The Power Of Leverage

Let's say you have $10,000 dollars to invest. (yeah right. Ha!) Okay, lets pretend you have $10,000 to invest. What is the best way to invest that money? Well let me present the power of leverage.

One option is to buy $10,000 worth of stock, hang on to it for 5 years, and hope for something like a nice solid 10% annual return. You'd end up with a total of $16,105.10. That's not bad. But we can do better.

Take that $10,000 and use it as a down payment and purchase a house. We'll take an average house value of $250,000. A 10% annual increase will put the value of your house at $402,627.50 after 5 years. You've just leveraged your $10,000 and had it act like it was a $250,000 dollar investment! That's a net gain of $152,627.50 versus only a $6,105.10 with a stock investment.

Try it for yourself with this online leverage calculator

Read more about real estate vs. stock investing in this article in the Seattle Post Intelligencer.