There is little point in borrowing money for the sake of it. Interest rates are low and those who subscribe to the ‘feel good’ factor that has returned in US Society may be tempted to look at how cheap money can be made to grow. There may be a risk or two involved in investment yet as part of a strategy to build up personal assets and even provide for retirement the growth may well be greater than the interest to be paid on a realistic loan.
It does involve some expertise, either personal or by the use of an adviser. It is simple enough to calculate the cost of borrowing a fixed sum over a given rate and term. The question is whether the value of an investment portfolio can be reasonably expected to be worth a significant amount more at the end of the term than the costs of repayment. That is far more likely to happen while interest rates remain low.
Real estate has traditionally been a good investment of course though the recession caused a reassessment of that for a while. Mortgages tend to be taken over a significant period. Some people do move on a regular basis using mortgages each time and hoping to take advantage of growth. There have been times when this has been a risky strategy with sudden declines in demand requiring a secondary strategy, perhaps renting a property out until growth returns.
Shorter term loans for investment are more likely to be for other forms of investment. Some people go to the foreign exchange market (FOREX) but that does tend to be a rather specialized sector and certainly requires caution in the early days. As those interested in trading gain more experience the level of investment they might consider is likely to grow.
There are investors in stocks that are comfortable with using borrowed money for investment. It is not something to move into then out of in a matter of days. Recently the markets moved quite dramatically on the expectation or belief that the Fed was likely to raise interest rates sooner rather than later. As a general rule as interest rates rise, share values fall. The addition factor is the current strength of the dollar, particularly in contrast with the euro that currently struggles against both the dollar and the pound sterling. On occasions it is quicker to borrow money to invest than to liquidate current assets to find the money required. If the calculations stand up it makes sense.
Age and Strategy
In these circumstances an investment strategy may vary with the age of the investor. Anyone reaching middle age and beyond is more likely to be conservative when it comes to taking any risks. They are looking for growth that is guaranteed as far as possible and will help build preparations towards retirement. They are also likely to want to be rid of all debt when they finally retire. There are fixed income investments typically certificates of deposit or treasury bills which will never lose money for an investor but the guarantee of growth is limited.
If investment was easy with a guaranteed return across the board nobody would work would they? It has to be said that the stock market looks far healthier today than it did as the Century began. The market is moving ahead across a number of sectors in contrast to just a decade and a half ago. Whilst that suggests conditions are good for involvement in the markets it is with the proviso that investors remember the dollar’s strength.
Certainly the financial sector is live to the recovery of the US Economy. It wants some profit for itself and that means being willing to listen to applications for finance and approving those from people who appear to be able to pay back the loan on the agreed basis. It would be wrong to say that interest rates will grow to any great extent in the near future but the next move will be up. It surely makes sense to borrow at the low point at present? It provides the best opportunity to find a margin between the costs of borrowing and the potential of profit based upon the investment return.