What are some of the ways you can use debt to invest?
Is it a good idea to use debt to invest?
What are some of the considerations to have when using debt?
Let's look at some of the answers to these questions from our last meeting with @anandchokkavelu from @themotleyfool
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Is it a good idea to use debt to invest?
What are some of the considerations to have when using debt?
Let's look at some of the answers to these questions from our last meeting with @anandchokkavelu from @themotleyfool
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Let's start by defining margin...
Margin is the money borrowed from a broker to purchase an investment. This is usually a $ of your overall portfolio and your existing securities are used as collateral for the loan/margin.
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Margin is the money borrowed from a broker to purchase an investment. This is usually a $ of your overall portfolio and your existing securities are used as collateral for the loan/margin.
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The use of margin can amplify gains, however, it can also amplify losses.
@anandchokkavelu shares the perspective that many do not consider enough the disadvantages to margin in considering the risk of their portfolio going in the opposite direction when using margin.
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@anandchokkavelu shares the perspective that many do not consider enough the disadvantages to margin in considering the risk of their portfolio going in the opposite direction when using margin.
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Here is an example of how margin works:
You have $1,000 in value (cash) for your portfolio. You sign up to use 50% margin. This means you can purchase stocks valuing $2,000 on your account. If your stock goes up 100%, your current value would be $4,000 (including margin).
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You have $1,000 in value (cash) for your portfolio. You sign up to use 50% margin. This means you can purchase stocks valuing $2,000 on your account. If your stock goes up 100%, your current value would be $4,000 (including margin).
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If your portfolio goes down however, your risk is now potential owing the broker for the margin, fees and interest on that purchase.
Many factors can affect this and it isn't guaranteed the outcome of using margin.
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Many factors can affect this and it isn't guaranteed the outcome of using margin.
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What are some of the ways you can use margin to invest?
- supplement use of cash
- use for short term trading
- amplify gains from investments
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- supplement use of cash
- use for short term trading
- amplify gains from investments
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What are some of the considerations/risks for using margin?
- investments can lose value which can lead to losses
- broker can do a margin call and sell your investments without permission based on contract
- fees and interest charged (some cases monthly)
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- investments can lose value which can lead to losses
- broker can do a margin call and sell your investments without permission based on contract
- fees and interest charged (some cases monthly)
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Is it a good idea to use margin/debt to invest?
That's completely up to YOU!
@anandchokkavelu and us had a discussion on the different perspectives on using debt to invest here:
That's completely up to YOU!
@anandchokkavelu and us had a discussion on the different perspectives on using debt to invest here:
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