How do we increase our investments if we have limited savings?  

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thanatassa | College Teacher | (Level 3) Educator Emeritus

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The first way to do this is to borrow money to use for investing. The method, called "investing on margin", is extremely risky, and increasingly subject to strong regulations. The reason is that if your borrowing costs are higher than your return on investment you actually lose money, and if your lender calls in the loan, and your investment is not liquid, you might be driven to bankruptcy. Although investing on margin can be profitable in times with strong bull markets and low borrowing costs, most investors feel that the global recovery now (2015) is still fragile enough that such investing would be very risky.

The second choice is far more conservative, namely trying to reduce your total debt and living expenses or increase your income, perhaps by working more hours, in order to have more money available to invest.

For example, assume you buy two cups of coffee a day at a coffee shop for a total of $6.00. By making coffee at home and bringing it to work or school in a thermos, you could save $5.00 a day. If you did this 20 days a month, that would mean $100 per month or $1200 per year. If you invested this modest amount every year for 20 years at a 5 percent return, at the end of 20 years, you would have saved over $40,000.

 

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