This title came out of a conversation when all of the Financial Bloggers got together, a while ago, and Michael James discussed how an “Investment Advisor” from a well known firm, convinced a loved one who was over the age of 70 to take out a loan to purchase investment vehicles. This kind of dangerous investment advice worries me a great deal.
There was much discussion about how slimy that was, and Rob Carrick (I believe) then turned the phrase,
I wonder how many folks have loved ones (or worse themselves) that have fallen victim to this kind of “investment skull duggery”?
Before I get my standard tsunami of “Margin Investing is a Perfectly Valid Investment Strategy”, it might be for you, but it really is not for someone on a fixed income that is over the age of 60 (possibly 50, but let’s not rehash that for now).
Where does this atrocious investment advice come from? Everywhere, from what I can tell (including the Internet, or maybe especially the Internet), but there does seem to be a “seedy under belly” of investment advice that is out there solely to trick investors into making their “Investment Helpers” (for lack of a better legal term (that I won’t get sued for using)) more money.
I cannot comprehend how anyone could give this advice (I am willing to listen to arguments where it might be plausible to have a 70+ year old take out a loan to buy Mutual Funds, but I don’t think there are any cogent reasons), and sleep at night.

Is Dangerous Investment Advice Rampant ?
I guess the question I have for you, good reader, is whether this is common place? Have you heard of this, or is this an isolated incident?
The pitch goes something like this: if you can borrow for 3% and stocks return 6-7% why not use leverage? Unfortunately, this exposes investors to a term miss-match: stocks historically return 6-7% over the long-term, say 10 years. In the short-term returns can be negative: the TSX declined over 30% in 2008. Investors typically borrow using a floating rate line of credit. If short-term rates rise, their cost of borrowing can soar. When interest rates climb, equity markets often decline. In our experience very, very few investors, regardless of age have the intestinal fortitude to handle this.
We have written a number of post about why both investors and their advisors fail to understand risk. See http://www.sprunginvestment.com/tag/risk-vs-return/