Investing with a Loan

[Nomad]

Sometimes, people borrow money to invest in property, stocks, or mutual funds. When the market goes in the bull run, the value of your assets will go up, and you earn a return on your investment. You can pay back your loan with the profits from your investment. However, there is no guarantee that the market will go up.
Let's imagine a situation where borrow at a 5 percent interest rate and invest in the stocks. You were expecting that your stocks would give you 8 percent returns so that you not only pay back your loan but also earn some profits. But what if things don't go as planned? The bank might raise the interest rate, or the market could fall, and you might not make enough money to pay back your loan. In that case, you end up paying more for the loan than you're making from your investment.

 

[Riberet19]

I've heard too many people go bankrupt because of this, they take out a loan when the market is on a bull run and then they lose everything they invested and on top of all this they have to pay the interest of the loan, I think at the very least, if you're going to take out a loan to invest, you should have the amount to pay back on your property, just in case things got ugly.

 

[Nomad]

I've heard too many people go bankrupt because of this, they take out a loan when the market is on a bull run and then they lose everything they invested and on top of all this they have to pay the interest of the loan, I think at the very least, if you're going to take out a loan to invest, you should have the amount to pay back on your property, just in case things got ugly.

In my home country, a lot of people borrowed from banks and used the money to invest in the stock market during Covid. The market was going well, so a lot of people invested through loan. But now the market has gone down but their are continuijng to pay higher interest on loan

 

[deucher]

I made my first investments when I was only a student and did not have funds to invest, then I asked friends for funds and promised them that I would definitely earn because it is very easy and even promised them to give more than I took. However, then there was a crash in the Chinese shares where I invested a lot and I got scared and withdrew all the funds and I had to go to work to give them the funds so this is a very bad idea

 

[Grant]

It's a risk you take. Anyone who takes out a loan, takes that first risk. But, if they don't pay it off in due time, that's when it becomes a real problem. Using a loan to invest in something can work, but that investment needs to payoff otherwise you're going to be digging yourself an even bigger hole.

You need to be safe, plan things out, don't just take out a loan with the intent to invest it right away. Plan out your investment, don't rush anything.