Investing with debt - Opinions please!

[buns]

Two thoughts

1.
These Silver companies Shasta mentions probably do not return a dividend. So you are not getting any income to cover your borrowing costs, as Snoopy talked about. Also your lending options will be smaller as most of the time brokers do not offer margin loans on these types of investment which they call high risk.

You being (by the sounds of it) a newbie to silver, I think any exposure to this using borrowed equity should be small.

Shasta's bullishness on silver contains various macro economic factors, all of which can happen over any period of time. I wouldn't feel safe sitting on an investment (with no divys), limited knowledge, using borrowed funds any longer than short/medium term. I don’t think anyone can be certain silver will turn around in that timeframe.

2.
You may hear some stories on hear how easy it was to loan/invest coming out of the recession. Be careful what you take from this.

It’s easy to look back now and say how easy this was (borrowing to cover yields), but no one was ever sure we were out of the recession. A lot will tell you in hindsight they knew we were on the otherside and it was time to invest. I think a fair chunk of people would have thought the recession was over earlier than it was, and got stung massively borrowing (mainly with margins), but not many will ever share those stories.

I was so very close to buying a heap of NZX shares on margin at the end of the recession, and opted against it. Instead I only bought half the amount of NZX shares I originally intended on and used my other half to buy into more risky ASX companies.

So this gave me the same potential return as borrowing, but was using all my own capital. You could adopt the same approach, with the high risk companies being in something like Silver?

You will be amazed at how ‘low risk’ some of these small caps are compared to dividend returning companies. Being small, they are less complex and easier to understand. A lot of the time you can forget (most) macro trends and just value these companies bottom up. This gives me more piece of mind, so I now find a lot of these companies less risk than some of your standard dividend returning NZX 50 shares. Hence I sold the NZX half of my portfolio coming out of the recession and am now 100% invested in smaller ASX companies.