Optimal Finance Daily - Financial Independence and Money Advice 3342: When Should You Use Margin When Investing? By Shailesh Kumar with Good Financial Cents
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Nov 5, 2025 Explore the ins and outs of margin investing, including when it's a smart choice and when to steer clear. Discover how margin can serve as a lifeline for temporary liquidity needs or strategic tax planning. Learn the pitfalls of using margin for low-yield assets, risky dividend stocks, or lifestyle purchases. The discussion highlights the critical balance of leveraging debt cautiously and the importance of choosing the right broker. Real-world examples illustrate the risks involved, making for a practical guide to responsible investing.
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Margin Is Leverage, Not Free Money
- Margin is debt that gives you leverage by borrowing from your broker to buy more assets.
- You profit only if investment returns exceed margin interest, otherwise you must cover losses.
Avoid Margin For Low-Yield Income Plays
- Avoid using margin to buy low-yield interest assets or dividend stocks because margin interest typically exceeds their yields.
- Don't add leverage to conservative income portfolios; margin increases risk for little return.
Don’t Use Margin To Finance Purchases
- Never use margin to fund down payments for cars, boats, or houses because it creates multiple layers of debt.
- Avoid multiple levels of leverage; they can quickly become unmanageable.