Saturday, September 13, 2008

Avoid investing with leveraged money

Dear Mr. Tan,
Three months ago, my bank suggested to take an overdraft at 3% interest to invest in a Dual Currency Invesment.



Since then, my investment has performed badly. With the drop in the AUD, my investments have been converted to AUD. It has dropped further, leading to a large unrealized forex.


How can I reduce my loss, especially from the leveraged investment?


REPLY

Generally it is unwise to speculate (invest) using borrowed money (i.e. leverage).I suggest that you find an early opportunity to redeem the leverage.


It is all right to take risk with your savings (but not leverage) as you can afford to wait until the exchange rate recovers (and hopefully, it does recover).