Playing The Game of Leverage (2)

Read? Playing The Game of Leverage

"When the mind becomes TOO Greedy; it becomes LESS Savvy." - Createwealth8888

Investor and Banker. Who is smart? Who is stupid?

Let the story begins .....

An investor has saved more then $50K in a bank. When he saved his money in the bank he is actually lending the money to the bank. The bank agreed to pay him 1% interest rate per annum for borrowing his money.

One day, the investor discovered from X  this wonderful strategy of Leverage for Passive Income - the idea of "borrowing at a cheap interest rate and using the money to buy a stable financial instrument that is paying a higher interest rate, thereby earning the difference between the two."

The investor decided to start small with $10K with his newly discovered wonder of making passive income.

He borrowed $10K from the bank. The bank agreed to lend him $10K at 2% interest charge per annum. He then used the borrowed $10K to invest in DBS 6% NCPS to receive 6% dividends per annum.

After one year, he paid back the bank 2% interest charge and pocket the difference of 4%.

Th investor said to himself: "Wow. Passive income leh. I am so smart, right? Why I didn't think of it sooner." Shit!

Really ah?

Now, this is what actually happened when you have SPARE or SURPLUS money that can be used for investing; but you choose to keep in the bank as saving to earn low interest rate for whatever reasons.

1. He lent $50K to the bank. The bank paid him at 1% interest rate per annum for borrowing $50K from him.

2. He borrowed $10K from the bank to invest in DBS 6% NCPS. The bank charge him at 2% per annum for the borrowing.

3.  He received 6% Returns and paid back 2% to his bank and pocket the difference of 4%.

All this while, the bank is watching him carefully and hoping that he forgets to pay back his loan rate on time and slaps him at 24% charge per annum.

In summary, he lent $50K of his money to the bank at 1%, borrowed back his OWN money $10K at 2% and invested back at 6% and pocket the difference of 4%.

Borrowing back your own money to invest and pocket the difference!!!!!

Think carefully of the moral of the story and tells me your answer and WHY?

Investor and Banker. Who is smart? Who is stupid?

This wonderful strategy works fine if you are prepared to stay 100% invested and then borrow more to make even more.


When a man becomes too Greedy, his mind becomes less savvy. A Greedy man will not know his limit and he will also not believe that Black Swan can pay him a visit.