No. of Recommendations: 0
There is nothing wrong with buying stocks on margin. Generally, margin rates are low, and the interest may be deducted up to the amount of investment income.

Taking out a loan on a house to play the market is a but more questionable, but that is essentially what you do if you pay $1000 on the house and invest $1000 every month. That second $1000 could have been paid on the mortgage.

The article, however, is stupid because it fails to recognize that there are good times and bad times in the market. In good times, be long and if you want, go on margin. But these times will not last forever. If you are fully margined (2X - which means $1 of your money and $1 of the broker's money), then you will almost certainly get a margin call when the market tanks, no matter how diversified you are. Of course, that does not have to happen, since at this point you can, and should, sell your long positions and go short, either stocks or indices.

By trading on margin, I made about 46% in February 2000. In March 2000 I was entirely in cash by the end of the month, and lost about 10%. Nets out pretty well. I would have made money if I had gone short, but I did not know enough to do that then.

The point is that the market (as J P Morgan said) will fluctuate. Make the most of those fluctuations, and do not just margin yourself to the hilt and go on a world cruise for a year. That will be regretted. Pay attention every day. Develop a good trading and timing discipline. Then you will certainly not have to worry about a margin call.
Print the post  

Announcements

The Retirement Investing Board
This is the board for all discussions related to Investing for and during retirement. To keep the board relevant and Foolish to everyone, please avoid making any posts pertaining to political partisanship. Fool on and Retire on!
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.