I mentioned the other day about the stock market tanking… well, it got slightly worse, with S&P downgrading the USA’s credit rating yesterday. But, being a 20-something, I can see the bigger picture. I’m no where near retirement, so any money I lose in the short run, I can make up over the long term.
Which brings me to the power of this opportunity. I can now buy stocks, at a discount and then wait for them to recover to make a return.
Add onto that, one thing a couple people I respect keep saying, is its time to fully run with this opportunity. And by that, the suggestion has been to get an investment line of credit, and put that into the market as well. So I play with even more money, and see bigger returns over time. Plus, interest rates are so low on a line of credit, that the return I’d have to make back to make it worth its wild is quite minimal.
Risky? Yes — afterall, the stock market is basically legalized gambling.
But, being young, from a financial perspective, its an interesting idea to ponder. I have a bank student loan with a $25k limit on it, where my interest rate it prime +1% (which is almost nothing). The loan is almost paid off… but I have access to it still, and can pull out the entire $25k and put it into the market. This would make my monthly payments about $150, which I can easily afford.
Now, the goal wouldn’t be to keep this 25k loan in the market for years, but rather, until the market recovers again. Would probably be a year in total. In which time, I’d cash out, and pay off the student loan all together.
I’d also go for fairly blue-chip stocks and mutual funds, and at most do $5k in any given company, as well as diversify.
I’ve been kicking myself in the last recession, that I didn’t jump on the chance aggressively enough. Now, it seems I have at least a bit of a do-over.
Is this smart, or is this too much risk to do?