Borrowing to invest.

redux

paramaniac1 wrote: »

If we were sitting here in 2010 and I was saying apple's a good company, you would be countering that consumer electronics are high risk and much better to put your money in the framlington pimlico emerging markets fund due to the lower risk asset allocation etc etc. Today my £10,000 would be worth £45,000 and your £10,000 would have probably increased by about £50! What was the risk? Apple going bankrupt? People not wanting the iphone anymore? What you suffer from is analysis paralysis. Step back and look at the bigger picture. Good, profitable companies go up in the long term. That is why I recommend not watching the financial news or websites because it will just cause you to doubt your original decision and begin meddling with your investments. There are loads of companies out there and new ones emerging all the time.Listen to the doom mongers and nay Sayers and so-called experts and you won't do anything.

This forum is about advice.

It's not a competition.

TakeCareOfThePennies_2

All this talk comparing mortgages to borrowing/leveraging for investment is laughable at best.

If you don't have the means to invest in the markets, then you should not be borrowing the money to do so. That's a fact and its foolish to suggest otherwise.

If you do have the means to invest, but are thinking of leveraging to increase your returns, then you'd better tread carefully, because leverage has been proven to be the downfall of many. That's a fact.

guymo

TakeCareOfThePennies wrote: »

All this talk comparing mortgages to borrowing/leveraging for investment is laughable at best.

If you don't have the means to invest in the markets, then you should not be borrowing the money to do so. That's a fact and its foolish to suggest otherwise.

So what do you think about someone who has a mortgage investing in an S&S ISA?

If you think it's ok, can you explain how "not paying off a debt" is different from "borrowing"?

This is a frustrating conversation because your advice is almost certainly the right advice for the vast majority of people but your insistence on framing it as fact rankles.

TakeCareOfThePennies_2

guymo wrote: »

So what do you think about someone who has a mortgage investing in an S&S ISA?

Simple.

If they are able to afford their repayments, cover key living expenses AND have a 6-12 month stash of cash to cover the re-payments and expenses should they loose their job, then yes, no problem at all with them investing.

If they are struggling with repayments or living expenses, or do not have sufficient emergency cash, then they should not be investing.

Again, it is laughable to compare borrowing to buy a house/flat with borrowing to put money on the markets. Just like its stupid to borrow money to buy lottery tickets or horse race betting tickets.

bowlhead99

paramaniac1 wrote: »

If we were sitting here in 2010 and I was saying apple's a good company, you would be countering that consumer electronics are high risk

Single companies are high risk, period. Consumer technology businesses are perhaps less resilient and recession-proof than other types of businesses which are not so cyclical. Neither of these statements mean you should avoid the sector entirely, particularly if the market is priced for recession while you believe the government stimulus will help improve global markets and fend off high unemployment and people worldwide will love this particular trendy technology business.

and much better to put your money in the framlington pimlico emerging markets fund due to the lower risk asset allocation etc etc. Today my £10,000 would be worth £45,000 and your £10,000 would have probably increased by about £50!

. Well done. With your high risk have come high rewards. And certainly, cherry picking a great timescale for Apple and a relatively stagnant period for broad emerging markets has served you well as you seek to give us evidence that you are able to identify the companies which will go up 350% in the *next* five years.

Emerging markets are hardly a low risk sector. But yes, funds are lower risk than single company shares. Five years ago in April 2010, Templeton Emerging Markets investment trust had just delivered 140% growth over the previous thirteen months to that point, albeit following a significant loss over the course of 2008. I don't think anyone here would have put a fund in that sector as being something for one's lower risk asset allocation. The fact that that sector was beaten by a single US consumer tech firm over a short period should not surprise. It is not a sector known for predictable results

While global emerging markets were flattish, other funds in different sectors would have made you more money. For example, Axa Framlington Biotech has done 312% in the last five years and the Biotech Growth Trust would have turned your £10,000 into £46,000 with its 360% return. Of course, like Apple, they are high risk investments.

What was the risk? Apple going bankrupt? People not wanting the iphone anymore?

. There are loads of risks when investing in individual stocks, though I don't have to list them all for you as you are obviously a seasoned investor. People not wanting an iPhone, or iPod or iPad or MacBook, to the level that analysts had predicted, is certainly an example of a risk. Apple did not have to go bankrupt to cease being worth as much as the two hundred billion dollars that you were looking to pay for it back in 2010.

What you suffer from is analysis paralysis. Step back and look at the bigger picture. Good, profitable companies go up in the long term.

I think you read the buzz words "analysis paralysis" somewhere and were eager to use them, but I don't think any of my posts here imply I am so focused on analysing things that I never get around to making good investments. If you want to jump in and buy Apple and four other stocks because they are good companies that will definitely go up because you thought they would go up before and they did... feel free to go right ahead.

Apple alone makes up 1-2% of the world's trillions and trillions of dollars of investible market capitalisation. So if you simply hold a world index, you'll have up to 2% of your money invested in Apple's fortunes which is more than enough for anyone that doesn't know more than the market already knows about Apple.

For me, that's still too much money in Apple, so I don't invest all my assets in line with global market cap.We all have our different approaches.

The purpose of this thread was to give some practical perspective to a person who was considering borrowing to fund an £11k pension investment. Hopefully part of my post up the thread at least partly achieved that. The suggestion in yours that "good companies make money so just pick these five good companies and be done with it, and don't check up on them in case you suffer from analysis paralysis" is terrible advice for the OP's pension, but I suppose its value to the thread is when people call you out on it and help guide the OP towards understanding why your advice is terrible, so that he and other readers don't make mistakes they might have otherwise made.

Zippeh

I dont agree with the premise of paying down all debt before investing. What about paying into a pension when you start working? Do you advocate not bothering with any kind of pension until you pay back mortgage?

racing_blue

TakeCareOfThePennies wrote: »

All this talk comparing mortgages to borrowing/leveraging for investment is laughable at best.

That's exactly what I'm doing though.

Residential mortgages are a very special sort of debt. They are secured against an asset which is guaranteed to give you an income, in the form of imputed rent- the rent you would have paid to live in that house, had you not bought it. So that's OK.

Houses can change value by hundreds of thousands of pounds during your tenure. If the change is in your favour, it is not subject to any sort of tax. But if the change goes against you, there are no margin calls, you do not have to sell... just keep making the interest payments on that mortgage. So that's OK too.

Currently you can fix a mortgage against your house at 1.99% for five years with HSBC, or 2.89% for 10 years with Halifax, for example. If you choose to invest rather than repay, and your investments can return at least 10% over 5 years, or 30% over 10 years, then you will be wealthier. So that's good.

I accept your point that leverage has been the downfall of many. But in this scenario, the potential downfall is that your investments return less that 10% over 5 years or less than 30% over ten years. Which, of course, could happen- as in the graphs on the first page. But as long as you have a plan for managing that outcome... maybe working a few years longer, or moving to a smaller house... why not roll the dice?