Debt for Equity Can Work

2008-07-25 16:32:26

( Financial )



Debt is simply other's people money you owe and that you have an obligation to pay. Equity is investing money, or lending money, in hope of future gains. Common sense would tell you that you can only invest money if you have extra funds. Incurring debt for equity seems like going against common sense.

There are instances though when debt for equity could work for you. Equity borrowing has been practiced by savvy investors for quite some time now. If you are a savvy financial investor, you will have access to critical information and you will be in the know as to which investments are most likely to give significant returns.

If you have access to a loan with a low interest rate, it would be a good move to borrow money so you can invest on an enterprise that would most like give high returns.

Remember that debt and equity financing could be a risky move at the same time. Nobody could really predict how a particular stock or bond would behave in the future. Equity borrowing is not for you if you are just beginning to learn the ropes of investing.

As you gain more experience, you will learn the tricks of the trade. You will become more knowledgeable about the complicated world of investing. Time will come when the knowledge you have gained will be enough to equip you to know if debt for equity could be profitable for you.

The important point to remember is that you only engage in equity borrowing if you have access to loans with very low interest and if you have a good enough reason to believe that a particular investment will most probably going to do good in the market. When that happens, you can say that you are already an experienced investor an you're on your way for more financial success with the help of debt for equity.


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