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How Can Borrowing Money to Invest Lead You to Financial Success?

January 03, 20243 min read

What if a lifetime of investing was easier to start than ever before?

Chances are you read about big investments paying off every week. It sounds like a great idea, but many people don't have enough money to get started investing.

However, there is a surprising solution: borrowing money to invest!

Want to learn more? Keep reading to discover our comprehensive guide!

Why Borrow Money?

We've put together a solid guide for how you can borrow money and get started investing. However, it's important to answer a simple question: why would you want to do this in the first place?

Obviously, the safest choice would be to never borrow any money at all. This would eliminate the risk of investing altogether.

However, one cliche that happens to be true is that the bigger the risk, the bigger the reward. Some early investments paying off can help you further your investing career and give you a way to earn money that you never had before.

Why Not Use a Bank?

One of the biggest ways to borrow money is to get a margin loan (more on this soon). However, many newbie investors are curious as to why they cannot simply go through their bank.

The short answer is that most banks will not cut a loan explicitly for investment purposes. Remember, the bank wants to get their money back, and financing bad investments could end up leaving them holding the bag.

Now, does this mean that it's impossible to use a bank to finance investing? Not exactly. If one really wants to go through a bank, then they may need to embrace some alternative options. 

Securities-Based Loans

Earlier, we mentioned that banks don't offer standard loans for investing. However, a growing number of banks are now offering special securities-based loans.

The "catch" to these loans is that you must already have made some investments. And these loans let one borrow against the stocks they already have and allow them to make further investments.

The safety and quality of investment collateral determines how much you can borrow. And if one already has some investments, this is one of the easiest ways to get further into the investment game.

Know the Margins

A more traditional way of getting started investing is to go through a margin brokerage account. This means that one invests money through a brokerage firm and can then borrow more money, though they must invest fifty percent first.

Say someone wants to borrow $8,000 to make some investments. They would then need to deposit at least $4,000 to borrow $8,000.

An investor must maintain at least twenty-five percent equity in their account. And they will not be prompted to make regular payments: instead, they must pay down interest on the margin loan whenever they choose to.

For non-marginable stocks, there are safer ways of making an investment.

Borrowing Money to Invest

Now you know more about borrowing money to invest. But do you know who can help you get started?

At Stock Loan Solutions, we have revolutionized securities-based lending. To see how we can help grow your wealth, contact us today!

David

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