One of the biggest investing mistakes is using leverage to buy shares.
Margin lending allows you to borrow money from a broker to buy stocks. You put up a little of your money and they put up the rest, something akin to a home loan. If a stock goes up, your earnings are proportionally bigger, but so are your losses when the stock goes south.
If you lose too much, the broker will request that you either put in more money, or sell down the stock to cover the difference. Apart from potentially losing your money fast, the power to decide when to sell is out of your control.
By using only your own cash, you could hold the stock for a hundred years and never have to sell if you didn't want to. Also, you can wait out weak periods when share prices fall.
Should a stock fall 20% – 30%, you could resist the urge to sell out of fear, saving your position. Not so with margin loans. You'd be sold out and left with a loss.
Keep your investing simple and under your control. Here are two quality companies that you could start making your fortune with.
— Insurance Australia Group Limited (ASX: IAG)
The market leader in general insurance has been raising dividends over the past five years. It offers a great 5.8% fully franked dividend. The general insurance business is improving recently with fewer big natural disaster claims and the stock hit a new multi-year high at the end of July.
— Resmed Inc. (CHESS) (ASX: RMD)
This healthcare company develops breathing aids and respiratory devices. Such equipment is in constant demand and the rise in both revenue and earnings every year for the past four years shows it. The majority of its business is from overseas in big healthcare markets like the US and Europe.
Its dividend yield is 2.1% unfranked and analyst consensus forecasts have earnings rising over an average 10% annually for the next two years.
