Create An Investing Pot Quickly (good debt)

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Trying to get the funds to create a trading or investing account is one of the many hurdles people face. Many trader have small funds and use excessive leverage to compensate, this can lead to blowing up accounts.
As contentious as it may be, have a larger account from the beginning by using borrowed money, can in fact be the safer and more profitable option. People who have a larger fund base from the outset are less likely to use excessive leverage.
The main factor however is the use of compounding. If you have an instant injection of cash, you are able to compound from day one, if you have to save incrementally you may miss out on the true compounding benefits.
This will raise eyebrows no doubt, but it should also open the mind to possibilities.
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29 сен 2024

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@FinancialWisdom Год назад

My Brokerage Account (Interactive Brokers) - bit.ly/3UGvn1U My Breakout Scanner - bit.ly/3ea6sl8 My Forum - www.financialwisdomTV.com/service My Strategy Blueprint - www.financialwisdomtv.com/service Stockopedia 25% Discount - bit.ly/2YIcAIn Trading Simulator - www.financialwisdomtv.com/shop

@TeeTemce 2 месяца назад

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@StanleyDruckenmiller643 2 месяца назад

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@PaulTJones-i 2 месяца назад

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@Luciaoakley Год назад

The stock market is one of the toughest mental games in the world, What’s is the earliest way to make money from the stock market?

@maryreagan912 Год назад

@Giovanni Nolan Please, How can i get in touch with a financial coach for guidance?

@Open001 Год назад

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@DrFrankPn Год назад

There's mistake in the calculations of the real profit from investing using borrowed money: you have also to consider that you have to give back the installments to the loaner (part of capital + interests), so the capital on which the compound interest operates, is reduced each time you pay an installment. A good example of the force of compound interest though.

@coryp9139 Год назад

The problem I see that you did not account for was the cash used to make the loans monthly payments. Where does that come from? It can’t come from your investments because then you would be lowering the amount of your investment, decreasing your investment returns. At that point it might be better to dollar cost average into the S&P with the cash you would use to make the loan payments.

@mrm8818 Год назад

With the money already in the S&P, wouldnt you be paying off the loan with your salary?

@FinancialWisdom Год назад

Which part of the video cory? The monthly payment whether it be capital or the interest only would come from you regular income

@kariyapperuma Год назад

@@FinancialWisdom At least someone has seen the light. No offence to Gareth. I see the bigger picture. I have done exactly the same with a second mortgage at a 1% 5-year fix. But your calculations aren't like for like. If you take the cost of servicing extra debt, you reduce the potential gains!! You can't just say it is coming from regular income. If that's the case, you need to add the same amount to the other side for a fair comparison.

@FinancialWisdom Год назад

@@kariyapperuma no. If you have interest only you can release capital and keep the overall payment the same as a repayment mortgage, therefore the difference is neutral

@coryp9139 Год назад

I was unaware that you could pay the interest only on a home loan. I had to watch it again to catch it.

@joeyf504327 Год назад

I always wondered how many people were doing this with 2% mortgages in the mid 2010s. An interesting concept to ponder. It does of course ignore job security, income taxes, life events, and other important factors. For most people, you cannot put a price on peace of mind. The peace of mind of having zero debt is a great feeling. You own what is yours.

@FinancialWisdom Год назад

Sure - But you would have piece of mind with a growing 100K too right? If you use all your money to pay down your mortgage and half way through you lose your job you might be forced to sell. Whereas if you lost your job but had remortaged to take cash out prior, you would have plenty of liquid funds to survive. I see that as piece of mind....

@bikerfreak714 Год назад

Appreciate the challenge to think outside conventional wisdom. However, I think there's a big assumption being made in these examples. Which is the investment is allowed to compound without interruption till end of study without regard for the loan repayments. Unless there's an alternative source of income to pay back the debt, one would need to make regular withdrawals against the investment; negating the compounding effect you described.

@user-ow6jk5ix5q Год назад

Agreed. The comparison is leaving out the factor of the extra income that had to come in in order to service the loan. A penny in column A is the same as a penny in column B. The difference is what that penny is doing. Borrowing at 5% and investing at 3%, that penny is net debt 2%. The difference in the comparison's outcome is being paid for in the lifestyle difference in order to sustain the increased loan payments. Comparison should be made in a closed system which accounts for all movements of funds. The housing equity is a great point however. It's a gamble, but if you can reliably cover the costs anyway, and know the housing market's long-term trend outpaces the mortgage costs, you're basically keeping the investment of someone else's money for sitting on the risk of the market changing. In the current interest climate, I feel sorry for someone who's overleveraged, but if you got into a $1M mansion at 1% interest after the '08 crash and paid only interest of $10k/y, that's about $150k spent until 2023. Meanwhile inflation in housing prices from 2008 to 2023 totals about 45%, meaning that McMansion is now worth about $1.45M. $450k - $150k = $300k essentially free money (bought at the cost of holding the risk). If you had continually borrowed against the increased equity down to the original mortgage and invested that, you'd be even further ahead. If you did it in such a way as to deduct the interest as a tax expense, then you'd be even further ahead still. IIRC this is known as the Smith Move.

@williamkz Год назад

Thanks Gareth. Thought provoking as always. There a couple of variables that need to be considered with this including age of the investor, Capital Gains Tax and Dividend Tax. Plus the possibility of a 'lost decade' for the SPX such as 2000-2009. I think it could work quite well for a young investor with the money in an ISA. But someone starting this investment in January 2022 would have seen a fast drawdown of 20% which would be unnerving. There are also currency risks for the UK investor - who does well when the USD strengthens, but not so well when the GBP strengthens. If the GBP strengthens 10% against the USD, theUS tracker fund (eg VUSA) will devalue by 10%.

@FinancialWisdom Год назад

Very true william - Thought provoking was the goal 👍

@mikelCold Год назад

Can you make a video on all the various risks and consequences? For when things don't go as planned, and maybe also how to recover.

@TheMinuteSignChannel Год назад

There is one HUGE factor that is being overlooked in this scenario... you have to be able to make the payments of the loan! I would doubt many people could afford more debt obligation to their current situation???

@FinancialWisdom Год назад

Of course but I'm sure most would understand this. Also consider though, any short term payment concerns could be covered by the growing investment to meet short term demands.

@speculator191 Год назад

You need to substract the money needed to pay the installment each year from the investment account. Reduce the ending balance of each year by 701.52 then youll get the real number.

@faizulanuar2474 Год назад

“Technical and, perhaps, fundamental analysis” Hmm i think there is an important hidden message here…

@gelex911 Год назад

Good luck if those 15 years are like 1999-2014 🤦🤦🤦

@DeadRaterMI Год назад

Don't forget about Uncle Sam, He needs a cut of that gain.

@csm6499 Год назад

hi. am I missing a critical point? I assume the amortisation (reducing interest rate over time) occurs bc of the principle paid each year. Where does the money come from to pay the principle? ( Is it from new money, earnings from your trading or capital from the original loan) In either case it changes your figures....? Also how do you hedge against rising interest rates and falling equities in this example? Sounds like risky advice for beginners. Thank you

@AIBlocks-mu8rz Год назад

I thought the same! shouldn´t that principal be substracted from monthly interest of the investment, to pay it off? then 2nd year you should have $10.093,81 on your start balance..and so on. Right?

@SPQR_14 Год назад

You aren't including the loan payments in the same account as the compounding payments. But it is the same money. You calculate compounding returns without factoring in the reduced capital due to servicing the loan. It doesn't make any sense.

@FinancialWisdom Год назад

Not sure what you mean...

@brybryBillions Год назад

Dave Ramsey needs to watch this 😆

@FinancialWisdom Год назад

LOL - He has some good foundation but is far too conventional

@michaelmcl2511 Год назад

Hello. I don't think the video showed the real story frankly. You didn't explain how the person is servicing the loan. Their income and expenses are the same so therefore the loan would need to be serviced using the interest / principal of the loan. In the amortized ex. they would be screwed, in the simple interest ex of the HELOC the end number would be lower..

@alphabeta8403 Год назад

*Be a contrarian!* No Pain, No Gain.

@FinancialWisdom Год назад

Absolutely

@nimrod6603 Год назад

Great content as ever Gareth, thank you!

@FinancialWisdom Год назад

Glad you enjoyed it

@chadkoller5327 Год назад

Great video! I'm always looking for unconventional ways to improve my family's financial situation

@FinancialWisdom Год назад

👍

@viking8889 Год назад

Get a prop trading account

@Bubs0271 Год назад

Wow, I have been wondering this exact thing, great minds think alike. The King Speaks!

@marinrodriguez7729 7 месяцев назад

In these days of high interest rates it doesnt make a ton of sense but in the good old days of 2% mortgage rates it made a ton of sense! At sub-5% rates, depending on term of loan and such, the payments were about $500/month. You would def have to do the maths on whether or not you could reasonably afford to make the new payment. But if you could get an interest only loan or do a reasonably rated cash-out refi then it def is worth considering. Everyones situation is different and there are many ways of borrowing money.

@RajeshChauhan-xg4er Год назад

Excellent Info man, keep up the good work. Thanks, a lot!

@FinancialWisdom Год назад

Thanks, will do!

@KakvTheWorld Год назад

This is a really interesting topic and one I've been researching. One method was moving to an interest only mortgage and using the difference in the amount of repayment vs interest only to pay into my pension which should yield a better % return and then using the increase pension pot to pay off the remaining capital on the mortgage. I think borrowing such a sum against the mortgage to make this work is difficult for most as the increase in monthly payment even on an interest only mortgage could be prohibitive, but it's certainly food for thought

@Sem_Henares Год назад

Nice " thinking out of the box" video- well done!

@FinancialWisdom Год назад

Thanks!

@marpolek Год назад

.... 1st option is a bullshit, it makes the assumption that investment's interest is reinvested and not used during the investment period, but it doesn't take into consideration that at the same time you need to somehow get the money to pay the loan installments.... and over the 25 periods (no matter what they are) the difference is not significant enough to jeopardize one person's liquidity

@adriancristea7924 Год назад

Can you recommend a book / paper for an indepth analysis on this topic?

@jpalan Год назад

What do you mean "perhaps a fundamental analysis"? Trading just or mainly fundamentals might not be the most common approach, but it's not exactly unheard of.

@FinancialWisdom Год назад

I personally use both. I look for good quality companies and buy them at a solid technical setup offering controlled risk.

@stchicken Год назад

i struggle to explain this to my friends too lmao also topics like renting is cheaper than home ownership, so many arguemetns hahahaha

@stchicken Год назад

the secret sauce is that you can invest in things that yield alot mroe than sp500 7% and this is how u compound into infiinite money :DD dont tell the tax man shhhh

@thomas1942 Год назад

I have a HELCO right now. Haven't done anything with it. I have thought about something similar. I have no kids or relatives that could inherit my house when i kick the bucket. Really would like to make use of it before i move on. I rather spend it on traveling in my retirement, then letting it go to the state or whomever. I guess a reverse mortgage is always an option.

@FinancialWisdom Год назад

Yes. A lifetime mortgage would be a great option in your case.

@shaunsprogress Год назад

The SPX has in a number of cases, in real terms given ABSOLUTELY horrendous returns, like 85% loss in the late 60s to 70s. We may be facing something like that soon. Do not put all your eggs in one basket, look at how expensive assets are now relative to one another over and how they cycle over years and decades.

@FinancialWisdom Год назад

Just use a 10 ema 20 ema crossover on a weekly chart, no significant spx drawdown. Simple risk control

@PaulRacko2 Год назад

Alas, the era of cheap debt is over.

@kiranf Год назад

Hmmmm.. The calculation will not be completed without showing returns from second option ie that is Monthly payments you are making into loan can be used to make SIP investment if you do not have the loan...... Since you are claiming to be confident of 7% return same must be applied to SIP also...It will make only sense if first option generates more profit than second.....

@FinancialWisdom Год назад

Agree Kiran, but if you align the interest only payment to the total monthly payment of the loan I.e parity each month, you release funds to compound from day one

@dishingoyani7510 Год назад

in theory it is good but not practical

@sphanationsphanation2426 Год назад

I was waiting for this video for a while now

@charliethomas9173 Год назад

This is assuming that you have a seperate pool of money to make the loan repayments

@FinancialWisdom Год назад

A wage, although if you switched to interest only you can borrow more with the same outgoing

@GregMeg Год назад

Very interesting

@FinancialWisdom Год назад

Thanks Greg

@TenTonNuke 11 месяцев назад

Max out my credit, take out a 2nd mortgage on my house, and put it all into the stock market. Got it.

@FinancialWisdom 11 месяцев назад

No don't max out your credit. But if you can leverage lower cost debt with higher rate of return then absolutely

@BioInsight_Lectures Год назад

waav great advice and learning. no words to say "Thankyou" ...

@FinancialWisdom Год назад

So nice of you

@RandyRecords63 Год назад

How are these people making the extra interest and principal payments on their home equity line of credit? You should probably subtract these payments from the returns on the S&P 500. I also don’t think 5% is very probable. Especially for a fixed rate loan today.

@francescomatteuzzi1206 Год назад

Hi. While it's true that if you take a 10K$ loan for 25 years (paying 701.52$ back each year as amortization) and invest that sum in something that gives you a 3% annual return you end up with a larger total than just piling up what you would have paid to estinguish the loan, it's also true that if you would invest each year those 701.52$ in the same 3% annual return investment you would end up with even a larger sum (more than 25K$ against the 20K$ investing the borrowed money, at the end of the 25th year), and that's true until the return of the investment is lower than the interest applied to the loan.

@JohnJames-Manifest Год назад

Awesome video

@FinancialWisdom Год назад

Glad you enjoyed it

@MikeWick718 Год назад

Your content has been a huge help in my progress. Thank you!! I was wondering, since you do your consolidation. charting on the weekly time frame, on what time frame do you make your entries and exits? Thanks!

@cwsi Год назад

Absolutley brilliant, helping people with these videos is true giving back! I can't thank you enough for bringing this to light, keep up the great work and I have now subscribed

@FinancialWisdom Год назад

You're very welcome!

@aubreypwilliams Год назад

Fantastic video! I immediately sent to several people that I thought would benefit. You’re careful analysis in comparison really big. Bravo.

@FinancialWisdom Год назад

Awesome, thank you!

@lukelwang Год назад

Seems your calculation is based an assumption that you don't need to pay your debt monthly, instead paying it back at the end of the loan period?

@FinancialWisdom Год назад

Just divide it by 12, same as the investment compounding annually not monthly

@wellsmaciel Год назад

Well done mate!

@FinancialWisdom Год назад

Thanks 👍

@COOLDUDE090 Год назад

have you consider taxation in your calculations?

@FinancialWisdom Год назад

No tax, but that is why I kept it Conservative

@ut561 Год назад

wow definitely thinking outside the box :)

@FinancialWisdom Год назад

Yep, contentious issue for most

@ciaoatutti11111111 Год назад

Question can you really get a 25 years interest only loan at 5% for your residential property?

@FinancialWisdom Год назад

US can get 30

@ciaoatutti11111111 Год назад

@@FinancialWisdom I can get max 5 on buy to let only (uk)

@MadMaxBeyondThunderBone Год назад

Nice comparisons there 👍

@FinancialWisdom Год назад

Thanks! 👍

@reheyesd8666 Год назад

Never usually like videos but this is great content and I couldn't avoid doing it! Fanstatic video! Debt is risky and exploring the theory behind debt is always interesting.

@FinancialWisdom Год назад

Thanks!

@AkshayGowda007 Год назад

my own experience i took loan at 7.5% to buy a car even though i had cash invested in stock market thinking i will make minimum 12%, past 1 year bear market is going on i am losing money in the stock market investments & i am paying interest to the loan,😅

@raychows7712 Год назад

Rising interest rates destroys your SP500 and property projections.

@reheyesd8666 Год назад

Technically yes. If you get a long date mortgaged sure you are payin more in interest rates but you know the costs.

@mrm8818 Год назад

Interest rates always rise. The high 10-11% or even more in the past are short lived (approx 1-3 years). The 2-3% rate is an ideal some countries are after but this figure can be had if you average it out over the years as well. Not only that, but, not every business in the S&P500, is negatively affected by inflation. What this guy said does make a lot of sense given the appropriate time horizon.

@FinancialWisdom Год назад

The key is fixing the interest rate i.e 15 to 30 years. The S&P has always delivered long term

@FinancialWisdom Год назад

Thanks Mr M

@beny.5736 Год назад

Your case of borrowing at 5% to invest at 3% is a bad example because the loan is being repaid over time, which means your leverage is decreasing over time. Of course the interest incurred would be lower if the principal decreases over time.

@FinancialWisdom Год назад

I miss your point - what you refer to is amortization as pointed out.