Borrowing to invest for one year is a dumb idea.
Now, see.. That's what's so great about these online communities! Where else can you ask a simple question and be insulted by a total stranger?
Ah, the joys of the internet age ;D
Yes I thought jacoavluha could have said it was a "terrible" or "atrocious" or "horrendous' idea (which it really is) instead of saying dumb, but the point stands that it really is an idea based on a lack of understanding that return and risk are inextricably linked, and the only way to get a higher return is with risk which you can not afford with a 1 year horizon.
There are ways to hedge your bets. If you can get a guaranteed 2% return with CDs or similar, and could borrow a hundred thousand dollar at 0% interest for one year, then you could invest 980,040 of it and be guaranteed of getting your 100k back. That would leave $1,960 of "free" money that you could invest in a leveraged equity fund that could either go down 75% or up 75% really easily.
That's what hedge funds do. It's why they are called "hedge" funds in the first place. They use combinatorial investment strategies with differing risk/return profiles to try to minimize their losses on big chunks of money while taking outsized risks with a minority portion of their money. They also tend to play different sectors against each other, which is of course what all of us are doing by holding a minority bond position.
Wait, so after 1 year, they get their money back which is worth less due to inflation, and with the money that
would have been added to account for inflation loss, you essentially take that and put it all on black?
Firstly it is gambling, and secondly it is gambling with money that is taken out of the real (ie inflation adjusted) end amount, so it is not fee money that they are gambling with.
I agree that this limits OP's losses, but so what? It's like saying a knife is better to carry around with you than a machine gun because you have less chance of killing a whole lot of people. That doesn't make it a good idea to carry a knife.