Coming soon - Get a detailed view of why an account is flagged as spam!
view details

This post has been de-listed

It is no longer included in search results and normal feeds (front page, hot posts, subreddit posts, etc). It remains visible only via the author's post history.

19
Using a small amount of leverage to accelerate early growth?
Post Body

I have been learning more about personal finance over the last year, and am very drawn to the "boglehead" style of investing due to the low risk and nearly guaranteed high return in the long run (20 years). I understand why it is excessively risky when a person overleverages themselves and loses everything to a margin call. But what role can smaller amounts of leverage, say 1.25x, have in a boglehead style investment strategy?

For example, suppose I am starting a new career, have a stable income, and am not burdened by something like a monthly car payment and do not need or want a new car. Having little initially saved and wanting to get more of a head start, wouldn't it be a good idea to take out a loan for comparable to the value of a new car, and invest that money in the market (e.g. VTI) instead? The expectation would be that the return on the investment would beat the interest rate on the loan, so it would pay for itself, but even in the worst case scenario of a bear market, regular income would be able to cover the interest payments, and in the long run you end up with more equity no matter what. With dividend paying stocks or ETFs, this process would be very straight forward. Thinking in bigger terms than a car, one could take out a mortgage and invest a large sum in the market with little to no risk, assuming they can safely handle the mortgage payments. I guess that is basically the same as real estate investing, except you would be buying index funds, REITs, etc. instead of individual physical properties.

Is there a downside to this I am not seeing? In short, if my income can handle the interest payments on a loan in worst case market conditions, why is it a bad idea to get the loan now and invest it in the market so that I can start collecting compounding interest on the equity now instead of later over the time it would take me to earn and invest the money without using leverage?

Author
User Suspended
Account Strength
0%
Suspended 4 months ago
Account Age
12 years
Verified Email
Yes
Verified Flair
No
Total Karma
1,866
Link Karma
32,324
Comment Karma
184,366
Profile updated: 9 hours ago
Posts updated: 10 months ago

Subreddit

Post Details

We try to extract some basic information from the post title. This is not always successful or accurate, please use your best judgement and compare these values to the post title and body for confirmation.
Posted
3 years ago