11.2020 Life Guide
Leverage Investment: the secret weapon of Far Eastern International Bank for the rich
Far Eastern International Bank / Xu Yunrui
"Leveraged investment" is well-known. If leverage can be used properly, it will take 10 years less than others to achieve the goal of financial management. But what is leverage? And how to do it? This issue of "finance column" will teach you how to use the lowest cost of capital to invest in the most profitable products that can bear risks and create the highest investment benefits.
What is leverage?
Archimedes, one of the greatest mathematicians in history, once said, "give me a lever long enough and a fulcrum to place, and I can pry the earth. In fact, the essence of leverage is a tool. With leverage, we can pry things beyond our "power".
"Leverage" is used in finance, that is, borrowing money. "Leverage investment" is actually borrowing money to invest, using small funds to invest several times the original amount, in order to obtain several times the yield of the original subject matter. However, "leveraged investment" is not limited to borrowing money for investment. For example, the boss can produce 100 pairs of shoes a day and sell them for 1000 yuan. Through "hiring" more employees, they can pay 200 yuan per day for each person. If each employee produces 100 pairs of shoes a day, he can earn 1, Using the leverage principle, the boss can produce more than his own "strength".
Is greater leverage really more dangerous?
Why do many people turn pale when they hear of "leveraged investment"? In fact, the key lies in "investment", not in "leverage". If the risk of the underlying investment approaches zero, the leveraged investment is called "arbitrage"; if there is a great risk in the investment target, the leveraged investment is called "gambling".
Imagine that if you can borrow 1.5% of the fixed interest cost of the loan and find a fixed deposit rate of 2.5% for the same period of 0 investment risk, you will tend to borrow as much as possible to earn the middle 1.0% spread, and you will never feel worried because the leverage investment ratio has reached 500% or 1000%. On the contrary, suppose that your investment target is to buy a lotto, in order to get rich overnight, However, due to the limited funds and the limited number of groups that can package cards, you may choose to find other colleagues to pack cards. Even if the leverage ratio is only 25% or even 5%, you may still feel very uncertain about this investment. Therefore, the key to the insecurity of investment is not the leverage ratio, but the risk of the investment target itself.
How to start leverage investment?
First of all, in terms of borrowing, it would be better to borrow interest free from relatives and friends, but it is not within the scope of discussion. Generally speaking, loans can be divided into secured loans (such as housing loans, guaranteed loans, etc.), and non guaranteed loans (such as credit loans, Biao, etc.). The former has the advantages of relatively low interest rate cost and high loan amount, while the disadvantage is that the loan application procedure is rather lengthy. For example, there are certain audit processes and steps from loan application to allocation. Compared with the non guaranteed loan (such as credit), at present, banks all take quick loan approval and allocation as their demand, so it is not easy to miss the best investment opportunity. In addition to the type of loan, interest rate, amount and speed, other costs (such as account management fees, start-up costs, etc.) also need to be considered.
As for investment, as investment funds are obtained through leverage, priority must be given to the market risk of the investment object. In financial investment commodities, the so-called "market risk" usually refers to the impact of the market on the price of investment commodities. Among them, the magnitude of price change is called "volatility". Generally, the standard deviation of the return rate of the commodity in the past period of time is taken as the measurement value of the volatility. When the volatility is higher, the greater the range of possible price changes and the higher the market risk. Among many financial commodities, deposit is almost risk-free. If we can find the deposit commodity whose deposit interest rate is higher than the loan cost interest rate, it is certainly the best investment policy.
Nowadays, many banks are in the early stage of the development of digital deposits. They have offered ultra-high deposit interest rates. It should not be difficult to find preferential interest rates from them. However, based on cost considerations, banks usually limit the amount of preferential deposits available. In addition to deposits, among the common investment commodities in the market, the volatility of fixed income commodities (such as bonds) is usually less than that of equity commodities (such as stocks); the volatility of a basket of commodities (such as funds) is smaller than that of a single commodity (such as a single stock or a single bond). Therefore, it is advisable to conduct a preliminary screening through commodity categories, and then add low correlation investment targets to the portfolio To spread the risk. After the primary screening of commodity categories, we can further distinguish the details. For example, in bond products, the higher the rating is, the lower the default risk of bonds and the lower the volatility of bond prices. Thus, it is not difficult to find low volatility targets suitable for their own investment attributes for leveraged investment.
The leverage or multiple products in the financial market may not be the same as you think?
After all, it's very troublesome to apply for loans and find suitable low volatility investment targets. In fact, there are many financial leveraged investment tools in the market, such as foreign exchange margin, commodity futures, index futures, long short or multiple leveraged ETFs, etc. Before investing, we should still understand its operation principle. Most of the participants have bad experience of losing money because they don't understand it enough.
Take the Stock Index ETF of double long and short as an example, suppose the stock index on the first day is 100, then it rises to 110 on the second day (up 10% in a single day), and falls back to 100 on the third day (a one-day drop of 9.09%). If you only invest in the stock index, at this time, you will only return to the original point and make no profit or loss. However, if you invest in double ETF, the value of your ETF will be 120 (= 100) when the stock market rises on the second day* On the third day, the value of your ETF falls to 98.2 (= 120 * (1-9.09% * 2)); if you invest twice in ETF, your ETF value will be 80 (= 100 * (1-10% * 2)) when the stock market goes up on the second day, but it will only rise to 94.5 (= 80 * (1 + 9.09% * 2)). In other words, the multiple leverage ETF will execute daily settlement. When the market is in consolidation or the rise and fall situation, your profit opportunity will decrease. When the market goes up, it may rise from a lower price, and when it falls, it may fall from a higher price. The rate of return is lower than that of your direct investment in the index. Moreover, the longer the investment time, the more unfavorable it will be for you.
Before thinking about profits, always think about whether you can afford the worst?
I believe that "there must be risks in investment, and there are gains and losses in fund investment. You should read the prospectus carefully before applying for purchase. This sentence is no stranger, but it is definitely not just a slogan. It is not only applicable to fund investment, buying a house, opening a shop, etc., and there will be risks. Before you imagine the good fruits of investment returns, you must first evaluate whether you can withstand the worst. If you can't, it means that the investment risk has exceeded the tolerable range. At this time, you may as well find several partners to invest together to reduce leverage ratio, or choose a store with simple decoration and cheaper rent to reduce the investment amount. In short, leverage can magnify profits, but it will also magnify losses. Before investing, you should not only think about profits. If the worst situation is beyond your tolerance, please consider reducing the leverage ratio or the amount of investment, or even choose not to participate in the investment.
Far Eastern International Bank understands the needs of rich dads and provides one-stop service for professional investors. The content includes: evaluating the current asset allocation status, understanding the investment purpose, and providing various solutions that meet the investment needs based on the risk awareness and risk tolerance. Far Eastern International Bank There are a wide range of financial products on the shelf, ranging from low-risk high-grade overseas bonds to highly volatile single stocks such as us and Hong Kong stocks. At the same time, it helps customers select low volatility investment targets strictly. You don't need to apply for loans, but you can really use leverage investment. You don't need to apply for loans. You can also use leveraged investment. You can easily meet rich dad's needs Dad's desire for leverage.
What is leverage?
Archimedes, one of the greatest mathematicians in history, once said, "give me a lever long enough and a fulcrum to place, and I can pry the earth. In fact, the essence of leverage is a tool. With leverage, we can pry things beyond our "power".
"Leverage" is used in finance, that is, borrowing money. "Leverage investment" is actually borrowing money to invest, using small funds to invest several times the original amount, in order to obtain several times the yield of the original subject matter. However, "leveraged investment" is not limited to borrowing money for investment. For example, the boss can produce 100 pairs of shoes a day and sell them for 1000 yuan. Through "hiring" more employees, they can pay 200 yuan per day for each person. If each employee produces 100 pairs of shoes a day, he can earn 1, Using the leverage principle, the boss can produce more than his own "strength".
Is greater leverage really more dangerous?
Why do many people turn pale when they hear of "leveraged investment"? In fact, the key lies in "investment", not in "leverage". If the risk of the underlying investment approaches zero, the leveraged investment is called "arbitrage"; if there is a great risk in the investment target, the leveraged investment is called "gambling".
Imagine that if you can borrow 1.5% of the fixed interest cost of the loan and find a fixed deposit rate of 2.5% for the same period of 0 investment risk, you will tend to borrow as much as possible to earn the middle 1.0% spread, and you will never feel worried because the leverage investment ratio has reached 500% or 1000%. On the contrary, suppose that your investment target is to buy a lotto, in order to get rich overnight, However, due to the limited funds and the limited number of groups that can package cards, you may choose to find other colleagues to pack cards. Even if the leverage ratio is only 25% or even 5%, you may still feel very uncertain about this investment. Therefore, the key to the insecurity of investment is not the leverage ratio, but the risk of the investment target itself.
How to start leverage investment?
First of all, in terms of borrowing, it would be better to borrow interest free from relatives and friends, but it is not within the scope of discussion. Generally speaking, loans can be divided into secured loans (such as housing loans, guaranteed loans, etc.), and non guaranteed loans (such as credit loans, Biao, etc.). The former has the advantages of relatively low interest rate cost and high loan amount, while the disadvantage is that the loan application procedure is rather lengthy. For example, there are certain audit processes and steps from loan application to allocation. Compared with the non guaranteed loan (such as credit), at present, banks all take quick loan approval and allocation as their demand, so it is not easy to miss the best investment opportunity. In addition to the type of loan, interest rate, amount and speed, other costs (such as account management fees, start-up costs, etc.) also need to be considered.
As for investment, as investment funds are obtained through leverage, priority must be given to the market risk of the investment object. In financial investment commodities, the so-called "market risk" usually refers to the impact of the market on the price of investment commodities. Among them, the magnitude of price change is called "volatility". Generally, the standard deviation of the return rate of the commodity in the past period of time is taken as the measurement value of the volatility. When the volatility is higher, the greater the range of possible price changes and the higher the market risk. Among many financial commodities, deposit is almost risk-free. If we can find the deposit commodity whose deposit interest rate is higher than the loan cost interest rate, it is certainly the best investment policy.
Nowadays, many banks are in the early stage of the development of digital deposits. They have offered ultra-high deposit interest rates. It should not be difficult to find preferential interest rates from them. However, based on cost considerations, banks usually limit the amount of preferential deposits available. In addition to deposits, among the common investment commodities in the market, the volatility of fixed income commodities (such as bonds) is usually less than that of equity commodities (such as stocks); the volatility of a basket of commodities (such as funds) is smaller than that of a single commodity (such as a single stock or a single bond). Therefore, it is advisable to conduct a preliminary screening through commodity categories, and then add low correlation investment targets to the portfolio To spread the risk. After the primary screening of commodity categories, we can further distinguish the details. For example, in bond products, the higher the rating is, the lower the default risk of bonds and the lower the volatility of bond prices. Thus, it is not difficult to find low volatility targets suitable for their own investment attributes for leveraged investment.
The leverage or multiple products in the financial market may not be the same as you think?
After all, it's very troublesome to apply for loans and find suitable low volatility investment targets. In fact, there are many financial leveraged investment tools in the market, such as foreign exchange margin, commodity futures, index futures, long short or multiple leveraged ETFs, etc. Before investing, we should still understand its operation principle. Most of the participants have bad experience of losing money because they don't understand it enough.
Take the Stock Index ETF of double long and short as an example, suppose the stock index on the first day is 100, then it rises to 110 on the second day (up 10% in a single day), and falls back to 100 on the third day (a one-day drop of 9.09%). If you only invest in the stock index, at this time, you will only return to the original point and make no profit or loss. However, if you invest in double ETF, the value of your ETF will be 120 (= 100) when the stock market rises on the second day* On the third day, the value of your ETF falls to 98.2 (= 120 * (1-9.09% * 2)); if you invest twice in ETF, your ETF value will be 80 (= 100 * (1-10% * 2)) when the stock market goes up on the second day, but it will only rise to 94.5 (= 80 * (1 + 9.09% * 2)). In other words, the multiple leverage ETF will execute daily settlement. When the market is in consolidation or the rise and fall situation, your profit opportunity will decrease. When the market goes up, it may rise from a lower price, and when it falls, it may fall from a higher price. The rate of return is lower than that of your direct investment in the index. Moreover, the longer the investment time, the more unfavorable it will be for you.
Before thinking about profits, always think about whether you can afford the worst?
I believe that "there must be risks in investment, and there are gains and losses in fund investment. You should read the prospectus carefully before applying for purchase. This sentence is no stranger, but it is definitely not just a slogan. It is not only applicable to fund investment, buying a house, opening a shop, etc., and there will be risks. Before you imagine the good fruits of investment returns, you must first evaluate whether you can withstand the worst. If you can't, it means that the investment risk has exceeded the tolerable range. At this time, you may as well find several partners to invest together to reduce leverage ratio, or choose a store with simple decoration and cheaper rent to reduce the investment amount. In short, leverage can magnify profits, but it will also magnify losses. Before investing, you should not only think about profits. If the worst situation is beyond your tolerance, please consider reducing the leverage ratio or the amount of investment, or even choose not to participate in the investment.
Far Eastern International Bank understands the needs of rich dads and provides one-stop service for professional investors. The content includes: evaluating the current asset allocation status, understanding the investment purpose, and providing various solutions that meet the investment needs based on the risk awareness and risk tolerance. Far Eastern International Bank There are a wide range of financial products on the shelf, ranging from low-risk high-grade overseas bonds to highly volatile single stocks such as us and Hong Kong stocks. At the same time, it helps customers select low volatility investment targets strictly. You don't need to apply for loans, but you can really use leverage investment. You don't need to apply for loans. You can also use leveraged investment. You can easily meet rich dad's needs Dad's desire for leverage.
