Many have made fortunes with the borrowed money, including Warren Buffett, the famous billionaire with a lot of influence and knowledge about the financial markets.
Nowadays, the temptation to use historically low-interest money from mortgages, personal credit lines, and 401(k) plans to invest in innovative ways of income is higher than ever.
Professional investors have used leveraged money from brokers and lenders to invest in exchange-traded funds, stocks, and startups for decades, but this tactic can be disastrous for the average individual investor who is often not careful, say investment and finance experts.
“The decision to invest with borrowed money comes down to comparing the cost of borrowing versus the expected investment returns,” said S. Michael Sury, lecturer of finance at the University of Texas at Austin. “If the returns exceed the cost, then the transaction makes economic sense.”
Nowadays, the spread between the two is so wide that with proper investment tool, it can still work. But because borrowing costs are fixed and stock market gains are variable and unpredictable, it is not a perfect formula. Some new and emerging investment options are proving to be more reliable.
Let’s take an investment that offers an expected return of 100 percent, but with certain risks attached, such as extreme volatility. Even if the cost of borrowing is low, for example, 4 percent, the transaction remains very risky.
On the other hand, if your investments can offer a steady 10 percent rate of return, then the risk of the transaction has been dramatically reduced and this type of investment is far more reliable and considering all circumstances, more profitable.
Whether an individual should borrow funds to invest seems to depend on their individual financial situation, age, and goals. Because there aren’t many bargain stocks out there, it’s recommended to take advantage of low rates on the student loan and consumer debt to pay down slowly while investing in low-risk projects with cash savings.
These types of ‘good debt’ give far lower interest rates for people with good credit than the typical margin rates offered by brokers.
The key to building wealth is to consistently invest money, not to try and time the markets, as many people do in risky markets such as cryptocurrency market.
Investing in Arbitrage
Investing in arbitrage opportunities is on the rise due to excellent Return-on-Investment (ROI) and lower risk than traditional investments into stocks, commodities, or digital currencies. Simply put, you are investing in companies that buy low and sell high due to the price fluctuation in different markets. This can bring a steady stream of income for the extended periods of time.
The arbitrage opportunities in crypto markets are especially profitable. When we add high-end software and experienced team to the equation we get low-risk high reward investment opportunity. This can be a crucial piece of information for all those looking to borrow funds to invest in arbitrage platforms. For example, Arbismart investors are making between 0.1% to 1% profit every day, depending on the size of their investment. This means your full return on investment can come within months. And you still own the money you invested. This makes it easier and more secure for all those that are looking for reliable ways to invest. Instead of hoping that a certain stock or a digital token will rise in price, you can get your guaranteed profits every day which can be then used to repay the interest rates for the borrowed funds.
You can also use the profits calculator to see how much money you can make depending on the size of your investment and how it would fit in into your repayment plan.
A couple of things to pay attention to when taking a loan:
- Pay attention to prepayment penalties
- Explore your options before taking a loan to get the best interest rate
- Do not borrow from shady banking lenders
- Ask for fixed interest rate instead of variable
- Don’t fall for the gimmicks and promotions
No matter your investment choices, borrowing money to invest in stable opportunities is a decent strategy to make some extra money without having your own starting capital. Naturally, always do your own research before acting. For example, no matter how profitable some new digital coin may look, it is still considered a risky investment by the leading experts in the financial world. And for a good reason, too, as it can just as easily cause you to lose your investment, often in total. Investing in stable recurring income sources is a wiser and more responsible decision for all the loan takers, and it can bring quite the profits too!
If you have any questions about the arbitrage, investing or want to learn more about us, just shoots us a message. We are here for you!