Today, I had an idea of sort, not sure if its good or bad (I'm hopping good) but its definitely and idea.
Before I start Id like to mention that I am in an ok situation, I have my apartment paid off, car paid off, some money stashed away for a rainy day and also money invested into the stock market with a portfolio up 40% in the last 2 years so I'm doing fine.
With that being said what's stopping me from taking out a a 5 year loan of like $25k-$50k and putting it all in the stock market, I'm not talking about random stocks but a solid ETF, either way the plan would be to not touch it for like the next 15 years. I have no other loans and I could handle the monthly payments or even pay it in like 1-2 years.
Here's my math:
- Let's say I take a personal loan at roughly 8% interest = borrow €25,000, pay back around €31,000 over 5 years
- If the market does ~80% over those 5 years (so like 12-13% a year, which is roughly what the S&P 500 has done historically), that 25k turns into about €45,000
- Thats roughly €14,000 in profit
I should mention that I'd be paying the installments from my monthly income, not from the investment – so I don't depend on the market to cover the loan.
Some risks I see:
- The market could drop right in the first few years and I wouldn't recover the investment in time
- The real cost of the loan could be higher than I calculated (fees, mandatory insurance, etc.)
- The psychological pressure of being in the red with borrowed money is very different from being in the red with your own money
Still, in the long run, statistically speaking, the market has always delivered positive returns over a 15+ years horizon, and I wouldn't be touching the money anyway.
Has anyone done this? What am I not seeing in this calculation? Any input is welcome.
The math says I should take a loan and invest it. The math is never wrong… right?
byu/mojokanojojo inStockMarket
Posted by mojokanojojo
6 Comments
You’re paying interest on that loan monthly. You’re not just taking out a loan and then paying it back 5 years later without touching the principal that is accumulating interest upon interest . You also need to have minimum payments that you will need cash to cover. Loans are guaranteed expenses whereas the stock market is not guaranteed gains. This is a terrible idea.
This is simply gambling
Horrible idea. This is what made the 1929 market crash and ensuing depression much much worse. People were levered to the gills to invest in the market because it “only went up.” Lives were destroyed doing this exact thing.
Please do it! Take out the maximum loan you can get! Nothing can go wrong! /s
Bad idea – don’t even think about it !
What if the market tanks and doesn’t recover for 10 years or more?
Did you factor in paying taxes on the gains before you pay the loans?
Walk away and drop the idea
You can afford to pay a loan with interest you can afford to just take that money and invested directly in the stock market yourself. At the end of your 5-year plan you owe no one anything.