Announcer:
4 Your Money is brought to you by Nelson Corp Wealth Management.
Brandy Auterson-Hurst:
It’s now time for 4 Your Money. We’re joined by David Nelson, CEO of Nelson Corp Wealth Management. Welcome back, David.
David Nelson:
Thank you Brandi. Appreciate it.
Brandy Auterson-Hurst:
So we occasionally hear about things like leverage in markets. Can you walk us through what that means and what’s happening with it right now?
David Nelson:
I have a scary term, I’m thinking as far as to many individuals out there. It’s basically referring to borrowing money to buy securities, buy stocks historically. So that term margin debt is really important. And when we’re talking about, again, why would somebody do that with the hope and the belief that they can magnify the returns as far as the upside, but it also cuts the other way.
So to illustrate this, I brought along a chart that’s going to show as far as historically, and the chart’s going back to 1947. And the first thing that we look at is, and I think this is very, very important, that the increase as far as the scene, that chart go up, essentially starting to take place in the ’90s. And what we see in the ’90s is that the appetite for risk and increase significantly. And as you see in the far right over there, and I think that’s a really important point, is that we’re not at all time highs. History says when this starts hitting all time highs, that’s a real danger point that people need to be careful of.
Brandy Auterson-Hurst:
Okay, so what should investors take away from these trends in margin debt?
David Nelson:
I think it’s wise for investors to keep an eye on these type of indicators. This is a really important indicator, folks should pay attention to it. When we start seeing the craziness that we saw around the year 2000, as far as with debt, and again, this type of debt market debt where people are basically borrowing money as far as to invest, that’s generally a bad sign. So be very careful.
Brandy Auterson-Hurst:
All right, David, as always, thanks for joining us.
David Nelson:
Thank you.
Brandy Auterson-Hurst:
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Investing involves risk. Depending on the types of investments, there may be varying degrees of risk. Investors should be prepared to bear loss, including total loss of principal.
Indices mentioned are unmanaged and cannot be invested into directly.
This video includes a paid appearance.