Ended: Dec. 2, 2019
“Finance can be thought of as the study of the following three questions: (1) “In what long lived assets should the firm invest? This question concerns the left side of the balance sheet.” (2) “How can the firm raise cash for required capital expenditures? This question concerns the right side of the balance sheet. The answer to this question involves the firm’s capital structure which represents the proportions of the firm’s financing from current and long-term debt and equity.” (3) “How should short term operating cash flows be managed? This question concerns the upper portion of the balance sheet.”
Everything else being equal, a lower-volatility portfolio with debt is in many cases better than a high-volatility portfolio with no debt. Similarly, a portfolio with no debt may actually be taking on more risk than a portfolio with debt yet achieving the same result.
WHENEVER POSSIBLE AND ALL THINGS BEING EQUAL, CONSIDER CHOOSING A LOWER-RISK PORTFOLIO WITH SOME DEBT OVER HIGHER-RISK PORTFOLIO WITH NO DEBT