How to maximize your buying power with leverage
Today I broke a cardinal rule of investing: Only invest what you are able and willing to lose.
By using leverage to purchase Bitcoin with money I didn’t actually have. Leverage is using debt to purchase assets. Before you conclude how crazy and reckless I am, continue to read for the full story.
To Boldly go where no man has gone before..
I don’t consider myself much of a nerd. Never got into video games too deep, and I didn’t ever find comic books as too enticing. Honestly I don’t believe I’ve seen the full set of original Star Wars movies, and I’ve maybe seen one original Star Trek episode.
One could argue I am a bit of a nerd for finance, though.
Recently I came across a list of rules regarding business. The ironic part, is that they are based on a society of ultra-capitalist aliens from the fictional TV series, Star-Trek. The list is called the Ferengi Rules of Acquisition. Ferengi is the name of a race of aliens or whatever they are on the show.
“But isn’t investing in the stock market risky?”
It’s only a matter of minutes before this comes out of the mouth of whomever I’m speaking about investing with, that’s around my age. Millennials, I tell you..
It’s ironic that due to their fear of losing money, their case-resting remarks are that they’re going to just leave their money in the bank. Then probably buy a house.
I’ve explored how over a number of years purchasing and owning a home is more most costly than buying into the stock market. I’ve also pointed occasionally due to basic math that holding money in your bank account bares a huge opportunity cost. Interest earned on a GIC is around 1-2%, inflation averages around 3% – it’s suggested it’s actually decently higher – and a total market index averages a 7% return. Do the math.
Investing is boring..
At least it should be. True investing is the deployment of your cash into income producing assets. Investing is not buying up the stock of a particular company because it seems trendy. Nor is it hopping on the bandwagon and buying because ‘everyone else is’.
That’s speculation. Not investing.
The pursuit of wealth creation should be based on true investing. Which is inherently boring, and long term. There is a time and place for speculation in the financial world. But it should only taken upon knowing full well what it is, and under particular conditions. There is a reason speculation is flashy while investing is really rather simple, dull and less spoken about.
Walking around with a wad of cash used to be real cool
These days it either signals you’re a drug dealer or gives off a vibe similar to that of a guy wearing an unreasonably under sized t shirt. It’s not the worst, but we can do better.
In regards to the movement of your cash, most of the time there’s more benefit to using credit as opposed to cash.
When I say credit card what’s the first word to come to mind? DEBT!
That’s what comes to my mind.
I’d wager that’s the word that comes to mind for a lot of people. Now why would I be advising to start avoiding cash which ‘helps you budget’ and move to credit purchases which ‘can ruin lives with debt’?
Because similar to guns, credit cards can either help you, or break you.. Literally. It all depends how you use it, in both cases.