It has been a while since a headline gave me that "uh-oh, this isn't right" feeling. I get cross with lots of headlines because they are unnecessarily scary or exaggerated but this one was something again.
When I saw an Australian finance column headed "Got the guts to gear?" I thought, 'here we go again, enticing investors to do the wrong thing at precisely the wrong time'.
The premise of the column was that, as interest rates on loans fall and share market yields remain strong, investors might like to consider borrowing to invest. It looked at the current valuation and dividend yield of the Australian share market and concluded that, if you borrowed money to buy a share portfolio today, the portfolio would easily generate sufficient dividends to service the borrowing costs. So: "perhaps a little extra risk is worth considering".
To give the author his due, the article was peppered with caveats and used soft words like "perhaps" and "could" rather than "should" to ensure that nobody interpreted his suggestion as a guaranteed path to riches. Nevertheless the reader was left with the clear impression that they were looking a gift horse in the mouth.
When I saw a very similar article in the British financial press, extolling the virtues of using low mortgage rates and record house values to borrow to invest in rental properties, the sinking feeling arrived. History has invariably shown investors flock to 'sure to win' investments just as markets turn, leaving them disappointed and out of pocket.