Repaying a loan is the best investment
Many people borrow money to invest and that is a waste; after all, repaying a loan is the most profitable investment. The interest rate on a loan is so high that the cost of the credit does not outweigh the risks of investing.
What is a realistic return?
How much you can earn with an investment cannot be said with certainty. It is, however, the case that a higher risk is associated with a higher potential return. In a savings account you will receive two to three percent interest, with bonds you earn between four and six percent and with stocks you can achieve up to twenty percent return.
When we compare the potential return with the cost of a loan, investing with borrowed money seems interesting at first glance. On a personal loan you often pay around seven percent, and by selecting good stocks you could therefore make a profit on this loan. The only problem with this way of investing is that it is extra risky.
Stocks and borrowing money
The return on stocks is in no way guaranteed. Although the prices have risen sharply over the past hundred years, there were also decades in which the stock exchanges did not find their way up. In such a case, it is wise to keep the stocks for a longer period of time; when you have to pay off a debt, this is not possible. The potential return on an investment therefore does not outweigh the risks.
It is more sensible to simply repay your loans or not to take out loans in the first place. That way, you save seven percent interest costs on an annual basis and that is a return which would make many investors jealous.
Borrowing money anyway? Do it with leverage!
Still want to borrow money to invest? Then do it in a controlled way by means of leverage. By investing with CFDs, speeders or turbos, you can invest with leverage. The bank then finances most of the position so that you can earn a lot of money on the stock market even with a small amount.
That way you cannot lose more money than your bet (the position is automatically closed before your credit runs out) while you invest with borrowed money. Before you invest with leverage, it is wise to first read more about CFDs in our category on this subject.
Try trading risk free?
When I was 16, I secretly bought my first stock. Since that ‘proud moment’ I have been managing trading.info for over 10 years. It is my goal to educate people about financial freedom. After my studies business administration and psychology, I decided to put all my time in developing this website. Since I love to travel, I work from all over the world. Click here to read more about trading.info! Don’t hesitate to leave a comment under this article.