Author Topic: Borrow money to invest?  (Read 6909 times)

Cheddar Stacker

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Borrow money to invest?
« on: October 20, 2014, 09:10:47 AM »
Would you consider taking out a small loan to obtain a little extra capital to dump in the market?

Recent market events have me considering cash flow and looking for any reasonable way possible to invest a little more (yes this is market timing, I know). I like debt/leverage, and I've discussed that plenty here before, so I'm thinking why not put my money where my mouth is and actually take on more debt to create a little more capital?

I have a HELOC already in place, and here are the stats:
Debt limit: $40K
Outstanding balance: $32K
Annual fee: $50
Interest rate: 3.75%
Promotional 6 month interest rate on new advances: 1.99%
Current required monthly payment (interest only): ~$95, variable, but I usually just pay a flat $150/month.

I would not have to change my monthly payment as this would only increase the outstanding balance, and therefore the interest only payment by 25% (so my new monthly interest charge would be ~$125). The debt is secured by our house which has a mortgage at ~69% LTV, including the HELOC we are at ~80% LTV.

So annual cost of $300 ($8K*3.75%) for hopeful annual return of $560 ($8K*7%). After summarizing it here at the end, I'm thinking why not just churn a credit card for a $250 signup bonus instead for the same profit? But, what do you think mustachians? Worth it? I might be able to expand the credit limit on the HELOC, so what if the numbers were all double, triple or quadruple, then is it worth it?
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Re: Borrow money to invest?
« Reply #1 on: October 20, 2014, 09:17:09 AM »
Would you consider taking out a small loan to obtain a little extra capital to dump in the market?

Recent market events have me considering cash flow and looking for any reasonable way possible to invest a little more (yes this is market timing, I know). I like debt/leverage, and I've discussed that plenty here before, so I'm thinking why not put my money where my mouth is and actually take on more debt to create a little more capital?

I have a HELOC already in place, and here are the stats:
Debt limit: $40K
Outstanding balance: $32K
Annual fee: $50
Interest rate: 3.75%
Promotional 6 month interest rate on new advances: 1.99%
Current required monthly payment (interest only): ~$95, variable, but I usually just pay a flat $150/month.

I would not have to change my monthly payment as this would only increase the outstanding balance, and therefore the interest only payment by 25% (so my new monthly interest charge would be ~$125). The debt is secured by our house which has a mortgage at ~69% LTV, including the HELOC we are at ~80% LTV.

So annual cost of $300 ($8K*3.75%) for hopeful annual return of $560 ($8K*7%). After summarizing it here at the end, I'm thinking why not just churn a credit card for a $250 signup bonus instead for the same profit? But, what do you think mustachians? Worth it? I might be able to expand the credit limit on the HELOC, so what if the numbers were all double, triple or quadruple, then is it worth it?
One added benefit is that the HELOC interest is tax deductible

One ignored drawback is the potential correlation of higher HELOC interest expense and negative investment returns

Depending on margin of safety in your personal finances (high savings rate covers over a multitude of bad financial market timing) and how long your time horizon is (the longer it is the more likely you are certain to earn a positive carry) it sounds like a reasonable plan, although one that might be more ideal in an environment where the market is more focused on preservation of capital as opposed to earning any (however small) return on capital - in other words having dry powder for when the mkt is panicky

Bob W

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Re: Borrow money to invest?
« Reply #2 on: October 20, 2014, 09:29:18 AM »
Its a good idea -- of course your playing with snakes. 
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Cheddar Stacker

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Re: Borrow money to invest?
« Reply #3 on: October 20, 2014, 09:31:14 AM »
One added benefit is that the HELOC interest is tax deductible

One ignored drawback is the potential correlation of higher HELOC interest expense and negative investment returns

Depending on margin of safety in your personal finances (high savings rate covers over a multitude of bad financial market timing) and how long your time horizon is (the longer it is the more likely you are certain to earn a positive carry) it sounds like a reasonable plan, although one that might be more ideal in an environment where the market is more focused on preservation of capital as opposed to earning any (however small) return on capital - in other words having dry powder for when the mkt is panicky

Yeah, not a sure thing at all, investments can lose value.

Finances are pretty strong, really just optimizing here. Time horizon is 6-9 years to FIRE, but investing timeline is 60ish more years so it's a long-term play for sure.

I was thinking maybe this could be a better strategy after a much bigger correction, so maybe it should wait.
Indecision may or may not be my problem.

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Re: Borrow money to invest?
« Reply #4 on: October 20, 2014, 09:39:55 AM »
One added benefit is that the HELOC interest is tax deductible

One ignored drawback is the potential correlation of higher HELOC interest expense and negative investment returns

Depending on margin of safety in your personal finances (high savings rate covers over a multitude of bad financial market timing) and how long your time horizon is (the longer it is the more likely you are certain to earn a positive carry) it sounds like a reasonable plan, although one that might be more ideal in an environment where the market is more focused on preservation of capital as opposed to earning any (however small) return on capital - in other words having dry powder for when the mkt is panicky

Yeah, not a sure thing at all, investments can lose value.

Finances are pretty strong, really just optimizing here. Time horizon is 6-9 years to FIRE, but investing timeline is 60ish more years so it's a long-term play for sure.

I was thinking maybe this could be a better strategy after a much bigger correction, so maybe it should wait.

Leverage (OPM) is great, but ideally used when the deck is stacked in your favor

Of course this implies market timing, but I am guessing you are not averse to a bit of that given your propensity to take risk

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Re: Borrow money to invest?
« Reply #5 on: October 20, 2014, 09:46:35 AM »
Many people did this in 2003/04 and lost everything in 2008. :)

Cheddar Stacker

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Re: Borrow money to invest?
« Reply #6 on: October 20, 2014, 09:48:57 AM »
One added benefit is that the HELOC interest is tax deductible

One ignored drawback is the potential correlation of higher HELOC interest expense and negative investment returns

Depending on margin of safety in your personal finances (high savings rate covers over a multitude of bad financial market timing) and how long your time horizon is (the longer it is the more likely you are certain to earn a positive carry) it sounds like a reasonable plan, although one that might be more ideal in an environment where the market is more focused on preservation of capital as opposed to earning any (however small) return on capital - in other words having dry powder for when the mkt is panicky

Yeah, not a sure thing at all, investments can lose value.

Finances are pretty strong, really just optimizing here. Time horizon is 6-9 years to FIRE, but investing timeline is 60ish more years so it's a long-term play for sure.

I was thinking maybe this could be a better strategy after a much bigger correction, so maybe it should wait.

Leverage (OPM) is great, but ideally used when the deck is stacked in your favor

Of course this implies market timing, but I am guessing you are not averse to a bit of that given your propensity to take risk

I dollar cost average with the best of them in my 401K which is where most of my money is currently. I understand DCA is the easiest and possibly best approach, but I'm not against taking advantage of a downturn by looking for capital alternatives. I also get a nice annual bonus and have to implement a little strategy with that each year. So I play around a bit with market timing, but it's very limited.

OPM - Did you ever see the movie with Danny DeVito? I think it came out in the 90's. I liked it then, but not sure what I'd think of it 20 years later.
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Cheddar Stacker

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Re: Borrow money to invest?
« Reply #7 on: October 20, 2014, 09:50:34 AM »
Many people did this in 2003/04 and lost everything in 2008. :)

I'm sure that can happen.  It would not be ideal to lose $8K, but it certainly wouldn't break me either. And I don't think I'll be investing it in anything that has a high likelihood of losing 100% of it's value.
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GGNoob

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Re: Borrow money to invest?
« Reply #8 on: October 20, 2014, 12:05:27 PM »
Here's where I sit with this...

Even though I no longer have money with Lending Club, I'm a big fan. If I were able to get a 3-5 year loan at low interest, I would be happy investing that amount in Lending Club. With enough diversification, you can significantly reduce your risk of loss. And because your term on the loan is the same as the notes you are invested in, you don't have to sell notes for a loss on the secondary market. So if I could get a 3 year loan for example, I'd probably put that money into 3 year notes at LC. Then withdraw the money from payments every month to pay for the loan and put any extra into stocks.

I recently got one of the 0% for 15 months check offers from my credit card company. The balance on the credit card is $0 with a limit of $12,000. The fee is 2%. I would love to write myself a check for like $11,000 and put that money into Vanguard and hope that I gain at least 3-4% by the end of the year so I can pay the credit card off with a profit. The problem is that there's quite a bit of risk with stocks and I know that by normal saving, I won't have $11,000 to put into a taxable account in the next year. Since I would have to sell to pay off the credit card, I don't want to sell at a loss. I will however, have $11,000 to put into Roth IRA in 2015 (throughout the year with normal savings). So what I'm considering is waiting to see if I get another check in December, write it for $11,000, then max out our Roth IRA's on January 1st. Then I'll have about 15 months to pay off that credit card. Then the money that was going to be directed to the Roth IRAs for the year can be directed towards the credit card.

Basically what I would prefer is borrowing to front-load investments I would have made anyhow and not have to worry about selling at a loss down the road. Since 2/3 of the time lump sum investing is better than dollar cost averaging, you should eventually come out ahead.

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Re: Borrow money to invest?
« Reply #9 on: October 20, 2014, 12:34:45 PM »
Many people did this in 2003/04 and lost everything in 2008. :)

I'm sure that can happen.  It would not be ideal to lose $8K, but it certainly wouldn't break me either. And I don't think I'll be investing it in anything that has a high likelihood of losing 100% of it's value.

On day one (on that specific investment) you are infinitely levered (debt to worth) with $8k debt and $0 equity. Since you would be using OPM, if the stock drops below the initial purchase price at any time you will have lost "everything" of yours (the appreciation) plus whatever you owe the bank above and beyond the stock value.  As you didn't put anything of "yours" into the transaction, it will not be hard to lose "everything".

That, said, if you can stomach the risk, go for it and let us know how it turns out!

I bought a fair bit of stock (vs my net worth at the time) around 2005-2006 on 1.9% and 2.9% for life of loan credit cards using my equity line then rolling the balance onto the cards with no transfer fee.   When things fell apart in 2008, I just stayed the course, and while I do not have good enough records to figure exactly what I have made on the deal so far (still paying the minimums every month) I know I am pretty well ahead.  I know we are not supposed to time the market, but if it were me, I'd wait for the next 20-30% drop before I'd borrow any more money to invest.         

Dodge

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Re: Borrow money to invest?
« Reply #10 on: October 20, 2014, 02:18:13 PM »
Interactive Brokers charges 1.59% interest, if you're going to buy on Margin (which I don't recommend), why not go with them?



https://www.interactivebrokers.com/en/index.php?f=interest&p=schedule2
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penguin456

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Re: Borrow money to invest?
« Reply #11 on: October 21, 2014, 01:43:40 AM »
I would not, especially with a variable rate loan. My view is that leveraged investing in the stock market is a bad idea for buy and hold investors. If I were tempted to do it anyway I think I would take the money I had in hand and buy a leveraged ETF rather than taking out a loan.
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TheNorwegianGuy

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Re: Borrow money to invest?
« Reply #12 on: October 21, 2014, 02:45:21 AM »
I would say it very much depend on interest rate, how much leverage and investing philosophy..

I for example consider that I am leveraged by using money I could have payed down my student loan an instead invest in index funds. This is practically free money to invest as the interest rate is the same as the inflation rate.

And then there are those extreme risk takers. I know a guy that has a leverage strategy out this world. The equity is taken from credit cards (about $ 20 000), on top of that he is borrowing money on those equity with a dept ratio of about 75% at an interest rate at 6,5 %!! He had calculated that he needed a return of about 11% from the market just to pay the interest rates on this (without considering the 2% mutual fund fees and inflation). He is taken so incredible much risk that I cant really wrap my head around it, just to try to get to zero return. The worst thing is that this guy is an economist!! On dip of 20-25 % and he is completly out of the market, but with high credit card depts... I get a headache of these numbers... :/

It went maybe a little of topic here, but the point is, there are so many ways to do this that you really only have the best answer for yourself.

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Re: Borrow money to invest?
« Reply #13 on: October 21, 2014, 06:33:38 AM »
I have a HELOC on my place as well with a sizable amount of available credit at a very low rate of 3% currently: Prime + 0%. I have always viewed it as my emergency fund, but I definitely would consider buying if the market looked cheap enough to me. With that I'm talked low CAPE, low Cap/GDP, and the general sour view of the world (by most people but not us optimistic Mustachians of course). If an opportunity presented itself where the dividends would exceed payments by a wide margin, I would do it.

Here in Canada, it's especially enticing from a tax perspective. Any investment borrowing, if done right, is eligible for tax deductible interest and if I purchase Canadian stocks the dividends are taxed at very low rates.
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whitedragon

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Re: Borrow money to invest?
« Reply #14 on: October 21, 2014, 06:36:36 AM »
It could be a good idea if you need some additional tax space, but in the amounts that you're talking about (8k), it may be simpler to just churn a couple credit cards, especially with that Chase Ink deal going on right now.  Seems like alot less work for a much more "immediate" return.

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Re: Borrow money to invest?
« Reply #15 on: October 21, 2014, 07:09:00 AM »
I am considering this myself, but I would do it with a fixed 3.25% loan with a 15 year term.  The investment would be in a brokerage account or possibly a rental, so I am looking for a longer term return.  In the case of a rental, I would be hoping for some income tax savings.
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Cheddar Stacker

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Re: Borrow money to invest?
« Reply #16 on: October 21, 2014, 08:52:04 AM »
I for example consider that I am leveraged by using money I could have payed down my student loan an instead invest in index funds. This is practically free money to invest as the interest rate is the same as the inflation rate.

^ This. I do the same thing. I have the HELOC, a mortgage, and SL debt at 36 years old. The first one of those loans (SL debt) will be paid off when I'm 46. I have no intention of pre-paying, just servicing according to the amort schedule.

This is why I'm considering this in the first place. I'm very comfortable holding these debts. I'm very comfortable expanding these debts as long as it's for investing, not consumption, although indirectly you could argue it's for consumption since we are consuming things as well over the life of these loans.

@ So Close, in terms of losing 100% of MY investment would it make you feel better to know I would also be putting $5K of my own capital in at the same time? That would make it 61% LTV.

@ Dodge, this just feels much different than a margin loan to me. Same concept, different vehicle, different terms. You're right a margin loan would be lower interest, but I'm not a fan of that kind of debt.

I have a HELOC on my place as well with a sizable amount of available credit at a very low rate of 3% currently: Prime + 0%. I have always viewed it as my emergency fund, but I definitely would consider buying if the market looked cheap enough to me. With that I'm talked low CAPE, low Cap/GDP, and the general sour view of the world (by most people but not us optimistic Mustachians of course). If an opportunity presented itself where the dividends would exceed payments by a wide margin, I would do it.

Here in Canada, it's especially enticing from a tax perspective. Any investment borrowing, if done right, is eligible for tax deductible interest and if I purchase Canadian stocks the dividends are taxed at very low rates.

I like the way you described it TuxedoEagle, that's kind of how it looks in my head as well. This would provide a small tax deduction for me (saving me ~$120 in taxes) while creating a deferred long-term capital gain that would likely be cashed out post FIRE at 0% tax.

@ whitedragon, I agree with your thoughts, but did you consider this is a one time transaction that theoretically could produce that "gain" every year with no additional effort?

@ aj, yeah I'm currently looking at some rentals as well, and I might save this debt space for a potential upcoming rental purchase.

Thanks for your thoughts everyone. I doubt I'll do anything at this point, but wanted to bounce the idea off you all. It's certainly something I will consider if/when the right opportunity arises. It makes me think of that Warren Buffett quote that goes something like "when others are fearful, be greedy."
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Re: Borrow money to invest?
« Reply #17 on: October 21, 2014, 10:08:53 AM »
Would you consider taking out a small loan to obtain a little extra capital to dump in the market?

While I really love the idea, I know that I personally couldn't do it.  Any level of debt keeps me awake at night--even a $20 loan from a friend.  I'd be nice, but I'm aware my personality wouldn't be able to hack it at all.  Sadly, sometimes the person you'd like to be is out of sync with who you really are and trying to reconcile them can be disastrous.  ...Like, I daydream about piloting a shuttle.  But if you actually put me behind the wheel and said, "OK, go..." I'd be all, "Hell, no!  Let me outta here!  I'll go sit in the back seat." 
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ioseftavi

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Re: Borrow money to invest?
« Reply #18 on: October 21, 2014, 11:50:43 AM »
Hi Cheddar.  WE MEET AGAIN.

What you are talking about- I think - is lifecycle investing using leverage to improve returns, specifically early in your life when your time horizon is longest and your tolerance for risk is highest.  Your future income is treated as a bond of sorts, and you are borrowing against that bond.  Basically, if you can borrow at 3% and invest at 6%+, why wouldn't you?  The answer, without going into greek letters, mostly centers around volatility and correlation.  If your borrowing costs spike when your asset prices or income fall, you can find yourself up shit creek very quickly.  Even if you hang on to the asset (let's say, shares bought with leverage) you may lack further cash to invest when the market is tumbling and a great deal, due to your carrying costs and decreased income/liquidity.

The borrow-cheap-to-invest-in-higher-yielding-assets-over-the-long-haul idea has some academic merit, but it's in its infancy.  I'd suggest you read the 2010 book Lifecycle Investing to go over the basics as they've detailed it, first, before you decide to do anything.  I'd also suggest you check out the incredible thread by market timer in the bogleheads forum, where he tries a strategy of this sort, through the 2008 downturn.  His logic is a little different and his leverage is uhm, a bit more substantial, but overall it's pretty similar, if I recall.

It's an interesting idea, but some of the key "disqualifiers" are:
  • one’s income cannot be too closely correlated with the stock market
  • one must be willing to stick to the plan even if one incurs big losses in early
    years
At least for myself, the first bullet point rules this strategy out.  I work on wall street, more or less, and my chances of lower income and/or a period of unemployment go up meaningfully when the market is having an awful year.  I don't like to think about this fact, but I'd be an idiot to ignore it.  Your income may or not be similarly linked, but it's worth a thought.

Anyhow - hopefully I've generated some reading material for you there. 

Personally, I will not be borrowing money to invest in the stock market, as much as I love it so for long-term investing.  I do, however, plan to borrow quite a bit for real estate investing, which will probably start in the next year or so for lentils and myself.  It seems to me that a decent chunk of one's return from real estate investing comes from the prudent use of leverage.  All things considered, I'd prefer to leverage a portion of my 'stache to purchase an asset class that is better suited to debt financing and less correlated with my existing 'stache and income/human capital.

Cheddar Stacker

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Re: Borrow money to invest?
« Reply #19 on: October 21, 2014, 12:04:07 PM »
Thanks ioseftavi. A lot of great info there.

My income isn't directly correlated with the stock market, but it's certainly something to consider. That's the 2nd or 3rd time someone has replied to a post of mine with that boggleheads thread. I keep clicking over to it, but it's so long I get distracted and move on. I need to commit to reading that soon, although from what I've read it seems like the risk levels were much higher in that strategy. I don't think this is ever something I would do to that extent.

A job loss would be rough, but we have some reserves that could handle the debt load pretty easily for a while. Also, since the monthly debt service wouldn't change for this $8K advance I'm actually already taking on that risk and seem to be handling it well.
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Re: Borrow money to invest?
« Reply #20 on: October 21, 2014, 07:06:59 PM »
Thanks ioseftavi. A lot of great info there.

My income isn't directly correlated with the stock market, but it's certainly something to consider. That's the 2nd or 3rd time someone has replied to a post of mine with that boggleheads thread. I keep clicking over to it, but it's so long I get distracted and move on. I need to commit to reading that soon, although from what I've read it seems like the risk levels were much higher in that strategy. I don't think this is ever something I would do to that extent.

A job loss would be rough, but we have some reserves that could handle the debt load pretty easily for a while. Also, since the monthly debt service wouldn't change for this $8K advance I'm actually already taking on that risk and seem to be handling it well.

If you already get distracted reading the "Market Timer" thread on Bogleheads, then you have absolutely no business doing leveraged investing. Seriously, just forget about it.

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Re: Borrow money to invest?
« Reply #21 on: October 21, 2014, 08:48:46 PM »
Thanks ioseftavi. A lot of great info there.

My income isn't directly correlated with the stock market, but it's certainly something to consider. That's the 2nd or 3rd time someone has replied to a post of mine with that boggleheads thread. I keep clicking over to it, but it's so long I get distracted and move on. I need to commit to reading that soon, although from what I've read it seems like the risk levels were much higher in that strategy. I don't think this is ever something I would do to that extent.

A job loss would be rough, but we have some reserves that could handle the debt load pretty easily for a while. Also, since the monthly debt service wouldn't change for this $8K advance I'm actually already taking on that risk and seem to be handling it well.

If you already get distracted reading the "Market Timer" thread on Bogleheads, then you have absolutely no business doing leveraged investing. Seriously, just forget about it.

Thanks for the warning, but its 27 damn pages long so its hard to swallow in one sitting. I'm usually doing 3-4 things at a time when I'm reading this stuff online so its hard to commit to that volume for me. Point taken though.
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Mister Fancypants

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Re: Borrow money to invest?
« Reply #22 on: October 22, 2014, 10:32:25 AM »
Hey Cheddar,

Simple answer I wouldn't do it...

Here are my reasons...

1) This is being triggered by a 6 month promotional rate discount, had they not dangled a carrot would have even considered it, now I know you used the higher 3.75% rate in your math to annualize your cost vs. return, but this was incited by some cheap borrowing that was meant to get you to borrow the money you are currently not borrowing with the hope you will not pay it back within 6 months. Then the 6 months discount ends and the lender has you on the hook for the full balance at the full rate. Now they really don't care what you do with the money, as long as you pay it back, you are a good customer so they offered you a deal hoping to lend you more. Hook line and sucker. Don't be the sucker.

2) Ok forget what the lender cares about, you want to do leveraged investing, so you have $8k, not a lot of money, and like you said what if it was $16k, or $32k, more risk etc... OPM is always risky... There is a place for leveraged investing and the risk vs rewards have to be worth it, if the market makes 7% annually you will do fine over a the long term, but if it nose dives you can lose all or a lot of the principal rather quickly and not recover it for a long period of time. You still owe the debt and have to repay. Any loss is money you need to replace with other funds which diverts money from other goals, as none of this capital is yours, so the more you borrow the higher the risk. And you said you would take conservative investments so in all likelihood you would not get 7% annual returns. And of course there are taxes and inflation to account for, so how much are we really talking here?

3) You monthly payment is $96, you are overpaying by making a flat payment of $150 so you are actually reducing your HELOC balance and that compounds monthly, your new structure would divert some of that over payment to interest and your new principal balance would be higher so even though you might have investment returns in one bucket you now have a higher HELOC balance over time with less reduction in another. By the way this is contradictory to you wanting to hold onto your debt as long as possible which you have stated as this reduces it the HELOC principal. Now is your HELOC your costliest debt, if not the debt reduction should be redirected to your mortgage or SL, or eliminated completely. You can then use this extra capital to invest rather than borrow.

4) Never risk your primary residence for anything, this is a personal preference, and I know we are only talking $8k, but it is a point to make either way, you should never risk your house where you live for anything. Investment properties, equities, credit card churning etc.. that's all fair game, don't risk your house, how do you explain to your wife and kids they are homeless because you bet on black, its the same thing just not to the same extreme. Never bring your deed to Vegas or Wall Street.

5) Margin lending is a much better approach to equity leverage then Home Equity, I know you were on the thread where I mentioned IB to refi someone's student loans when they had a huge asset base and high income and someone posted it here as well. I wouldn't recommend it per se, but if you want to borrow to invest in the equity markets it is the safest way to do it, portfolio margin can be managed very effectively to prevent calls.

6) Market timing, you are looking to be aggressive in the markets and this is the 2nd situation you have posted something regarding market timing, you did a early 401k contribution as I recall. I strongly don't recommend trying to time the market, it generally will come back to bite you especially when you are not very good at knowing what you are looking for. Now I know the 401k situation has a nice long time horizon so it is a little less fair to draw an analogy but how has that worked out so far? Are you up a lot or would you have faired better making regular contributions thus far. what you are looking at here is far more risky, you want to borrow money and pay interest to invest in very volatile markets and hope you can do better, but maybe loss some or all of it, and reduce the compounding you have in debt reduction. Its a gamble at best.

You know I work on Wall Street like iostavi,  and I too won't try to time the market, reason is I know I will lose. I made the mistake last year of trying my hand at a little options trading. I lost, not because I didn't know what I was doing, but because I was greedy and didn't stick to my trading plan. I broke the rules. I was doubly stupid because I funded my little venture with OPM, I used 0% credit cards figuring it was free money. Well I lost $35k of my $45k which was a blip on the radar for us financially, my portfolio bounced by that much or more this month too, however the trading mess required me to divert regular income to replace the loss as I had to pay back the credit cards, the portfolio loss will just recover naturally. It took more than a back rub to sooth it over with the wife :/

I know somewhere in a thread you were involved in there was a comment about why aren't more CPA's and financial advisors better off financially. The simple answer is they think they know better and they need to eat more humble pie... Always trying to game the system and make a little more and do a little better. Instead of sticking tot he basics that work a little knowledge is dangerous. I feel prey to that myself. I lost the $35k, now I call it a blip on the radar because I consider it risk capital and it had no tangible impact on our finances, however had I not ever gotten involved in the whole mess my guess is my net worth would probably be about $100k more now than it is due to business expenses, legal, accounting, software, the actual loss, paying it back, not being able to invest the money etc... All those mistakes add up, if I add up all my mistakes in my life they are probably worth over seven figures already...

-Mister FancyPants
Punch me in the face... I dare you

Cheddar Stacker

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Re: Borrow money to invest?
« Reply #23 on: October 22, 2014, 10:58:23 AM »
Thanks Mister Fancypants. I appreciate the insights.

The teaser rate put it on the front burner, but it's something I've thought about before. I'm just going to reduce my monthly payment to agree to the exact interest amount being charged which will indirectly produce a bit more capital for investing. The initial reason I made it $150/month was once/year they charge the $50 fee and I like to have things on auto-pilot so I didn't want to underpay it that month. I've since learned from the forum that my online banking system allows for payment in full of a variable monthly bill, so I'll just switch it to that.

The 401k contribution is down a bit (maybe $300 right now on $10K), but I'm still glad I did it. It was partly market timing, partly front-loading (or mid-loading), and partly trying to get all my contributions in so I could do an in-service distribution afterwards.

In any case, none of the numbers we're talking about here are enough to break me. I'm just looking for a few small tweaks with a very small percentage of the portfolio to gain a little edge. I need to go find some of that humble pie I guess.

Or maybe I just need to remember this:
Quote
Hubris (/ˈhjuːbrɪs/) means extreme pride or self-confidence. The adjectival form of the noun hubris is "hubristic".

Hubris is usually perceived as a characteristic of an individual rather than a group, although the group the offender belongs to may suffer consequences from the wrongful act. Hubris often indicates a loss of contact with reality and an overestimation of one's own competence, accomplishments or capabilities, especially when the person exhibiting it is in a position of power.
Indecision may or may not be my problem.

DK

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Re: Borrow money to invest?
« Reply #24 on: October 22, 2014, 04:48:40 PM »
I know I'm debating something similar....thinking about refi'ing the house since rates are at 3% for a 15yr. It would be a nice drop from the 4.375 i am at, but I am also thinking about trying to get as much as they will let me have...invest the difference. Just not sure how much equity I have at the moment.

livetogive

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Re: Borrow money to invest?
« Reply #25 on: October 22, 2014, 05:39:41 PM »
I read literally zero details of your post and already have an answer.  No.

Bullet investment sums often perform worse over time compared with dollar cost averaging.   You'll thank me when the market goes down and you're still buying at cheaper and cheaper prices instead of paying back a loan balance currently worth less than your investments. 

FWIW I also used to work on Wall Street and have an advanced degree in finance.
« Last Edit: October 22, 2014, 05:43:06 PM by TurboLT »

livetogive

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Re: Borrow money to invest?
« Reply #26 on: October 22, 2014, 06:02:30 PM »
So i read the details.  Dude for $500 go for it.  Go wild. 


reasons why I wouldn't do it
- correlation
- market timing
- small dollar amounts for a lot of headache.  I'd rather cut $10 a week out of my budget and exceed your returns with a Beta of zero.


tucsonbassplayer

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Re: Borrow money to invest?
« Reply #27 on: October 23, 2014, 07:54:55 AM »
Investing 101......NO!
Trading crude oil, crude in my trading!

dragoncar

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Re: Borrow money to invest?
« Reply #28 on: October 23, 2014, 03:45:58 PM »
Interactive Brokers charges 1.59% interest, if you're going to buy on Margin (which I don't recommend), why not go with them?



https://www.interactivebrokers.com/en/index.php?f=interest&p=schedule2

So what I'm hearing is that I really should borrow over $1 million

Cheddar Stacker

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Re: Borrow money to invest?
« Reply #29 on: October 23, 2014, 03:51:26 PM »
Feast or famine baby! Why stop there when rates decline again at $3M? Go all in.
Indecision may or may not be my problem.

dragoncar

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Re: Borrow money to invest?
« Reply #30 on: October 23, 2014, 04:33:37 PM »
Feast or famine baby! Why stop there when rates decline again at $3M? Go all in.

Really, I should be leveraging all 200 million (plus a dollar)