Leverage Your Financial Freedom!

Like many words in the English language, the term “leverage” has more than one meaning. It can be used to describe something good, as well as something potentially scary.

Leverage, while negotiating, means that you are negotiating from a position of strength. That’s the “something good”.

Leverage can also mean that you have a great deal of bad debt – because “leverage” is another word for debt. We don’t want that kind of leverage!

Leverage is not a word we use daily. But it’s more important than most people realize…and believe me, it can impact your life without you even realizing it.

In order to build wealth or become financially free, you need leverage. Creating leverage is an extraordinary thing. Why? Because it allows you to generate income without you directly having to do something.

Here are some examples of leverage:

1. Income generated from owning real estate.

2. Income generated from writing a book. Once you write a book, you can generate sales 24 hours a day, 365 days a year.

3. Income generated from a website, blog or YouTube channel. There are a good number of influencers that generate a substantial income from each of these sources of leverage. When you create content, you have the potential to make money from it while you’re sleeping!

4. If you work at, or invest in, a startup, you have a great deal of leverage. Your net worth can increase significantly when the company you work for or invested in goes public. People in this position usually become very wealthy literally overnight.

5. Buying and holding individual stocks is another great way to gain leverage. (It’s also, of course, my favorite.) When you buy shares in a company, you are putting the management team of that company to work for you. Over time, you will share in the company’s profits as well as the losses.

Here’s a real example of how leverage with stock works. If you invested $5000 in Starbucks (NASDAQ: SBUX) when it went public in 1993, and held it until today, your investment would have grown to over one million dollars. Over a 26-year period, you would have earned $40,000 a year of unrealized gains without lifting a finger.

That is leverage.

And that is why you must have leverage in order to generate wealth or financial freedom.

My book, The Stock Market is For Everyone, is a short guide for the beginning, inexperienced investor that is easy to understand and can be put into action immediately.

Click the image of the book at left to be taken to its Amazon page.  (Disclosure: As a participant in the Amazon Services LLC Associates Program, I earn a small commission on each sale generated through these links.)

 

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You Only Need One Winner!

When it comes to investing, I recommend that you own at least 15 different stocks. One reason for this is to diversify your risk.

However…it only takes one winner to set you up for the rest of your life!

There are stories about people that bought one stock that made them very wealthy over the years. I’ve mentioned quite a few myself in previous posts.

A big winner is very easy to spot in hindsight – but not so simple to identify in real time.

This is another reason why I recommend owning at least 15 companies – to increase your chances of finding that big winner.

When I say that you only need one out of fifteen to have huge success, I’m not lying! Here’s how the math works out in a real life scenario. Suppose you invest $1000 each in fifteen different stocks. Over time, they perform like this:

  • 10 lose money.
  • 3 are mediocre.
  • 1 is solid – up 100%.
  • 1 is up 100 times in value.

You could have lost all of your money in the 14 other investments – losing $14,000 – if each company went to zero. (The likelihood of that happening is slim to none. It is rare to lose 100% of your money unless you are buying penny stocks.) But your profit of $100,000 in just one winner would more than make up for that loss!

In the 1980s, a small business owner named Stewart Horejsi was running his family’s welding business when competition started to hurt it. It was difficult for welding companies to distinguish themselves in any way, so they often simply undercut each other in order to gain business.

Stewart realized that reinvesting any money into a failing business would be futile.

After reading about an investor named Warren Buffett, who ran a company called Berkshire Hathaway, Stewart was convinced of the best way to allocate capital. He invested in Warren Buffett’s company.

At the time of his first investment, Berkshire was around $280 a share. Every time Stewart got extra cash, he bought more shares.

Ultimately, Stewart invested about $50,000 in Berkshire Hathaway over many years. That investment grew to over a billion dollars.

That, my friends, is why you only need one winner.

My book, The Stock Market is For Everyone, is a short guide for the beginning, inexperienced investor that is easy to understand and can be put into action immediately.

Click the image of the book at left to be taken to its Amazon page.  (Disclosure: As a participant in the Amazon Services LLC Associates Program, I earn a small commission on each sale generated through these links.)