Should You Borrow Money To Invest | Leverage Stocks
Summary
TLDRIn 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
💡 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.
📉 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.
💼 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.
Mindmap
Keywords
💡Leverage
💡Stock Market
💡Pandemic
💡Investment
💡Profits
💡Loans
💡Interest Rate
💡Inflation
💡Dividends
💡Compounding
💡ETFs
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
that also 30 don't hit the ball so you
notified every time post video and also
I have a brand new channel called it's
heavy Bryson show and it is hilarious so
check it out link down below it's a lot
of fun over there guys on top of that
follow me there's no tie bracelet and
before I go if you want to watch another
video about how investing works and
types of investors what's gonna right
here and also my face rate Regina I'll
see you guys tomorrow thanks for
watching and as always peace
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