Learn respect for role of debt ::

Date: March 17, 2008
Source: Source - The West Australian

Borrowing to invest may not be the best course of action in a time of declining markets. Roger Montgomery, of Clime Asset Management, suggests the best time in which to take on debt is when interest rates are low and when the borrower can afford to make repayments if interest rates increase substantially. However, many investors tend to expect that the future will resemble the past. As such, those taking on debt may unreasonably expect that high share prices and low interest rates may continue. Successive interest rate rises, in combination with falling share prices, have made March 2008 a less attractive environment for borrowing. Greg Hoffman, of "The Intelligent Investor", believes the main problem with the current market relates to the structure of debt. Hoffman recommends stocks with little debt, while Montgomery advocates positive gearing.

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