What are your thoughts on borrowing money to invest?

Discussion in 'Investing' started by MrMike, Feb 9, 2021.

  1. MrMike

    MrMike Member

    Joined:
    Feb 9, 2021
    Messages:
    55
    Likes Received:
    20
    Strong words :) Can you provide more details? Why do you say it's "completely unjustified"? What happen? Who hurt you?
     
  2. Heena khan

    Heena khan Member

    Joined:
    Apr 23, 2020
    Messages:
    53
    Likes Received:
    7
    You might think that borrowing money is good for investing, but it isn't going to end well trust me. You need to trade with your own money to do trading with clear mind.
     
  3. MrMike

    MrMike Member

    Joined:
    Feb 9, 2021
    Messages:
    55
    Likes Received:
    20
    I'd very much like to hear your experience. What made you believe that?
     
  4. sashatrew

    sashatrew New Member

    Joined:
    Aug 3, 2021
    Messages:
    4
    Likes Received:
    1
    I don't think it's the best idea. But even sometimes it works. Everything starts from your investment idea, then from the investment field plus the knowledge you have in this field. Because if you have a very well structured plan that you know will bring you success, Well you can risk and borrow money, otherwise I do not recommend such a thing. Important is how the investment will take place, for example, I have struggled a lot to find stocks to invest in. I, as a person, have barely gained confidence in a field, so I would not borrow money for investments.
     
    #84 sashatrew, Aug 25, 2021
    Last edited by a moderator: Aug 25, 2021
    Onepoint272 likes this.
  5. MrMike

    MrMike Member

    Joined:
    Feb 9, 2021
    Messages:
    55
    Likes Received:
    20
    Disclaimer: I am but one investment style and there's plenty out there so I'm speaking from my own personal experience. Also, you may have meant something different from that sentence - if so, I apologize.

    Response
    With that out of the way, I don't think you have the right investing approach for yourself. I understand its hard to find a startup company that you can buy low and watch it sky rocket... so I don't do that. I'm also not getting RICH off the stock market. I'm making money, just not as much as others - I also make a modest amount from my job while others in the same field make a LOT more. I can only do what I can. So for those of us who are regular people with a modest amount of knowledge about investing, there are good stocks/companies EVERYWHERE!

    Where do you buy clothes? Food? Where do you get your internet from? cable? cell? Do you heat your home? Who do you bank with?
    In order of above: Nike, Walmart, McDonalds, Bell, Rogers, Enbridge, TD

    But the list goes on: Royal Bank, Bank of Montreal, Nova Scotia, CIBC, Apple, Manulife, RioCan, Telus, Canada Utilities... any other blue chip company. There are a TON of great companies the general public knows about. Every single one of those has made me money (dividends and capital appreciation). Again, I'm sure others can make more money investing in other ways but this is what works for me. I'm happy to use my own money or leverage - those companies are as safe as you can get in the stock market. I'm also not saying go all in with McDonalds - spread your money around.

    ETFs - and if buying individual companies are not your thing, there are ETFs with these stocks. Some are specific, like ZEB for all 5 Canadian banks, and some are a big basket of them all like XEQT.

    Main Point: There are lots of safer stocks/funds to put your money, your own or borrowed.
     
  6. MrMike

    MrMike Member

    Joined:
    Feb 9, 2021
    Messages:
    55
    Likes Received:
    20
    I've only used margin with Questrade and it was instant. I did it for 1 month to test out and saw that the interest was 6%!!! That made me start the process of changing my HELOC from a standard one to a readvancable mortgage (where the HELOC and mortgage are together into a single HELOC). Once that was done, I quickly used the HELOC (2.65%) to pay Questrade (6%) back.
     
  7. Heena khan

    Heena khan Member

    Joined:
    Apr 23, 2020
    Messages:
    53
    Likes Received:
    7
    Borrowing money to trade could never end well, as you need to pay both of them and you should also cover your losses so, dont trade with borrowed money.
     
  8. MrMike

    MrMike Member

    Joined:
    Feb 9, 2021
    Messages:
    55
    Likes Received:
    20
    never end well... how very absolute :) I must say, it's going great for me but sure, it hasn't been very long - 1 year. If you stick with blue-chip companies, the risk of losing money is very low. I'm not sure what you mean by "pay both of them".
     
  9. Heena khan

    Heena khan Member

    Joined:
    Apr 23, 2020
    Messages:
    53
    Likes Received:
    7
    Yes, it is never going to end well as trading through other's money makes you careless and you tend to lose more.
     
  10. chloerampl

    chloerampl New Member

    Joined:
    Aug 17, 2021
    Messages:
    2
    Likes Received:
    0
    I don't think it's the best idea. But even sometimes it works. Everything starts from your investment idea, then from the investment field plus the knowledge you have in this field. Because if you have a very well structured plan that you know will bring success, Well you can risk and borrow money, otherwise I do not recommend such a thing. Important is how the investment will take place, for example, I have struggled a lot to find stocks to invest in. I, as a person, have barely gained confidence in a field, so I would not borrow money for investments.
     
  11. WXYZ

    WXYZ Well-Known Member

    Joined:
    Oct 2, 2018
    Messages:
    4,254
    Likes Received:
    1,829
    YES....there "may" be exceptions....but....EVERYONE is an investing genius with a plan that works....when their investing history is just over one year long in the greatest BULL MARKET in history. Some of us are old enough to have heard these arguments for 40-50 years now and KNOW how it usually........ "PROBABLY", I am using that word as in "PROBABILITY"...... turns out.
     
  12. MrMike

    MrMike Member

    Joined:
    Feb 9, 2021
    Messages:
    55
    Likes Received:
    20
    So you have seen things end badly - can you provide more details? If you don't mind, I'm very interested.

    I understand what you're saying but it does sounds funny. "EVERYONE is an investing genius with a plan that works." Yes, that's exactly what makes it good, the fact it works. People don't normally boost about plans that don't work.

    From what has happened in the past, our stock market has always recovered. That said, you can't lose in the stock market. Obviously that's generally speaking since some companies come and go, or lose value and stay down. But a diverse portfolio of blue-chip companies have gone straight up, you can't lose. Now there are strategies to make MORE money but I feel if you don't mind modest returns, that's almost guaranteed if you do things right. And by "right" I mean diverse and not trying to get rich quick, among other things.
     
  13. anotherdevilsadvocate

    anotherdevilsadvocate Well-Known Member

    Joined:
    Apr 3, 2016
    Messages:
    3,516
    Likes Received:
    2,766
  14. Heena khan

    Heena khan Member

    Joined:
    Apr 23, 2020
    Messages:
    53
    Likes Received:
    7
    Borrowing money and investing always end up in total chaos. So never do it.
     
  15. MrMike

    MrMike Member

    Joined:
    Feb 9, 2021
    Messages:
    55
    Likes Received:
    20
    All good and valid reasons to not borrow and invest :p
     
  16. valueinvesting.io

    valueinvesting.io New Member

    Joined:
    Apr 27, 2021
    Messages:
    9
    Likes Received:
    3
    I would highly advise against it. You may gain/lose money when investing but when you take out a debt, you need to pay back every month no matter what.
     
  17. MrMike

    MrMike Member

    Joined:
    Feb 9, 2021
    Messages:
    55
    Likes Received:
    20
    Great, points I can work with :)

    "You may gain/lose money when investing"
    It's true and many people panic sell - that's how crashes happen. But when COVID hit and prices crashed, if you didn't sell then you didn't lose money - only the value of your assets went down but you didn't lose money. If the past is anything to go by, we have ALWAYS recovered from crashes so just hold on, don't panic sell and you wont lose money - generally, it obviously depends on what you buy.

    and to that point - I don't buy highly volatile stocks. Mostly stick with blue-chip companies. They don't swing as much as some other growth stocks like Tesla or bitcoin. I agree, if borrow money to buy bitcoin and it falls and stays down for awhile, it would SUCK to pay interest on an asset that's down. But if you own TD and if falls, that's no problem - it will come back up.

    Stick with safer stocks and diversify and you wont lose money... you wont get rich quick! but you will make modest return. Obviously no one can see the future but chances are, the past will repeat.

    To your other point "you need to pay back every month". To clarify, you need to pay the interest every month - not the balance of loan... well, I guess it depends on the type of loan. I have a HELOC (home equity line of credit) and I only need to pay the interest.

    I use my active pay to pay the interest but if ever I needed help, the dividends I receive are more than double what I pay in interest each month. And during the COVID crash, only 2 of my stocks cut dividends. This will be different for everyone depending on what you buy, but as long as you diversify, you're dividends are coming in each month regardless of a price drop - and that's the main point. Even when it crashed in March 2020, I was still collecting dividends - that's why I don't care about the value short term. They will recover and in the mean time, the dividends keep coming in and I can either reinvest them or use them to pay the interest (and reinvest the rest).

    What do you think about those 2 points? I feel like your 2 points are not reason to not borrow to invest - but again, it really depends on what you buy. I too would tell people NOT to borrow and invest in bitcoin or amazon or telsa. But for blue-chip companies (and not just 1, spread it out) then it's great!
     
  18. valueinvesting.io

    valueinvesting.io New Member

    Joined:
    Apr 27, 2021
    Messages:
    9
    Likes Received:
    3
    I see your points. Just wondering what is the expected interest on your loan?
     
    MrMike likes this.
  19. MrMike

    MrMike Member

    Joined:
    Feb 9, 2021
    Messages:
    55
    Likes Received:
    20
    It was 2.95%, then I did a readvanceable mortgage which increased the limit, and with that increase came lower interest of 2.65%.
     
  20. valueinvesting.io

    valueinvesting.io New Member

    Joined:
    Apr 27, 2021
    Messages:
    9
    Likes Received:
    3
    To be honest with interest that low and you only invest in blue-chip stocks which usually have 7-8% return, I can see it makes sense to some extent.
     

Share This Page