You may have heard one or more financial experts, CEOs, entrepreneurs, or motivational speakers talk about leveraging debt. While most people spend their entire lives running away from debt, these people use it as a tool.
How?
Well, it’s not rocket science. You can do it too! The principal method used is leveraging to multiply your returns manifold. That’s basically using borrowed money to increase a return on investment. This allows higher and higher returns that you may have thought of as impossible.
NOTE: Remember that this requires some skill and knowledge of the financial markets. DO NOT GO IN BLIND.
Here are 3 ways of improving personal finances with debt.
Compare all Teachable plans in one place
Leveraging ETFs
ETFs (exchange traded funds) are baskets made up of different securities and stocks. They combine the benefits and features of different commodities. They’re generally considered safer investments than buying single stocks.
Leveraging these ETFs can allow you to amplify returns. There are companies like ProShares out there which offer leveraged ETFs which let investors multiply returns. These returns can be as high as 300%. However, like any stocks, they can amplify losses too.
Margin Investing
Margin investing is using the money you already have, to buy more stock. For example, if you have $20,000 in your account, you can leverage that investment for a margin account. This margin account allows you to put up 50% of the purchase price of a stock.
You can use loans from your broker to thus buy more stock. This can give you a much higher rate of return than with your own investment alone. Of course, you will have to account for the losses as well. Don’t go investing without really doing your research. Really look at the stock you’re thinking about investing in and then choose.
That way, you can really improve personal finance with debt.
Short Selling
For those of you who have watched the Big Short, short selling is basically what the movie was about. It’s about betting against a stock or a property by borrowing shares from investors. It’s about timing the decline in stock prices.
The further the predicted decline goes, the more you stand to earn. This isn’t about hoping against hope. It’s about really looking for value in stocks and commodities and making an informed prediction. That way, you will win more often than not.
Of course, you can’t expect to win as big as the people in the Big Short (and heaven forbid such a thing happens again). However, you can look at stocks or securities which are overvalued and bet against them. That way, you can use shares as debt to make a profit.
Final Word
These are techniques which are used by specialists and experienced traders. Start small and work your way up if this is the route you’re pursuing. Smart predictions can result in high profits, but irresponsible investing can result in high losses.
