I am 41, I started investing and reading about investing when I was 17.
That’s make 24 years of listening to smart people telling you that leverage is bad and reading about people who went broke because of leverage.
In its essence, leverage is not inherently good or bad, it is a magnifier: if what you are doing is good, it makes it better, if what you are doing is bad (and usually you realise it too late), it makes it a disaster.
When you invest, especially early in the process, it is important you make mistakes: one thing is to read that something is wrong, one thing is doing it and learn the lesson the hard way, with your own money. You have to learn from your mistakes so that you will not repeat them in the future. You have to learn that no investor is right 100% of the time, see it like the tuition to the investing university. But you have to live to fight another day. So, whatever the mistake, at the end of the day you still have a positive balance to invest the next day.
As I said, leverage is simply an enhancer: it will grow your investment faster if your strategy is good, or it will ruin you, sometimes bringing you not to a zero balance, but to a negative balance!
To understand if your investment strategy is sound requires time, lot of time and lot of different scenario. Yes, I mean years. Yes, I mean double digit years. That’s why you have to be extremely cautious with leverage. On the other side, we are not immortal, each of us has 40(?) years of investing life, and if you are reasonably certain that the risk is worth the reward, you have to go for it.
That is why, in the era of ECB negative interest rate, I am toying with the idea of adding a (little) leverage, starting with an amount less than 10% of my total investment portfolio.
The key aspect is the cost of debt: do not accept anything more than 3%. By the way, if today you have any debt outstanding with a cost higher than 3%, do not invest but repay that debt first (and thank me later). If you live in Europe and have a good credit history, this rate is achievable; there are lenders, mostly online, who offers teaser or promotional rates on your first loan, sometimes even 0%! Their hope is that you will then return asking for more money at higher rates, but you are smarter than that.
I moved in London 2 years ago and my situation is more complicated; even with a fixed contract, no one in continental Europe is willing to lend money if my salary is paid here in UK, not even a bank that in the past gave me a mortgage that I since repaid in full. Here in UK, if you do not have at least 3 years of credit history, you are considered like a chap just out of the university (except by those god-sent folks of AmEx).
I am therefore in a no-man’s-land and any advice is more than welcome. Luckily my 3 years ‘UK probation’ will end soon.
What I am reading now:
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