Most sensible use of a loan to invest

Brie

If I had £10k interest free I'd put it against my mortgage to lower the interest charged monthly.  The compound affect of that would be better than a savings account and much less risky than investing.

Alexland

Albermarle said:

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 .

Yeah I think I'm done with that unless it's particularly quick and easy or uses existing logins etc. Around a year ago I decided that a £100 incentive was my minimum threshold for an account that needed to be run for a year but now it really would depend on the offer. If it was something that interested me then maybe just for the extra experience. Sometimes getting an incentive helps with the guilt of buying something expensive.

GeoffTF

steampowered said:

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? 

No, you cannot conclude that from my post. There are always lots of people leveraging up on the run up to the peak too. When that happens, you can see that there is a bubble, but you do not know when it will burst. If you get out early, you miss out on a profit. If you stay in too long, you get burned. The best you can do is stay invested, but invest more than you can afford to lose. That generally involves deleveraging from 100% equity, not leveraging up.

jimjames

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?).

No that's not correct, most of the return has already been repaid. There is only a very small amount left to be paid out.

k_man

jimjames said:

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?).

No that's not correct, most of the return has already been repaid. There is only a very small amount left to be paid out.

My mistake, I thought the funds were being repaid, but still frozen.

numbersrule

You may need to check the Ts&Cs of your CC Money Transfer for what it says are allowable uses for the money.
After making a marginal gain over a prolonged period you wouldn't want to fall foul to a punitive interest rate.
Also, it's probably not completely free money because there may be a 3% or 4% Money Transfer fee.

EthicsGradient

adindas said:

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.

This seems the right analysis, to me. I'd add as a question to the thread starter: after 24 months, do you intend to keep the money invested, or do you intend to cash it all in then, whatever its value? If the latter, you're taking a double chance - both that now is a good time to invest, and that 2 years from now will be a good time to cash in. That would be quite a risk, betting on the short term movements of the market. If, on the other hand, you intend to keep the investment for several years after that, it's just you reckoning you're more likely to do better now than gradually investing over the next 2 years. Which is less risky, and conforms to the "length of time invested is the important thing" school.

GSP

On a slightly different note about a scenario for taking out a £10k loan and involving investments or rather a pension itself.

Say someone was in drawdown and withdrew cash several times a year to live on. Now, say at the point the latest cash withdrawal was running out and it was time to think about the next withdrawal, and the markets and pension suffered a large fall.

To withdraw and when the pension is well down as we know has a bad effect. Has anyone ever taken out a loan to tide them by until the pension rises again somewhat?

Winebottle

I did it in with credit cards in 2014 and it work out well. I still do similar now. I recently added £40k to the mortgage to fill up our ISAs.

My considerations when thinking about debt are how much does it cost and how comfortably can I afford the repayments. If it's cheap and doesn't put you in financial stress, I don't think it is reckless.

I read some interesting work by academics about diversification across time. Most people have peanuts invested when they are in their 20s and have the most invested just before they retire. Ideally, you would want to do it the other way around by having more invested when you have time for the markets to bounce back. Borrowing to smooth it out a bit can actually reduce risk.

If you are in it for the long term, I think it's a mistake to worry too much about losses. In the context of providing a comfortable retirement for yourself, £10k is nothing. You can afford to lose it all and start again.

Of course you are going to have to work to pay the £10k back but those payments are investments in your future which is sensible. 

Thrugelmir

GeoffTF said:

steampowered said:

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? 

No, you cannot conclude that from my post. There are always lots of people leveraging up on the run up to the peak too. When that happens, you can see that there is a bubble, but you do not know when it will burst. If you get out early, you miss out on a profit. If you stay in too long, you get burned. The best you can do is stay invested, but invest more than you can afford to lose. That generally involves deleveraging from 100% equity, not leveraging up.

Until you liquidate out it's just a number on the screen. Hence the expression Cash is King.  Wanting a little bit more trips many an investor up.