Most sensible use of a loan to invest

socratez

Hi all,

Please hear me out here. I know one of the rules of investing is to not borrow money to invest.

I have the opportunity for an interest free 10k loan via a c/card. I am planning to use this "cash" to buy 10k of investments. The idea being that I keep the increase or ROI and pay back the capital amount.

This will be stable, safer funds, not crypto or high risk shares (not any single shares actually).

I know funds can go down as well as up, and some like the Neil Woodford fund can leave you with 0% of your capital investment.

However I can afford to lose this money if it goes wrong. I have no loans apart from my mortgage, and no dependents who could be left without food. I have double the loan amount in cash, bonds and funds, so could afford to pay the loan if I lost all the capital. I plan to pay the loan off monthly over 24 months, and my gross annual salary is circa 5x the loan amount.

Now to me this seems pretty low risk, albeit there is still a risk. Have I missed something, is there anything I have forgotten to consider?

What are other peoples views on this?

Voyager2002

Investments, even safe ones, can go down as well as up.The rule of thumb is that investments should be held for at least five years (so that the ups are very likely to be greater than the downs): if your loan is for less than this then you run a significant risk of loss.

MalMonroe

If you look under the 'loans' section of the forum (where I believe your post belongs, rather than in Savings and Investments), you will see this advice -

"Loans. Discuss all types of personal loan. Remember MSE's stance on loans: 'borrow as little as possible, repay as quickly as possible'."

That is also my view - especially as you say, "I can afford to lose this money if it goes wrong. I have no loans apart from my mortgage, and no dependents who could be left without food. I have double the loan amount in cash, bonds and funds, so could afford to pay the loan if I lost all the capital. I plan to pay the loan off monthly over 24 months, and my gross annual salary is circa 5x the loan amount."

Why bother? It really doesn't make sense to me, just gambling for the sake of it when you actually have the money but could lose it and would be happy to do so.

Why not just take some of the money you already have and donate it to a deserving charity instead?

socratez

MalMonroe said:

If you look under the 'loans' section of the forum (where I believe your post belongs, rather than in Savings and Investments), you will see this advice -

"Loans. Discuss all types of personal loan. Remember MSE's stance on loans: 'borrow as little as possible, repay as quickly as possible'."

That is also my view - especially as you say, "I can afford to lose this money if it goes wrong. I have no loans apart from my mortgage, and no dependents who could be left without food. I have double the loan amount in cash, bonds and funds, so could afford to pay the loan if I lost all the capital. I plan to pay the loan off monthly over 24 months, and my gross annual salary is circa 5x the loan amount."

Why bother? It really doesn't make sense to me, just gambling for the sake of it when you actually have the money but could lose it and would be happy to do so.

Why not just take some of the money you already have and donate it to a deserving charity instead?

Thanks for your input. I think I may have come across incorrectly regarding my finances, I simply wanted to lay out my financial situation so people do not think I am risking my kids college funds (so to speak).

I would call it investing and not gambling, and although it will not cause significant disruption to my financial situation, why should I not try to make more money where I think it is possible.

Regarding charity I already regularly give to my local hospice, who helped my uncle when he was diagnosed with his terminal disease, and support my mother with her terminal disease.

cymruchris

If there are no fees involved - then you could put it all in premium bonds. You'd not risk your capital, and along the way you'd likely get some £25/£50 prizes if you're lucky - and who knows maybe even one of the big ones?

GeoffTF

There are always lots of posts about leveraging up just before the market crashes, but few, if any, down at the bottom.

george4064

Most sensible way to make a return from a interest free credit card is to earn interest from it in a savings account, up to you whether you want easy access, notice or a fixed term account.

Daliah

You are talking about stoozing, a popular pasttime of many when interest - and fee free many was still easily available from credit cards. Many had tens of thousands at their disposition, and there was even a dedicated website for it.  Interest rates were much higher then, too. I don’t think any Stoozer ever invested their money, they all used savings accounts or offset mortgage accounts. Investing the borrowed money would be way, way beyond my acceptable risk level, and I would only ever recommend to use 100% safe accounts for it. 

jimjames

socratez said:

I know funds can go down as well as up, and some like the Neil Woodford fund can leave you with 0% of your capital investment.

For clarity, although investments can drop to zero even with Woodford the return was around 50%. It certainly hasn't been 0%.

steampowered

It makes complete financial sense to borrow at 0% in order to invest. 

I've been bouncing around about £30-40k between 0% credit cards and balance transfers for several years now - and getting a good return on the invested money in the meantime.

Obviously there is some risk involved, as you need to be prepared to pay off the credit card in the event that a balance transfer is not available at the end of the 0% period. You don't want to be stuck paying credit card interest at 20-30% APR. That may or may not be an opportune time to sell your investments.

steampowered

GeoffTF said:

There are always lots of posts about leveraging up just before the market crashes, but few, if any, down at the bottom.

The underlying assumption of your post is that you think we are just before a crash. Interesting that you think you can predict the markets. Might I suggest an alternative career as a trader?