Category: Investments

Should you Borrow Money to Make an Investment?

There are many enticing investments around and some which are lower risk but still look worth having a go at. However, most investments need a significant amount of money invested so you need to think hard about what you are buying and whether you have enough money or if not where you might get it from.

It is worth understanding more about investments before you take one out. Many people think they are just a bit like savings, but they are actually very different. With an investment, you actually buy something with your money. This could be shares in a company, artwork, jewellery or some types of bonds. There are many different types but there are some rules about investing which tend to apply to all of them. Firstly the value will fluctuate a lot over time and this means that you cannot just keep the investment for a short period of time. Once you have bought the product, you will want the value to be significantly higher when you sell it again. You may have to pay fees when you sell it, perhaps to a broker or dealer and so you want to make sure that you cover the cost of those fees as well as making a profit too. Therefore most investments need to be held onto for a significant period of time. You need to give it time to level out those fluctuations in time and go up in value. Often this will be a good number of years, probably five years minimum maybe tend or even more.

There is a risk with investments as well. As explained, the value tends to go up and down in the short-term, but even if you hold onto the investment for a significant period of time, you should not assume that it will definitely increase in value. There is always the risk that you will lose money, however long you have the investment for. You also need to think about the amount of risk that you are prepared to take. Often you will find that if you take a higher risk, there is a bigger chance that you can make a lot of money, but there is also a bigger chance that you can lose a lot of money. With a lower risk investment, you are unlikely gain so much, but you will also not be that likely to lose as much. Of course, not all investments will follow these rules but it is still worth bearing them in mind.

The fact the investments are risky means that it is always wise to use money to buy them that you are prepared to lose. This means money that you will not need for anything else. This is because if you suddenly need to cash it in because you need the money you could find that the investment has gone down in value and you will not be able to get back all of the money that you put in.

If you borrow money to invest you could find that because you are having to make the loan repayments, you might be short of money. Then if you are and you cash in the investment, you could find that you will get less back and you will also be repaying a loan with nothing to show for it. It would be a lot more sensible to make regular monthly payments into an investment using the money that you would otherwise have been using to pay off the loan. Then you can miss a payment if you are short of money or just stop paying in completely and you will still have something to show for it. The interest that you repay on the loan could also be a lot more than you get back from the investment. Loans can be costly and this will depend on the type of loan and how much they cost, but it can often be the case. With an investment being a risk and a loan being a risk you will be taking on a lot if you decide to make this sort of investment. It could be wise to avoid all of this risk and come up with an alternative plan.