Dr Hu

I have a nestegg of £xxk invested at the Halifax in a managed fund split over four areas - I have just had a meeting with the Halifax as a six month review to make sure I'm happy with the fund blah blah.

The fund last year averaged a growth of 17.23% after costs - parts of it were huge - japan part made 26%

My question is this, and I wish I had of thought of it whilst in the Halifax - with current loan rates about 6% - Whats stopping me borrowing a sh1tload of cash, or mortgage the house, bang it into my managed fund and cream off the extra 10% odd of interest.....

Or am I missing something *really* obvious here?

Advisory Note - this is not a i've got more money than you post, but a genuine question I would like answered in a friendly way

TIA

davegtt

Well you can take a massive bank loan and say its for house renovations etc and use it to invest with instead. Nothing stopping you at all doing this. Off course I suppose it depends on what you mean by borrowing a **** load of cash?!?!

The other option is if you have lots of equity in your property you could always remorgage and use a cheaper than 6% interest rate on the repayments whilst investing in the equity.

Just a thought.

imlach

Nothing to stop you doing it, but I'd be wary that you'll see 17% growth again this year....

It's a gamble, pure and simple. Higher returns come with higher risks.

The FTSE100 went up 17%+ in 2005. If it rises less than 6% in 2006, you're already looking at a net loss (we'll assume that the one of the funds you are in is roughly tracking the FTSE100 for example).

Tiggs

of course you can do - if you remortgaged your house to do it in 1995 you could retrire in 2000.


your prob is you have only just noticed a rising market that has been going on for a while and is now slowing off.

this makes you about as "investment smart" as the Chuckle brothers.....as your cash is with Halifax (who are problem know as much about investments as Timmy Mallet) bewteen you and the bank you would prob loose the lot.

T

2000TLondon

I would strongly suggest you do not use other peoples money, or the equity in your home, to trade or invest.

It's obvious why not, especially in a managed fund like that of a building society, as you'll have no warning if (unlikely) we experience a Black Thursday and you'll be on the street in days.

It's very tempting and seems like a great, easy, obvious idea, but remember "stocks can go down as well as up"

Congratulations on the 17% though, that's a nice return.

You could, however, take some of your profit and invest that in a higher risk, higher yield fund.

warrenm2

you could trade in cfds or spreadbets - these are geared investments, although its probably more accurate to call them bets. Any gearing (which is what you are describing) just multiplies up the outcome of an investment - if the investment loses then your losses are multiplied up as well

2000TLondon

The good thing with spread betting would be you wouldn't need a large sum (margin) to begin with, as you obviosuly limit your losses with a well calculated stop loss.

Scooby-Doo

Don't forget potential capital gains tax of 40%.

2000TLondon

Another positive about spread betting - tax free.

MikeCardiff

iTrader: (2)

Investments like those are just a gamble really - and you know the old saying 'never gamble more than you could afford to lose' - only a complete prat ( or someone who's greed overcame their common sense ) would risk their house ( either directly or with loans secured on it ) on a bet !

Chrisgr31

Thats it basically. If you want to risk losing your house go ahead and do it. Otherwise don't.

Jonathan Davies

Nothing to stop you. Nothing to stop you borrowing to stick it on a nag either.

My Indian fund is up something like 125% in about 18 months. If I'd mortgaged my house and stuck the lot in I'd be a few hundred grand better off... but it would've been an insane gamble.

Japan's done well for the past 2-3 years but consistently disappointed investors in the decade before that. I'm surprised that it's taken such a short time for people to forget that stocks go down as well as up.

What I'm saying is: hindsight is wonderful... but with every investment there are losers at some point. Don't get carried away, and speculate only with what you can afford to lose.

Trout

iTrader: (1)

One way to do it is to set up a margin account at a broker. I have a margin account at etrade where they will match my 'pot' as a low cost loan. You only pay for the time the money is actually tied up in stock so works out much cheaper than a loan.

The margin will not cover stocks under $5 (I trade in the US).

You can get a margin account in the UK.

Rannoch

GCollier

Managers of e.g. equity hedge funds do precisely what you're suggesting - borrow money (at a fraction above inter-bank loan rates) and use that money to take a much larger position in the market than they would otherwise have been able. For example a fund with £100million of cash from investors could leverage up to buy or short sell (say) £1billion of shares.

If you look at the return against risk (measured by say standard deviation of its price) of various different types of investments you'll notice that the law of diminishing returns comes into play and that you need to take on substantially more risk for the possibility of small extra returns. (Though a bad fund may offer high risk AND crap returns).

Basically you need to understand that the 17% you made in the previous year *already* came at the expense of you taking a moderate amount of risk to your capital. If 17% could be made relatively risk free then you'd see fund managers offering triple digit returns year on year with moderate risk.

Gary.

TopBanana

or you can use Contracts For Difference which are effectively trading on borrowed money

warrenm2

er - where have you been? We've just covered that!

TopBanana

Sorry just saw your post - most of the subsequent discussion was about spreadbetting which I would avoid.

Dr Hu

Thanks for the replies.....

I am a investing muppet - I confess to knowing nothing (or very little) It was just a query as my fund had made 17% and you can borrow money for less than half that......

Seems like a no brainer - but I appreciate the risk......hmmmm...... re using the equity of the house to invest - the managed fund would be pretty crap not to at least match the bank loan rate would it not - so worst case scenario you dont make anything, but potentially make a lot more.

I'm not being greedy - the nestegg in itself was a surprise gift a couple of years ago. I just want to make sure i'm doing it justice as the person who gave it to us had to work hard all his life and then die a painful death to give us this opportunity.

I reallly don't understand spread betting - I use a managed fund so I don't have to get involved.

I'm sorry I seem to have touched a nerve with Tiggs who compared both myself and the Halifax with Timmy Mallett and I am guaranteed to lose all my money by using the Halifax - Tiggs - I'm sorry I don't have your obviously waaay superior knowledge of the Financial Institutions - I do however have a life....

imlach

For what reasons?
It's certainly a tax efficient method of playing the markets. It carries the same risks/rewards as any other method of investing. No more, no less.

Stainy

Yeah, right

I invested just a grand in a certain technology fund about 4 years ago. Bought in at 3500 and about a month ago it was at 750. It's on the way back up now but will take years to break even. My £1000 is currently worth less than £300. Now I realise that a tech fund is more high risk but the point I'm (and others) making is don't 'bet' anything you cant afford to lose (especially your house!)

imlach

You confess to knowing nothing, and then go on to make a statement which is dangerously presumptious...

A managed fund will NOT match a bank loan rate. Base rates & stock market performance are not directly linked. Move into recession, and base rates could rise...while markets plummet. If markets thrive, base rates can often come down. So, in some respects, they're inversely proportional - but not always! Bases rates are more directly linked to inflationary pressures, not market performance....although obviously all three are linked in some respects. All very complicated.

Your "worst case" scenario is also misguided.

1. Worst case is that you lose ALL your investment. That is HUGELY different from your misguided worst case which is "don't make anything".

Anything with potential to "make a lot more" also has equal potential to "make a lot less".

Jonathan Davies

Managed funds do reduce risk, but what your fund made last year has limited relevance to what it'll make this year or next.

Look at a ten-year graph of the FTSE (at FT.com for example). You can see how the fairly persistent rise of the index from 1997 to 2000 might give the impression that it would continue that way (and lots of people thought so)... but if you piled in in 2000, the next three years would have seen you lose half your money.

warrenm2

Managed funds almost always do what the market in general does and 2005 saw the ftse rise 17.2% (sound familiar?). Tiggs's point I believe is that funds charge you lots of management fees then produce performance similar to or worse than a FTSE tracker, therefore not adding any value for the fees youve paid. This applies to 99% of funds (especially over longer term) not just the Halifax. Check out the historical performance of the FTSE before gambling with your house

DBY

Known in the trade a "Balanced Managed Plummet"