If there’s one factor I do not advocate, it is shopping for inventory on margin. Because of the volatility of shares and excessive margin rates of interest, borrowing cash to purchase shares is a nasty concept.
Conversely, I am not opposed to purchasing a house on margin, specifically via a mortgage, if shopping for follows a homebuying guideline just like the 30/30/3 rule. Properties present utility within the type of shelter, are typically held for round 12 years, can generate earnings, and are a lot much less unstable. Mortgage charges are inclined to even be a lot decrease than margin charges.
However the actuality is, shopping for any danger asset on margin is dangerous, because it amplifies each losses and wins. If you happen to borrow an excessive amount of, you could possibly wipe your self out if you’re compelled to promote on account of a margin name or job loss.
Let me use myself as a case examine on shopping for inventory on margin—why I did it, the potential repercussions, and the important thing questions you must ask your self earlier than opening a inventory margin account.
Purchased Inventory On Margin At A 12.575% Curiosity Charge
It seems, I really purchased about $12,500 price of inventory on margin at a 12.575% rate of interest, and I did not even understand it for every week. A 12.575% margin rate of interest is freeway theft and one thing I might by no means willingly tackle. Nevertheless, that is precisely what I did for a short time.
One among my major tasks as a father is to make sure the monetary safety of our family. After buying a home we did not want within the second half of 2023, I briefly put our family in danger by dramatically reducing down our liquidity.
Since then, I’ve taken on part-time consulting roles, carried out some private finance consulting, and saved and reinvested virtually every little thing I earned in shares, bonds, and actual property. Greater than 16 months later, my “Monetary Safety Fund” is in fine condition with about $706,000, or roughly two years’ price of comfy dwelling bills. My final purpose is to get the fund to develop to at the very least six years price of dwelling bills by December 31, 2027.
As a non secular dollar-cost averager because the early 2000s, I’ve turn into hardwired to put money into shares each month. When shares began declining initially of 2025, I wished to purchase much more as a result of that is what dollar-cost averagers do.
There was only one large drawback: I did not have the cash to take a position! However make investments I did as a result of I had a margin account at Constancy.
Here is a snapshot of a number of the VTI ETF I purchased on margin.

Why I Purchased Inventory On Margin At An Costly 12.525% Curiosity Charge
Earlier than scripting this publish, I hadn’t realized how a lot inventory I’d purchased on margin and even what the margin rate of interest was. Nevertheless, my psychological money circulation calculations hinted I’d dipped into margin, particularly since my account displayed, “Accessible with out margin influence: $0.00,” and but I stored shopping for.
Right here’s why this occurred—and why you must suppose twice earlier than doing the identical.
1) It Was Dangerously Simple to Do
The primary motive I purchased inventory on margin is as a result of I might—effortlessly. Years in the past, I keep in mind clicking some buttons asking whether or not I wished to create a margin account as a way to purchase some speculative securities. So I did. Opening one was really easy.
This ease is a double-edged sword. Constancy offered no warnings in regards to the penalties of shopping for inventory on margin, nor did it spotlight how a lot the borrowing value can be. Inputting a purchase order transaction on a margin account felt no completely different from my typical routine, making a frictionless (and dangerous) course of.
2) A Common Funding Behavior
I’ve been investing initially and center of each month since I acquired my first job in 1999. This inertia has stored me disciplined, no matter whether or not I’ve had a job, no job, and even sufficient money available. Greenback-cost averaging has served me effectively, so stopping when shares had been correcting felt irregular, even in a cash-tight second.
Make it a behavior to pay your self first by saving and investing a portion of your earnings every month earlier than spending. Keep it up for 10 years, and also you’ll be amazed at how a lot wealth you’ve constructed. Intention for a minimal saving price of 20%, however try for 50% if you wish to obtain monetary freedom even sooner.
3) Taking Benefit Of the Dip
Since staring my inventory investing journey in 1996, I’ve developed a robust urge to purchase the dip. Traditionally, worry of shedding extra would generally maintain me again, however as I diversified and grew my web price, I grew to become extra assured in my capability to climate downturns. As soon as you’ve got skilled a pair bear markets, you are now not as apprehensive.
When the S&P 500 dipped from ~6,084 to five,800, I felt compelled to behave—not only for my monetary future, however for my youngsters’ (ages 7 and 5). With a 20-year horizon, I imagine at the moment’s costs will appear to be bargains down the street, even when the S&P 500 continues to appropriate. I’ll hold dollar-cost averaging to reap the benefits of future dips, understanding that long-term investing is my focus.
4) Confidence in New Earnings
I additionally purchased on margin as a result of I anticipated incoming earnings. I had dividends, reimbursements, and on-line earnings on the way in which in a pair weeks. In essence, this was a timing mismatch between money circulation and investing alternatives, and I didn’t need to miss a dip ready for the funds.
That is much like utilizing an overdraft line of credit score to your checking account to easy out expense timing. A margin account can serve the identical goal for energetic traders, although it requires cautious oversight.
5) It Was a Manageable Quantity
Lastly, the margin buy was modest: ~$12,500 or lower than 2% of my whole portfolio steadiness. I knew I might pay it again rapidly, minimizing the curiosity expense.
For context:
- The 30-day value to borrow $12,000 at a 12.575% price is about $125.
- The 2-week value, a extra doubtless situation, is roughly $59.
On the time, I assumed the speed can be nearer to eight–9%, or double the risk-free price of return, so discovering the true value prompted me to instantly switch each spare greenback from my checking account to my Constancy portfolio to cut back the steadiness.
Beneath is a snapshot of my account’s Steadiness Particulars, displaying a damaging money steadiness of $10,585.13, equal to my margin steadiness. It additionally highlights my each day margin curiosity expense of $3.70 and a month-to-date expense of $29.95. I finally paid my margin steadiness off in two weeks.

A Margin Account Creates Harmful Temptation
Whereas margin could be a great tool for seasoned traders, it’s important to totally perceive your borrowing prices and dangers earlier than diving in. Study from my expertise: hold your money circulation in test, and thoroughly weigh the cost-benefit of utilizing margin.
When you open a margin account—or convert your account to 1—chances are you’ll face the temptation to leverage up. For instance, my margin-buying energy is $723,268, which might simply entice me to go all-in on speculative investments. Whereas the end result may very well be nice, it might additionally finish disastrously.
Given the excessive margin rate of interest of 12.575%, most individuals wouldn’t purchase inventory on margin and maintain it for 12 months. That is very true if Wall Road’s median forecast for the S&P 500 is effectively under the margin rate of interest. Keep in mind, one determine is a forecast which will or might not come true, your margin rate of interest is a assured value.
As a substitute, margin merchants sometimes borrow short-term, aiming for a fast revenue. Sadly, day buying and selling not often works out as deliberate, typically leaving merchants poorer on account of each buying and selling losses and margin curiosity bills.
Don’t purposefully purchase inventory on margin. The temptation to make undisciplined trades or exceed your danger tolerance is excessive. Utilizing margin can really feel like playing in a on line casino or enjoying high-stakes Texas Maintain’em poker—thrilling however inherently dangerous if you do not have self-discipline.
Questions To Ask Your self Earlier than Opening A Margin Account
For these of you continue to contemplating opening a margin account, take a second to mirror on these questions first. If you happen to can confidently reply sure to at the very least three of the next, solely then would possibly a margin account be price exploring:
- Do you may have at the very least a two-pack of abs?
- Have you ever spent at the very least 10 years mastering your craft and changing into an skilled in your area?
- Are you able to simply go 60 days with out smoking, consuming alcohol, soda, espresso, or utilizing different substances?
- Do you totally perceive the common historic returns of the inventory market, your probabilities of making or shedding cash, and the prices tied to purchasing shares on margin?
- Do you may have a level in finance, work in finance, or have an MBA?
- Did you may have at the very least $100,000 invested through the 2008 International Monetary Disaster to know your true danger tolerance?
- Do you may have a excessive danger tolerance, demonstrated by investing at the very least 80% of your portfolio in shares for 5 years or extra?
- Do you or your partner have a secure job with sturdy profession progress prospects?
- Is your web price equal to at the very least 10X your annual family earnings?
Do not Purchase Shares On Margin If You Do not Have To
If you happen to battle with addictive tendencies or lack monetary self-discipline, do not open a margin account. As a substitute, persist with the tried-and-true methodology of shopping for shares with a portion of your earnings and holding. Over the long run, you’re more likely to obtain higher outcomes than the margin dealer—with out the pointless stress or danger.
Readers, do you purchase shares on margin? If that’s the case, when do you sometimes use margin, and the way do you determine how lengthy to carry the inventory? Have you ever ever given in to temptation and acquired extra inventory on margin than you must have? How did that have end up?
Make investments In Personal Development Corporations
If you happen to’re comfy shopping for shares on margin, think about shifting a few of your focus to investing in non-public progress corporations. With companies staying non-public longer, the lion’s share of positive factors is now being captured by non-public traders. It’s solely logical to allocate extra of your investable capital towards these alternatives.
Check out the Fundrise Enterprise Capital product, which helps you to dollar-cost common with as little as $10 into non-public progress corporations within the AI house and others. Personally, I’ve invested $153,000 in Fundrise Enterprise, and I’m optimistic about its potential. Plus, Fundrise has been a long-time sponsor of Monetary Samurai.
With Trump saying a $500 billion AI infrastructure initiative in partnership with Softbank, Oracle, and OpenAI—dubbed Stargate—it’s clear the federal government sees AI as a transformational expertise. In 20 years, I don’t need my youngsters asking why I didn’t put money into or work in AI when the chance was so clear!

Though I am not a fan of shopping for shares on margin, I’m a fan of investing in high-quality progress names in a diversified portfolio. I plan to proceed dollar-cost averaging into enterprise capital over time as a result of now I can.
Purchased Inventory On Margin At A 12.575% Curiosity Charge And Survived is a Monetary Samurai authentic publish. All rights reserved. Be a part of 60,000+ different wealth-builders by subscribing to my free weekly e-newsletter right here.