Announcer:
4 Your Money is brought to you by NelsonCorp Wealth Management.
Brandy Auterson-Hurst:
It’s now time for 4 Your Money. We’re joined by David Nelson, CEO of NelsonCorp Wealth Management. Welcome back, David.
David Nelson:
Pleasure to be here. Thank you.
Brandy Auterson-Hurst:
So, David, you’ve brought along a chart today that looks at something called margin debt. Explain what that is and what we’re seeing here.
David Nelson:
Absolutely. I guess we’ll start with the basics. Margin debt is amount of money that investors borrow to buy stocks.
Think of it like using a credit card to invest. When confidence is high, people tend to borrow more to boost returns. But that also cuts both ways as far as when things are selling off like we find ourselves in these days.
This chart that I brought along today is basically looking at margin debt. That’s the red line that you’re looking at there, folks. The blue line is the S&P. Just to give you some context and how the stock market is moving alongside it.
When the red line spikes like we saw in 2000, 2007, and 2021, it tells investors that are borrowing money as far as we’re looking at, as far as the peaks and the troughs on the destruction that can take place as far as after these peaks.
And the big surges are circling yellow, and it’s followed typically by that drop, which again, most individuals find themselves not really prepared for. Typically, it takes place. We see the big run-ups as far as when things are working at just the wrong time, typically.
Brandy Auterson-Hurst:
So, where are we now and what should viewers take away from this?
David Nelson:
Well, I think the important thing is to realize, again, that this light has been flashing yellow for a while. In other words, cautionary measures as far as has been taking place. We find that most individuals, again, let emotions get in the way. Just like now. Do not let emotions get in the way in making good financial decisions for yourself.
Brandy Auterson-Hurst:
All right, David, as always, thanks for the advice today.
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.