Annaly Capital Management, Inc. (NLY), American Capital Agency Corp. (AGNC), ARMOUR Residential REIT, Inc. (ARR): 3 Ways Leverage Could Cause the Next Financial Meltdown

Margin loans are on the rise
In any bull market, impatient investors start to borrow to try to reap greater rewards. Low rates have helped make margin debt — where investors borrow against their stock holdings — cheaper than ever, and margin levels are back near all-time highs.

As long as stocks rise, margin borrowers make out like bandits. But when markets fall, forced sales from margin loans exacerbate the decline, which can create a negative feedback loop.

Steer clear
The recent modest rise in interest rates has given investors a glimpse of what could happen in a leverage-driven world when higher rates truly start to take hold. As tempting as leveraged investments can be in good times, the risk involved makes them suitable only for those who know exactly what they’re doing and what can happen when things go wrong.

The article 3 Ways Leverage Could Cause the Next Financial Meltdown originally appeared on Fool.com.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool has no position in any of the stocks mentioned.

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