I did. The first advisor gave me a BS answer (want to help people). Second was straight up and said he came from a v.poor family and he is doing this for himself and his wife (for upto 350k) - I believe him.
Third advisor update in separate post
Thank you - this is what I am looking for.AllWheelDrift wrote: ↑May 15th, 2009 4:40 pmWhat do you mean by you're not timing the market? If you're doing a lump sum investment of $50k you are essentially timing the market.
You also should keep in mind the interest rate of the loan probably isn't fixed, and interest rates are at hisorical lows right now and have no-where to go but up.
I'd suggest saving/investing as much of your money as you can every month in low cost mutual funds. You may lack the leverage meaning you have a much smaller amount invested, but you'll save about 2% drag of the fund management and around 4% on loan interest.
If you pay close attention you'll find you need the market to return 6.5% (that would be 4% return for you fund after the 2.5% management fees) just to break even. If you ditch the advisor and use a mutual fund with an MER of around .5% you'll come out ahead as long as the markets return at least 4.5%. Of course, if the interest rate on your loan goes up (you can probably count on it over the next few years) you'll still need your investment to beat the loan interest rate by at least .5% to come out ahead with your leveraged strategy. Of course, when the leveraged strategy is just breaking even, an unleveraged strategy would actually be generating a return.
As I said before, I wouldn't recommend even thinking of trying this unless you educate yourself enough to set it up all alone without the "help" of an advisor who will just diminish you chances of success. If you don't feel comfortable buying ETFs using a margin account you shouldn't feel comfortable with the avisor advising you to perform a much more expensive version of exactly the same thing.
btw, not timming the market because original plan is not to cash out - until it is all paid out. Anyway - I see the flaws more clearly, so no point of explaining
I am trying to learnIcedawn wrote: ↑May 15th, 2009 5:39 pmAgree all the way up to the last last proposition.
Again, OP, you don't really seem to be hearing what people are saying on this forum. While the factors you point out may be valid (you are young and have risk tolerance on your side), you don't seem to have grasped the full extent of the risks inherent to the plan. For example, with respect to cash flow, are you in the position to pay up to 10K a year in interest costs in the event interest rates shoot to 20%? Alternatively, can this investment loan ever get called if the market drops another 50%? What happens if you lose your job? Do you have a partner who would be able to individually support the loan? What happens if everything happens together.... you lose your job, interest rates spike, and the market drops? Are you going to be bankrupt and forced to liquidate everything at the absolute worst time?
In general, the theory is incredibly simple. Stock market gains are historically higher than interest rates. Therefore, in theory, the more you leverage, the more you earn. The problem is volatility and risk though, and so while you have the upside right (albeit implemented arguably in an inefficient way), you dont' seem to have fully thought out the downside.
I am living it now my friend ... but want it to get better as time progressesfantom wrote: ↑May 16th, 2009 11:15 amYou got that all wrong to begin with...
You made a MASSIVE assumption that you will live to see your retirement and cash out that million bucks... if that's even worth anything at that point.
For all me and you know, you could get hit by a streetcar on your way to work tomorrow and proclaimed dead on the spot, and there goes your retirement plan down the sh1tter.
Think about it... then start living your life NOW.
- Canon 6D ii