dtcwee: The Value of Nothing

Why not? Calculators sure changed mine. A lifetime ago, in a safe but stifling job, I found an online mortgage calculator that visualised the power of extra repayments. Having just borrowed to buy a home, it opened my eyes. I was hooked. Learning that early escape from debt was possible made it my obsession. I checked that calculator after every stymied project and pointless restructuring. So, like, twice a day. With few opportunities to flex my skills in my IT role, I wrote other calculators to rationalise and strategise my approach to life.

Borrowing to invest in an asset will not simply multiply your returns. It is more accurate to say that leverage multiplies the difference between the returns on the asset and the cost of borrowing. This post was originally published on 18-Dec-2016. I have since made an interactive leveraged returns calculator . Short Form Calculation Return on Equity = Interest Rate Differential x Debt to Equity Multiple + Asset's Return For example: 8:1 Debt to Equity at 4% debt interest with an asset return of 5%: 1 x 8/1 + 5 = 13% Visualisation looks a little something like this: ROE Alpha (Y-axis) by Return-Borrowing Differential (Z-axis) by Borrowing (X-axis)