Personal loan for equities
Is it prudent to procure a personal loan to invest on the equities market ? Will this prospective move be beneficial or its purely shooting self in foot ?
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do NOT, I repeat, do NOT do this.
most personal loans require you to agree that you're not buying securities for it, as those loans are regulated under margin laws set by the feds.
why would you ever want to do this? if you're looking for investment experience, do a paper trading account, invest a little bit in a Roth IRA and trade stocks/ETFs, don't take out a loan to do it, you could at best make a few extra percent, at worst ruin your credit for decades.
if you don't have the money to invest without leverage, you shouldn't be in the market, period. there are better ways to make a buck.
thanks guys, great advice
If you want to leverage either buy levered ETFs or options. That way if you f*** up (which you probably will) you'll only lose your money and not your credit.
NO. Just get a demo account. People will often tell you the best way to learn is if you have your skin in the game. That's horseshit - you need to go through the reading list and learn how to model before seriously trying your hand.
Is taking a loan to invest in stocks a good idea? (Originally Posted: 06/27/2014)
Hello good people. I need advise in regard to the above question. I work for an IB as a trader and recently took out a loan to be repaid at 6% per annum for 5 years. The market return in my stock market was 18.9% last year and I was thinking why not? Its a pretty big loan as its equivalent to 1 and a quarter times my current salary. Thoughts? Advice?
Are you joking? You took out a 6% loan to use in the markets? That seems really stupid to me.
I don't think that's stupid at all if you think you can beat 6% returns... On the other hand, how are you able to trade simultaneously at an IB while trading your own portfolio? There are usually barriers in place...
Not if your market is barely regulated and you can trade on your account without having to go through compliance to execute trades.
I think thats not a good idea. You need 6% + inflation to get break even. Additionally game is tougher when playing under pressure.
This may be the dumbest thing I've heard yet on this site if it isn't a troll post.
I think you asking a board of anonymous posters for advice about this decision -- really says it all.
When exacty did you work as a trader? The S&P returned 32.4% in 2013 and 15.8% in 2012. Not exactly rocket science obtaining a large return in those 2 years, so your 18.9% could have ocurred in a flux that may tower over returns in future years. I'm in no way saying that you only make money based off if the markets are up or not, there are derivatives or even just the basic ability to short and a plethorea of other ways, I am saying that I hope you didn't get too into yourself, assume you are god for making about a 20% return in a market upswing, and highly leverage yourself in the hopes of making more.
I don't work in the West or in a developed financial market. We don't have derivatives, options and swaps yet. Trading stocks here is almost purely speculative. Dangerous but not impossible to maneuver. As for the leverage, I will be careful.
The smart money is borrowing to buy CDS on your loan
You can only this from hindsight
Took out a mortgage on my house when rates were ~3%, locked that in and threw the $250k in the market a few years ago. This is a good idea if you can get a good rate, but 6% (when the average return is ~6% year) is not smart, especially at all time highs.
^ just done the above at 2.9% in the UK. As long as you can hold for the long term, it seemed like a no brainer to me.
No, it's not a good idea to combine high personal leverage with highly volatile trading...
good lord
.
OP, your plan sounds incredibly high risk considering your risk tolerance. I'd advise against it. If you are speculating, you should only speculate with what you can afford to loose.
I literally don't see a single flaw in this plan. Don't listen to some of these naysayers who are clearly acting jelly. Just make sure to keep us posted on your home run count.
Thanks Flake. Will do so on my blog.
"Markets can remain irrational longer than you can remain solvent." - John Maynard Keynes
A little leverage never hurt anyone.
no way haha, just don't.
If your set on 'investing' do as the hedge funds do and rock a carry trade.
Still 6% is ridiculous though.
Why not do a weekend trip to US/Japan and take out that loan there?
Then use that money to buy up Aussie/NZ bonds.
Voila.
+1, not sure if taking out the loan is as simple as that though.
Flake agreed with you, you must be doing things right.
You did this not with margin but with a straight loan. That's pretty bush-league.
I suggest you take the loan than fully utilize a margin account from your broker. Only buy leveraged ETFs too. You'll either make a killing or be killed. Seems worth the risk to me...
SDOW is the way to go 3x the reverse of the Dow.
Also, OP while this is an absolutely horrible Idea at 6% a awhile ago I was able to get a ~2% loan and I put it in lending club where I've been earning ~12% a year not counting my reinvestment of payments which would bring that number much higher.
YOLOwhen you pick a stock, you should have so much conviction you would bet a HUMAN LIFE on it. so taking out a loan is child'splay
These are the best equity market conditions I have ever seen to dump your loan into. You can trust me I'm a markets expert and I work for Goldman Sachs.
Margin account + long SPY = win
Does your country allow limited liability corporations? Can you create one and have IT take out a loan without you serving as guarantor?
It's ok to have a market view but it's smart to protect yourself from personal liability if that view blows up in your face.
if you end up losing it all, just leave the country.
actually, don't even gamble it on the market - just leave the country with the money. wtf are they gonna do? sue you?
This is a great idea. You're probably the first person to ever think of this. You better patent the idea before someone steals it.
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