FP Article 15.1
(To sign up for a
FREE
16-lesson eCourse on Investment Risk, please
click here.)
Investment Risk -
Borrowing Risk
by Rajen Devadason
Blessed are the young, for they shall inherit
the national debt.
Herbert Hoover
|
|
Most
forms of investment risk are
unavoidable if you wish to invest in
any significant and meaningful way.
Borrowing risk is the exception that
proves that particular rule!
That's because
this is a type of investment risk,
which is voluntarily assumed by
someone who opts to invest with
borrowed money.
In doing so, the
leverage associated with OPM - other
people's money - comes into play.
|
If the investment rises, the investor who has
borrowed stands to make a lot more money through
his use of other people's resources. But if the
investment fails, he could lose his shirt!
|
This is an article explaining
borrowing risk. I hope you enjoy
reading it. But if it isn't what
you're looking for, you're welcome
to search for something that better meets
your needs. Thank you for allowing
me to serve you.
Rajen Devadason |
|
|
In most cases, it is dangerous to borrow to
invest. It is usually far more effective, in the
long run, to build personally owned investment
capital generated through work and savings.
Here is a simple example that serves to
illustrate my point.
You already know that mutual
funds or unit trusts, for instance, are
volatile instruments, particularly if these
invest in equities.
The
inherent
diversification within equity mutual funds or
unit trusts provides some reduction in total
risk. Unfortunately, there is never any way of
escaping a system-wide collapse.
At
certain times, in certain markets, the stock
market has tanked as much as 50% in the span of
a few months.
Be
very aware of the dangers inherent in borrowing.
If you'd like to continue to learn more about
other types of investment risk, here's
additional information for you...
© Rajen Devadason
