Borrowed money from the bank to Invest in stocks

[Jitster]

Ok, I made a dumb mistake by borrowing money from the bank to Invest in indivudual stocks. I borrowed £40K at 4% interest rate. Now I'm left with 19K! And a debt of £32K. The 19K is now fully invested in Vanguard All world ETF. I also have £21K in savings.
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Should I pay this debt by selling the ETF and using savings? Or should I keep on paying the monthly loan repayment amount of £477 for another 6 years?

Why I'm reinvesting the dividends, thereby increasing the amount of capital that is compounding.

Same.

I'm baffled you'd gamble with borrowed money, but then I never have a hope of even borrowing that much.

I’m also very confused how you can know enough about finances to take out a loan, invest it, (lose some of it!), move it around and yet your savings are on such a low interest rate which is the very basics of money management

Reinvesting dividends, thereby the amount of capital increases. In other words snowball effect. Market go through peaks and troughs, overall the trend will be up over the next 25 years.

Pure lazyness, however I'll open an account at Skipton Building Society. I've identified the problem, I'll fix it. Better late then never eh.

I didn't gamble all of it though, if I was a gambler I would've pretty much lost all of it.

Compound interest and dividends are two completely different things.

Investing is a risky business with no guarantees of increasing capital or being paid dividends. You may be better paying off your debt and investing in a building society account which has a fixed interest. I have been investing for years it is very difficult to average 11% per annum, although I wish it was much easier.

Edited to add, I am amazed you got such a large loan, over such a long time and the lender did not want to know what you wanted the money for

Dividends are not interest. The difference really matters.

@Jitster I borrowed money about 6k 7-8 years ago and put them on mutual funds. The loan was 2-3% interest and the return of investment was about 5-6% annually. So, the amount of interest I had to pay on the loan was covered by the investment gain. Could you try to calculate how much the overall loan interest you had to pay (to full term) vs the potential (medium gain) return of ETF ISA? If you end up paying more interest, then it makes sense to pay your loan quicker.

If you are planning to leave the investment for as long as 25 years, why didn't you invest through a pension instead? Would have given you an extra 20% from tax savings straight away.

The total interest payment over the loan duration (10 years) would be around 8.6K. The "potential" ETF return would be higher than 4% pa.

Dunning Kruger in action.

Are you in the UK, because I'm not sure what you mean about 21% tax bracket?

If you are, I think you need to look at having at least some of your cash savings in a cash isa.

For savings not in a cash isa you are allowed to earn interest of £1,000 pa before you will have to pay tax on the remainder. I think with £21k in cash savings you will go above your allowance.

But, cash isa's don't tend to have as high interest rates as instant access, so you may want to split it.

I agree with previous posters, you really don't seem to understand your situation very well.

Thus is your gambling addiction talking.

Denial is not only a river in Egypt!

Are you in the UK, because I'm not sure what you mean about 21% tax bracket?

Scotland has a 21% tax bracket.

I pay the basic rate. I'm going to park the whole lot in an online high interest savings account.

I've identified the situation before it spiraled out of control. I have high confidence in the "All World ETF" this covers all corners of the world. I estimate the earnings should be greater than loan interest payment.

At basic rate you can earn £1,000 interest a year before you have to pay tax on the extra. So you need to keep an eye on it and stick some in an isa if you want to avoid this.

Thank you, that was very blinkered of me.

Fucks sake. How will it 'on average' pay you 11% a year over the next 6 years with certainty? There's really good data on returns over decades and that ain't the return to equity. And 6 years ain't the long term.

You're not knowledgeable enough to take risks with borrowed money.

You could definitely hang on to an ETF that you won't have to sell at the time of the bank loan running out. But you do know that investment values are cyclical, and when you need that money you could be down 20% or 30% or 40%?

The all world ETF is 64% American markets. the American market is currently over inflated and a big bubble, the chances of it continuing to rise in the way it has is very low.

You need you money in an isa so you do not pay any tax. Currently some isa have around 4 to 5% rate.

This is all a bit too much like the Dutch bulb crash.

The ETF might be rising now but it could easily fall too. I think you have a gambling problem even if you don't recognise it. I'd be selling stock while they are up and paying off loan using some of your savings too. Look for a good savings account. You sound too risky adverse.

You know the definition of a gambling addict isn't just someone who is crap at gambling and loses all their money. You're preoccupied with 'making' (read gambling)/ money, you're chasing your losses, you're borrowing money to gamble and you're making very bad decisions. My advice would be to seek help OP.

I don't need to worry about the next 6 years, my time horizon is 25 years. I'm pretty sure the ETF price would be higher at that time.

I have my emergency fund built up, I just need to transfer to high savings account. So I'm pretty much sorted. The loan is protected too incase something happens to me.

So I'm pretty much sorted.

Based on past performance, the OP is most definitely not "pretty much sorted". The level of ignorance is outstanding.

Agree I got a bit carried away, however I identified the issue and changed course. I'm now fully committed building the ETF for the next 25 years.