Good morning, good afternoon, good evening. Depending on the part of the world you’re in. This is Jonathan Satovsky of Satovsky Asset Management. And on today’s episode of “Seeking Wisdom, Wealth, and Wellness,” I want to talk about leverage.
As Charlie Munger and Warren Buffett say, the three most dangerous things are liquor, ladies, and leverage. Well, leverage could be great and it could be dangerous. As they say, “you concentrate to get rich and you diversify to stay rich.” But if you use leverage, simple math, if you take 100% of your portfolio and you believe the markets will average 10% a year, and you want to leverage that, you borrow money to buy more of the market than 100 cents on your dollar. And that leverage can amplify your returns as long as your borrowing cost is less than the return that you’re earning. Of course, if markets go backward and they go down, leverage works in the opposite way, where it could really bankrupt you much faster.
So leverage can help accelerate your wealth and it can help deteriorate your wealth during challenging times. So be careful and use leverage judiciously on your path to Wisdom, Wealth, and Wellness.
Have a great day.