Most sensible use of a loan to invest

jaypers

I hear what you say but from a financial sense point of view, your plan is a bad and I’ll advised move. You should only ever invest capital that you don’t immediately need, and never ever invest against any form of debt. Investments should also be for medium to long term. 

Nebulous2

Daliah said:

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. 

I came to stoozing fairly late, after most of the big gains were past. (About October 2018 from memory.)  I borrowed over £30k in a few days just to see if I could, and was surprised at how easy it was. Of that £30k I had over £10k in peer-to-peer, mainly Zopa. I certainly wasn't alone in that. I also remember seeing others talk of investing their stoozed cash, but the general consensus was that was too reckless. 

k6chris

Over the next year or so the stock market will go up and down, as will what you invest in.  The longer you can leave the investment, historically the more chance of it finishing up.  If your interest free loan has a fixed end date, then you are gambling that it will be up at that time.  The shorter the timescale, the more of a gamble it is.  Only you know how much risk you want to take.  Personally, I like the PB idea, as no risk to capital and some upside.  That's just me.

Albermarle

This will be stable, safer funds, not crypto or high risk shares

As we all know there is no such thing as a 100% safe investment. However you could mitigate potential losses to some extent by picking something like a wealth preservation fund . However if the market was to go up, the returns from such funds tend to lag the market a lot . That's the dilemma. The more you look towards safer funds , the less return you can potentially get , so making the exercise not really worthwhile.

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?

When looking at PB's you have to discount the possibility of winning anything above £50 . Of course somebody must be winning the bigger prizes, but the odds are so stacked against you, especially with only £10K, that you should not even dream about it .

k_man

jimjames said:

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%.

Assuming the fund ever starts to be tradable (word?).

Thrugelmir

You'd probably achieve a better return by investing the monthly loan repayments into your pension scheme. 

Alexland

steampowered said:

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.

I used to 'maintain' a stooze pot of around £20k by juggling 3-4 cards never paying any costs keeping under 50% credit utilisation and then make some return from various top cash savings accounts but with lower interest rates and it becoming a less significant proportion of our net worth then it started failing my 'materiality test' so I am down to just a couple of cards around £8k winding down on minimum payments and will probably just repay them when they are due rather than further balance transferring them to the next 0% card.

I'm starting to enjoy having less apps, websites, letters and logins to keep track of it's all just clutter when these days our S&S investments can move by the price of a car in a day. No longer worth the hassle but I guess it's ok if you have time on your hands and want to spend a few years playing that game but I wouldn't suggest people invest in markets just stick to cash products for which interest rates are starting to become more attractive.

Our S&S ISAs are invested in a leveraged investment trust for which their circa 10% borrowing is similar to that which I could borrow on cards thus giving the advantage of stoozing (although the trust pays the lender a low rate of interest on a fixed long term rate) on the stock market without carrying the personal short term debt risk.

ColdIron

k_man said:

jimjames said:

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%.

Assuming the fund ever starts to be tradable (word?).

They will never become tradeable again. Woodford Income Focus was sold on. Investors in Woodford Equity Income have had some of their capital returned and have been for some years. In both cases the funds have never been, and will never be, 0%

adindas

socratez said:

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?

The safest way of doing that is what is so called "stoozing" by put all of them into product such as high interest saving account. But with the current interest, it is not worthy considering the work involved, let alone with just relative small amount of 10k. It should be the credit card with  zero interest, zero BT/MT fee (or near zero fee),

"I have double the loan amount in cash, bonds and funds, so could afford to pay the loan if I lost all the capital. My gross annual salary is circa 5x the loan amount."
I could easily see here is that, it is almost the same thing with a stoozing, although you do it with a different way. It will have the same impact with this:

- You are taking out 10k of your saving account to invest

- Top up back your saving account to original amount using the money from CC.

- So by the end of the day the money you invest is your own money not the money from the CC.

As long as you maintain the money in saving account (not less than the value of money borrowed from CC) It will have the same impact with doing stoozing, as you clearly highlighted it is the money you could effort to lose and you have saving to cover that when something went wrong.

If you have a higher risk attitude, you could actually do that with leverage investing.

Albermarle

I'm starting to enjoy having less apps, websites, letters and logins to keep track of it's all just clutter when these days our S&S investments can move by the price of a car in a day. No longer worth the hassle but I guess it's ok if you have time on your hands and want to spend a few years playing that game

Does that include not chasing around after £50 cashbacks for opening new accounts and then closing them again 12 months later  etc. ?As I have got older ( and I suppose  better off) I can't be bothered with all the hassle .