Monday, July 18, 2011

Leverage...like a glass of wine

Many people looking at leverage as a bad thing because many people have negative experiences using leverage.  The truth is leverage can be one of the best investment tools to make money in the precious metals market.  In fact, every millionaire I know has used leverage as an investment tool at one time or another.  The problem exists when you use too much leverage.  As I mentioned earlier, the 3 rules of investment are:

1. Be in the correct asset class
2. Diversify in that asset class
3. DON'T USE TOO MUCH LEVERAGE!!!

Follow these 3 rules of investing and you will make money 85% of the time.  Leverage allows you to borrow other people's money to make profits BUT you are protected on the downside if the investment goes south (meaning you don't have to pay back the money borrowed...or a non-recourse loan).  Many people abuse leverage and borrow 5, 10 or even 100 times their money.  The problem with using too much leverage is if the precious metals value decreases by even a small margin, you are asked to make a margin call (or invest more money).  The markets fluctuate on a daily basis and, leveraging your money like this, will almost always result in a margin call.  The most you should ever leverage your money in a gold or silver account, is 3 to 1.  Meaning if you invest $100,000, you'll have $300,000 worth of metals.  Anymore than this and you are breaking the rules of investment!  I would never go above 3 to 1 leverage and I would never put another investor in more than 3 to 1 leverage as I don't believe it is a good thing.  With this being said, I personally made over 250% on my precious metals last year because I used leverage correctly.  The most important thing is understanding how leverage works before you use it (just like anything else)!  Remember, leverage is like a glass of wine...1 glass per day is good for you...9 glasses per day is abuse...

Do you want more information or have questions about investing in gold and silver?  Feel free to contact me at blakepollack@gmail.com

No comments:

Post a Comment

Post a Comment