anyone taking out loans to buy stocks?

[dmcummins]

This was a popular topic a few years ago. Taking interest only loans, or long term loans, instead of paying off your mortgage. For me since I was getting ready to retire it made more sense to pay off the mortgage as I wanted to reduce the amount of income I needed. And it was a guaranteed return. It looks like I was fortunate as I would surly be 30% or more down currently, like the rest of my investments.

But now with the market down and talks of morgage rates dipping below 5% is anyone considering this?

Personally I am thinking more on investment property or a vacation home in Florida, but that's me.

[masraum]

that seems insane.

[KFC911]

Originally Posted by masraum

that seems insane.

There's a reason it seems that way...it is imo

[competentone]

Originally Posted by dmcummins

This was a popular topic a few years ago. Taking interest only loans, or long term loans, instead of paying off your mortgage. For me since I was getting ready to retire it made more sense to pay off the mortgage as I wanted to reduce the amount of income I needed. And it was a guaranteed return. It looks like I was fortunate as I would surly be 30% or more down currently, like the rest of my investments.

But now with the market down and talks of morgage rates dipping below 5% is anyone considering this?

Personally I am thinking more on investment property or a vacation home in Florida, but that's me.

You are talking about using debt to leverage yourself. Leverage can work to make your investments more profitable if the trade goes as you expect. Leverage can also work against you; as many people have learned during this period of declining real estate prices.

That said, with the amounts of fiat currencies central banks around the world are creating, there is no question that we will be entering a period of severe price inflation. Generally, if you can lock in fixed interest rate debt, that you know there is no risk of you defaulting on, you can do well with debt during price inflation. You borrow expensive dollars today, and pay back with cheap dollars later.

The risks are if you make a mistake in the area you invest the borrowed money, or if you cannot make the payments on the loan and go into default. And now there is a new risk: That criminals, with political pull will use the government to pass laws which will "screw you" an mess up your carefully organized investment plans.

With the actions the government has been taking this year -- which have been focused solely on bailing out big-wig Wall Street tycoons, and screwing over the middle-class public -- I think it would be particularly dangerous to attempt to use the leverage potentially available to you through the banking system.

You may make a "smart move" by getting a mortgage at a fixed 5% interest rate and end up "making money" on your loan when price inflation rates go to 15-20%, but you may then see a situation where the banking industry lobbies Congress to pass laws which re-writes your mortgage contract forcing you to pay a variable interest rate that keeps pace with inflation.

As has been so clearly demonstrated this year, the U.S. government has been taken over by criminals. These criminals are willing to steal hundreds of billions of dollars from average Americans, no matter how much the public opposes the theft. (Consider the overwhelming public opposition to the $700 billion Wall Street bailout, yet the bailout was still made law. Paulson and his gang of Wall Street thugs are in control of Congress.)

Don't think that you can use the system they have created, entering into contracts with the criminal banking industry, and come out ahead.

They are dirtier and more rotten than you can imagine.

[dmcummins]

Originally Posted by masraum

that seems insane.

There were many here a couple of years ago saying it was foolish to pay off a mortgage when you could easily make 8% or more in the market. Now with the market lower, and interest rates also lower, it would seem that it makes more sense now than a couple of years ago.

I'm hoping no one actually did it.

[pwd72s]

Never considered it. Never would. Simple in your head numbers crunching suggests this is foolish.

[dmcummins]

I can't say that I have never done it. I used a home equity loan one time to buy some land. I ended up making a very nice profit on the land. I then paid off my total mortgage. I don't see anything wrong with moving money from one asset to another. It would have to be a very good deal for me though. Stocks are just another investment. I'm also not saying now is the time to buy stocks though.

[KFC911]

I've also used a HELOC for investment purposes, but I would NEVER consider buying equities in that fashion, but that's just me.

[YTNUKLR]

Yes, you could be up some $. As far as costs to your sanity worrying and potential negative life implications, buying equities now with credit is an extremely bad idea. Warren Buffett bought Goldman last year at $115, it's at $70 now. Just saying, even the brightest investors don't always get it right, and the chances that you will are slim.

Keep your fixed rate mortgage, work it off, live the good life.

[KFC911]

My take on equities...if you can't afford to lose it ALL, then don't (so borrowing doesn't fit into that equation for me).

[vmax]

This is what a lot of people did before the Great Depression.
I guess some people never learn.

[HardDrive]

Insanity.

[Craig 930 RS]

3.9% general loan from B of America

[onewhippedpuppy]

Worked out well 2 years ago for those buying "can't miss" SoCal real estate.

[Don Plumley]

It's really not that black and white. Using leverage on any investment has its risks and upsides. A home is an investment with specific tangible attributes (you get to live in it). With the notable exception of the past couple of years, it's been a solid investment that tends to appreciate more than the debt costs which provides the benefit of leverage.

Using a margin account (or even a direct loan) to purchase equities is not much different than for your home, but the risk/reward profile tends to be much different. Consider that Craig appears to be able to get a 4% loan. GE is paying a 7% dividend at $17 (it was effectively 10% when I bought it at the bottom a few weeks ago). Despite all the issues, I'm pretty confident GE will pay a dividend for the next year - so that's a net 3%. If the dividend rate falls, that's because the stock went up, not a bad thing. You can sell covered calls to further protect your downside (not naked calls, not buying calls) if you want.

I'm not advocating anyone go into debt to purchase equities. I am saying that a dispassionate approach to your investments is appropriate. YMMV.

[einreb]

Originally Posted by Don Plumley

It's really not that black and white. Using leverage on any investment has its risks and upsides. A home is an investment with specific tangible attributes (you get to live in it). With the notable exception of the past couple of years, it's been a solid investment that tends to appreciate more than the debt costs which provides the benefit of leverage.

Using a margin account (or even a direct loan) to purchase equities is not much different than for your home, but the risk/reward profile tends to be much different. Consider that Craig appears to be able to get a 4% loan. GE is paying a 7% dividend at $17 (it was effectively 10% when I bought it at the bottom a few weeks ago). Despite all the issues, I'm pretty confident GE will pay a dividend for the next year - so that's a net 3%. If the dividend rate falls, that's because the stock went up, not a bad thing. You can sell covered calls to further protect your downside (not naked calls, not buying calls) if you want.

I'm not advocating anyone go into debt to purchase equities. I am saying that a dispassionate approach to your investments is appropriate. YMMV.

Yup... at some point its just a debt and asset and can be part of an overall allocation strategy. You think you 'own it'? Stop paying property taxes.

[RWebb]

if anybody does this - be SURE top figure into your future tax costs the amount to pay down the loan

you are going to need a higher income to pay off the loan - right?
- that means higher taxes & maybe a bracket jump

[Wickd89]

Margin Call!

The Dukes have had a seat on the board since the exchange was founded!
Turn the machines back on! turn them back on!!!

[rammstein]

Sounds like a very very bad idea.