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Borrow To Invest

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http://www.telegraph.co.uk/finance/personalfinance/investing/11334817/With-ten-year-mortgages-costing-under-3pc-shouldnt-I-borrow-and-then-invest.html

Not for widows and orphans, and it's verging on the irresponsible to even print this article. But in nearly 40 years of active investing I can't ever recall seeing a situation like today where mortgage rates are low enough that this could even begin to be considered, so as the journalist says...it makes you think.

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Use it or lose it......what it is telling people is live now using money you have not yet worked for, debt in ever larger sums for ever lower costs has to keep being pumped into the economy..... for tomorrow the debts will not be payable, your currency and your investments will become worthless....your credit rating will be based on what you can borrow and spend today, not what you won't pay back tomorrow. ;)

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they should start doing a zopa loans where you can borrow at 3% for 10 years and invest in zopa for 10 years at 8% loans

So one or both parties are (obviously) mispricing risk.

Ends in tears. 100% guaranteed etc etc

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Eh?

Nah........nominal wages continue rising, starting to become real (> cpi)

Too many people looking back not forward. Financial meedya obsessing over oil/japan et al.

Fabulous time to borrow, buy cheap commodities invest and build out infrastructure.

If only we had visionary leadership! not donkeys.

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http://www.telegraph.co.uk/finance/personalfinance/investing/11334817/With-ten-year-mortgages-costing-under-3pc-shouldnt-I-borrow-and-then-invest.html

Not for widows and orphans, and it's verging on the irresponsible to even print this article. But in nearly 40 years of active investing I can't ever recall seeing a situation like today where mortgage rates are low enough that this could even begin to be considered, so as the journalist says...it makes you think.

I've been saying that for a while: especially in the past two years when my tax-free investment income has paid the rent in full. Debt is underpriced, so borrowing to invest makes perfect sense.

My current figures on the VC portfolio (i.e. the investments that pay the income) are: net investment £96k, current value £124k, tax free income for 2004 £10k (all rounded down). Rent £8.4k on a street where houses sell for £200k+.

So very clearly my investments are providing a much better return than buying a house. Yet a mortgage on an equivalent house would cost less than half the rent I'm paying. I'd have borrowed to invest, and I'd have £400/month more spending money (or £250 if we budget a fairly generous £1800/year maintenance).

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And buy-to-let? Some landlords claim yields are achievable of 10pc or more, and if you've really got an appetite for danger you could use the £100,000 as a deposit and gear up again with a BTL loan, which typically run to a maximum of 75pc of the property price (giving you £400,000 to spend). OK, so this is getting out of hand. I'll be getting lots of stern tweets from financial advisers. But seeing a mortgage of such a long duration charging such an exceptionally low rate does get you thinking, doesn't it....?

Yes, it gets me thinking the oldies are set to lose out on their prime homes, and their BTLs, in the biggest HPC of all time, with their £400,000 single BTL properties...

I've been saying that for a while: especially in the past two years when my tax-free investment income has paid the rent in full. Debt is underpriced, so borrowing to invest makes perfect sense.

Maybe for you, the way you're doing it, with your tax-efficient Venture Capitalist investments... got to be some risk there though.

The reason interest rates are so low is because the risks in the market are so high (imo). Saw an excellent article on it the other day - the real cost of money is expensive... if you can borrow - but can't source it again ... these will have to do. I will remain happy in cash against too many price-inflated assets (eg HPC then robust borrowing). We make our own decisions.

Shiller + Greenspan

30 Dec 2014

Greenspan:..same reason people are eschewing home ownership is the same reason they are cutting back on capital investment - discount rates applied to incomes, both imputed incomes and real incomes for far distant pay-offs are ‘extremely high’… can see it in the spread between the 30 year bond and 5 year note.

http://www.bloomberg.com/video/robert-shiller-greenspan-on-u-s-housing-fannie-freddie-RzL7omGgQ32L06OZC~dPwA.html

--

Why Buffett is always betting big on bank stocks

Thursday, 25 Sep 2014

In a few years, when interest rates are more normal, loan growth is really going to be robust,” U.S. Bancorp CEO Richard Davis told the Barclays conference. “We’re getting close to an inflection point.”

http://www.cnbc.com/id/102028790

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Isn't this what got us into the last global financial meltdown.

The world has simply decided to cure its hangover from 2008 by resuming drinking once the CBs reopened the bar.

It is like living through some sort of global version of Groundhog Day.

That is a very good point.

Just as fixing a currency peg is a mispricing with a 'Black Swan' multiple SD event, so we have the issue of central banks leading us to misprice risk in trying to buck the market.

Edited by stormymonday_2011

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Isn't this what got us into the last global financial meltdown.

In a word, Yes.

In a few more words, Yes, it's an important element in what happened, though borrowing to invest is actually a Good Thing where the investment is properly directed. That would include borrowing to invest in your own or family business, but not (in general) to invest in some anonymous business through the stockmarket. It certainly wouldn't include my investments mentioned above: only the fact that money is severely mispriced as a matter of policy could make borrowing for that look interesting!

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