by The Investor
on September 10, 2009
We’ve previously looked at how interest payments, other costs and taxes will reduce your expected return if you borrow to invest.
But banking on the stock market to deliver an expected return is risky, even over 20 years — and here ‘expected return’ includes simply “more money than I put in, taking into account interest and charges”.
When we began this series on borrowing to invest, I said that you might see 10% a year from investing your borrowed money into the stock market, before costs.
And it’s true, you might. That’s the long run average return here in the UK and the US, give or take a bit.
But you might easily invest your borrowed money just before a bad spell for shares, and only get 5% a year.
According to my copy of the latest Barclays Capital Equity Gilt Study that I last dusted off when we looked at corporate bond returns, there have been several times over the past 110 years when UK equities have failed to deliver a positive real return on investment over 20 years, let alone their expected return.
At such times, you’ll not break even after costs and charges.
Worse, you might invest at a truly terrible time, and lose a lot of money.
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by The Investor
on September 7, 2009
I am a proud uncle again. Or rather, I’m more of an uncle than I was.
I’m uncle-ier!
What I mean to say is my sister has had a beautiful daughter, and my brother already has a splendid son.
Besides being a source of much needed happiness in our family, the arrival of Niece #1 raises an issue I never resolved with Nephew #1 – whether and what to give them to mark the occasion.
Being childless myself it’s news to me, but apparently there’s a tradition of buying newborn children presents they’ll look forward to getting when they’re older.
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by The Investor
on September 5, 2009
My weekly commentary followed by my weekend news and blog links round-up.
Back in July I explained I was buying an iPhone in a post about how denying things can actually damage your wealth (within reason!)
My millions of fans You obviously took it literally, because iPhones had become gold dust in the UK by the time I got around to buying one.
O2 hasn’t had any for weeks — I suspect because Vodafone and others are being stocked up ahead of their rumoured October iPhone launches, although some say they’ll only get old models.
Anyway, I eventually got mine from the Apple store; the last 32GB model left in London that day!
There were other hassles, and on activation my phone even turned German until I slapped it about a bit. Nobody wants to see that. It made me realise how easy I find it to save money because shopping is such a pain in the neck.
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by The Investor
on September 4, 2009
This is part of a series on why borrowing to invest is rarely worthwhile.
Let’s imagine you remortgage your home to release £100,000 that you can repay over 20 years.
- You borrow at a great rate of 6%
- The loan is fixed for 20 years
- You invest in the index for its average 10% a year long-term returns
… and then you pocket the 4% difference, right?
Not so fast.
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