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.