If you’re considering using debt or loans to invest in cryptocurrency or shares, you first need to ask yourself whether leverage and accompanying risk is for you. Debt allows you to buy things you can’t afford. It has two benefits. First, you can take advantage of opportunities in the market, that you otherwise would miss out on. When an opportunity like new crypto coins comes along you can jump on that train right away! You could use some of the profits to pay off the loan quickly.

BUT: Borrowing to invest is not for the faint hearted. The more you borrow, the greater the risk becomes as you have to repay the loan regardless of the performance of the investment. Besides having to repay the initial loan, you also need to pay off the interest incurred on top of that loan!

You need to understand and have a plan to deal with each risk. If you are not entirely comfortable with these risks, borrowing to invest may not be right for you.

Borrowing to invest is a high risk investment strategy for experienced investors only. If you are looking to use this strategy ask yourself these questions:

• Do you have secure income from other sources such as your salary to top up the loan if you get a margin call?
• Do you have a high marginal tax rate so you can make the most of any tax benefits?
• Are you in it for the long haul? Gearing is generally a medium to long term strategy (at least 5 to 10 years).
• Is there flexibility in your strategy to allow for changes in your personal circumstances such as having children or a reduction in income?
• Will you lose sleep at night if your investment performs poorly?

Do your homework before taking out that loan...

Hope this helps.