So now that you are all hot and bothered about getting an investment loan (aka leverage), let me take you down a notch! (Trust me, it’s for your own good…) :)

Okay, so let’s now say that Greg, who if you remember had learned that he would be $2,000 ahead by getting a loan, decides to calculate a few “what-if” scenarios…

1. What if the investment only earns 6%?

**In this case, the investment’s rate of return and the interest on the loan are equal.** How much does Greg have at the end of 10 years? In this case the leverage will leave him with just **$13,487** at the end of the 10 years. If he had made the annual savings of $1,000 into a 6% investment – he would have **$13,972** – almost $500 more. **So in this case the leverage would’ve been the wrong decision.**

2. What if the investment makes no money after 10 years?

**Depressing, but a lot of investors guide themselves to a 0% rate of return by switching their investments around too much – always a step behind “the next hot pick” (but that’s another story!).** Okay, in this case the “straight savings” (putting $1,000 per year) will give you, yep you guessed it **$10,000**! The leverage? Another no brainer – Greg’s loan for **$7,531 doesn’t grow and that’s all he has at the end of 10 years**. I think you can see that we’re getting further and further behind with the leverage…

3. What if the investment loses 10%?

We looked at a gain of 10% in Part 1, so let’s look at a loss of 10%. **It would take real skill to lose 10% per year over 10 years – but I suppose it could happen if someone were really clueless…** The straight savings will leave Greg with **$5,862**. Yikes! But if that wasn’t bad enough, the leverage would leave him with **$2,626**!!!

**I think I have built a solid case for why you may want to think twice about leveraging**. *But there is SO MUCH MORE TO THIS STORY than just the examples I have given.* From here on in it’s going to get even wilder (both in terms of potential and volatility). Near the end of the series on leverages, once I have shown enough case studies to educate you to the level of an average financial advisor (on THIS topic), I will show you some advanced leverage strategies that I use with my clients on a regular basis – but it is much more complex than the stuff we’ve just talked about – because I am not a fan of risk – and neither are my clients!