Are you looking to obtain financial security for yourself and your family? Achieving this stability requires a deep understanding of two important investing concepts on annualized returns and leverage.
Continue reading to learn more about each approach, how they’re calculated and an example of how you can use them to help grow the wealth in your portfolio.
Definition of Annualized Returns
Annualized returns measure the compound rate of return on investments over a given period of time. It is typically used to compare different investments with varying holding durations that yield different results. You can use this metric to determine which investment opportunity fits your risk profile best.
Definition of Leverage
Leverage refers to taking on debt to purchase assets like stocks, securities, commercial real estate or other securities with the expectation that the value will increase in the future. By leveraging borrowing money instead of using all your cash up front, you can potentially gain higher returns than if you had invested solely with your own capital.
Calculating & Understanding Annualized Returns & Leverage
Now that you have a better understanding of annualized returns and leverage, let’s explore how these metrics are calculated and dive deeper into why they are so important for successful investing. As you work on calculating annualized returns, you must consider both the base rate of return and the holding period for each investment opportunity being compared.
The holding period for each asset must be factored into the equation so that you can make accurate comparisons between any investment opportunity you encounter over time.
In terms of leverage, it is important for investors to understand the risks involved with taking on debt to purchase assets like stocks, securities, or commercial real estate assets/funds. Although leveraging allows you to maximize potential returns by increasing your exposure to borrowed money, it also increases the risk as any losses incurred from market downturns will potentially be amplified due to exposure from borrowed funds.
Knowing this, it’s imperative that you carefully assess your personal risk tolerance before pursuing strategies involving leverage in order to ensure you’re comfortable with any potential risks associated with the strategy you choose to pursue.
Role of Annualized Returns & Leverage in Investing
Both annualized returns and leverage play an important role when it comes to building a secure and stable portfolio. By understanding these metrics and applying them to your investing strategy, alongside other factors including diversification and market analysis expertise, you can gain a competitive edge as you evaluate the risk vs reward scenarios of your investment decisions. As such, annualized rates should always be considered when comparing various investment options regardless if leveraged or not. Ensure to remember that there’s no “one size fits all” approach as you apply more strategic leverage principles to your estate planning goals. Each individual situation needs assessment on its own merits.
Common Investment Strategies Employing Annualized Returns & Leverage
There are many popular strategies employed by experienced investors that involve utilizing annually compounded rates, as well as leveraging opportunities.
These investment opportunities include, but are not limited to:
Short Term Investing involves utilizing short-term investments with high turnover ratios. An example of this is day trading or employing buy-and-hold strategies.
Long Term Investing involves focusing your estate planning strategy on emphasizing long-term growth having using dividend reinvestment plans, steady stock positions preserved through index funds or investing in a Qualified Opportunity Zone Fund for both long-term growth and the tax benefits it gives you, not found in any other investment offering in the market.
Margin Investing involves balancing long-term growth and predictable income by supplementing it through margin trading opportunities
Real Estate Investment involves taking advantage of the unique benefits that investing in commercial real estate assets or funds. There are four primary risk/reward profiles that can help you determine which investment type supports your estate planning goals best.
Cryptocurrency, NFT and other Blockchain Asset Trading involve speculating on high/risk – high/reward technology projects that potentially give investors unique digital and real-world utility benefits. Leaders of the space predict a mass disruption of many industries if the technology becomes mass adopted globally. The gaming industry might be the first pin to drop that snowballs the future. Time will tell how long this adoption takes.
There are many possible ways to calculate the internal compounded rates and different leverage strategies you can use for any investment. However, before assessing any investment it’s essential that you carefully analyze your estate planning goals prior to committing any capital into an investment. This can potentially help you minimize your risks while maximizing the gains in your portfolio.
Conclusion
Calculating the annualized rates and applying leverage to any investment offering before committing any capital to it can help you fortify your portfolio, helping you build greater economic stability as time moves forward.
By employing these fundamental economic principles in your estate planning goals, you can reduce the risks associated with misinformed transactions and your portfolio may grow enough to give you the financial freedom you’re looking for.
Accepting investments now:
Watch: Caliber Opportunistic Growth Fund III
Watch: Caliber Qualified Opportunity Zone Fund II
Click here to review our assets.
Complete the form below to request more info.
HAVE GAINS FROM SELLING A BUSINESS, CRYPTO, STOCK, PROPERTY? LEARN HOW TO UNLOCK TAX INCENTIVES.
SITTING ON CAPITAL GAINS? UNLOCK ATTRACTIVE TAX INCENTIVES. LEARN HOW.
WHY IS OPPORTUNITY ZONE INVESTING SO ATTRACTIVE TO INVESTORS? GRAB THE GUIDE.
About Caliber
Caliber is a leading vertically integrated asset management firm whose primary goal is to enhance the wealth of investors seeking to make investments in middle-market assets. We strive to build wealth for our investor clients by creating, managing and servicing proprietary products, including middle-market investment funds, private syndications, and direct investments. Our funds include investment vehicles focused primarily on real estate, private equity, and debt facilities. We market our services through direct sales to private investors, wholesaling to investment advisers, direct sales to family offices and institutions, and in-house client services. Caliber’s middle-market specialty allows the Company to compete with agility and speed in an evolving arena of alternative investments. Additional information can be found at Caliberco.com and CaliberFunds.co.
Click here to see Caliber’s current property portfolio.
If you would like to speak to someone about diversifying your retirement accounts, contact us at [email protected] or call (480) 295-7600 to schedule a call with a member of our Wealth Development Team.
If you would like to learn more about Opportunity Zone Investing, Caliber has put together a special guide that cuts through the myths and misconceptions and outlines the benefits, the risks, and the upcoming deadlines you must know to be able to participate. Get access to the guide here.
Investor Considerations
The information contained herein is general in nature and is not intended, and should not be construed, as accounting, financial, investment, legal, or tax advice, or opinion, in each instance provided by Caliber or any of its affiliates, agents, or representatives. The reader is cautioned that this material may not be applicable to, or suitable for, the reader’s specific circumstances, desires, needs, and requires consideration of all applicable facts and circumstances. The reader understands and acknowledges that, prior to taking any action relating to this material, the reader (i) has been encouraged to rely upon the advice of the reader’s accounting, financial, investment, legal, and tax advisers with respect to the accounting, financial, investment, legal, tax, and other considerations relating to this material, (ii) is not relying upon Caliber or any of its affiliates, agents, employees, managers, members, or representatives for accounting, financial, investment, legal, tax, or business advice, and (iii) has sought independent accounting, financial, investment, legal, tax, and business advice relating to this material. Caliber, and each of its affiliates, agents, employees, managers, members, and representatives assumes no obligation to inform the reader of any change in the law or other factors that could affect the information contained herein.
| 301-CAL-020823 |