Taking out a prosper loan to buy stocks

[Shoe]

Link to my loan request.

I don't want to get in a huge debate here if I can get better returns on my stocks vs. the interest charged on the loan (i have dealt with enough of those questions at prosper). I have done my own analysis and decided that I am more than willing to take that risk. I understand I could potentially lose a good chunk of change here. But I won't lose everything, as I will buy atleast 5 differnt stocks with a market cap over 1 billion. They aren't going to all go bankrupt, and if that 1 in a billion chance hits, then so be it.

Here is the basis of the calculations I did to take on this loan request:

Assuming a $25k, 3 year loan at 12%, my total amount paid would be: $29,893.32.

Assuming the following average annual returns, I would end up with this much money:

6%: 29,917.01
10%: 33,704.14
15%: 39,098.60
20%: 45,328.80
25%: 52,518.68
30%: 60,813.38
35%: 70,376.25

I don't want to get too cocky, so I am capping myself at a maximum annual return of 35%, which I actually think is achievable based on my opinion of my stock-picking ability. That is up for debate, not doubt, but I am not going to get in a pissing war here about stock picking ability. My main question is this, if you only achieve average stock market returns (8 - 10%) (and I am only 28 so have time in my favor), is this loan worth taking?

I understand the stock market could crash in the next 3 years or the dollar could crash or whatever else, but what are your thoughts assuming a normal market? Thanks in advance!

[almostbusto]

the rate of the loan is 12% per annum correct? then don't you have earn at least 12% per annum returns from the market to turn a profit? am i missing something here or are your numbers way off?

[Shoe]

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the rate of the loan is 12% per annum correct? then don't you have earn at least 12% per annum returns from the market to turn a profit? am i missing something here or are your numbers way off?

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That number is correct assuming I would make my monthly "payment" towards my stock portfolio. However, I view this loan as a way of forcing myself to save each month (as otherwise I would only save that amount maximum of 6-9 month per year). If I have to pay a few points of interest to stop me from blowing money elsewhere, it is worth it to me.

[Jeff W]

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the rate of the loan is 12% per annum correct? then don't you have earn at least 12% per annum returns from the market to turn a profit? am i missing something here or are your numbers way off?

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You have to make way more than 12% because your gains are taxed.

P.S. This is probably the worst idea I've ever seen on this forum.

[Evan]

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the rate of the loan is 12% per annum correct? then don't you have earn at least 12% per annum returns from the market to turn a profit? am i missing something here or are your numbers way off?

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You have to make way more than 12% because your gains are taxed.

P.S. This is probably the worst idea I've ever seen on this forum.

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Can someone explain to me how the hell he's raised $15,500 on prosper already?

[bad beetz]

The thread itself is making me feel unsettled... Angry.

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(from Shoe) I think the worst case scenario is I MIGHT only gain 10% instead of the 13% i am paying in interest.

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ARE YOU INSANE?! If the worst thing that could ever happen to you in the stock market was that you could at worst MAKE 10% you would be some sort of GOD. Instead you are a ridiculous silly person deaf to the mountain of logic laid out before you on this thread.

The worst case is that you lose quite a bit, get margin calls, and default on your prosper loan, the chance of which is not remote at all.

This thread makes me feel the way the screaming guy at the airport in front of me does, off about how he wants some airport workers' bosses' phone number because he threatened some guy on the airplane and got kicked off. In fact it makes me feel almost exactly like that.

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(From Evan) Can someone explain to me how the hell he's raised $15,500 on prosper already?

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I feel like this is the only silver lining. Are these beneficiaries protected in anyway or secured? My guess is no, although I'm not familiar with prosper.... I feel like the silver lining is that there must be some business opportunity in "Prosper-trage" if silly people will give you money to invest in Stocks.

[jfresh]

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The thread itself is making me feel unsettled... Angry.

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(from Shoe) I think the worst case scenario is I MIGHT only gain 10% instead of the 13% i am paying in interest.

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ARE YOU INSANE?! If the worst thing that could ever happen to you in the stock market was that you could at worst MAKE 10% you would be some sort of GOD. Instead you are a ridiculous silly person deaf to the mountain of logic laid out before you on this thread.

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didn't you read the entire thread? he clarified it as 'worst case scenario on average'. duh....

anyway, whether or not OP listens to all the advice, i learned a lot from everyone who has chimed in... if that is any consolation.

also, seeing as how this a poker forum, there are just so many parallels here with gambling.

OP: "However, I may be over-confident in myself and an almost certain I can beat the market, but at the same time, do not have the records to prove it. I feel like I have constantly picked great stocks over the years, but have never had the money to invest to prove it."
--replace 'beating the market' with 'winning at poker'. does that not sound like every poker player other there ever? how many actually winning poker players are there? sportsbetting is the same thing. everyone thinks they can beat the bookies. very few do.

Finally- I just started researching the stock market/investing/etc. I don't know how many times I've read index funds are the place to invest because even mutual funds where professionals are getting paid to pick stocks, rarely beat the index rate of ~10-11%.

[domer2]

To be honest with you, I think this is a horrible idea. Unless you're buying counter-cyclical stocks, the market is a couple percentage points off its highest level ever, so how much further do you expect it to go up?

Plus, you need to dollar cost average or you'll be screwed.

If you have inside information, go for it, otherwise I do not think this is a wise financial decision.

[Shoe]

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To be honest with you, I think this is a horrible idea. Unless you're buying counter-cyclical stocks, the market is a couple percentage points off its highest level ever, so how much further do you expect it to go up?

Plus, you need to dollar cost average or you'll be screwed.

If you have inside information, go for it, otherwise I do not think this is a wise financial decision.

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All I can say, is that as an average investor I completely agree with your analysis. However, I may be over-confident in myself and an almost certain I can beat the market, but at the same time, do not have the records to prove it. I feel like I have constantly picked great stocks over the years, but have never had the money to invest to prove it.

I have built up a solid 401(k) and Roth IRA, but have never had excess money to "play around with", thus the main reason I made this loan request.

My only investment is I bought a few thousand dollars worth of Nintendo (NTDOY) a few months ago at $36/share. I would have bought it a year ago at $18/share if I only had the funds.

I feel I am the T.J. Cloutier of the stock market. I don't do much math but i have an absolutely great feel as to what companies are going to be successful and which one aren't. I'm also still young so I know what trends are hot and which ones aren't (i.e. I can read through the hype on journalists trying to act cool).

For the main reasons stated above, I think I can beat the market. But even if I am wrong, is it worth it force myself to commit to saving the monthly loan payment each month? I otherwise would probably blow about half the payments and have nothing to show for it.

[domer2]

Well go for it man, but it sounds like you're persuading yourself into a get-rich-quick mindset. If the 5 stocks remain stagnant, this adventure will cost you a lot of money. If they drop a little bit, a whole lot more.

Yeah you're young enough to be able to take a risk like this, but at the same time, a risk like this can set you back financially a couple years as well.