Most of you borrow to buy a car or a house, but have you ever thought of borrowing to buy investments? Borrowing to invest is known as leveraging. Most of the financial planners suggest their clients to use leverage to invest; emphasizing that it is a good way to build wealth. But this might not be entirely true.
Relying on their financial planners, most of the people go for these leveraged investments. However, you should take care of a few things if you want to invest using leverage
Be careful while borrowing
Things have changed drastically since 1999 when the loans were very cheap. There were loans available for almost everything resulting in a decline in personal savings rate and increase in the debt payments as a percentage of disposable income. The equated monthly instalments (EMIs) were increasing day by day. Brokers were making more money than the total wealth created by all the investors. In the United States there was nobody to put a check on the leverage-based home loans. There were loans for NINJAs, the No Income No Job Applicants but in India, banks were reluctant to grant minimum loans to people with minimum incomes.