Author Topic: HELOC invest  (Read 1057 times)

sevanikruthi

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HELOC invest
« on: April 03, 2020, 09:42:03 AM »
Hi,

I have some money in HELOC, that I want to use to invest in this bear market. What are your thoughts?
I feel principle wise ( more debut )  wrong, but oppurtunity wise ( ~30% down market) right.
What things I need to watch out?

Thanks in Advance.

Joe Schmo

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Re: HELOC invest
« Reply #1 on: April 03, 2020, 11:12:54 AM »
Have you called into the Dave Ramsey show?

MustacheAndaHalf

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Re: HELOC invest
« Reply #2 on: April 03, 2020, 11:39:07 AM »
Joe Schmo - Dave Ramsey and Suze Orman have great advice for getting people out of debt.  They know personal finance, not investing.

sevanikruthi - When you buy stocks with loaned money, you need to make payments on the loan.  Some CEOs are prepared for a 2 year recovery, for 24 months until their business goes back to normal.  Definitely figure out how many months you can pay on the HELOC before you get into trouble.  I hope and expect it won't be that long, but it's wise to make sure your worst-case planning includes the possible 24 month scenario.

Other than that, stocks are -23% off.  Even if they only recover halfway, that's a decent return most years.

Jack0Life

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Re: HELOC invest
« Reply #3 on: April 03, 2020, 11:43:31 AM »
I think its a bit of sarcasm from @Joe Schmo .

Joe Schmo - Dave Ramsey and Suze Orman have great advice for getting people out of debt.  They know personal finance, not investing.


MustacheAndaHalf

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Re: HELOC invest
« Reply #4 on: April 03, 2020, 12:14:14 PM »
I hope we can find a better approach to new posters than sarcasm.

J Boogie

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Re: HELOC invest
« Reply #5 on: April 03, 2020, 03:42:13 PM »
Hi,

I have some money in HELOC, that I want to use to invest in this bear market. What are your thoughts?
I feel principle wise ( more debut )  wrong, but oppurtunity wise ( ~30% down market) right.
What things I need to watch out?

Thanks in Advance.

The thought crossed my mind as well. But I'm actually in dire need of new siding and gutters, so I won't be doing this.

I say go for it. I'd go into in chunks, putting say, 10% in, on Monday and investing more in chunks if and when it dips lower. IE do some daily/weekly dollar cost averaging.

I am assuming you have no problem covering your expenses, job security, decent savings, etc. If not then don't bother with this as untapped credit is not a bad thing to have during periods of uncertainty.

Joe Schmo

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Re: HELOC invest
« Reply #6 on: April 03, 2020, 03:55:40 PM »
Ok let's expand upon it and make some money!!
HELOC for starters.
Could you get a personal line of credit?
Do you have any paid for vehicles that you could take out loans on?
What am I missing...?



effigy98

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Re: HELOC invest
« Reply #7 on: April 03, 2020, 04:10:51 PM »
Unless I can get debt at 0% or better (negative?), I would never go into debt again. Having a paid off house in this environment is amazing sleep at night and my family has no financial worries of any kind. If I can get mega cheap debt, I would get as much as possible and anticipate buying fire sale assets in the future... there would be little risk.

With all of that said, if there is inflation like many are anticipating, people who get leveraged up right now will look like geniuses in the future when their mortgage payoff will be the equivalent of buying a pack of gum now.

sevanikruthi

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Re: HELOC invest
« Reply #8 on: April 03, 2020, 06:01:43 PM »
Thanks for all the replies. Really helpful info.

Steeze

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Re: HELOC invest
« Reply #9 on: April 03, 2020, 07:33:04 PM »
Wall Street is too confident for me to risk the house. When hedge fund managers are jumping out of buildings then you tap the HELOC. Itís a classic buy signal, I think Peter Lynch wrote about it.

SwordGuy

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Re: HELOC invest
« Reply #10 on: April 03, 2020, 09:14:41 PM »
Would the HELOC be a callable loan?    A callable loan requires you to quickly repay in full on demand.   Unless you'll be retaining that ability and willingness to do so even if the market drops to 50-60% below peak when the loan is called, I would NOT get the loan.

If the HELOC is NOT callable, then it's a matter of how much the interest will cost you for the next 3 years compared to reduced dividends and no stock valuation improvements over that time followed by a return to prior high values.     Does it still make sense at that point?
It's also a matter of what happens if you and your spouse get ill and can't work for an extended time.    Or both lose your jobs and can't work.   Could your position handle that?

It's also a matter of do you have kids?   If you and your spouse die from this, would your kids be better off financially with or without the HELOC in a down market for 3 years?

When I look at these kind of scenarios, I make two lists.

The first list is fun.   

"What would I like to happen by doing this action?"

In this case, it's "I would like to make a bonus 20-30% in the stock market by taking advantage of low stock prices and cheap money."

The second list is NOT fun.

It's a list composed of results that COULD reasonably happen that I ABSOLUTELY DO NOT WANT to happen.
Once I have this second list I check to see if I can alter my plan to avoid this catastrophic result.   

If I can come up with a plan that has a reasonable chance of reaching my goals and will avoid the known catastrophic risks, then I'm willing to proceed.   If not, then not.

Hope that helps.


Stachless

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Re: HELOC invest
« Reply #11 on: April 04, 2020, 10:25:24 PM »
HELOCs (in the USA at at least) are typically variable rate loans, which takes some luster off this plan.  If you can do something cheap and fixed (hello 30 year mtg) AND the increased payment is not and will never be an issue...go for it!

moneytaichi

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Re: HELOC invest
« Reply #12 on: April 04, 2020, 11:02:19 PM »
HELOCs (in the USA at at least) are typically variable rate loans, which takes some luster off this plan.  If you can do something cheap and fixed (hello 30 year mtg) AND the increased payment is not and will never be an issue...go for it!
I would agree that mtg seem to be "safer" than HELOC (not recallable), cheaper and in fixed rates. If you still have a mtg, refinance is a better route. If you don't have a mtg, you may not be able to get a mtg. I just learned from my bank that they can only do a "reverse finance" within 60 days of your purchase of a property.

Steeze

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Re: HELOC invest
« Reply #13 on: April 05, 2020, 11:25:26 AM »
Iím in US - TD Bank is offering a non-callable HELOC that is an adjustable rate sub-prime and can be converted to fixed up to three times. Cost is $1500 for closing and $99/yr/ $500 penalty for closing the line in less than 24 months unless it is closed during the sale of the property. 80% LTV Max.

Retire-Canada

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Re: HELOC invest
« Reply #14 on: April 05, 2020, 04:25:43 PM »
Hi,

I have some money in HELOC, that I want to use to invest in this bear market. What are your thoughts?
I feel principle wise ( more debut )  wrong, but oppurtunity wise ( ~30% down market) right.
What things I need to watch out?

Thanks in Advance.

I renewed my mortgage recently [Canada] I could have taken out $100K and put it into the market. I considered it and then decided it wasn't worth it when I looked at the overall risk vs. reward. I looked at the possible upside vs. the potential negative outcomes and it didn't make sense to me.

I can't tell you what is right for you, but one thing I would do is not assume you understand how the crisis will unfold. The crash could go on longer and/or take strange turns you didn't expect. You may wish you had access to that HELOC for other purposes or wish you didn't have to service it/pay it back.

talltexan

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Re: HELOC invest
« Reply #15 on: April 06, 2020, 07:01:41 AM »
On average you'll make money. But leverage amplifies the risk.

I would do this, but with a very cautious draw on the HELOC, something like ("I can borrow $1 for every $2 of my own cash I find from some other source).