Investment guidelines : The Power of Leverage.
I remember when I was quite young and was introduced to investing by my family – who as it turns out invested mostly in the share market. I was encouraged to buy my first parcel of shares. The business still exists today – Argo. After 12 months they had gone up and I remember proudly ringing my uncle and asking if I should sell, only to be told that “our family doesn’t sell” and that he would only help me if I was ringing to buy.
The message of course was simplistic but powerful all the same. To remember a conversation from so many years ago shows its impact. My early lesson was that investing is all about “time in the market” not about “timing the market”
There are many ways to approach investing – my comments are going to focus on guidelines for investing in property for the long term.
The first and perhaps most powerful message of all is “the power of leverage”
Let’s say you have $100,000 to invest and you can invest in an asset class that pays on average 7%pa. Let’s say you keep reinvesting the dividends or interest. In 10 years your money will have doubled to $200,000.
Now let’s take that $100,000 and use it as a 20% deposit for a property costing $500,000, meaning we borrow $400,000. With that same 7%pa return the property will be worth $1,000,000 in 10 years. With the $400,000 loan still in place your $100,000 has become $600,000
Give it another 10 years and the invested cash is worth $400,000, but the property is worth $2,000,000 and your investment worth a net $1,600,000
Invest for 30 years and the cash is worth $800,000 but the property is worth $4,000,000 and your investment a net $3,600,000
This is the power of leverage There are some cautions of course
Alan Heath
No question is too small for my time…Call or email me anytime…
A report from a government committee has suggested that Australian Banks be forced to issue…
I once wrote an article titled “A funny thing happened on the way to the…
How best to deal with the worry of inter- generational issues…? In my email last…
I spent time with long term clients and even longer friends over the weekend. Here…
There are things that can be taken as almost certain this year – so let’s…
This time WHY matters. The 3-year bond rate in the US is 5.30%, the 10-year…
This website uses cookies.