3. Other People Money or Gearing
Why is using Other People’s Money so important? The reason is possible to use “leverage”, also known as “gearing” to obtain a greater turn, suit you could have obtained using only your contributions. The word leverage comes from “lever”. As you know a small amount of force applied on one here recognizes even produces force far greater than what was initially exerted. A lever has the effect of multiplying the power exerted.
In the case of investing, it is referred to as leveraging when you use just a small portion of your hard-earned say 10% deposit on a $300,000.00 house and borrow (leverage) the rest, in this case, 90%. The capital growth that you benefit from is then calculated on the full $300,000.00, not just the $30,000.00 that you per tribute, multiplying your capital gain.
Gearing allows you to purchase a far more expensive property than you could if you were using only your own money. Controlling assets of a higher value meant compounding growth has more to work on, and therefore your net worth will increase much quicker. Gearing allows you to build an investment portfolio more quickly than would otherwise be possible.