| Personal Loan to buy stocks? |
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avesta
First Time Poster
Cash: $ 0.25
Posts: 1
Joined: 13 Feb 2015
Location: Miami, FL
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| Personal Loan to buy stocks? |
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Hello,
I'm a new member here and I wanted to share my thoughts with you and find out what you guys think.
I've been thinking of getting a personal loan for $25K, pay it over 48 months and buy stocks of one company that I truly believe in. It's not a huge company yet like google or apple but with a recent deals they have done I'm sure they are going to continue to grow steadily in the next 5-10 years.
I was thinking of buying their stocks and keep it for 5-10 years and sell it high.
I have about 60K in my bank account but my wife and I would like to invest that money into her business. I also run two business from home that I'm making around 150K a year profit. So I am in a position to pay $599 a month for 48 months to get the loan.
My wife has 7K in her CD and she suggested that we use that money to invest in stock and not get a loan. I'm more keen on investing 25K so the return would be greater in 5-10 years.
What are your thoughts? Do you think it's a good idea to invest with a personal loan?
What would you do if you were in my position?
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Fri Feb 13, 2015 3:48 pm |
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oldguy
Senior Member
Cash: $ 751.85
Posts: 3656
Joined: 21 May 2006
Location: arizona
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quote:
What are your thoughts? Do you think it's a good idea to invest with a personal loan?
I consider yours to be a 2-part question -
1. Borrow to invest. I do it, I've had good success at it for over 45 years. But there are some "don'ts". Don't use margin loans, if your stock goes against you, you must pay the 'margin calls'. Don't take loans that are tied to a balloon payoff. Such as a mortgage that has a balloon in 10 or 15 yrs. Or a zero credit card that has a jump-rate at 1 year. Or a variable rate note that can jump the payments. Always get a fully amortized loan that is fixed rate and longterm - ie, you know the size of the last payment as well as the first payment.
The reason is risk management - you want your source of money to be completely safe. That way your risk is confined to your investment. You don't want to be forced to hurry a sale to pay a loan, you want your buy/sells to be fully based on merit.
I use mostly mortgage loans on our houses - 30 yr, fixed rate, low cost. I've refi'd them multiple times.
2. Individual stocks. The generic US market return has a longterm average of 11%/yr, you can buy an unmanaged index and hold it forever. Ie, you carry the risk of the economic business of the US and much or the world. When you narrow your strategy to a single market sector, you superimpose that sector risk onto the generic market risk. And when you buy an individual company, you superimpose that companies risk onto the sector risk. The last two are "uncompensated risk" (the worst kind), ultimately (decades) their return is 11%/yr because those companies/sectors are selected from the same pool of 11%/yr stocks (altho you may hit 3 to 5 yr spikes/dips). As for penny stocks in small companies, that is simply a long-shot gamble, not an investment.
Put your $25k in an 11%/yr index and wait 20 yrs for the power of compounding to grow it to $200,000. Since it is unmanaged it will grow tax deferred.
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Fri Feb 13, 2015 6:03 pm |
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Vasu Dev
Member
Cash: $ 3.00
Posts: 14
Joined: 20 Dec 2017
Location: Ahmedabad
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Never take a personal loans for investing in stock market. it is very volatile market. so you can invest your money very safe and secure way. never become borrower to invest money in another platforms
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Sat Mar 03, 2018 8:01 pm |
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