Ah, the power of leverage.
Without it, I would argue you are in the SLOW lane of wealth creation. With it, you've got the power to literally move financial mountains! But if you aren't using leverage yet, that's OK. Read on!
Leverage is an incredible concept when you think about it, isn't it?
Webster and Investopedia define leverage differently, but I want you to notice the similarity:
Webster: the mechanical advantage or
power gained by using a lever.
Investopedia: the use of various financial instruments or borrowed capital,
to increase the potential return of an investment.
Notice the two action words that unite these definitions together: gain and increase. More on this later, but remember
gain and increase for now.
I wanted the picture of this article to clearly explain exactly how leverage works in an easily understandable and memorable image, and I think this one works best. So what do we see? We see that with a little ball, when using leverage, it equates to a very large ball. The two balls become in balance, and as a result, the little ball's mass essentially equals the big ball's mass.
Do not miss the power in this concept:
If I only have a little ball, with leverage, I can achieve the outcome EQUAL to having a very large ball.
So let us tie that back to what we care about: investing, investment returns, growing wealth, big bucks, LARGE SUMS OF MONEY, etc! So - how did I use leverage to earn a
100% return in one year and become $17,500 richer? Let me tell you:
