Investment High Risk Idea

fund_manager

Hi All,

Given that the More M&S Balance Transfer card is so cheap now (3.9 percent), and that transferring balances and loans is free (if you have an egg money card too) - has anyone thought about using that money to invest?

Either: Put into a managed fund, or even shares.

Corporations I know do this, in fact the US has been doing it for years, and China now does it on an unheard of scale; cheap loans to invest elsewhere with the hope of greater return that what you are paying out.

The goods thing about managed services is of course that the chance of losing all your money is VERY slim, and is even quite slim with shares, if you pick a stable company.

Obviously, you need something that is going to have 3.9 growth a month, which is a tough call, but gold over the last 12 has grown brilliantly (about 67 percent in some funds) - and this gives you capital to invest if you don't have it.

I really can't see much of a flaw in this idea - does anyone else have any thoughts?

ReportInvestor

Borrowing to invest is a mug's game when it goes wrong.

Borrowing to invest speculatively is even less wise IMHO.

When lots of people do it, it has historically been a tell tale sign of a bubble about to burst.

YorkshireBoy

fund_manager wrote:

...you need something that is going to have 3.9 growth a month...

A year, surely.

I really can't see much of a flaw in this idea...

Open your eyes - you will then!

...does anyone else have any thoughts?

The 'principle' already exists (known as 'stoozing'), but using savings accounts or offset mortgages for guaranteed 'risk-free' returns in the order of 5 - 9% (depending on your tax status).

Check out the stoozing board in the credit card section and see also https://www.stoozing.com

nrsql

No flaw in the idea.
You just have to gain more from the investment than the debt costs you - remembering to take into account charges and tax.

You also need to take into account the term of the debt as it may cause a forced exit from the market.

It's what a lot of people are doing when they invest/save in an ISA/pension rather than clearing debt (even if that debt is a mortgage).

The cost of the debt doesn't matter - just that it is covered by the investment.
It's the same concept as a business loan.

Bear in mind that you won't know everything that is affecting the market price so your investment will hold considerably more rsik than the debt.
Depends how brave you are and whether you are willing to risk the possible downside (bankruptcy).
Might want to look at CFD's instead.

dunstonh

Borrowing to invest is a mug's game when it goes wrong.

Investment trusts do it frequently. Many investors have investments and a mortgage and just look at the number of people doing mortgaged buy to lets.... hmmm, maybe that last example supports your case exactly

To be fair, in this case, you are spot on.

It is a very high risk strategy and only for the experienced investor. I'm not sure "fund_manager" has that experience based on that post.

nrsql

>> I'm not sure "fund_manager" has that experience based on that post.
Think a test would be that if you have to ask the question you're not ready for it.

EdInvestor

The risk is reduced if you can match the net dividend yield on a portfolio to a fixed interest loan ( such as a very long term mortgage), as dividend yields tend to fairly stable.You would thus not then be a such a hostage to the performance of the capital, except at the end.

But even so it's pretty risky. Remember endowment mortgages?If the whole thing is open ended, with no fixed date for repayment of the loan it's less risky as you don't get the "shortfall" problem.

fund_manager

But what is wrong with Risk?

Hedge Funds daily go bust over too much risk...

I suppose the question I was asking was, whether in principle this is ok, which it seems to be.

Then the decision to actually do it is very much your attitude to Risk.

I mean, if I had a 10k credit card limit, and put that in JP Morgan's India fund, I would have made 400 percent in one year! Equally, I might have lost 30 percent in another fund.

But the bottom line is, if you want to make a calculated risk, or worse, gamble - then do so, providing the fundmantals are there (ie, not doing something stupid) you can ride the rough with the small.

Especially since no investment or svaing is guranteed anywhere anyway.

prudryden

There is absolutely nothing wrong with using leverage to invest if it is suitable for your objectives and risk factors and sophisticated enough as an investor to undestand those factors. Based on your implied knowledge of the markets, I expect you knew that already.:)
Best of luck to you!!

DontDoDebtKids

My great grandfather used to say that if you are able to post the money you want to invest down a drain then you are ready to invest.

i.e. don't invest what you can't afford to lose

Leverage is an age-old method of increasing your returns but, as people have said, it comes with the downside that you stand to lose whatever you borrowed, which may be more than you can afford, and have to pay it back somehow else.

It's like mortgaging your house and going gambling. Not ideal but you could win tons. Downside is you lose your house...

Market_Oracle

fund_manager wrote:

Hi All,

Given that the More M&S Balance Transfer card is so cheap now (3.9 percent), and that transferring balances and loans is free (if you have an egg money card too) - has anyone thought about using that money to invest?

Either: Put into a managed fund, or even shares.

Corporations I know do this, in fact the US has been doing it for years, and China now does it on an unheard of scale; cheap loans to invest elsewhere with the hope of greater return that what you are paying out.

The goods thing about managed services is of course that the chance of losing all your money is VERY slim, and is even quite slim with shares, if you pick a stable company.

Obviously, you need something that is going to have 3.9 growth a month, which is a tough call, but gold over the last 12 has grown brilliantly (about 67 percent in some funds) - and this gives you capital to invest if you don't have it.

I really can't see much of a flaw in this idea - does anyone else have any thoughts?

A balance transfer for life would make it interesting, but 1 year is too short, too risky. Unless u have yet to fill ur cash isa allocation.

I carry a balance transfer for life debt with the halifax of about £9k also at 3.9%, the monies have been pooled within a portfolio fixed interest bonds, isa's , stocks & bonds etc... Average annual return on the total portfolio is currently 8.5%, which represents a 4.6% surplus on the borrowed cash interest payments, also the debt will devalue over the years due to inflation.

So it can be worth borrowing at a low rate for investment as part of a larger portfolio, whether it will work as your total portfolio comprising of borrowings, I don't know ! Since it carries a lot more risk !