In terms of investing, leverage is when an investor borrows money in order to maximize the return without increasing the original investment amount. Buying stocks on margin can be considered as leverage. Leverage is considered a double-edged sword by many because it does help in increasing return, but it also magnifies an investor’s losses as well. Brokerage firms usually set their own standard on how much leverage they are willing to give to investors, but in some cases like currency trading, investors can borrow $400.00 for every one dollar they have in their trading account.
Increasing optimism is dangerous for key stock indices. Sadly, this is exactly what we’re seeing in the markets right now. It is very evident wherever you look. Stock advisors are saying, “Just buy stocks, and you will do alright.” Investors feel good about stocks. Those who were bearish on the key stock indices since the crash in 2008 and 2009 are also turning bullish—the bears are declining in numbers each week; it’s becoming especially difficult for them to keep their pessimistic stance these days. One of the key economic indicators that I follow when looking at the optimism in key stock ind ... Read More
Gold has gained a significant amount of negative attention lately, being called a “slam-dunk sell” not too long ago. While the bears have their reasons, I continue to be bullish on the shiny yellow metal for a few reasons of my own. First of all, central banks around the world are continuously printing or using easy monetary policies to spur growth in their respective countries—these policies are rigorous and extraordinary, to say the least. For example, the central bank of Australia has lowered its benchmark interest rates by more than 40% since the beginning of 2012. The cash ra ... Read More
Is it time to rethink your gold investments? This question is being asked by those who have held on to their investments as the prices of the precious metal have come down significantly. It wasn’t too long ago when gold bullion prices soared beyond $1,900 an ounce; this year, they are facing scrutiny. Gold bullion prices witnessed plunges in April and June, and now sit close to $1,300—down more than 31% from their peak. This decline in gold bullion prices has caused concer ... Read More
Leverage, at its very core, is borrowing money to invest. If investors want to use leverage in their portfolio, it can be very risky. My friend, Mr. Speculator, who I met not too long ago, disagrees with this claim; he thinks it’s the greatest invention: “With leverage, your gains can be huge and your portfolio grows much faster,” he said. As usual, Mr. Speculator isn’t very clear about a very important concept of investment management. While Mr. Speculator is in favor of taking leverage, I tend to be very cautious about it. At the end of t ... Read More