Your Thoughts on Debt-to-Invest

[xkosmox]

Hello everyone;

Traditional articles all around the net state that borrowing money to invest generally isn't advised; however I want to hear thoughts from the tactical folks here

Has any TI here gotten a personal loan (or other types of loans) to invest in shares before? What would be the suitable terms/conditions to do that?

(I'm from Singapore, where we're allowed to borrow up to 12x our monthly salary)

Thank you.

[AstuteShift]

I wouldn’t recommend it since it promotes bad habits, also rushing to get returns is a recipe for disaster since you will have to pay the the high interest, especially on personal loans and they can add up

Go slow and sure, it’s much more satisfying building a warchest of money being free instead of being in chains of debt

[Triplethought]

Hello everyone;

Traditional articles all around the net state that borrowing money to invest generally isn't advised; however I want to hear thoughts from the tactical folks here

Has any TI here gotten a personal loan (or other types of loans) to invest in shares before? What would be the suitable terms/conditions to do that?

(I'm from Singapore, where we're allowed to borrow up to 12x our monthly salary)

Thank you.

I've been tempted given the returns here. I personally decided it wasn't worth the risk. But I got an EIDL loan during Covid at 3.5%. I deployed 2/3 of the money by lending it to someone else to build a house at 9.5%. Already that is VERY baller move, but i felt that given I have the assets to foreclose on him if he defaults (a multi-year process) and I would own the land I went ahead.

It is tempting to go to stocks but the downside of owing money you don't have would really make your life suck for a while. Also SOL keeps warning the market may let out steam. If the amounts were small and the plays were conservative I *might* consider this if there was a MOBA or FOBA (large downturn in the index). Otherwise just get rich slow.

[Eric]

TLDR: If you choose to use debt, it can make you or break you depending on how you use it. If you avoid it, then it definitely can't break you.

Debt is a tool no different from a hammer. You use it to build a home and a future for yourself and your family, or you can use it to bludgeon them to death. Many years ago I got in over-my-head with debt and became a devout disciple of Dave Ramsey thinking and preaching that debt was evil... a few years later I realized I didn't make enough money to save up for a house in any reasonable timeframe so I was going to need debt. Aside from that, the vast majority of wealthy people got that way by using debt (credit, other people's money...)

I am currently in process of refinancing my house. If the appraisal valuation comes back where I think it should; I can take $15,000 cash-out and still lower my monthly mortgage payment by nearly $160 (only adding 3 years to my current term). I say that money is going to be my "new tractor budget" but in reality I'm going to invest it first. After I have made as much as my new (sub-compact) tractor is going to cost (about $20,000), then I will go get my new tractor on an 84-month loan around 5% and pay $300/mo. while the (future) $35,000 is compounding at 65% or better.

[SOL]

If one has extreme discipline and patience one can you use debt to improve one’s financial position? The way to do that would be to wait for a strong pullback like the one in march of 2020, and then you can throw everything at the market. However, these situations don’t arise every day. Secondly, one has to make sure that one could service the debt if things went sour in the short term. And thirdly one should be prepared to live below one’s means if necessary to pay the debt at a faster pace. Also, of importance is that rate you will pay on that debt. If the rate is low, and the above conditions are met then using debt to invest might make sense. A word of caution 99% of individuals use debt the wrong way and end up paying 10X more than they would have, had they not taken on the debt to buy crap they did not need with money they don’t have. While the super-rich use debt as a weapon, they have assets to cover the debt if S**T hits the fan.

[xkosmox]

Highly appreciative of all the detailed, well-considered responses.

[AstuteShift]

You can also use margin with the broker but this is for the advanced trader, who has a very structured trading plan

In any business, you want to construct a plan, trading is no exception

Even before I discovered SOL, I would review my plan and performance every 6 months. Then up the anty, when it was warranted.

[MarkD]

Only debt you can afford to repay from current assets (within the compounding period, a month for revolving credit), is my mantra.

No, housing is absolutely an outlier as you need a roof over your head if you have a family. My daughter is refinancing 1.5% lower and loses five years on her mortgage while maintaining the same house payment. I might add, the payment is $300 lower than comparable rent and includes taxes and insurance.

And, the car companies are not really providing any incentive to pay cash these days. Instead of paying cash I have taken out zero interest loans on my two most recent purchases. My policy was to buy five yo vehicles but once I got established with no college bills to pay it became realistic for my wife and I to purchase brand new vehicles. We still keep them until they are at least ten yo.

Debt free is the only path imo.

[Triplethought]

No, housing is absolutely an outlier as you need a roof over your head if you have a family. My daughter is refinancing 1.5% lower and loses five years on her mortgage while maintaining the same house payment. I might add, the payment is $300 lower than comparable rent and includes taxes and insurance.

And, the car companies are not really providing any incentive to pay cash these days. Instead of paying cash I have taken out zero interest loans on my two most recent purchases. My policy was to buy five yo vehicles but once I got established with no college bills to pay it became realistic for my wife and I to purchase brand new vehicles. We still keep them until they are at least ten yo.

Debt free is the only path imo.

100% agree. Also, teach your daughter the "pay twice per month" trick on her mortgage.

[SOL]

100% agree. Also, teach your daughter the "pay twice per month" trick on her mortgage.

That is a good trick, paying the mortgage bi-monthly, But an even better way to speed up the payment is to pay 5 to 10% more every month, then you would if you can afford it. The first 10 years on the mortgage you paying off the interest so if you speed up payments towards the principle you can shave up off 7 to 10 years off a 30-year mortgage. Now if you really want to speed up things, even more, stop buying all unhealthy food, buy a used car in good condition, eat out less often but use that money to buy good quality food, don't drink sodas and limit stupid impulse buying by keeping the credit card at home. It's 2 to 3X harder to buy the same thing with cash then it is with a credit card.

All the above tricks could shave 10 years plus off the mortgage

MORT= Death

In Latin the term mortgage refers to a death contract