Taking out a loan to invest in stocks [not leveraged]

EdGasketTheSecond

In the US it used to be (and maybe still is) a regular thing to let punters buy stock on margin, using the value of the stock as collateral against the effective loan they were getting. I'm not saying it's a great idea as investing becomes more like gambling which is what the OP's suggestion sounds like.

Here's an example: You could have taken a 20K loan at 3% and invested in RDSB shares at £20 as you would be getting an 8% dividend and think yourself pretty clever. Well you know what, RDSB is now only worth £10 so you'd instead have lost £10K.

Albermarle

I am not recommending it but the OP could borrow £10K for a one off investment and then drip feed the rest each month .
It would satisfy his conviction that it is a good time to invest , whilst reducing the risk .

Alexland

It all depends on circumstances. We have a modest mortgage for the next 20 years and also invest in S&S. Would it matter if the mortgage was less repaid so £20k higher and we had instead put the money in S&S? Probably not over the long term. Would I borrow an additional £20k to put into S&S pushing my leverage up a small percent? Probably not but it's the same financial position either way.

If I was doing it then I would rather use a mortgage than a personal loan as the interest rate would be better, the monthly commitment would be lower and if it went wrong then I'd have the option of extending the term to get the monthly payments back down to current level.

steampowered

I don't understand why people think it is "nuts" to borrow to make an investment. That is exactly what people are doing when they take out buy-to-let mortgages.

If you can borrow at cheap rates, borrowing and investing makes perfect sense. It makes even more sense if that approach enables you to make the most of tax incentives, such as tax relief on pensions and stocks & shares ISA allowances, which would otherwise be unavailable.

Most people are better off borrowing through a mortgage rather than taking on a personal loan. Mortgages tend to have the lowest rates and are longer term. 

vacheron

steampowered said:

I don't understand why people think it is "nuts" to borrow to make an investment. That is exactly what people are doing when they take out buy-to-let mortgages.

If you can borrow at cheap rates, borrowing and investing makes perfect sense. It makes even more sense if that approach enables you to make the most of tax incentives, such as tax relief on pensions and stocks & shares ISA allowances, which would otherwise be unavailable.

Most people are better off borrowing through a mortgage rather than taking on a personal loan. Mortgages tend to have the lowest rates and are longer term. 

I've moved some funds from my offset mortgage to my dealing accounts so that I am poised to buy when I feel the time is right, so I am effectively "borrowing" from myself.

The difference however is that I have 15 years to repay this money and there is no monthly minimum payment demanded each month and I can overpay it back at will. Plus, the recent rate cuts means that the mortgage interest will be 0.5% lower in a fortnight too.



  

MaxiRobriguez

Borrowing to invest isn't nuts if it's well calculated.
Security of employment and/or enough savings to live off for a lengthy period, low interest rates, panic selling, mental ability to hold onto the assets through volatile periods and an understanding that there's no guarantees to success... are all a good combination when considering leveraged investing.
I'm not yet convinced the OP is in that boat though. 

Ciprico

Are equities genuinely cheap now, or are they priced at exactly the correct price for today's conditions and outlook...?
Will the world go back to how it was before...?
Will more people continue to work from home ? with they travel less ?  eat less ? spend more time with family ?
Will "we"  choose to not be so dependant on China/Far East, maybe we will contemplate producing more food and "stuff" locally...
I can't help thinking that there is a significant overlap in where we are "now", and where we need to be in the future in terms of using fewer resources to save the planet.
I think things will permanently remain changed. (not to mention the enforced changes Brexit will cause....) 
Hopefully, ultimately, we will find ourselves in a better, cleaner, kinder, more sustainable place...
Apologies if I sound like an old hippy!

Thrugelmir

steampowered said:

I don't understand why people think it is "nuts" to borrow to make an investment. That is exactly what people are doing when they take out buy-to-let mortgages.

If you can borrow at cheap rates, borrowing and investing makes perfect sense. It makes even more sense if that approach enables you to make the most of tax incentives, such as tax relief on pensions and stocks & shares ISA allowances, which would otherwise be unavailable.

Most people are better off borrowing through a mortgage rather than taking on a personal loan. Mortgages tend to have the lowest rates and are longer term. 

There's no tax relief available on the interest when investing unlike BTL.  Of course gains on BTL are subject to CGT which diminishes their appeal. 

MaxiRobriguez

123mat123 said:

Are equities genuinely cheap now, or are they priced at exactly the correct price for today's conditions and outlook...?
Will the world go back to how it was before...?
Will more people continue to work from home ? with they travel less ?  eat less ? spend more time with family ?
Will "we"  choose to not be so dependant on China/Far East, maybe we will contemplate producing more food and "stuff" locally...
I can't help thinking that there is a significant overlap in where we are "now", and where we need to be in the future in terms of using fewer resources to save the planet.
I think things will permanently remain changed. (not to mention the enforced changes Brexit will cause....) 
Hopefully, ultimately, we will find ourselves in a better, cleaner, kinder, more sustainable place...
Apologies if I sound like an old hippy!

That relies on people changing, which is notoriously difficult to do.
Currently I expect people to return to their old ways when this is over, but the more severe this is the more chance for people to change. 

25_Years_On

The people who lost it all in 1929 were those who had borrowed to invest (I think).