Is it common for people to take out a loan to put towards their investments?

[7thLetter]

Lately I've been thinking of using debt to my advantage in order to grow my money, because it seems that's how most people build wealth, through leverage.

Of course it's common for people to borrow money to buy real estate, and I believe that's how the majority of millionaires are made. But is it common for people to borrow money to invest in the financial markets such as stocks or crypto for example?

Personally I haven't thought of this until recently. I've been using my own money to trade & invest in the markets when I could've used credit this whole time. I'm someone who hasn't ever taken out a loan in my life and I'm 25. Luckily my credit score is pretty decent, and I've been paying everything off with my own money. I try to minimize my expenses as much as possible though of course so I haven't really found a need to borrow money.

Obviously there's more risk involved, and high interest rates, I understand that.

Interest rates are usually 17-22%, so if I could put my money somewhere that will get me a decent ROI which is greater than the 17-22%, then it could actually work out.

Any of you have any advice or personal experiences with this that you'd like to share?

[Thought Art]

? you wont get a return over that interest

[Leo Gura]

This is a horrible idea.

You will lose that money and then you'll be double fucked.

There is no investment that can reliably return 17-22%!

The best you can expect from Wall Street is 10-15%. And then you gotta pay tax on top of that and there is inflation.

If anyone is promising you a 20%+ ROI they are scamming you. That kind of ROI can only come from being personally involved in running a business. And even then most businesses fail.

The best money managers in the world only aim for like 20% ROI. Aiming for anything higher will end up backfiring and losing you money. There's no free lunch. Stop expecting to leech value.

Even if you could get a loan at 5%, I still wouldn't do that to invest in Wall Street. A credit card loan is an automatic loser. Only idiots take out credit card loans.

[hyruga]

Why would interest rates be so high? I thought right now, interests rates should be at record low due to several rounds of QE (Quantitative easing)

[Roy]

That's called Margin trading and it's extremely fucking stupid, don't do it.

Do not do it.

DO. NOT. DO IT.

[Tudo]

Don't do it, bro.  I lost a big percentage of my money on my TD Ameritrade account using margin trading.

[7thLetter]

3 hours ago, Roy said:

That's called Margin trading and it's extremely fucking stupid, don't do it.

 

3 hours ago, Tudo said:

 using margin trading.

Margin trading is sort of different though, that's where you "borrow" money from a broker to magnify your existing capital. I don't see it as literally borrowing money because they don't literally hand you the money. And you could never get to a point where you can lose that "borrowed" money because losses are only limited to 100% of your own capital. So with margin all you're doing is amplifying your gains & losses without literally borrowing money. And yeah it is stupid cause I've traded with margin/leverage before and I've lost a lot of money.

But I'm talking about taking out a loan from the bank or using credit card debt to invest for the long-term, not to make short-term trades.

I've been thinking about it though these past couple hours, and it's probably not the best idea. Maybe though if I could pay 100% of it off in a short period of time but I think I'm better off just investing my own money over the months with every single paycheck.

To be honest though, if market prices get extremely low, buying with credit is a risk that I'd be willing to take. Obviously not now though, prices across all financial markets are way too high.

[Girzo]

It's only a decent idea if there are good government incentives for buying your first house or something. Then it's okay to take that loan and invest in that property, otherwise bad idea.

[Consept]

The only way it could work is if you took a loan with a really low interest rate, say under 2% and with a term of 10 years or more and you just put the money in and leave it but pay back the monthly payments with your own money. 

I did actually get a business loan during the pandemic backed by the goverment at 2% interest, all the terms are very favourable like payment holidays or extending the term to lessen the payment etc. But it just made more sense to invest in my business, although I am putting some of the profits into the stock market. With this kind of loan it would make some sense over a minimum 10 year period. 

With normal loans though and especially the kind of 20% loans you're talking about, I can't see how that would work. If you're doing it passively in etfs and indexes you'll make max 15%. If you're trading in crypto or day trading you're basically loaning money to gamble which is as risky as it gets. 

If I were you I'd keep putting in your own money monthly, if you do this for 10 years you'll be setting on a nice amoumt. 

[Leo Gura]

Margin trading is actually superior to credit loan trading.

[Nahm]

16 hours ago, 7thLetter said:

Lately I've been thinking of using debt to my advantage in order to grow my money, because it seems that's how most people build wealth, through leverage.

Of course it's common for people to borrow money to buy real estate, and I believe that's how the majority of millionaires are made. But is it common for people to borrow money to invest in the financial markets such as stocks or crypto for example?

I’d look more into realestate if you’re interested, leaving preconceived notions behind. Borrowing money to invest in the market is not only not a mathematically viable idea, regulation actuality prohibits brokers from doing it for you. (Reference is to credit, not all loans). 

Quote

Personally I haven't thought of this until recently. I've been using my own money to trade & invest in the markets when I could've used credit this whole time. I'm someone who hasn't ever taken out a loan in my life and I'm 25. Luckily my credit score is pretty decent, and I've been paying everything off with my own money. I try to minimize my expenses as much as possible though of course so I haven't really found a need to borrow money.

Obviously there's more risk involved, and high interest rates, I understand that.

Interest rates are usually 17-22%, so if I could put my money somewhere that will get me a decent ROI which is greater than the 17-22%, then it could actually work out.

Any of you have any advice or personal experiences with this that you'd like to share?

I mentioned before that you didn’t really know what you want. You are now more knowing what you want. It’s money. You are yet to connect the dots on doing what you love, making content, and how to hook people in to ‘establish & grow your base’. No one who has done so is being honest with you in how they did it, and you’re too honest & innocent to notice or realize this. You gotta learn to relax the bodymind so you keep probing without tensing, rather than ‘throwing your hands up’ so to speak. <- that is how you’re ending up going down these whacky desperate idea roads (investing credit). When you have more questions, unanswered concerns in your strategizing… keep asking questions! Don’t stop until you’re crystal clear and understand everything on your mind, every arising question. 

[7thLetter]

10 hours ago, Leo Gura said:

Margin trading is actually superior to credit loan trading.

I'd say both have their pros and cons.

A credit loan could be a useful tool for someone who wants to trade but doesn't have the money today so credit gives the option for them to pay in installments. Maybe for example there's a good deal in the market where prices crashed 90% and so they wanted to buy but didn't have the cash on hand so they decide to get a loan. But of course like you pretty much said, they still run the risk of losing all that money then they'd have to pay it all back + interest.

So I agree a credit card loan can be an automatic loser, but it's a slow burn of X% per year. If they could find some way to flip that money and become profitable then it could definitely work out. Maybe it won't happen in the stock market but I could see it happening if they know how to flip cars, housing, smartphones, collectibles, etc. 

Whereas with margin, you don't have to pay back the borrowed money or any interest so in that case it is superior to credit, but you'd need to have your own capital to even begin with. Plus you could lose your initial investment entirely within a single day or hour depending on how much leverage or margin you're using so margin really is playing with fire.

And of course their level of risk also depends on whether they're using the loan or margin to make long-term or short-term bets in the market. 

So whichever financial instrument someone finds superior to the other depends on the person and their situation. Both can be useful tools.

Personally though, I'd agree margin is superior to credit. The only situation credit would make sense is to use it as a tool to buy real estate or start a business, or item flipping if they have the skills.

[7thLetter]

11 hours ago, Nahm said:

I’d look more into realestate if you’re interested

I'm going to look into it some more.

Housing prices in my city (Vancouver, BC) though are unaffordable so it's almost impossible to get into real estate out here. I think we're somewhere at the top in the world's most expensive housing market list.

Housing in Alberta though is really cheap so if I'm going to get into real estate I'm definitely going down there.

11 hours ago, Nahm said:

I mentioned before that you didn’t really know what you want. You are now more knowing what you want. It’s money.

I thought last time you were just asking me rhetorical questions for me to contemplate on.

But it is true, money for me is the main focus. But like you said I have yet to connect the dots, although I do think I'm getting there.

When it comes to the content that I make, I think it's important for me to set the intention of doing it for the benefit of others rather than my own or doing it as a way to try and get quick money.

11 hours ago, Nahm said:

You gotta learn to relax the bodymind so you keep probing without tensing, rather than ‘throwing your hands up’ so to speak. <- that is how you’re ending up going down these whacky desperate idea roads (investing credit).

I've definitely been down this road of desperation, trying to make a quick profit but it has never worked out. And the more and more I get burned the more it's starting to become clear for me that this certainly isn't the way, so I'm definitely getting there. Slow and steady.

[AdamFriedman]

The only way that could work is if you obtained a loan with a very low interest rate, say under 2%, and a period of 10 years or more, and you just put the money in and leave it, paying back the monthly installments with your own money. During the pandemic, I was able to obtain a government-backed company loan with a 2% interest rate, and all of the terms were quite favorable, including payment holidays and the ability to prolong the period to reduce the payment, among other things. But, while I am investing some of the profits in the stock market, it just made more sense to invest in my business. This type of financing would make sense over a ten-year term at the very least. If I were you, I'd maintain depositing money into your own account on a monthly basis; if you do this for 10 years, you'll have a decent sum.