Leveraging a Heloc to buy stocks - Is this a bad idea?

[Closet_Gamer]

Or one could buy 3x leveraged ETFs, such as SPXL.

By not borrowing money, you cannot lose more than what you have.

PS. If the above 3x leveraged S&P is not volatile enough for you, do 3x leveraged Nasdaq. Just trade 100 shares in/out of market and see if you can make money.

If you're going to go...go big:

Borrow money to buy LEAP options on a 3x leveraged NASDAQ ETF.

For the avoidance of doubt, this is a joke and very bad idea!

To the OP question, I would personally not use a 5% variable rate loan as a source of market funds. The spread between likely returns and the interest rate paid is too thin for me. Of course, I also paid off my house, so I'm just debt allergic in general. Good luck!

 

[MarieIG]

I've done this as well! I would rather pay a 3% transfer fee and get 10% returns in the market.

I decided against the HELOC myself, but this was more for awareness and curiosity if anyone has actually used this as a strategy.

I like what someone said about just putting new money in, rather than leveraging future money up front. I asked for a raise and just got a $6/hr raise so alas, I now have more new money with little risk...a much better strategy.

Excellent!

 

[Time2]

A little over a year ago I moved my taxable money to IBKR in anticipation of borrowing on margin. I let the move bake for a month then borrowed a large amount on margin and had it sent to my bank. IBKR margin rate at the time was 1.52%. I then bought a HUD Repo fixer upper house that my daughter and son in law wanted. I gave them a 2 year mortgage, first year at 4%, second at 6%, as a big incentive to get the house fixed and remortgaged. I was at about 39% margin, and it was suggested to me to get a HELOC and pay that down, just in case the market tanked, so, my funds would not get sold. So I went to my bank, I said I'd like to get a HELOC, I don't have a job, I don't have a regular income, but I have saved well! I just gave them my Vanguard statements and I got $100k HELOC. The sweet part of that, is they had a 6 month teaser rate of 0.99%. I sent the $100k into IBKR to pay down my margin. The kids (and I) got the house up to mortgagable shape and they got a 3.25% 15 year mortgage, within 10 months and I got paid back. It worked out better than I could have planned it.

With the rate increases, IBKR margin loans are now 3.33% for $100k to $1M.

 

[JBTX]

I’ve recently toyed with the idea of a HELOC but not too seriously, as a liquidity bridge so I don’t have to liquidate ibonds for some potentially large and unusual expenditures. But I would never want to be locked into one that I couldn’t pay off right away if rates went up.

The problem with 5.5% is there likely isn’t a tax deduction and investments will generate capital gains and interest so you likely would need near 7% to breakeven. Then of course there is risk in the investment and also the interest rates. What if we go 1980 style stagflation with high interest rates and a tanking stock market? It’s not a risk I’d want to take.

I don’t have an issue with using a lower interest fixed mortgage to fund investments, but I would need a higher spread than that.

 

[kgtest]

I’ve recently toyed with the idea of a HELOC but not too seriously, as a liquidity bridge so I don’t have to liquidate ibonds for some potentially large and unusual expenditures. But I would never want to be locked into one that I couldn’t pay off right away if rates went up.

The problem with 5.5% is there likely isn’t a tax deduction and investments will generate capital gains and interest so you likely would need near 7% to breakeven. Then of course there is risk in the investment and also the interest rates. What if we go 1980 style stagflation with high interest rates and a tanking stock market? It’s not a risk I’d want to take.

I don’t have an issue with using a lower interest fixed mortgage to fund investments, but I would need a higher spread than that.

Makes sense!