Leverage

I was told never to use leverage and absolutely never borrow to invest. The only type of leverage I had ever knew about was your home mortgage or a credit card or two. I had heard a horror story from my neighbors having a balloon payment due on their house and trying to get the money together before they were kicked out. That type of mortgage has very small payments and then a few years down the road, boom you have a $30,000 or $50,000 payment due. I was young and thought at the time why didn’t you plan for this payment or why even get a loan like that? I know now in real estate there are several types of loans just like there are different types of insurance. You could use a balloon loan if you wanted your cash flow higher, didn’t plan on keeping the property or were going to refinance down the road with better terms.

In stocks there are several “loan” varieties too, you can leverage your holdings value via margin. So basically you get to invest the banks money and keep any profits you make. It varies by platform but basically if you have $10,000 of cash or holdings such as stocks, that would allow you to invest another $10,000. Definitely don’t do this until you fully understand investing or have a plan for it because you could lose the banks money. That being said, if you are a good investor with a track record and have a solid plan then this is an excellent tool to use that allows someone to accelerate their earning in their portfolio. If you are making 10%, 20%, or 30%+ you could utilize a portion of your margin $ to add to those earnings.

I’ll use Robinhood as an example. They recently raised their margin interest rates to 3% due to world economics and inflation, but that is still pretty low. That means if you are going to use any of that money your investments Must make more that 3% to cover the interest and anything above is take home for you. if you want to go to the next level Interactive Brokers has some of the lowest margin rates in the industry, as low as 0.75%. I can purchase dividend stocks that make 5,10,20% all day long thereby multiplying my income just from reliable dividend payments. I will try to put a referral link below if you want to check out either one and get some free stuff.

https://ibkr.com/referral/jay237

https://join.robinhood.com/jayg996

If you have built up your portfolio over time you could qualify for portfolio margin. Some platforms might allow you to leverage 2 times, 5 times, I have see 30 times. You really have to know what you are doing, and usually you need to have over $100,000+ in your account. Again though this allows you to multiple your gains and accelerate your reliable earnings. This is where people might get over confident and try riskier trades but if you are at this level hopefully you have learned your lessons. There is no greater lesson that losing $10,000 or $50,000 unless it’s more. You tend to not repeat those mistakes. I try to only use a small portion of available leverage to account for market fluctuations, don’t be the guy or gal betting everything on black and losing it only to have to start over. On the flip side some opportunities only come along once or twice in a lifetime and you need to be financially educated in order to recognize those instances. Once you see them, act, and act in a big way. The Dot com bubble up and bursting, iPhone, financial mortgage crisis, housing bubbles, world wide pandemic, electrification of society. These are instances when $ is made and made in a big, big way.

Time is always a factor in investments and life, you can never get time back. That is why I try to accelerate things as fast and safely as possible. #1 rule is dont lose money, if that happens it sets you back and slows the process down. Slow and steady, compounding gains, adding a little leverage can kick your tortoise into high gear.

This material has been distributed for informational and educational purposes only, and is not intended as investment, legal, accounting, or tax advice. Investing involves risk.