Should You Borrow Money To Invest | Leverage Stocks

Summary

In this video, Bryson discusses the risks and rewards of using leverage to invest in the stock market. He shares his personal experience of investing over $40,000 during the pandemic and advises against borrowing money for investments due to high risks. Bryson emphasizes the importance of starting small, investing consistently, and using one's own money to avoid debt. He recommends reading 'The Intelligent Investor' by Benjamin Graham to learn investment strategies and suggests using apps like Acorns for passive investing.

Takeaways

• 💡 Investing with borrowed money can amplify profits but also significantly increases risk.
• 📈 The stock market does not differentiate between your own money and borrowed money; however, the risk of loss with borrowed funds is higher.
• 💰 Leverage allows borrowing more money than you have, potentially leading to larger profits but also larger losses.
• 📚 An example given is borrowing $10,000 to buy AMC stock at a low price, with the plan to sell when prices recover, aiming to pay back the loan and keep the profit.
• ⚠️ The average stock market return is around 10% annually, but this is not guaranteed and does not account for inflation.
• 💸 Personal loan interest rates average around 9.41%, which can erode potential stock market gains.
• 📉 There's a risk of companies not recovering and their stock prices going to zero, resulting in total loss of borrowed capital.
• 💼 The presenter advises against using leverage for most people due to the high risk and recommends investing with your own money instead.
• 💼 He also suggests investing a fixed percentage of your income regularly, such as 10%, to grow wealth over time.
• 📚 For those wanting to learn more about investing, the presenter recommends reading 'The Intelligent Investor' by Benjamin Graham.
• 💼 The presenter shares his own investment strategy, starting with a small amount and committing to invest a fixed amount every month.

Q & A

What is the main topic of Bryson's video?

The main topic of Bryson's video is discussing the pros and cons of using leverage or borrowed money to invest in the stock market.

What are the different ways Bryson mentions to leverage money for investing?

Bryson mentions several ways to leverage money for investing, including getting a personal loan, using a credit card cash advance, borrowing from a friend, or leveraging stocks through apps like Robinhood and SoFi.

What is the allure of using leverage for investing according to Bryson?

The allure of using leverage for investing is the potential to make more money by borrowing more than one has and investing it, with the hope of making large profits without putting in one's own money.

What is an example scenario Bryson gives where leveraging money works well?

Bryson gives an example where if someone borrows $10,000 to buy AMC stock at $2.25 and sells it at $7.76, they would make a profit of around $24,488 after paying back the loan, without using their own money.

What are the cons of borrowing money to invest in the stock market as explained by Bryson?

The cons include the higher risk of losing money if the investment doesn't perform well, the average stock market return being lower than the interest rate on loans, and the guaranteed loan payments regardless of investment outcomes.

Why does Bryson advise against using leverage for investing?

Bryson advises against using leverage for investing because it's very risky, puts a lot of pressure on performance, and the stock market is unpredictable, which can lead to significant losses if the investment doesn't go as planned.

What is Bryson's personal investment strategy as he describes in the video?

Bryson's personal investment strategy involves starting small, committing to invest a fixed amount regularly, and growing his money step by step over time without leveraging. He also recommends investing no more than 10% of one's income.

What book does Bryson recommend for learning about investing?

Bryson recommends 'The Intelligent Investor' by Benjamin Graham for learning about investing.

What is Bryson's opinion on borrowing money for educational purposes related to investing?

Bryson is open to the idea of borrowing small amounts of money, like $20 or $30, to buy books on investing to learn more about the subject.

What advice does Bryson give to those who feel they don't have enough money to start investing?

Bryson advises those with limited funds to start small, invest consistently, upgrade their skills to earn more, and limit expenses to free up more money for investing.

Outlines

00:00

💡 Considering Leverage in Investing

Bryson discusses the concept of leverage in investing, which involves borrowing money to invest with the hope of making a profit and repaying the loan, keeping the profits. He shares his personal experience of investing over $40,000 during the pandemic and addresses the common question of whether one should borrow to invest. Bryson outlines the various ways to leverage money, such as personal loans, credit cards, or borrowing from friends, and mentions apps like Robinhood that allow for stock leveraging. He emphasizes the importance of understanding the risks involved, as the stock market does not differentiate between one's own money and borrowed money, and the potential for higher returns comes with higher risks.

05:01

📉 The Risks of Leverage in Stock Market Investments

Bryson elaborates on the risks associated with borrowing money to invest in the stock market. He explains that while the average stock market return is around 10% annually, this must be weighed against the average personal loan interest rate of approximately 9.41%, which can erode potential gains. He also notes that returns are not guaranteed, unlike loan payments, which must be made regardless of market performance. Bryson warns that leveraging can lead to significant losses if the market does not perform as expected, and even high-IQ individuals have been financially ruined by leverage. He advises caution, suggesting that it's better to invest with one's own money to avoid the pressure of loan repayments and the potential for debt.

10:02

💼 Building Wealth Through Consistent Investing

Bryson shares his personal investment strategy, which started with a small amount and a commitment to invest a fixed amount monthly. He recommends taking at least 10% of one's salary to invest, suggesting platforms like Acorns for passive investing and diversification. Bryson emphasizes the power of compounding over time, illustrating that even a small monthly investment can grow significantly over 40 years with an average return. He also encourages active learning about investing through books like 'The Intelligent Investor' by Benjamin Graham. Bryson concludes by advising against borrowing large sums for investing without a guarantee of returns and suggests improving skills and reducing expenses to free up more money for investing.

Keywords

💡Leverage

Leverage in the context of investing refers to using borrowed money to increase the potential return of an investment. It is a double-edged sword, as it can amplify gains but also losses. In the video, the speaker discusses the risks and potential rewards of using leverage, emphasizing that while it might seem enticing to borrow money to invest, it can lead to significant financial strain if the investment doesn't perform as expected.

💡Stock Market

The stock market is a platform where shares of publicly traded companies are bought and sold. The video script mentions investing in the stock market, highlighting the unpredictable nature of it and the importance of not relying on leveraged investments, as market downturns can lead to substantial losses if one is not using their own capital.

💡Pandemic

The pandemic is referenced as a backdrop for the speaker's increased investment activity. It serves as a real-world example of how people might consider leveraging investments during times of economic uncertainty, with the hope of making significant gains once the crisis subsides.

💡Investment

Investment is the act of committing money with the expectation of generating an income or profit. The video script discusses various forms of investment, including leveraging money, investing in stocks, and the importance of investing in one's own skills to increase earning potential.

💡Profits

Profits refer to the financial gain made when the amount earned from an investment or business venture exceeds the amount invested. The video script uses profits as a key motivator for considering leveraged investments, but also cautions that the potential for profit must be weighed against the risks involved.

💡Loans

A loan is money borrowed that must be repaid with interest. In the video, the concept of loans is tied to the idea of leveraging investments. The speaker warns that taking out loans to invest can lead to a cycle of debt if the investment doesn't perform well enough to cover both the loan and the interest.

💡Interest Rate

The interest rate is the cost of borrowing money, expressed as a percentage of the principal. The video script mentions the average personal loan interest rate and how it can significantly impact the feasibility of leveraging investments, as the returns from the investment must exceed this rate to be profitable.

💡Inflation

Inflation is the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling. The video script discusses inflation in the context of average stock market returns, noting that even a 10% return may not be as beneficial when accounting for inflation.

💡Dividends

Dividends are payments made by a corporation to its shareholders, usually as a distribution of profits. The video script mentions reinvesting dividends as a strategy for growing wealth over time, which is part of the speaker's long-term investment approach.

💡Compounding

Compounding refers to the process where interest is added to the principal sum of a loan or deposit so that from that moment on, the interest that has been added also earns interest. The video script uses compounding as an example of how small, regular investments can grow significantly over time.

💡ETFs

ETFs, or Exchange-Traded Funds, are investment funds traded on stock exchanges much like individual stocks. The video script recommends ETFs for passive investors, as they offer diversification and a way to achieve average market returns with less risk.

Highlights

Bryson discusses the pros and cons of using leverage to invest in the stock market.

Bryson mentions he has invested over forty thousand dollars in the past three months.

He explains that the stock market doesn't care if you're using your own or borrowed money.

Bryson warns that borrowing money to invest increases risk significantly.

The allure of leverage is that you can potentially make more money without using your own funds.

Bryson gives a real-life example of borrowing $10,000 to buy AMC stock at a low price and selling it for a profit.

He emphasizes that the stock market's returns are not guaranteed, unlike loan payments.

Bryson points out that the average stock market return is around 10%, which may not cover loan interest rates.

He advises against leveraging money due to the high risk involved.

Bryson shares his personal investment strategy of investing a fixed amount each month.

He recommends starting small and investing consistently over time for long-term growth.

Bryson suggests using apps like Acorns for passive investing and diversification.

He calculates that investing $500 a month over 40 years could grow to $3.8 million with an average return.

Bryson advises against borrowing money for expensive courses and encourages learning step by step.

He suggests investing in your skills to get a better job and more money to invest.

Bryson recommends reading 'The Intelligent Investor' by Benjamin Graham to learn about value investing.

He concludes by encouraging viewers to comment on their thoughts about borrowing money to invest.

Transcripts

hey guys say Bryson here and over the

past three months or so since the entire

pandemic I've invested a little bit over

forty thousand dollars or so however one

of the most public questions I get all

the time it's basically Tommy should I

go out there and basically borrow money

to go out there and basically invest

more money and then hopefully make that

money back and then pay back the loan

but then I get to keep all that profits

and this video right here I'm going to

break down all the pros and cons of

using leverage I just dropped some money

I'm sorry about that

of using leverage to actually invest

money the pros and cons and on top of

that I'm going to tell you also what I

currently do and how I currently invest

and all my thoughts about the subject on

top of that guys I also do post videos

every single day so make sure to just

write a channel and hit the bell so

you're notified every time I post a new

video and also smash like button it

helps a lot with the algorithm so thank

you guys so much but the first thing I

want to talk about is this guy's okay

when it comes to leverage your money and

borrowing money basically go out there

and invest it's very simple okay there

are several ways to do it if you want to

you can get a personal loan you can use

a credit card to start investing by

taking the money out in cash a cash

advance or you can borrow money from a

friend or if you want to you can

basically leverage your stocks basically

go out there and invest even more money

you can do this for Robin Hood and one

finance a lot of apps out there however

before I get to all that fancy stuff I

want to get to the needy ingredients how

you say it the entire point is I want to

get to the pros and cons here now the

first thing is this guys when it comes

to investing into a stock market the

stock market doesn't care if you're

using your money somebody else's money

or you stole the money all that really

matters is that you're investing money

however if you do borrow money to invest

and the risk is obviously a lot higher

that's the entire idea here and because

I've been investing a lot of money and

I've told my friends about it and a lot

of people ask me all the time tell me

well how much money can I borrow to

basically go out there and invest

because I don't have as much money and I

want to make sure that once the pandemic

is over I can basically get out of the

pandemic but with so much money I can

pay back all the loans and boom boom

boom everything is normal I made a ton

of money and it sounds so cool and

that's why I want to start off by

talking about the pros okay the pro is

this guy's

whenever you borrow money and you make

my money from it

the idea is you didn't really use your

money and this way you can also borrow

more money than you actually have you

can even make even more money okay so

the idea of leverage is very enticing

right but here's the main thing guys

okay here is a real-life example say for

example you said to yourself well you

know what Tommy I'm gonna go ahead and

borrow $10,000

and buy some AMC stock why because right

now movie theaters are not open thus

they're going to keep going down in

price but once the pandemic is over bro

I can basically go out there and sell it

back and basically make a big profit pay

back the loan and just call it a day so

say for example you buy AMC when it was

as low as two dollars and 25 cents this

year that means you would have bought

around four thousand four hundred and

forty-four shares right off the bat and

now say for example you sold it or you

waited until it went back up to run

seven dollars and seventy six cents

which we did see it go up that high back

in February or so that means okay guys

whenever you sell your stocks your four

thousand forty to forty four shares at

seven dollars and seventy six cents

you're gonna sell it for around thirty

four thousand four hundred and eighty

eight dollars so once you're done paying

back this loan of $10,000 you still get

to keep twenty four thousand four

hundred and eighty eight dollars without

even using your money in the first place

now this is called a perfect situation

okay if you could do this all the time

without having a hiccup you can do this

every every single day and it sounds

cool because basically you can borrow

somebody else money make money off of it

pay back do it over and over and over

again and it seems enticing and by the

way I've noticed one thing guys okay

whenever somebody is investing into

stock market with us AMC Delta whatever

company it is out that you want to

invest into they always take a look at

for example the history of the price of

the company and they say hey you know

what if Delta or for example MC with a

$7 like a year ago it means that it will

probably go back up to that price you

can buy at this price right now wait a

year and before you know it boom boom

boom I can

get my money back but what they don't

notice is this guys okay it company can

easily just as well not recover and go

all the way to zero and you can lose all

that money so now that I told you guys

the pros okay the pro is you got to burn

more money you can invest it and

hopefully make a large profits without

even putting in your own money and then

pay it back and then call it a date and

do it all over again right sounds cool

however here are the cons of going out

there and borrowing money to actually

invest into the stock market now most

people don't tell you this okay

everyone thinks that hey Warren Buffett

me to run it two million percent returns

that's awesome I'm gonna do the exact

same thing but a reality the average

stock market return every single year is

around ten percent okay however on top

of that you also have to take into

account inflation which is around three

percent which means every single year

your money lose around three percent in

values so although you might get an

average return of ten percent if you're

lucky and you're smart in the way you

invest guess what happens in okay if you

were to borrow ten thousand dollars the

average personal loan interest rate is

around nine point forty one percent so

right off the bat if you're making the

out of return of the average person out

there you're going to be losing money

every single year however you know the

crazy thing guys is that you know what

although the average return is ten

percent and for example Warren Buffett

makes a lot more money but I go out

there they go negative every single year

so the main thing about the stock market

is that the returns are not guaranteed

but you know what is guaranteed was

guaranteed are those payments for that

loan you took out so basically whether

you go bankrupt on the entire like stop

you actually went into or whether it

goes up or down it doesn't matter

because you still have to pay that money

back and the bank doesn't care

no one cares and by the way I said the

interest loan for a personal loan can go

as high as nine point forty one percent

but in reality it can actually go as

high as up to thirty six percent

so imagine borrowing money and hoping it

goes up beyond ten percent but then

guess what happens it doesn't so then

you're stuck with these penguins you

have to pay them off and by the way if

you say for example well you know what

I'm not gonna pay

ok I'm done here I'm done well you'll go

into collections and then they'll ruin

your credit score four runs seven years

or so so I'm not trying to scare you off

from going out there and leveraging your

money to then invest into stocks what I

am Telling You is this guy's the odds

are against you so in reality the idea

is very very risky and although you may

say Tommy but you only have to run for

you can't invested I want to invest more

money I don't I don't want to listen to

you the answer is it's not just my idea

weren't Buffett a guy would around

seventy billion dollars says the exact

same thing

leverage although it might sound very

cool it is a double-edged sword and if

you're not careful you will get cuts and

on top of that if you're not careful you

will get destroyed there's been a lot of

companies hedge funds that have fallen

because of it because a leveraged way

too much and then once the market goes

crazy or is a use downturn guess what

happens well basically they go bankrupt

ok they lose the bulk of their money so

you want to be very careful with how you

leverage your money and if you ask me

honestly I don't recommend it it puts a

lot of pressure on performance every

single month every single year when in

reality the stock market is

unpredictable if I can predict it or I

can predict it how in the heck are you

supposed to predict it you know what I

mean so it's better to just invest

invest invest and then basically use

your own money and then step by step you

can actually just keep growing your

money step by step but not be stuck with

debts if it doesn't work out ok it's not

something that interests us at all we we

are not gonna leverage up Berkshire it's

more a high IQ people really

extraordinary IQ people destroyed by

leverage we saw long-term capital

management and by the way don't think

that if you build up a portfolio or

organically they're putting your own

money you can't eventually leverage that

in reality there's a lot of apps out

there for example and one finance well

friends that basically lets you borrow

money against your portfolio so

eventually once you have a hefty

portfolio you can go ahead and borrow

money against your portfolio at a very

low rate of Iran 2% or 3.5% and use the

money to basically go ahead and invest

into real estate if you want to but the

risk is kind of

mediated and that we can actually do it

better if you actually but again the

wrist is still there so you wanna

believer follow you and borrow money

against it you can eventually with

emmalin finance or for example even wolf

print okay and they charge very little

rates if you want to but i am not

against you actually borrow money to

learn more about investing so if you

want to borrow money like twenty bucks

three dollars to go buy some books about

investing by the way i have a video on

that link down below but my favorite

book but investing is called the

Intelligent Investor by Benjamin Graham

it will help you out a ton but if you

want to borrow money to do that you can

if you want to like thirty dollars on

your hours but don't be that guy that

basically buys a course for five

thousand ten thousand dollars and then

basically can't pay back and now he's in

debts and he doesn't know what to do

okay don't invest into those crazy

courses okay just start small and then

just keep learning step by step that is

my advice and on top of that if you're

frustrated because basically you don't

have a lot of money and you're like hey

Tommy I just can't invest like ten

dollars every so month the answer is it

might be time to just go out there and

upgrade your skills okay your skills are

very important so go out there and

invest in your skills first and get a

better job but a career and that way

you'll have more money to invest and

also limit your expenses and that way

you also have extra money every so month

after you're done paying off all the

bills okay now number three is this

Tommy well if I shouldn't leverage money

or borrow money to go ahead and invest

in stock market then actuality what

should I do on top of that what exactly

are you doing although you might hear me

say hey guys I invested over 40k in the

past three months or so and in reality I

didn't start like that whatsoever I

started back in December of 2018 and I

didn't start with ten thousand 40k I

started with like seven dollars and

seventy eight cents with the app called

eight cores okay I started very small

and my commitment was every single month

I want to invest five hundred bucks and

the only time when I basically invested

more money is right now because

basically everything is on distance I'm

gonna be buying a lot more but the idea

has always been this okay guys I always

recommend if you do have a job and when

you do get a job if everything's done

here

I recommend always take a minimum of 10%

of your salary or whatever you're

getting paid as and basically invest

that money for example if you are

getting paid a thousand dollars per week

take 10 percent of that $100 and put it

into the market into the investment you

want to make and by the way if you don't

know if you want to be a passive

investor for example and that's the

investor I have a video about that but

the answer is I recommend for people

just want to have their money grow

step-by-step over a long period of time

I recommend acorns in that way your

money is diversified into ETFs and that

way you can have an average return but

not have to carry that much risk every

single year and by the way if you're

wondering Tommy but you know invest in

500 bucks over the next 40 years or so

that's not gonna be a lot of money and

in reality guys I think most people

think like hey I need a ton of money so

I started investing but in reality you

don't okay because you know although all

I'm doing is investing 500 bucks every

single month for the next thing for

example like 40 years or so if I am

making an average return of 7% after

inflation plus 2.35 percent in dividends

because I also do reinvest my dividends

guess what's gonna happen guys okay if

I'm getting nine point thirty five

percent as a return every single year

and I invest 6k every single year on top

of my 40 can't really have well guess

what in the next 40 years I'm gonna have

around 3.8 million dollars and that

amount of money is going to pay me in

dividends around ninety thousand dollars

every single year so the idea is by

getting started investing step by step

every single month for example with

acorns that money will eventually keep

growing and growing and growing and

remember guys okay I did say I just said

to you okay I'm only using around 10% or

5% to actually do this every so much of

my income so the idea is I still have

another 90 or 95 percent to put it for

example into real estate or into more

stocks that I want to invest into or

into starting a business the idea is I

still have a ton of extra money to go

out there and basically invest even more

money and get even more money right so

the idea is I always recommend you

drift invest in so every time you get

paid take a hundred bucks and invest

that money and overtime that money will

begin to basically grow into more money

and compound over and over again and

that will be a lot of money in the long

run however if you want to invest more

to make more money right now actively in

the short-term

I recommend read the Intelligent

Investor by Benjamin Graham learn how to

analyze companies and this way you'll

know exactly what price to buy at what

price not to buy it and that way you can

make a lot of extra money now who did

this Warren Buffett did this okay so

it's a perfect example to actually go

out there and do it also but guys

comment down below and let me know what

do you guys think are you guys convinced

or do you guys still think you should go

out there and borrow 10k to go out there

and invest in the market with no actual

guarantee comment down below let me know

and as always if your Joy's be right

here well like this video and top of

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before I go if you want to watch another

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see you guys tomorrow thanks for

watching and as always peace