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Tip 55 – Buying – The theory of leveraging

When money is cheap the conventional wisdom is to borrow more to buy more. This is because the net return on money invested in a management rights business (when money is cheap) should earn you more than the cost of the money borrowed. For example, if your interest rate is 7% but your return on investment is 21% then you can see how it works. Always bear in mind however that markets are volatile and the more you borrow, the more exposed to rate changes you are.