What are your thoughts on borrowing money to invest?

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

  1. chloerampl

    chloerampl New Member

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    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.
     
  2. WXYZ

    WXYZ Well-Known Member

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    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.
     
  3. MrMike

    MrMike Member

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    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.
     
  4. anotherdevilsadvocate

    anotherdevilsadvocate Well-Known Member

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  5. MrMike

    MrMike Member

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    All good and valid reasons to not borrow and invest :p
     
  6. valueinvesting.io

    valueinvesting.io New Member

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    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.
     
  7. MrMike

    MrMike Member

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    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!
     
  8. valueinvesting.io

    valueinvesting.io New Member

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    I see your points. Just wondering what is the expected interest on your loan?
     
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  9. MrMike

    MrMike Member

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    It was 2.95%, then I did a readvanceable mortgage which increased the limit, and with that increase came lower interest of 2.65%.
     
  10. valueinvesting.io

    valueinvesting.io New Member

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    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.
     
  11. MrMike

    MrMike Member

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    well, that's why I'm documenting it in my videos - to show all the good and bad that will happen. In 10 years when my kids are older and investing, we can reference those videos since I probably wont remember haha until then, I'll be updating the progress every 3 months.
     
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  12. MrMike

    MrMike Member

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    I can find some drivers who crash their cars - doesn't mean I'll stop driving.

    All that means is what not to do and learn from their mistakes - not to avoid it all together. Many people buy properties and everything goes wrong, and then you have people who succeed. Even investing with your own money, some people do well and other might lose a lot - does that mean you shouldn't invest? I'll assume you don't think that if you're on this forum :)

    Likewise, borrowing to invest could go bad but it can go very well; Instead of saying "never borrow to invest", we could be focusing on HOW you can do it well (as well as what to avoid to minimize risk). Just like in investing itself!
     

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