Does anyone have experience in taking a \~200k loan to invest in index funds? Where I’m from personal loans up to \~500k charge 2% per annum for up to 5 years.
Assuming that the average returns around 9-10% from a bunch of index funds, I’ll be able to gain the margin of 6-7% per annum.
I’m wondering if anyone has done this / can share their advice on whether this theory works in a real world setting.
Am fresh out of college so if this sounds silly, please kindly educate me on why it won’t work. Thank you!
Anyone took a loan to invest in index funds?
byu/WillingMemory4997 ininvesting
Posted by WillingMemory4997
16 Comments
What currency is the loan in?
Sorry OP, this is really dumb and dangerous. Don’t do it please…
This works out (on paper) when the average return is 9-10%. However, this is across a very long time horizon. A bad year or set of years will completely destroy you.
Plus, don’t forget that you have to pay taxes on the assets that you sell to cover the loan. IE, you get extremely lucky and capture years with positive growth, but you still need to cover the loan costs. So you sell, take a 30% short term cap gains haircut, then cover your loan + interest, and you’re left with what? Maybe a 1% gain?
Not worth it. This is speculation, not investment.
What country? I have never seen personal loans at such low rates. Most are collateral bound (house/car/etc)
1. no shot an unsecured personal loan has rates that low.
2. 5 years is a short horizon for stocks. you could easily be wiped out if you have to cover in that time.
3. even if you do somehow succeed, short term capital gains will take a big bite.
the upside isn’t worth the downside.
Those loans are not real, nobody will give it at 2%
I sold my apartment and kept the proceeds and got a new mortgage with my wife for our house.
Technically, that’s loaning money for investing. But i doubled it now so it’s fine.
The five year timeline could wreck you and I wouldn’t do it.
If you could actually borrow at 2% and invest it in a Schd type with a ten year horizon I’d do it.
We’re in what appears to be the final, last gasps of a decade-plus bull market and bro is saying, “Load me up with debt for a speculative play, bros!”
You don’t have to answer this but thinking out loud, Who is going to give a 21 year old a $500k loan? Many of the 21 years old I knew were struggling to get credit cards.
And at 2%? I have a near-800 credit score and a six figure income and I can’t get anywhere near that.
But I’ll also add my voice to the chorus: This is a TERRIBLE idea. What happens if the market goes into recession? Not only does your debt payment stay the same, but now your portfolio is losing money.
I thought I was in wallstreetbets for a second.
Why only borrow 200K? Why not a couple millions?
At that rate you’d be losing money not borrowing up to your eyeballs.
You’re fresh out of college and think you can get a 200k loan?
Also, don’t do this. It’s really risky and a great way to ruin your finances.
“Where I’m from personal loans up to \~500k charge 2% per annum for up to 5 years.”
Are you sure you are not paying 20 points in fees? This sounds like a scam.
“Am fresh out of college so if this sounds silly, please kindly educate me on why it won’t work. Thank you!”
Not a single non-scammer in this green earth will lend you 200K USD at 2% ADR. I won’t even lend you 10K at 100% interest rate. No collateral, no income = super duper subprime deadbeat total loss customer. You are not getting terms better than a junk credit card with 2K limit.
I think you may be reading it incorrectly, they probably advertised to you the monthly interest, like credit cards that are ONLY 2% interest on a monthly basis
isnt that what Margin is for?
this works in theory but real markets are volatile. taking on debt adds risk, especially right after college when your income and stability might not be solid.