Taking out a prosper loan to buy stocks

[prohornblower]

Let me get this straight, you are 28 years old and have "the TJ Cloutier feeling" of what companies will do good, yet you don't have $25K in disposable capital?

If you aren't lying (about either your age, or "the feeling"), then you are doing something totally wrong.

Christ, I'm 28, and I have well over that much non-retirement money to play with, and I don't even have "The TJ". I think maybe "The TJ" is actually this: Borrowing high-interest money to gamble with no edge.

Keep us posted. But I can tell you what will happen...either you lose a bunch of money and everyone laughs at you and reminds you that they tried to HELP you, or you make money and everyone points out that you got lucky and are being results-oriented. Then you'll argue about it and bring up the Nintendo stock again, and then someone will photoshop something semi-funny, yet way to cliquish for the older crowd to understand, and it will degenerate into another e-d*ckwaving contest and get locked.

[Shoe]

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Let me get this straight, you are 28 years old and have "the TJ Cloutier feeling" of what companies will do good, yet you don't have $25K in disposable capital?

If you aren't lying (about either your age, or "the feeling"), then you are doing something totally wrong.

Christ, I'm 28, and I have well over that much non-retirement money to play with, and I don't even have "The TJ". I think maybe "The TJ" is actually this: Borrowing high-interest money to gamble with no edge.

Keep us posted. But I can tell you what will happen...either you lose a bunch of money and everyone laughs at you and reminds you that they tried to HELP you, or you make money and everyone points out that you got lucky and are being results-oriented. Then you'll argue about it and bring up the Nintendo stock again, and then someone will photoshop something semi-funny, yet way to cliquish for the older crowd to understand, and it will degenerate into another e-d*ckwaving contest and get locked.

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Not really sure what you are getting at here. There are lots of 28 year-olds that don't have 25k just sitting around. Where I live, you can survive comfortably on $25k per year. Unlike this message board, not everyone out there makes several hundred thousand dollars a year.

I do have well over $25k in more conservative investments and 401k/roth. But i'm keeping those conservative, and am trying to get funds that I can take a little more risk with. That was ultimately the original purpose of the loan request. Right or wrong you can debate all you want. I withdrew the prosper loan request but am planning to go through with the same idea but with 0% interest credit card offers instead, it's just going to take me a little longer to get my funds in place.

[DcifrThs]

i just read 60+% of this thread and i want to kill myself.

one tidbit did come out though:

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Based on historical evidence, the major conclusion of our study is that the odds strongly favor investing the lump sum immediately

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this might need its own thread.

Barron

[FastPlaySlow]

This doesn't sound like a good idea. If you are able to pay back the amount regardless of the returns, you should be investing your own money.

I think missing out on placing some shares on Nintendo has gotten you a little results oriented.

Invest your own money, don't take out a loan.

[Shoe]

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This doesn't sound like a good idea. If you are able to pay back the amount regardless of the returns, you should be investing your own money.

I think missing out on placing some shares on Nintendo has gotten you a little results oriented.

Invest your own money, don't take out a loan.

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Thanks for the advice. Would you also advise against investing 0% interest loans from credit card offers, or are you just advising against investing while paying a somewhat high interest rate?

[Sniper]

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This doesn't sound like a good idea. If you are able to pay back the amount regardless of the returns, you should be investing your own money.

I think missing out on placing some shares on Nintendo has gotten you a little results oriented.

Invest your own money, don't take out a loan.

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Thanks for the advice. Would you also advise against investing 0% interest loans from credit card offers, or are you just advising against investing while paying a somewhat high interest rate?

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Shoe, there is nothing wrong (and lots right) with using other people's money to make more money for yourself. The key is simply to being confident that your earnings exceed your costs, measuring your risk and understanding the opportunity cost of other alternatives.

[Shoe]

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This doesn't sound like a good idea. If you are able to pay back the amount regardless of the returns, you should be investing your own money.

I think missing out on placing some shares on Nintendo has gotten you a little results oriented.

Invest your own money, don't take out a loan.

[/ QUOTE ]

Thanks for the advice. Would you also advise against investing 0% interest loans from credit card offers, or are you just advising against investing while paying a somewhat high interest rate?

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Shoe, there is nothing wrong (and lots right) with using other people's money to make more money for yourself. The key is simply to being confident that your earnings exceed your costs, measuring your risk and understanding the opportunity cost of other alternatives.

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Thanks for all of your advice as well Sniper. You have had several excellent posts in this thread.

I'm going to apply for and take out as much 0% free financing I can get from the credit card companies. My goal is to get $60k at 0%. I will keep atleast half of it in an online savings account earning 5%, and invest the other half as I see fit.

If my stocks drop more than 20% I am going to bail (and keep everything in a 5% savings account until I start getting charged interest). Although, like in poker, I am generally against a stop loss, at the same time I cannot afford to lose much more than that, so I am setting a stop loss at 20% of my stock portfolio. If that happened I would pay off the credit card balances and revert back to just making monthly "deposits" into the stock market.

Sound like a good plan?

Edited to add: I could afford to lose more than 20%, just not willing to.

[prohornblower]

Isn't the 0% only on purchases? Are you talking about getting 0% cash advances? I'm not sure those exist, and even if they did, there are transaction fees of like 5% or so right off the bat.

[Shoe]

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Isn't the 0% only on purchases? Are you talking about getting 0% cash advances? I'm not sure those exist, and even if they did, there are transaction fees of like 5% or so right off the bat.

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0% is on balance transfers, but they usually give you convenience checks that you can either write out to yourself or to another credit card that you overpay and that credit card sends you a refund check for your overpayment.

Most cards have a 3% balance transfer fee. Some cap the fee at $50-$75. However, there are several that do not have a balance transfer fee at all. I applied for 3 cards with no balance transfer fee last night. Still waiting to see what type of credit limit I get.

[smyjpmu]

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I am probably going to start using margin with the limited balance I do have. I only think using margin is marginally better than taking out a loan though. For the most part, margin is just a fancy term for what I was doing but seems to be a socially acceptable way of putting it. Although I can deduct the margin interest from my gains, I also would not have full control over those funds (margin calls).

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Two points based on my reading of IRS publication 550 (pages 32-38) LINK :
1. For federal income tax purposes, you can only deduct margin interest from your gains if you itemize your deductions.

2. The source of the borrowings doesn't matter. If you borrow money for investment purposes, the interest may be deductible. It doesn't appear to matter whether you're borrowing from your broker or from others (e.g., your proposed prosper.com loan.)

Saving is a good idea. Investing in a good idea. Borrowing to invest can be a good idea, but nothing in this thread has suggested that borrowing to invest is a good idea for you.

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You're completely correct on both points, and I'll add that the deduction for investment interest does not reduce your AGI, so you can get thrown out of eligibility for some credits. This is something I see a lot with people who have large amounts of gambling gains and offsetting losses.

The tax issues are further complicated if you plan on holding the stock long term, and if you have other investment income.

Finally, instead of getting a margin loan if you want to use leverage you're better off using options (or, if they're available for the stock you want, single stock futures). Both can give you 5x leverage compared to 2x for margin, the implied interest rate (built into the price) is currently around 6%, and that cost is directly deductible against your capital gains (or to increase your capital loss).

Not that I'd recommend that this particular person use *any* leverage.