3 Ways To Treat Your Savings Like Trump Treats a Business Deal
Written by
Marc Guberti
Edited by
Amen Oyiboke
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President Donald Trump used real estate to build wealth. His exuberant personality helped him become a TV star and reach the Oval Office, but real estate made all of that possible. He’s negotiated some big deals throughout his business career and has even worked on various deals for the U.S.
However, you don’t have to be a real estate mogul or political figure to leverage Trump’s dealmaking skills. Applying Trump’s “Art of the Deal” mentality can boost your savings if you do it correctly.
These are some of the strategies Trump used that can also work for you.
Wait Patiently for Great Deals
One of Trump’s greatest strengths in dealmaking is that he never made a deal just for the sake of making a deal. He waited several years in some cases before a property reached his desired price point.
It’s tempting to throw all of your money into investments, but there is value in monitoring opportunities and waiting for a compelling moment to invest. Warren Buffett is also a patient investor, with Berkshire Hathaway currently hoarding cash.
However, when a promising deal shows up, Trump doesn’t let it slip by. He aggressively invests in the deal with all of the capital he has saved up. Tremendous opportunities don’t show up every day. Waiting patiently ensures you are ready to pounce on those opportunities when they arrive.
Use Leverage
Trump famously uses leverage in his deals. It goes with the territory if you want to buy real estate, but he’s not the only one to use leverage. Although Warren Buffett famously touts index funds for the ordinary investor, he has used leverage to grow his portfolio for many years. Buffett leverages Berkshire Hathaway’s insurance subsidiaries’ float, which is the premiums they receive before having to pay claims.
Stock investors have two ways they can use leverage. The first option is to open a margin trading account, which involves borrowing money against your portfolio at a low rate. While this strategy can amplify your gains, it can also result in sharp losses during market corrections.
Margin accounts don’t make sense for everyone, but if you want leverage with less risk, buying deep in-the-money call options of your favorite stocks and funds may be a good choice.
If a stock trades at $100 per share, and you have $4,000, you can buy 40 shares. However, you can also put that $4,000 into a deep in-the-money call that lets you buy 100 shares at $65 apiece in one year. You get exposure to 100 shares, and you need $6,500 in your brokerage account before the option’s expiration date to buy 100 shares.
That’s a big deal if the stock continues to rally. If the stock reached $150 by the end of the year, and you had 40 shares, you would gain $2,000. However, the call option gives you exposure to 100 shares with an average cost of $105 per share. If the stock goes up to $150, it is now a $4,500 gain instead of a $2,000 gain.
Buying deep in-the-money calls is a smarter way to use leverage than buying far out-of-the-money calls that expire in a few days. That latter strategy is akin to gambling. Nancy Pelosi’s husband regularly buys deep in-the-money calls on various tech stocks. It’s part of the reason why the Pelosis have outperformed Warren Buffett, the stock market, and many other investors.
Take Risks
Trump has taken many risks in his business. While leverage helped him become a real estate giant in the 1980s, he almost went bankrupt in the 90s. Although most people would throw in the towel, Trump recovered, continued to take risks, and became wealthier than ever before.
Risk-taking is an important part of building your savings and generating long-term wealth. If you keep all of your money in a savings account, you will likely underperform the stock market in the long run. After establishing an emergency fund, put the rest of your money in investments.
Index funds are a good starting point for new investors. These funds mirror key benchmarks that contain many of the world’s largest companies. However, you can grow your portfolio faster if you invest in the right stocks. Trump looked for mispriced real estate opportunities and preferred individual assets over a fund. Combining index fund investing with some stock picks is risky, but it can lead to outsized gains.
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