Year value of
$100,000=
|
$1,000,000
($900,000 gain) |
$300,000
due to inflation |
Tax ($100,000) 40%
|
40,000 |
120,000 |
Tax ($900,000) 15%
|
135,000
|
0 |
20 year Gain/Net
Value =
|
$00825,000
|
$180,000 |
20 year total loan cost =
|
108,000
|
0 |
20
year net gain =
|
$00717,000 |
$0000000 |
Given the assumptions, there is
a $537,000 advantage to
Forward Funding, or a net loss of
$537,000
without Forward Funding.
Advantages could be greater when state tax deductions are
a consideration.**
*Requires line of credit subject to
bank approval and
terms
**TVM
does not offer financial advice. Check with your
accountant or financial adviser
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