# Shares or Property?



## RPMcMurphy (1 Apr 2004)

Hi
I am borrowing 20k from the equity on my house to invest over a minimum of 5years.(my current mortgage is 210k, Im 31years old)
I am leaning toward investing in shares rather than property and have read all the advice on this site which seems to favor shares for someone in my position.
    Its not that i think the property market will take a dive rather level out (maybe 4 or 5% growth annually?) so after taking in the personal risk, amount of money involved in the transaction and management/care of a property, shares look a much better/safer option. Problem with the shares investment is that the numbers don't add up to much after say a 5 year investment, i know you cant predict the stock market but im basing it on historical performances so taking into account the payments on the capital investment,legal fees, charges and return of initial capital back into the house. I plan to buy stock of 4k in each of the top 5 Irish companies and stick to these to reduce fees.
Your comments/advice are most welcome.
RP.


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## <A HREF=http://pub145.ezboard.com/baskaboutmoney.s (1 Apr 2004)

Have you read the AAM Guide to Savings & Investments, esprcially the bits that deal with the general inadvisability of borrowing to invest?

www.askaboutmoney.com/guide/index.htm
www.askaboutmoney.com/guide/ch02.htm


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## RPMcMurphy (1 Apr 2004)

yes i have read those sections and agree that in general its risky and not an ideal situation when borrowing to invest, I would like to know if anyone has any first or second hand experience of borrowing to invest (no eirceom stories please, iv heard them all). Cheers, RP


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## <A HREF=http://pub145.ezboard.com/baskaboutmoney.s (1 Apr 2004)

No first hand experience as it's something I would not do myself but you should at least evaluate the probability that your investment will yield NET after tax returns in excess of the overall costs of borrowing before deciding whether or not this is a prudent and viable approach to investing.


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## MAC (5 Apr 2004)

*Any experience?*

"I would like to know if anyone has any first or second hand experience of borrowing to invest "


Yes unfortunatley, the term Black Monday in October 1987 still haunts me from time to time although I try to put it down to youthful exuberance...   en.wikipedia.org/wiki/Black_Monday

The problem I experienced was that having borrowed money, when the crash happened I had to sell because of the debt...... if I hadn't been borrowing I could have held on and six months later would have been back in the black...

Still, if my aunt had balls and all that.........

Still property has managed to minimise the amount of conselling in the mid-late 90's.

Best of luck
MAC


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## Investor (6 Apr 2004)

*High risk strategy*

I would suggest borrowing to invest is high risk.  There are a number of ways to reduce exposure to risk.  Diversification over a number of companies (more than five, the thinking is 10 or more) and a number of sectors.  If you go for top five ISEQ then you could be are too heavily exposed to financials with AIB, Bank of Ireland and Anglo Irish representing 60%+ of you share holdings.  

Also, you should consider investing in an equity unit linked fund as opposed to direct investment in shares. It is more tax efficient for the higher rate tax payer especally if you do not have capital losses carried forward.  Unit linked funds like those offered by Quinn Life do not have any exit penalties and you are allowed two free switches per year, so you can take advantage of swings in the market to lock in gains.


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## anom (6 Apr 2004)

*INVESTING*

I was always told the way to riches was to pay off your mortgage as quickly as possible and then invest.

Look at the feasibilkity of paying off more on the mortgage and reduce the term.  So if your mort is 25 years and u are 31 then when 56 u will hjave paid it off but if u pay more each month and pay off early the savings can be astronimical. Your builidng society can give u figures. Even if u move u will still gain as u will have more reaslisable capital.

In other words do not borrow to invest.

anom


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## daltonr (6 Apr 2004)

*Re: INVESTING*

People borrow to invest all the time, how many investors buy investment properties entirely for cash?  The vast majority of investment properties have mortgages.

Borrowing to invest in shares is a different matter, but if you look objectively at it why should it be any different?  Shares are more volatile?  Probably, but share dividends can be less volatile than rent, so there's two sides to the story.

Yield from renting a property can be as low as 2% and up to 7%, you may be able to get more but with prices like they are it'll be difficult.

You can get similar dividend yields and better from shares.  So if you're prepared to borrow to buy to let, why not borrow for shares.  As long as the yield covers the interest on the borrowings you're coming out ahead.

A problem arises when people borrow to buy into products that don't pay dividends e.g. trackers, so you can't bank on any particular return.  If you're going to borrow to invest it's more important than ever that you understand the investment, and to be honest I can't understand most trackers so.....

-Rd


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## <A HREF=http://pub145.ezboard.com/baskaboutmoney.s (6 Apr 2004)

*Re: INVESTING*

IN GENERAL borrowing to invest is not a prudent course of action. However, as usual, such an approach will suit some people - e.g. those with a high tolerance to risk. There are few golden rules when it comes to personal finance - just many rules of thumb that apply in the most general of cases.


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## daltonr (6 Apr 2004)

*Re: INVESTING*



> IN GENERAL borrowing to invest is not a prudent course of action.



0, what about borrowing to invest in property?  Widely accepted as prudent.  

Isn't it just a fact that people "think" they understand property so it's ok to borrow.  When in reality their "understanding" is limited to "property prices always go up, and I can rent it for this much".

Or would you be of the opinion that borrowing for Buy To Let is also not prudent?

-Rd


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## <A HREF=http://pub145.ezboard.com/baskaboutmoney.s (6 Apr 2004)

*Re: INVESTING*

Perhaps I should have qualified that as "borrowing to invest in something other than your PPR"?


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## daltonr (6 Apr 2004)

*Re: INVESTING*

OK.  So, you're against borrowing to invest in an Investment Property.  That clarifies it.  Thanks.

I was trying to expose your double standards for property Vs shares, but you pass the test.  It is a very widely held double standard.

 

-Rd


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## <A HREF=http://pub145.ezboard.com/baskaboutmoney.s (6 Apr 2004)

*Re: INVESTING*



> So, you're against borrowing to invest in an Investment Property.



Not quite. I just reckon that this is not a prudent course of action for MOST people. People who are aware of the risks and willing and able to face them are obviously good candidates for forging ahead. The same would go for other asset classes but, for example, the risk involved in borrowing to invest in equities would probably be even higher than property. It's horses for courses and what's appropriate or inappropriate depends to a large extent on the individual's circumstances.


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## daltonr (6 Apr 2004)

*Re: INVESTING*

House prices would be a lot lower if people took your advice, that's for sure.   

-Rd


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## Drop In (7 Apr 2004)

*borrowing to invest*

" House prices would be lower....."

Yes, and we would have less equity, a more conservative approach toward borrowing, a less powerful engine for growth and a weaker economy.

Let's face it, our economy (as with most industrialized capital economies) is based on ability to borrow and not liquidity......but I digressed, 

Simply, yes do go ahead and borrow to invest if you are certain that you can cover the cost of borrowing or you are OK with a loss situation!


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## Nexus (7 Apr 2004)

*borrowing to invest*

To RPMcMurphy

What rate of return would you be happy with over 5 years?


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## Dan The Man (18 May 2004)

*borrowing to invest*

I don't agree that paying off a mortgage first and investing later is such a good idea? Mortgages is cheap money and if you are in control of your repayments then why would you want to use you lump sum to pay it off? What have you gained? With whatever money you have surplus each week from not having mortgage repayments, you will probably blow it on something else anyway!  

I am not always in favour of the safety first approach, but I do agreee with a calculated risk, otherwise you will remain stagnent all your life and you will never know what could have been, and that is a failure in itself, one that scares me more.


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## Dr Moriarty (31 May 2004)

*Re: borrowing to invest*

_Post containing obscenity deleted._


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