Using loans for stocks, mutual funds

[TeddyParticipant 70]

How do you guys feel about taking out a 20k loan to put into an investment account (bonds, funds, stocks). Obviously, the person would pay the accumulated interest and the principal while the investment account is earning returns.

[Cipher HighwindParticipant 1144]

That sounds like a recipe for disaster.

[RebaneParticipant 215]

I’m afraid all those assets are currently in a bubble and serious price correction or even a crash is near.

[Blue SkiesParticipant 15665]

now is not a good time, a major correction in the stock market is coming within the next 12 months..

MGTOW is not a movement, it is a way of life.

[Biggvs_DickvsParticipant 3725]

Teddy wrote:

How do you guys feel about taking out a 20k loan to put into an investment account

Teddy – don’t take this the wrong way, but do you know how I know you’ve never taken economics? 🙂

If for no other reason than the fact that such a loan would undoubtedly have all the interest “front loaded” on it, so that unless you were planning to hold on to the investments for the entire life of the loan, the returns (assuming there are any) wouldn’t even cover the interest payments for years.

Ask yourself this: Since the bank is in business to make money, if this was such a great idea, why wouldn’t the owners of the bank, who again want to make as much money as they can, why wouldn’t they take the money they’re going to loan you and do exactly the same thing?

Yes, theoretically you could make some money if the market skyrocketed right after you invested, but the potential gains don’t begin to cover the risk premium.

The same reason it’s a bad idea to gamble on credit.

Plus, if the Fed goes through with their interest rate hike (and they might), bonds will start to take a hit, because any new bonds issued will have to be discounted to compensate for the increased market rate.

That also means any consumer credit with non-fixed interest will go up, meaning Suzie has to pay a higher monthly payment on her card and has less left over to spend on hummel figures, cat food, and other consumer goods. Sales go down across the board, this drags down stock prices, and dividends(if your stocks even pay them), but you’re left with $20,000 in debt no matter what, PLUS INTEREST.

Just my opinion, but I think you’d honestly be better off borrowing the money and then betting it all on red in Vegas. At least you wouldn’t have years of agonizing and wondering if it’s going to pay off – and what is your peace of mind worth?

Just out of curiousity, what interest rate and terms would the loan be?

"Data, I would be delighted to offer any advice I can on understanding women. When I have some, I'll let you know." --Captain Picard,

[TeddyParticipant 70]

I have taken an Econ course. Im a junior accountant you dick. One of my peers took out a loan to invest in a mutual fund.

[Biggvs_DickvsParticipant 3725]

Teddy wrote:

I have taken an Econ course. Im a junior accountant you dick. One of my peers took out a loan to invest in a mutual fund.

No need to name call, we’re just trying to help. If that help isn’t appreciated, then best of luck to you.,

"Data, I would be delighted to offer any advice I can on understanding women. When I have some, I'll let you know." --Captain Picard,

[TeddyParticipant 70]

I do appreciate your feedback, I was only joshing around.

[BeerParticipant 11832]

Biggvs_Dickvs wrote:

No need to name call, we’re just trying to help. If that help isn’t appreciated, then best of luck to you.,

Did Dickvs just complain about being called a dick. Interesting lol.

I’d agree with the others though. I’ve always been told never invest what you can’t afford to lose, so I sure as hell wouldn’t want to be gambling with money I don’t even have yet.

[Biggvs_DickvsParticipant 3725]

Cool – hard to tell in text-only land 🙂

I honestly think the risk is too high, IMHO. Also, consider that the P/E ratio for the market in general is pretty high right now:

Which means that the chance that the money you put in now will not have paid off by the time the loan is due is pretty high.

"Data, I would be delighted to offer any advice I can on understanding women. When I have some, I'll let you know." --Captain Picard,

[Biggvs_DickvsParticipant 3725]

Beer wrote:

Did Dickvs just complain about being called a dick. Interesting lol.

It was *how* I was called a dick. I misinterpreted tone. Dick away… 😛

"Data, I would be delighted to offer any advice I can on understanding women. When I have some, I'll let you know." --Captain Picard,

[Jan SobieskiParticipant 28791]

I get nervous hearing you even talking about it.

Love is just alimony waiting to happen. Visit mgtow.com.

[Biggvs_DickvsParticipant 3725]

I’m not a financial expert by any means, but I think the formula for something like this would be Expected return on Investmen (eR) > Risk Premium(rP) + Loan interest(I) + discount present value of principle (dP)

If rP + I + dP are not greater than eR, then it’s probably a bad move. Depending on the fund, it would have to have a pretty high historic rate of return to make it worthwhile. And we all know that still doesn’t guarantee future results….

My $.02

PS: IT also depends on to total price of the loan as well. If somehow your bank was giving you a zero interest loan, then you would be foolish NOT to take the money and invest it. However if the effective rate is like 4-5%, you’d have to get a pretty solid return to cover the risk premium.

"Data, I would be delighted to offer any advice I can on understanding women. When I have some, I'll let you know." --Captain Picard,

[bigboy83Participant 11312]

Sounds like 1929, all over again.

“Sooner or later, a crash is coming, and it maybe terrific.”

-Roger Babson
September 5, 1929

Shit Tested, Cunt Approved.

[TheroniusParticipant 975]

Well, I could go either way on this, but just offhand I would say F~~~ NO!

"I am is reportedly the shortest sentence in the English language. Could it be that I do is the longest sentence?" - George Carlin

[TheroniusParticipant 975]

Especially to buy mutual funds. The return on them is low because of the fees and salaries you pay anyway. Add in interest and, in this environment, you would probably just lose money over time compared to, say, stuffing it in your mattress. That’s not even counting inflation.

"I am is reportedly the shortest sentence in the English language. Could it be that I do is the longest sentence?" - George Carlin

[Biggvs_DickvsParticipant 3725]

Our P/E ratio is actually higher than it was in 1929 before the big crash when it was 17.76. Currently it’s at 21.1 for 2010 on the S&P 500, which gives a much broader picture than say the Dow Jones.

So that means that you have to put in $21.10 to earn $1 in revenue on average across most of the stock market. That translates to about 4.7% interest in general. Still better than a bank, but if you’re getting a loan for that money and you’re paying more than maybe 1% interest total (fees etc included) then I would seriously doubt it’s worth the risk.

Just my Opinion.

For perspective, here’s what one of the “experts” had to say about stock prices just about a week before Black Friday:

“Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as (bears) have predicted. I expect to see the stock market a good deal higher within a few months.”
– Irving Fisher, Ph.D. in economics, Oct. 17, 1929

"Data, I would be delighted to offer any advice I can on understanding women. When I have some, I'll let you know." --Captain Picard,

[Crazy CanuckMember 4215]

An accountant isn’t an investment expert. You wouldn’t ask a nurse to perform surgery.
I agree with others users never use loans for investment. Besides with mutal funds you’re in the mercy of the fund manger. How about doing the old fashion way, work extra hours and save money to invest.

"If pussy was a stock it would be plummeting right now because you've flooded the market with it. You're giving it away too easy." - Dave Chapelle

[Big BossParticipant 4496]

Teddy wrote:

I have taken an Econ course. Im a junior accountant you dick. One of my peers took out a loan to invest in a mutual fund.

My recommendation is don’t do it. You don’t have enough experience with market investments to do it. Just because your peers does it, doesn’t mean you should. You need to know how to handle investments before you put yourself in debt and possibly loose it. Simply save some cash. It isn’t that hard.

[Anonymous 6]

The high yield bond market(AAA) is cratering right now, what is left is the junk that they can only get cents or 1/4 on the dollar. Its a matter of time that the BBB will be hit soon. Stay away, your best investment is real estate that you can rent out & start making your money back or use to pay off the loan to eventually own the property and make profit. We have 2-3 days that interest rates may increase things could get interesting within the next few weeks.

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