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I agree. Why would you take out a $10,000 credit card loan when you have a projected $30K in cash you could use? We all know that the 1% interest rate on your credit card will expire after a year, if not sooner. If you plan to sell stocks short term you will need to make around 26% in interest to pay it back. If you don't pay back the credit card within a year, you will need to make around 35% (20%CC interest + 15% short term gains tax) in interest on your stocks. If you pay it back with the cash you have, then its a wash. Was it also to increase your credit score or something?
That line alone makes me wonder if this is really your financial situation or not.
I was just going to comment on the $15k that others have already commented on. I sure wouldn't want to make such a short term play in the stock market when the market is reaching record highs. I assume it's short term since it's a credit card loan with a teaser rate. If the fed really does wind down QE3, and starts to pull the training wheels as they have started signalling, stocks could be in for trouble. As a long term investor it shouldn't matter, but your short term play would make me nervous.
Otherwise looks good, although one other question. You mention no retirement then go on to mention a roth ira?
I agree. Why would you take out a $10,000 credit card loan when you have a projected $30K in cash you could use? We all know that the 1% interest rate on your credit card will expire after a year, if not sooner. If you plan to sell stocks short term you will need to make around 26% in interest to pay it back. If you don't pay back the credit card within a year, you will need to make around 35% (20%CC interest + 15% short term gains tax) in interest on your stocks. If you pay it back with the cash you have, then its a wash. Was it also to increase your credit score or something?
That line alone makes me wonder if this is really your financial situation or not.
I took out a 10K credit card loan and I plan on investing all my cash so I am 110% leveraged in equities.
Of course I will pay it back in full without penalties. There is no way I can beat 20% interest rate unless I am Warren Buffet.
But the thing is: Next year, I will just re apply for another 1% credit card and invest with that and so on and so on. I've already done this for 2 years so was it really a short term loan or long term loan?
I took out a 10K credit card loan and I plan on investing all my cash so I am 110% leveraged in equities.
Of course I will pay it back in full without penalties. There is no way I can beat 20% interest rate unless I am Warren Buffet.
But the thing is: Next year, I will just re apply for another 1% credit card and invest with that and so on and so on. I've already done this for 2 years so was it really a short term loan or long term loan?
The stocks could only be held long term if you do not convert the profits into cash. If you do not convert them into cash then you cannot pay back your credit card balance. I suppose you COULD roll over the balance from the old 1% Interest Rate Card into the new 1% Interest Rate card, but then you will pay a balance transfer fee. On 10K that can be a lot of wasted money. I find it especially odd that you would start with taking out a credit card balance prior to using up your liquid cash assets.
That just doesn't make sense to me. And as another poster mentioned, it is very high risk for what I view as only a moderate reward. Especially since your cash is just sitting not making anything. It sounds to me like your willing to bet bankruptcy for only $11,000 dollars extra. That sounds absurd.
The stocks could only be held long term if you do not convert the profits into cash. If you do not convert them into cash then you cannot pay back your credit card balance. I suppose you COULD roll over the balance from the old 1% Interest Rate Card into the new 1% Interest Rate card, but then you will pay a balance transfer fee. On 10K that can be a lot of wasted money. I find it especially odd that you would start with taking out a credit card balance prior to using up your liquid cash assets.
That just doesn't make sense to me. And as another poster mentioned, it is very high risk for what I view as only a moderate reward. Especially since your cash is just sitting not making anything. It sounds to me like your willing to bet bankruptcy for only $11,000 dollars extra. That sounds absurd.
1. I save enough money each month so that by the end of the year when my full balance is due, I can pay it off with cash that I saved.
2. How am I going to go bankrupt when I have $71k assets? At most if stocks plummet 50% (absolute worst case scenario), then I go down to 35k and I still have more than enough to pay back my loan...
3. I already mentioned that the cash sitting there is for investing. I am waiting on some opportune moments for stocks to buy. e.g. researching around.
Just so I understand, this "half cash" that's currently in your Roth IRA - that has been invested at some point, but you've currently just sold and thus it's temporarily in cash?
And independently, you've taken out a $15,000 CC loan for additional investing in the taxable market?
Because you made it sound like you've been doing nothing with $35K in cash while simultaneously borrowing $15K in cash for investing purposes.
ChiGuy has terrible math. I have no idea where 26% or 35% comes from. 1% of 10k is 100. Taxes are applied to profit only. So, if you borrowed 10k at 1% and invested only that, and you're in the 25% bracket, you would need a rate of return of 1.34% to break even.
Leverage is a double edged sword. It can multiply your gains, but also multiply your losses.
If the OP is ok with the risk of losing that money, that's his decision. There's tons of people who borrow and invest in even riskier endeavors like restaurants.
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