I wish I had a ton of extra cash saved up that I could invest, but the reality is that I only have a few months of living expenses saved up. I’m in pretty good financial shape right now, but I’m not debt-free. If I lost every penny of the $10,000, that would suck, but it would not “wipe me out.” If I lost my job for some reason, I’m confident I could find work fairly quickly given my experience. Only thing that would screw me bad is if I was seriously injured or hospitalized, preventing me from working. That could impact my ability to pay back the debt. Even though I don’t expect something like that to happen, you never know.

I actually did a decision matrix on this, comparing borrowing $10k, $5k, borrowing nothing, or spending all of my savings. I varied the weights, and the results were always the same: not borrowing appears to be the best option. But it’s so tempting. And yes, it is a big gamble. Perhaps it’s similar to the type of financial behavior that got our nation into the current economic mess. It goes against my own personal rule of finance, never taking credit on something. If you don’t have the money, you can’t afford it yet. At the same time, I wonder if I can afford to miss out on a big and easy earning opportunity. The answer is, of course, yes. I lose nothing by gambling nothing. And there are, undoubtedly, less risky ways to make big profits. But the greed kicks in, and I think, “Wouldn’t it be nice to suddenly have a down payment for a house.”

I may compromise with myself and borrow just $5,000 instead of $10,000. If I do earn something, I’ll be sure to donate a portion of it to charity.

As a beginner investor you have know idea how you would react to a loss. I’d say after you’ve been investing for five years then you can figure out if you’d like to invest on margin.

Also, read “The Intelligent Investor” before you do start.

Still haven’t gotten back some of the money I lost when the internet bubble birst. Maybe I didn’t invest in the right stocks, maybe I have too much in my company’s stock, maybe I didn’t sell in the right time. But you cannot expect to always guess right. Nor can you count on the index performance – just look at 20 years preceding 1987 crash.

The answer to the second part of the question is that the balance you carry on credit cards will stop negatively impacting your credit score when you pay it off.

At that point, you’ll be building credit history and it will positively affect your credit score.

borrowing to execute a margin call isn’t any different than borrowing from any other source, nor is it any different than choosing highly volatile penny stocks versus blue chips, nor is it different than investing in stocks or funds versus putting money in cd’s or interest bearing accounts. The difference is in the degree of risk you are willing to tolerate. you can leverage many more shares if you borrow, but again you have to weigh the risks involved. those of you who wrote NFW or it’s absurd to borrow money, just do not have the higher risk tolerance levels. people and companies borrow every day to leverage more buying power. if you invest in real estate, you are doing the same thing by borrowing.

if you are going to borrow, you definitely need to do research as you normally would when investing. if you are going to do it off a “hot stock tip”, i’d say you probably are setting yourself up for failure but that is just me. in your case, if you have sufficient money to cover, i personally would do it especially with 0%. i would look at high yield dividend companies if you want to take less risk. i am currently doing this.

i’d also probably look more into borrowing as a back stop to covering margins rather than direct borrowing to invest. this way you can mitigate some losses by putting the borrowed money in t-bills or high yield savings or laddered cd’s.

Yes, you can borrow money to earn higher returns (such as on investment properties). It’s called using leverage, and allows you to get significantly higher returns, or significantly worse losses.
It’s worth pursuing only if you can handle the losses. Someone who doesn’t have enough money to invest in the first place clearly can’t handle the losses.

People borrow money to invest all the time. How about:

Houses
Investment Properties(apartments and what have you)
Businesses
Higher Education

Then there are the things that will definitely decrease in value:

Cars
Credit Card debt(how about that night at the bar 2 years ago? what’s that worth now?)

Is investing in the stock market with borrowed money worse than going into credit card debt? At least the stock market might increase in value.

Just a thought.

But, I did take out $1,500 extra in student loans one semester to max out my IRA before April 15th? I had it all paid back within 2 months. I knew the money was coming I just had to wait for it. Sure I paid 8% interest on $1,500 for 2 months but the key to this equation was time, something that I could not have gotten back. And the positive was that for those 2 months I earned more than 8% interest, so it turned out win win but I was not expecting that.

I’ve been looking into cc arbitrage and the prospect for earning high interest rates is very tempting. Being $50,000 in debt on top of my current debt is something I can’t and don’t want to deal with now. So it’s either savings accounts or CD’s for me, or none at all.

Can’t echo it enough – bad, bad idea.

A few key points:
- IRA earnings are not subject to capital gains.
- The original principal investment can be deducted without penalty
- I plan to diversify my portfolio between several stocks
- I can sustain losses up to 20% without major calamity, though I defintely don’t want to.

Also, I regularly contribute hard earned cash into my IRA, but the opportunity to get a large lump sum to play with, in my opinion, shouldn’t be passed up. That losing on this deal will “hurt” motivates me to make it a winning deal. Finally, no matter what, I will pay off the entire amount I borrow before the 0% period is up in order to not incur any finance charge.

What an incredibly stupid thing this would be to do. Sam, don’t do it dude! If you’re debt free, then take money out of your paycheck and invest it. Do not go into debt to invest!

I could see doing this in a small way–technically anyone who’s carrying a mortgage and has a non-retirement stock portfolio is doing this. But like any risky investment, you need to caveat it with the standard “don’t invest money you can’t afford to lose”.

In general though, for the vast majority of people, I think the idea of borrowing money specifically to invest just doesn’t make sense. The potential rewards are not worth the very real risks.

In the specific case of this person’s question, they’re in a great position having no debt, and can invest their spare income without incurring debt. Why take the risk of losing that great position, becoming mired in debt for what I would describe as a small potential increase in return?