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Additional Details
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Maria P | Is leveraging (borrowing money to invest) is a good idea. Pls. commment on the + and - of doing it.? |
I need to know if this is a safe thing to do before I signed up for one. |
 |
 
Dan-TheYoungInvestor
 |
Of course! Read the "Does it Make Sense to Borrow?" section of my book's chapter (free online) at http://theyounginvestor.net/Chapter1.html . You will find a detailed answer there and there is a link to an online calculator you can use to see the effects of what you want to do...
Dan
http://theyounginvestor.net/ |
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Laissez-Faire Guy
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It really depends on what you are investing in.
A home mortgage is exactly what you describe, yet few people consider that a bad idea.
But unless you have some specific insight into the financial markets the rest of us don't, what you describe can be dangerous. What happens if your investments go down? Then you are stuck owing more than the assets are worth?
If you are talking about buying stocks on margin, if the stocks go down, you may have to make margin calls (payments to cover the difference between the borrowed amount and the assets) or even forced to sell your assets to pay off the loan. |
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speedpolicy
 |
It's okay. I have a margin account at IB and I keep over 60% in equity at all times. Margin interest is really cheap, and in fact, it's not really a factor. Just remember if your equity falls below 50% you will get a margin call, and the brokeridge will automatically liquidate enough of your shares to get you back to 50%. That's why I recommend selling covered calls. You get cash in your account immediately, so the margin balance goes down each month. Find a stock that's not so risky, like a dow component or an s&p 500 stock, or better yet, an etf like qqqq. Aim to make 2% each month from the covered call, and after a year you'll have made 24%. As long as the stock hasn't fallen that much you will have made a profit. Good luck. |
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A nobody
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Apparently you're new to investing, so the answer is very simple
If you're investing in securities DO NOT BORROW
Inexperience in investing & borrowing are extremely dangereous any one that tells you differenctly is not giving you good soud advice.
If you're investing in real estate - Go for it but be careful sometime leverage is a two way sword, and it could get you in both ends.
speepol - has given you some bad advice - Newbies should not open margin accounts, if a broker let's you do it, their license should be pulled |
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Robert Layer
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I would not recomend leveraging for investing unless you are 100% sure that you will make a better profit over the interest you would have to pay on a loan. But good luck finding such a case, and if you know something I don't...please share it with me!!! |
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Simon O
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If you do this it can be risky. But risk can be managed. The amount of TIME that you have the leverage is the critical factor to examine.
If you borrow, buy stocks, make money and get out, its a good thing, but if you borrow, and don't even consider when to get out, then its just a matter of time before the stocks retrace, and you loose.
Learn about managing your risk when investing.
You can get lots of information on the net. If your in Australia, try http://www.freedvd.com.au for free information on investing. |
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Jeanie
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If you have to ask here on YA then the answer is no. Before you do this you need to study up on leveraging and also the market of what ever you plan to invest in.
An educated decision should be based in your financial situation and an deep understanding of the investment. |
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Ted
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If you have access to money that costs you less than what you're earning, it may be a good idea.
This is not "safe". Leverage gives the possibility of greater profits, so, naturally, it will involve more risk. |
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fortune8
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I have a MARGIN account at Schwab but I haven't used it to buy stocks on margin. It is pretty routine to have a margin account. To sell stocks short, you need a margin account and I've used it to sell Atari short.
If I was young and had a good idea, I'd do it, but only after I'd used all the CASH in my account. Margin rates are VERY low and Margain can work for you if you use it wisely. But it is a two edged sword and will cut you to pieces if you are wrong. People buy houses on margin and don't think twice about it. Perhaps they shoulda ... but that is another story. Best of Luck Whatever You Do. :) |
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Mukul B
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Its a good idea if there is appreciation of the asset acquired with leveraged funds and not so good idea when it depreciates!
Before signing up for one you should be reasonably confident of the upward movement in the price of the asset being acquired. |
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J
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Investing is risky - borrowing money is risky - doing both is very risky. You not only have the risk that the investment will go down but also the risk that you won't be able to pay back the loan.
It can be tempting if you can borrow at a low rate of interest. That is what happened (in a sense ) with the housing crisis. People borrowed money and "invested" in a house - assuming the value of the house would go up. Some were not really looking for a home to live in they were trying to make a fast buck by buying and then selling it. Some bought 5 or 6 condos with the idea that they could sell all of them for a profit. What happened was prices dropped, interest rates went up, people stopped buying, builders went bankrupt, and many of these "investors" (actually gamblers would be a better term) got stuck owning 5 condos that were worth less than what they owed on the mortgage.
Borrowing to invest is also what caused the great depression that began in 1929 - people would buy stocks for only 10% down. Then when the market started dropping the brokerage firms called them to put up more money, they went to the bank and paid, the stocks kept dropping and pretty soon everyone was running to the bank to get money and the banks failed and the stock market crashed. (That event created the FDIC that insures banks so people don't have to panic and feel that they will lose there money.)
The only plus is that if you guess right on what to buy and when to get out you can make more money than if you just invest what you have
Please do yourself a favor and don't borrow to invest. It is too risky |
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