Leveraging money is a good idea. Leveraging money is a nice way to raise investment capital. You are using other people’s money to make money. In our financial leveraging guide, we mentioned how can an investor (make easy money with no money). Leveraging money to make money is risky but more rewarding than investing money using your own money. There are many rich investors who knows how to use money in order for them to make more money. When you are using leverage, you are making the process easy. In this short article, let us discuss how to use leverage in investing, its pros and cons.
A reader of InvestmentTotal.com asked a question related to leveraging money to make money. Here is his question;
“What if you use someones money to invest and you loss it?” A comment from Robert Khani in our previous post.
That’s a good question. Robert is really curious. What if you use someones money to invest but you only loss it and you can’t do something about it. Borrowed money or loans are earning interest. Once your loan earned interest and you didn’t cover that interest, you’re making a big leverage investing mistake. That’s why, you need to analyze to where to invest your money before you borrow money.
Pros and Cons Leveraged Investing
- It is easy to borrow money especially when you have already acquired assets. These assets can be your collateral (cars, houses, businesses).
- Borrowing money from the bank will be easy if you can prove to the bank that the money will be use as your investment capital.
- You can make money using other people’s money. That’s a cool thing.
- Leveraged investing is “more” risky”.
- You will become more careful in handling and managing the borrowed money, thus, you will take time to analyze the best types of investments.
- If you can’t earn higher than the interest rate of your loan, you’re probably losing money.
How to Use Leverage in Investing?
Leveraging investing is a process of investing using other people’s money and time to make money. This means, you are not using your money as your investment capital and you are not investing using your skills. You are investing using other people’s money (borrowed money from the bank or other financial institutions) and you are making money out for borrowing money and using other people’s talent and skills.
Example: An investor is using leverage investing if he borrow money and put the money in mutual funds that earns higher than the loan interest rate. In mutual funds investing, you are allowing the “fund manager” to invest the money for you.
It will become more profitable if you will use leverage investing properly. But, beware to the risks associated with this strategy. Anything you would like to ask about investing, feel free to ask using the comment below.