Success breeds confidence. When it comes to investing, that’s not always a good thing. Some investors see a rising portfolio and start to figure out ways to keep their returns moving higher. The simplest way to magnify returns is to borrow money from a broker and re-invest those funds, a practice known as “investing on margin.” Yet, when investors have started to buy more and more stocks on margin, they often set the stage for cascading declines in the stock market as margin calls beget yet more selling. That’s why you should be… Read More
Success breeds confidence. When it comes to investing, that’s not always a good thing. Some investors see a rising portfolio and start to figure out ways to keep their returns moving higher. The simplest way to magnify returns is to borrow money from a broker and re-invest those funds, a practice known as “investing on margin.” Yet, when investors have started to buy more and more stocks on margin, they often set the stage for cascading declines in the stock market as margin calls beget yet more selling. That’s why you should be concerned that investing on margin is back in vogue, whether you are doing it yourself or not. #-ad_banner-#A lesson not learned On March 9, 2000, the Nasdaq index moved up above 5,000 for the first-time ever as investors put increasing amounts of money into scorching tech stocks. Part of that was fueled by a then-record $275 billion in funds that investors had borrowed from their brokers. Many of these investors were leveraged to the hilt, right up to the maximum allowable borrowing limit of 50% of a portfolio. That high level of… Read More