Is it wise to invest in stock with a credit card of 5% fixed interest rate. Or is it too risky to do so?

Answer 1

You are talking about borrowing money to invest in the stock market. Not a good idea. There are professionals that do it but they are professionals. If you are having to do it with a credit card then you are not a professional.

Lets say that you go ahead with this and your credit card limit was $1000. You max it out and buy stocks. First of all, you will not be able to buy 100 shares of a $10 stock. There are various fees and commisions that need to be paid. That takes a bite out of your $1000 and don't forget, you will run into these again when you sell. So lets say you get 100 shares of a $9.50 stock. You have $950 in assets and $1000 in liabilities. You are already starting off in the hole.

Now one year passes. Your credit card will have added another $50 in interest. Who knows what other fees and charges come with that. Also, you may have paid a little of it off. They may have even raised your rate. I am going to stick with the $50 interest though. You owe $1050. Your stock will have needed to grow 10.5% for you to just break even. Lets say you wanted $200 profit. That will require a 31.6% gain in stock. That is pretty big growth to expect from a stock in one year. That is not even talking about taxes. Don't forget, you have to pay an income tax. Sometimes you have to pay multiple income taxes depending on where you live. Also, don't forget about capital gains tax.

What if your stock goes down? You will end up losing money. Can you handle that? Can you handle taking $1000 out in cash from the bank and setting fire to it? If that would cripple you financially then you do not need to be investing in stocks at this moment in your life.

Answer 2

The first two rules 99% of all investors should follow when investing:

Rule #1: never use borrowed funds to invest in the stock market...

Rule #2...see rule #1

It is a good question though...after all, real estate investors do the same thing when they borrow to purchase investment property so in theory it's not any different to borrow when investing in the stock market. The difference however is when you invest in the stock market you really have nothing of tangible value other than a certificate that gives you the right to a % of a companies future earnings...with real estate at least you have the physical land and improved property that provides somewhat of a floor as to how much the value can decrease to (although many people have lost fortunes in real estate by overextending themselves). I know of people who do use a margin account to leverage their portfolio or have borrowed using other credit means and while some have done well, others I know of have ruined their financial lives. While hedge funds and other professionals routinely use leverage there's a good reason why the regulatory agencies limit the use of credit even for very experienced professional money managers who manage mutual funds...it's simply too risky for the average investor and should be used only by the most sophisticated investors who have the tools to manage the risk appropriately and the means to withstand subtantial losses.

Answer 3

No brokerage is allowed to accept credit cards to purchase stock...it's against the law. Wise man once said...save first...then invest..slow and steady wins the race.

Answer 4

Don't do it. Nothing is for sure with the stock market or most investments that would make sure you earn enough after taxes to justify going into debt for (except a house).

Answer 5

Buying stock with a credit card must one of the worst financial decisions you could make. If you can't afford, don't buy it.

Answer 6

You should never think about borrowing money to buy stock.

Answer 7

Yes.

Any decent Mutual Fund will get you at least 20%