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Borrowed money from the bank to Invest in stocks

159 replies

Jitster · 30/03/2024 09:28

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.
.
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?

OP posts:
UnbeatenMum · 31/03/2024 13:09

I've got a substantial amount of money invested in the stock market and I invest for my children too but I wouldn't ever advise anyone to borrow money for this purpose. I would say pay off your debts first, then save a decent cash buffer, then consider investing. You just don't know what might happen globally (war, natural disasters, financial crashes, terrorist incidents) that will affect the value of your investments and you don't know what will happen in your life either (redundancy, ill health, disability etc).

Soontobe60 · 31/03/2024 13:15

In reality, by my reckoning, you’ll pay around £7k in interest.
So, actually you’ve borrowed £47k, immediately lost 50% of it, invested £16.5K which has increased in value to £19k - so £2.5K. In real terms this is a loss of £28,000. Factoring in the increase in the COL over the past 4 years, you would now need £48.5K for the same purchasing power as your initial £40k. If you include the interest, that rises to £57K.

Your best bet is to pay off as much of the loan as possible now by utilising the gain from your remaining investment, which will reduce the impact of interest you pay, and step well away from the investment market!

Dartwarbler · 31/03/2024 13:29

Jitster · 30/03/2024 22:40

But if the ETF is gaining 11% on average annually, doesn't it make sense to grow the ETF? The loan will end in 2030.

11% annually? Then you’re still investing in hugely high risk investments.
it’s is highly unlikely you’ll achieve 11% annually for another 7-10years. Markets will decline even in a diversified fund.
jeez, I’ve only just got back what I put into my very diversified and middle risk funds that they were valued at in 2018. Market has been very slow. But I’ve had them for years, and am sued to seeing rises and falls, and cash in only when the long term picture says they’re doing well.

whilst you’ve learnt a hard lesson, I still think you are taking massive risks for someone who really does have much in way of assets. High risk finds and stocks are for the very wealthy who can afford to take a £10k loss without batting an eyelid. You are behaving like a millionaire and not like someone who actually has very little in assets when you offset against debt.

HumanRightsAreHumanRights · 31/03/2024 13:37

OP, you appear to have some of the words and none of the understanding.

You should only do these things with money you can afford to lose.
If you are in a low income tax bracket, then you don't have that sort of money to lose.

You are massively in debt and on track to be in more, leaving money in a bank account that is devaluing on a daily basis while paying interest on a loan.
Clear the debt and you'll walk away in the best position you have half a chance at.
You are prey in a predators market.

Some people should not even dabble in investing without a financial advisor to help them and you are one of them.

Even if you made 11% on a fraction of it now, it is no guarantee it won't make a loss next year and every year after.

Get out of investing, you don't have the right attitude for it.

No decent professional would advise a client to get a loan to day trade or do anything in the way you have done.

You are going to get burned far more than you already have and you don't seem to be understanding you are still losing money on a daily basis.
You didn't borrow 40k, you borrowed 40k PLUS about 8.5k interest, PLUS whatever payment protection insurance you have taken out to cover it, PLUS the loss of having access to that money or that credit facility to use in more profitable ways for a decade, PLUS PLUS PLUS.

I hobby invest in precious metals and they are doing very nicely for me (especially at the moment), but the money I put in is money I can afford to lose.
I also collect coins anyway, so it grew out of a personal interest and broad knowledge base on the subject.
I do that myself because I'm fairly risk averse but I know what I'm doing.
For everything else I use an expert because I know I don't know enough and life is too short for me to learn enough to do that too.

In the PM community, you'd be a silver stacker talking about silver going 'to da mooooon!'
They are the ones who manage to make a loss buying fake coins on ebay sure they've scored a bargain, or paying the VAT on buying common high run silver and wondering why they can't get their 'investment' back when they try to sell.
They've been screaming that for decades, but silver has only gone up about 13p an ounce in the past 5 years, so it's actually worth less now than it was if you didn't buy the right pieces.

Stop watching Tik Tok or YouTube or wherever you are getting these dumb ideas from and take a course on finance while you sort out the mess you've made for yourself.

Jitster · 31/03/2024 15:06

UnbeatenMum · 31/03/2024 13:09

I've got a substantial amount of money invested in the stock market and I invest for my children too but I wouldn't ever advise anyone to borrow money for this purpose. I would say pay off your debts first, then save a decent cash buffer, then consider investing. You just don't know what might happen globally (war, natural disasters, financial crashes, terrorist incidents) that will affect the value of your investments and you don't know what will happen in your life either (redundancy, ill health, disability etc).

The loan will get written off, if I lose my job or have health issues. I have loan protection, so I'm not worried about that.

OP posts:
Soontobe60 · 31/03/2024 15:17

Jitster · 31/03/2024 15:06

The loan will get written off, if I lose my job or have health issues. I have loan protection, so I'm not worried about that.

That’s even worse!!! You must be forking out a pile of money for loan protection.

Hitchens · 31/03/2024 15:25

Jitster · 31/03/2024 15:06

The loan will get written off, if I lose my job or have health issues. I have loan protection, so I'm not worried about that.

what kind of protection writes off a loan if you lose your job? If that product exists it mist be stupidly expensive. Under what circumstances do you have to lose your job for it to pay out?

You need to clear the loan ASAP. You are counting on future gains in your ETF to outweigh your loan costs. I hear a lot of people talk about 'average' returns on index funds like its bullet proof, it really isn't.

This is going to be an expensive lesson for you to learn. However, I bet you £21k it won't be the last...

HagBitch · 31/03/2024 15:26

OP, what do you want from this thread? You seem to have decided what you think, and not to be listening to anyone.

CurlsnSunshinetime4tea · 31/03/2024 15:32

So @Jitster four pages in what have you decided to do?
I’ve tried to keep up and you seem to be leaving things as is for now?

WalkingThroughTreacle · 31/03/2024 15:51

IDontHateRainbows · 31/03/2024 02:22

I'm neither a gambler nor an investor myself but can someone explain how what the OP has done isn't gambling?

There is an element of subjectivity to it and different people will have different interpretations. The higher the level of uncertainty and risk the more the activity moves from investing to speculating or to gambling. For me, things like day trading, cryptocurrency, traded options or other highly leveraged products are at least speculating. More often than not though, the individual understands what they are doing far less than they like to believe and also compound high risk products with a high risk strategy and that takes them firmly into gambling territory.

From the information the OP provided they were following a very high risk strategy. I don't even need to know what stocks they were day trading or what their day trading strategy was. The fact that day trading was their primary activity and not only involved the bulk of their capital but that they actually borrowed to fund it makes it a high risk strategy. That makes it gambling IMO. They can delude themselves all they like, and they won't be alone because plenty of naïve get-rich-quick hopefuls do exactly that, but it's gambling by any sane person's definition.

Jitster · 31/03/2024 17:27

Soontobe60 · 31/03/2024 15:17

That’s even worse!!! You must be forking out a pile of money for loan protection.

No not really only £23.75 pm.

OP posts:
Jitster · 31/03/2024 17:38

CurlsnSunshinetime4tea · 31/03/2024 15:32

So @Jitster four pages in what have you decided to do?
I’ve tried to keep up and you seem to be leaving things as is for now?

Well I'll definitely move the cash savings to an online account earning close to 5%.

I'm going to book an appointment and see a Financial advisor.

OP posts:
CurlsnSunshinetime4tea · 31/03/2024 17:40

keep us posted on what they suggest

Tombero · 31/03/2024 19:45

Jitster · 31/03/2024 17:27

No not really only £23.75 pm.

So another £2,850 over the life of the loan? On top of the 4%?

Gonnagetgoingreturnsagain · 31/03/2024 19:47

Jitster · 31/03/2024 17:38

Well I'll definitely move the cash savings to an online account earning close to 5%.

I'm going to book an appointment and see a Financial advisor.

You trust financial advisors?! I don’t after one who was recommended to me advised me badly then ran off. Luckily not with my money.

Jitster · 31/03/2024 21:42

Tombero · 31/03/2024 19:45

So another £2,850 over the life of the loan? On top of the 4%?

Yeah, sort of like an Insurance policy.

OP posts:
Jitster · 31/03/2024 21:43

Gonnagetgoingreturnsagain · 31/03/2024 19:47

You trust financial advisors?! I don’t after one who was recommended to me advised me badly then ran off. Luckily not with my money.

I don't rely on one advisor, I'll see 2 of 'em.

OP posts:
MugLove · 31/03/2024 21:57

Oh no, was it a wind up? 😭

HagBitch · 31/03/2024 21:58

MugLove · 31/03/2024 21:57

Oh no, was it a wind up? 😭

I mean, I nearly hope so 😄🧐

JustHereForTheDeletionMessageAgain · 31/03/2024 22:00

Where will you look for a financial advisor OP and how will you know if they are a good one?

Jitster · 31/03/2024 22:30

JustHereForTheDeletionMessageAgain · 31/03/2024 22:00

Where will you look for a financial advisor OP and how will you know if they are a good one?

I have contacts through friends and colleagues 😉

OP posts:
FiveShelties · 31/03/2024 22:46

Haha - good one OP - you got me. 😂

MissLucyx · 31/03/2024 22:47

“Stocks” Hmm 2020? Do you mean Crypto OP? My partner also lost us a lot of savings in Crypto.

Tel12 · 31/03/2024 23:04

I think that you need to liquidate your savings and pay off your debts. The stock market is generally doing well at the moment but there's no guarantee this will continue and any gains lost. You can then start to rebuild your savings. You will be able to save your insurance too. BTW you do know that financial advice is costly?

Jitster · 01/04/2024 07:06

MissLucyx · 31/03/2024 22:47

“Stocks” Hmm 2020? Do you mean Crypto OP? My partner also lost us a lot of savings in Crypto.

No Crypto, just US stocks.

OP posts: