I started serious Investing Journey in Jan 2000 to create wealth through long-term investing and short-term trading; but as from April 2013 my Journey in Investing has changed to create Retirement Income for Life till 85 years old in 2041 for two persons over market cycles of Bull and Bear.

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Friday, 22 July 2011

Two faces of debt: The Good and The Bad

The Good

Unless your residential home is a gift from your parents, you will have no choice but to take up your housing loan as good debt. This is also the cheapest loan in town. But, before you start thinking that this housing loan is definitely good debt and there is no mistake about it. Now I ask you to make sober estimates of your ability to repay and to factor in the likelihood that you or your spouse may suddenly out of the workforce for awhile and unable to bring in that additional income to pay part of the monthly mortgage payment.

Other than debt for your housing loan, debt as an investment tool is good as long as your investment income can come and stay above your borrowing cost. Any investors who use lots of debt as investment tool will never think that they are less savvy in investing and bad things seldom happen.

The Bad

Unless you have personal friends or relatives who were bankrupt or near bankrupt; it is just too easy to under-estimate or tempt to ignore the possibility of investment failure. When you make huge investment loss using too much debts, the effect can be crippling. When you realize it is bad; it is often too late!
Posted by Createwealth8888 at 22:03
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1 comment:

  1. financialray23 July 2011 at 13:47:00 GMT+8

    Yes, for a property investment, the ability to repay a loan is the first priority. So if one's job is not safe, the risk is greater. In today's world, very few jobs can be considered an iron rice bowl, so calculations must include the sometimes unpredictable, including losing one's job, disability, death....etc. All the risks must be minimised as they cannot be totally eradicated...when investment profit is worth taking the minimised risk, then go for it.Last but not least, must also calculate whether can afford to lose when investments get bigger....

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