Canadian Personal Finance Blog

Archive for January 22nd, 2009

A comment yesterday caused me to wonder when this kind of salesmanship is going to come forward in the world of investing, especially with RRSP season loooming on the horizon.

The comment was a reader pointing out that since money is so gosh darn cheap to borrow, he was going to borrow some money,  invest it and make some money.

It’s Simple Isn’t It?

On the surface it’s a pretty easy scenario to envision:

1. Borrow $10,000 from a secured line of credit or some cheap credit vehicle that is charging say 4.5% interest (for now)
2. Buy an Index Fund or Mutual Fund or “Hot Stock” which should easily outperform the regular 6% the stock market usually pays for the next 5 years
3. The interest on the loan is tax deductible too!
4. Pocket the at least 1.5% “profit” you make every year

Is it Just That Easy?

Sure, it can be, lots of people can make money this way, all you need is a “sure thing” that is going to pay you more than the interest you pay on your debt vehicle, simple isn’t it?

Find a bookmaker and ask him how many people put money on the Arizona Cardinals to make it to the Super Bowl (and ask how many put money in September on them WINNING the Super Bowl), and then wonder if your “sure thing” is that sure. 

Sure things in the Stock Market is a “suckers’ game”, made up by people trying to make money on  you buying stocks. There are good investments out there, don’t get me wrong, but what we must have learned from Nortel, Enron and the Bank Debacle that you must be wary of “sure things”.

Age Matters

I am too old to deal with the stress of investing AND worrying about the debt I incurred to invest that money and the associated problems too.  If I have spare money I may invest in stocks since I think they are undervalued but I am not sure where as of yet.

If you want to buy or sell on margin, or borrow money to invest, go in with your eyes WIDE open and know this is risky and has serious downsides to it. You are all adults (I hope) you make your own decisions, but make sure you know all the facts first.