#55: Leveraging your portfolio

I had to fight the urge to throw my laptop away and run for the hills when I read Jurie Lombard's mail this week. This is not Jurie's fault. I'm overly-cautious when it comes to debt - once bitten and all that.

However, I've also wondered about using my portfolio as collateral to borrow money. Borrowing can be a powerful way to create wealth. People who swear by property often cite the ability to use existing capital as collateral to acquire more capital as an upside of the asset class. As Simon points out in this episode, small business owners also often borrow start-up capital to create more capital. Why should our share portfolio be exempt from leveraging?

In this episode I try to push past my discomfort to figure out how to leverage a portfolio smartly. Simon did this excellent seminar on risk and leverage. In the video he's talking about contracts for difference (CFDs), but the principles hold true for borrowing against your portfolio.

The biggest risk we could identify is some sort of market crisis. If the value of your portfolio drops overnight, you can expect a margin call in addition to watching your portfolio getting klapped. That's not a good day at the office.

The product Jurie was asking about can be found here.

Last week Simon challenged Stealthy to create a spreadsheet. Of course, Stealthy already had the spreadsheet. Download it here. At my current savings rate, I will be financially free in just over 16 years. If the market did what I wanted it to do when I started, I'd be a bit further along by now, but we accept what we can't control and then complain about it bitterly on our podcasts.

Medical students, interns and professionals, check out this blog. Thanks to Alexis for sending it along.

Lastly, by the time you read this I will be on holiday. That means there will be no Fat Wallet Show on 10 July.

Kris