Profitable investments protect against inflation and increase capital at the same time. The use of diversification makes sense here in order to spread the capital broadly and avoid cluster risks. It therefore makes sense to invest in different investment categories, which can reduce risks in the event of increased market volatility.

Diversification can be achieved through different forms of capital, for example debt or equity. In addition, under certain conditions, return on equity can be increased through the leverage effect – in this case – by investing with debt.

In simpler terms – through targeted and controlled debt, one can achieve more profit in relation to one’s equity.

Based on this example of an investment, it quickly becomes clear that a return on equity of 5% is achieved when using € 200.000 of equity and an annual rent of € 10.000. With a different financing structure of the investment, namely with only € 20.000 equity capital plus financing with € 180.000 debt capital, one now achieves a return on equity of 50%.

In this way, I considerably increase the return on my “valuable” equity and retain more flexibility for further investments.

 

LEARNINGS

• Using the leverage effect to increase return on equity
• The higher the consciously managed debt, the stronger the leverage effect in this case
• Maintain flexibility, as less equity is tied up