Most people aren't candidates for leveraged investing. It can be a lucrative strategy but it involves risks. As we discussed in our initial article, returns are amplified either positively or negatively.
In my opinion, you should only look at this strategy if you can say YES to ALL of these questions.
- You spend less than half of your NET income on necessities (housing, food, your personal MUST haves). Free cash flow is the MOST important thing.
- You have never sold out investments at a low point in the market.
- You would classify yourself as a long term investor.
- You have a reasonable understanding of finance (i.e. you know what stock/mutual fund/ETFs are and how they work). You also understand how rising interest rates can affect you.
- You haven't stressed about paying ANY bill over the last 5 years.
- You feel you have strong job security
We need to remember that proper leverage opportunities present themselves when the market is DEPRESSING! You need the stability to say yes when others are saying no. If you found yourself saying no to one or more of the questions above, it is likely not the right strategy for you right now. If you said yes to everything, please consult your investment advisor/financial planner to see if they feel it is a fit within your financial situation.
All the best,
Gary
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