10.5% yield but must take a 200% loan.

Reader says...

I have some money in bank and my Relationship Manager is pushing me to buy unit trusts with leveraged.

Recommend me to take 100% loan so the yield will be higher from 5% to 8%.

I could also take a 200% loan to get 10.5% yield.

Good or bad?






AK says...

Gear up 200%!?

Sack your Relationship Manager.

Of course, the bank he works for won't sack him.

You sack him!

I don't borrow money to invest with.






When you buy a unit trust, the only people guaranteed to make money are your Relationship Manager, the bank he works for and the fund managers.

You are the one bearing all the risk.

Do you want to increase that level of risk?

(It is a fact that if you leverage up, they will be guaranteed to make even more money from you while you are only guaranteed more risk.)





Someone I know bought into a REIT mutual fund before the Global Financial Crisis.

It lost about half of its value.

Imagine if he had financed that investment with 200% leverage!

His losses would have been hugely magnified!

Shudder...

Remember that no one cares more about our money than we do and don't ask barbers if we need a haircut.







Warren Buffett believes investors should avoid using borrowed money to buy stocks.

"It is crazy in my view to borrow money on securities," he told CNBC on Monday.

"It's insane to risk what you have and need for something you don't really need."

"My partner Charlie says there is only three ways a smart person can go broke: liquor, ladies and leverage," he said.

"Now the truth is — the first two he just added because they started with L — it's leverage."





He shared the data that revealed Berkshire Hathaway's stock declined by a range of 37 percent to 59 percent multiple times over the last five decades.

"There is simply no telling how far stocks can fall in a short period."

"Even if your borrowings are small and your positions aren't immediately threatened by the plunging market, your mind may well become rattled by scary headlines and breathless commentary." (Source: CNBC, 26 Feb 18)





AK agrees.

Peace of mind is priceless.

You might want to read these blogs:
1. A great crash is coming!
2. Lost life savings and now in debt.

And also this "e-book":
Survivability and opportunity in times of crisis.





In case you just joined us, another blog was published earlier today.
See: Make investing easy.