There are some very important things that you should know if you are a decent investor…even semi decent is fine….by the way…..
1. Leverage: borrowing money to do a deal. You have no clue of the time frame for which you are doing the deal, but hope to make a killing. Normally the deal, the margin, the amount of money paid…..ALL ARE LOST instantly…
2. If you do a Leverage deal you have the license to lose your bankers money. That is a huge advantage and a nice feeling to ripping your banker but if you are solvent he will recover it from you. Makes no sense.
3. If your salary per annum is Rs. 12Lakhs, your other income Rs. 4 lakhs, and assuming you have no leverage for consumption (including house), then you can leverage about Rs. 35 lakhs. Your other income will be in a position to pay the interest, and you can repay part of the loan also from salary.
4. Even a safe leverage can hurt if the asset moves in the opposite direction.
5. When you leverage, every rupee has to earn CONSTANTLY – because interest is being paid 24×7…so you dare not leave money sleeping in the savings bank account. That will hurt.
6. If you are not a diligent person who moves money from SB account to a liquid fund, pays the credit card bill exactly on the due date, and juggles credit cards to use the full 45 days credit…it is unlikely that you will benefit by a smart and safe leverage. Yes if you are very lucky you may make some money.
7. As a general rule for about 99% of the population, borrowing to invest or borrowing to lend further is a pretty stupid idea. Not because of the idea itself, but because of YOU.
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