Biggest Threat to Your Portfolio

While the Dow Jones Industrial Average (DJINDICES: ^DJI ) and the S&P 500 (SNPINDEX: ^GSPC ) hit record highs this week, there are troubling signs that the market's rally is unsustainable. Investors are using leverage to boost returns, and leverage is hitting record highs. Previous bubbles have been shown to be heavily inflated by investors who are buying stocks with margin debt, and this time is no different. What's going on, and what can you do to protect yourself?

Investors are using leverage at levels not seen since the last bubble to juice their returns. This has ended badly in every previous bubble, and it will end badly again. Trying to time the bursting of a bubble is a fool's errand. It's impossible to get the timing right. I suggest sticking with your investment plan but keeping some cash on the side to buy in case the market takes a big drop. As Thomas Edison said, "Everything comes to him who hustles while he waits." Take time to carefully research investments and keep a watchlist of companies you'd like to buy at the right price.

Source: Motley Fool

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