Canadian Capitalist Logo Dark
No Result
View All Result
Friday, May 16, 2025
  • Login
  • Register
  • Home
  • Economy
  • Investing
  • Markets
  • Real Estate
  • Retirement
  • Tax Savings
  • Trivia
  • Resources
Subscribe
Canadian Capitalist Logo Light
  • Home
  • Economy
  • Investing
  • Markets
  • Real Estate
  • Retirement
  • Tax Savings
  • Trivia
  • Resources
No Result
View All Result
Canadian Capitalist Logo Mobile
No Result
View All Result
Home Uncategorised

Leveraged Investing is a Risky Business

by Ram Balakrishnan
May 3, 2007
Reading Time: 2 mins read
125 8
0
municipal bond mutual funds
152
SHARES
1.9k
VIEWS
Share on FacebookShare on TwitterShare on Linkedin

Its hard not to comment on a post titled “Leveraging into Equities: The ONLY Source of Wealth?” The post’s argument is nicely summed up in the following passages:

Of the 400 richest [on the Forbes list], 37 made it there as mutual fund or hedge fund managers, and 22 are investors – all investing in equities. 28 made it in real estate, but really it was by building a real estate company. Even Oprah Winfrey built a media and entertainment business.

Businesses are equities. Whether they borrowed to invest in one business or many, the ONLY real way to major wealth is by leveraging into equities.

This leads to the obvious question – if leveraging into equities is the ONLY “yellow brick road” to wealth, why don’t more people do it?

Let’s charitably accept the argument that starting a business is the same thing as investing in publicly-traded companies (it actually isn’t, but it is a favourite argument of the Smith Manoeuvre cult-members). Let’s also charitably accept that successful businesses engage in leverage, though many good businesses have gone bankrupt by taking on too much debt and Warren Buffett, third on the richest list, has this opinion on the subject:

The most dramatic way we protect ourselves is we don’t use leverage. We believe almost anything can happen in financial markets… [so] even smart people can get clobbered with leverage. It’s the one thing that can prevent you from playing out your hand.

Even after accepting the above fallacious conclusions, we are left with a case of survivorship bias. Yes, most of the individuals on the Forbes 400 list got there by starting a business but it doesn’t follow that all individuals who start a business will end up on that list. In fact, most startups, even those run by very smart people, fail in the first few years. Someone starting a business today faces very long odds of just becoming successful, let alone landing on the Forbes 400 list.

But forget all these arguments for a moment and think about what you want. If you are like me, you want to pay off your home, save for retirement, send your kids to University and eventually, not having to depend on a paycheck. You are not aiming for a spot on the Forbes 400 and couldn’t care less about the list. Do you need leveraged investments to achieve your goals? Not really. A far simpler and less-risky path is to spend less than you earn and invest the difference in a low-cost, diversified portfolio. Why take more risks than you need to?

Related posts:

  1. Finding a Financial Advisor, Part 1
  2. Carnival of Debt Reduction # 19
  3. The Income Tax Cut is Better
  4. This and That
Share61Tweet38Share11

Get real time update about this post categories directly on your device, subscribe now.

Unsubscribe
Previous Post

Low-Fee Mutual Funds

Next Post

This and That

Ram Balakrishnan

Ram Balakrishnan

Related Posts

Why you cant afford a house in Canada

Why You Can’t Afford A Home In Canada?

January 24, 2022
558
investing benefits
Investing

Finding a Financial Advisor, Part 1

June 19, 2021
2.2k
investing in bitcoin

Is it time to invest in Bitcoins again?

May 13, 2019
2k
when do reits liquidate
Uncategorised

Performance of Currency-Neutral S&P 500 Index Funds

January 19, 2014
2k
is mortgage interest tax deductible
Uncategorised

The 2013 Sleepy Portfolio Report Card

January 12, 2014
2k
how to buy individual stocks in canada
Uncategorised

Asset Class Returns for 2013

January 5, 2014
1.9k
Next Post
This and That

This and That

Please login to join discussion
Canadian Capitalist

© 2022 Canadian Capitalist

Navigate Site

  • Home
  • Disclaimer
  • Privacy Policy
  • Advertisement
  • Contact Us

Follow Us

No Result
View All Result
  • Home
  • Economy
  • Investing
  • Markets
  • Real Estate
  • Retirement
  • Tax Savings
  • Trivia
  • Resources

© 2022 Canadian Capitalist

Welcome Back!

Sign In with Facebook
Sign In with Google
Sign In with Linked In
OR

Login to your account below

Forgotten Password? Sign Up

Create New Account!

Sign Up with Facebook
Sign Up with Google
Sign Up with Linked In
OR

Fill the forms below to register

*By registering into our website, you agree to the Terms & Conditions and Privacy Policy.
All fields are required. Log In

Retrieve your password

Please enter your username or email address to reset your password.

Log In
This website uses cookies. By continuing to use this website you are giving consent to cookies being used. Visit our Privacy and Cookie Policy.
two man and woman standing on doorway
The man who does not read has no advantage over the man who cannot read - Mark Twain