Tuesday, February 21, 2006

Levered Stocks - Aye, Volatility Ahead Captain!

There's also a different type of leverage than simply going out and borrowing money to invest in the market, like I've written (favorably) about recently. There's also the ability to buy a number of stocks and mutual funds whose returns are geared to, or levered on, a particular underlying stock, or index.

However, since they are "geared", that means they'll experience more rapid increases and decreases as that particular stock/index burps and belches over time. Which can be darned uncomfortable to watch during a market "correction", since the changes are magnified. However, on the other side of the coin, when the market is moving these stocks or indexes upward, it adds a wonderful upward profile onto your portfolio. But if you don't sleep well in "stormy seas", then this type of investment isn't for you.

However, if you can live comfortably with the underlying volatility and are reasonably confident that you aren't entering the market at a high valuation point, and have a long enough investment horizon, then these levered or geared investments can get you a better return - get you to where your going sooner. Later, we'll look at a few of these levered investments ...


The Confused Capitalist

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