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what sort of return you might get on the stockmarket, but let's say you get 12% a year for the next 10 years - very unlikely, but let's just go with this. So if you could beat the odds and get a 12% return every year ......
Money in the Stockmarket - assumed return: 12%
Now £20,000
1 Year £22,400
5 Years £35,247
10 Years £62,117
Now that’s a big increase on sticking the money in the bank, but clearly is not guaranteed. But can you do better?? I think you know what I’m going to say?!
Option 3 Property
One of the great things about property is it enables you to leverage the ?20,000 to purchase a ?100,000 investment property (in other words, borrow the remaining ?80,000 from the bank). Now say the property market slows down to an average of only 6% return for the next 10 years. This would probably be a fair estimate in the UK, although there are plenty of markets which are growing more rapidly, lets concentrate on UK for this example.
Money in Property - assumed return: 6%
Now £20,000 (£100,000 property value £80,000 mortgage)
1 Year £26,000 (£106,000 property value £80,000 mortgage)
5 Years £53,823 (£133,823 property value £80,000 mortgage)
10 Years £99,085 (£179,085 property value £80,000 mortgage)
Make sense? So you make 6% increase on the full value of the property, not just the £20,000 which you initially had. This is the power of leverage. In effect you have increased your initial investment 5 fold in 10 years! So even if the stock market increases by twice as much per annum as the property market over the next 10 years, you can make far more money from property.
Now for simplificati |
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