This is a question I hear asked often… is there ever a good reason to borrow money to invest it? Some people figure if they could borrow $10,000 at five percent interest and then invest it with a return of ten percent they should come out ahead. In theory, this does sound possible. In realty, there can be a whole different story.
The main problem is the risk involved in this type of venture, especially if you are borrowing more than you could easily pay back from a savings account. If your investment crashes and doesn’t bring you the desired return, you still have to pay back the debt. So, make sure that is something easy to do!
Most low interest rate loans are variable, and all investments that make a decent return tend to be volatile. When you combine this double risk, you could easily lose.
Ideally, you invest slowly as you have the extra money. This insures your investments are truly investments and not borrowed cash. It also helps you ride out the ever changing tides of fluctuating interest rates and stock prices.
I have seen people hear of some cool new investment scheme that could make them quick money. They borrow against their home, as the loans are easy to get and the interest rate is usually lower. They put $20,000 into this investment, and then when the scheme doesn’t actually turn a profit – they are still stuck with the $20,000 in debt. In addition, sometimes they can’t wait for the investment to turn around in time to keep making the loan payments. Then, there becomes the real possibility they could lose their home.
Don’t gamble with your money. Especially in this economy, you are likely to lose more than you are likely to gain.
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