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Thread: I want to invest with student loans - good idea?

  1. #1

    Default I want to invest with student loans - good idea?

    I'm a student and live in Europe. I want to invest with debt - student loan debt (topic).

    Here's my thought,

    At the moment, I'm not in any debt right now. I only receive allowance from the government. Although, most of friends take student loans. However, they go out and party, paying their bills, and do other crazy stuff with it. I'm thinking of using all of it for investment opportunities.

    This is how it would work:
    Currently, I should receive $205(307) per week, or $821(1228) 4 weeks, or $4105(6139) 20 weeks.
    () marks the sum of debt & allowance.

    Interest rate is at 2.4 % as of 2010. Debts are acquired from government supported agency (my only option)

    I was thinking of taking out approximately $10,000.

    Function
    1. This money have to be paid back at a maximum 25 years from the day I stop.
    2. It must be repayable after 6 months I finish University.
    3. Also, if things would really get bad I can apply to pay a smaller amount.

    The area of investments are huge. I was thinking going into precious metals and stocks, foreign stocks in Asia or Canada. So my diversification would certainly look something like this: 60 % (Gold), 30 % (stocks) and 10 % (Silver)

    Someone told me that commodities can be very volatile:
    Corn (~$240/ton in '08, ~$120/ton in '09, $200/ton currently)
    Oil ($149/barrel in '08, near $40/barrel last year, now around $80/barrel)
    ..And that Supply/demand, political risks, weather risks, etc. all play a significant role in commodities so at least to be aware that while there could be substantial gains as food & energy will always hold value, things won't be linear by any means.

    I know the risks are great but I also see opportunities as well. Gold has risen significantly since '08 and I always hear stories that it could rise up to $8,000 some day in the future. I still have more than 2 years in School, so I'm sure Gold will be up a lot by then. Now the goal would be to maximize profits to pay off my debt and keep a good return as well.

    I do know basic economics. I have read some of Peter schiff's books and I think I have a clue on most of his advice - but still uncertain if it's worth all the mysteries involved. I would eventually go with a brokerage firm.

    What's left?
    I would like to hear your advice.
    Thank you.
    Last edited by JackieDan; 11-19-2010 at 06:57 AM.



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  3. #2

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    while I would never recommend taking out debt to invest, if you were going to do this I would look for foreign stocks with good yields. Maybe some Canadian energy companies.

  4. #3

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    There is another post which raises a similar question. Some of my thoughts I posted in it:
    Nobody can be certain what will happen in the future. What happens if you borrow money to invest in something and it goes down in value? Or simply does not go up as high as what you would be paying in interest? Then you are losing money. Suppose you took out a student loan and bought silver but then the price of silver dropped by 20% or more? Can you still pay off your student loans? There are no guarenteed returns- and certainly none currently (without risk) offering anything around 8% or more. Investments are risk taking. Do not risk more than you can afford to lose. When calculating the return on an investment include all costs- buying and reselling the assset costs. Taxes on any capital gains.

    From 1987 (no- I am not starting at the peak price in 1980) through 2001 the price of gold went down every year- fourteen straight years. What if that were to happen again? http://www.goldprice.net/historical-gold-prices.php From 1966 to 1986 stocks (as measured by the Dow Jones index) basically did nothing- over a twenty year period! (yes, it moved around but stayed on the average quite flat- the peaks hanging around the 10,000 mark during that time). What if you bought stocks and that happened again? Could you still pay off your student (or other) loans? http://stockcharts.com/charts/historical/djia1900.html

  5. #4

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    This is like double leveraging that there will be inflation in the future. Are you really so sure?

    You have not only the risk that gold will go down in value, but also that the real value of principal will stay the same or go up!

  6. #5

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    I would not suggest doing this, since after the interest on your loans, dividend taxes, capital gains taxes, etc. the return you have to get is pretty darn high for it to be worthwhile. Too risky IMO.

    However, if you do decide to do this I suggest good dividend paying stocks (at least twice the rate of yoru interest). You can use your dividends to reduce the principle on your loan and/or pay off interest.
    "When the power of love overcomes the love of power the world will know peace."
    - Jimi Hendrix

    "If one rejects laissez faire on account of mans fallibility and moral weakness, one must for the same reason also reject every kind of government action."
    - Ludwig Von Mises, Planning for Freedom

  7. #6

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    Quote Originally Posted by JasonC View Post
    I would not suggest doing this, since after the interest on your loans, dividend taxes, capital gains taxes, etc. the return you have to get is pretty darn high for it to be worthwhile. Too risky IMO.

    However, if you do decide to do this I suggest good dividend paying stocks (at least twice the rate of yoru interest). You can use your dividends to reduce the principle on your loan and/or pay off interest.
    -
    I was thinking about the amount I have to pay back, because it isn't a big deal considering how low it is.

    This is how it would look like:
    Annual amount for 2010 will be $930 ($77.5 monthly). Plus, I must always pay a service fee of $20 per year.

    Here follows an example from their(agency's) website:
    --------------------------------------------------------

    Jessica is studying for three years with full student loan

    Jessica was born in 1985 and begin's to study the fall of 2010. She is studying for three years. In January 2014, she must start paying back her loans. Her debt is then about $24123, and she gets a payback period of 24 years. The amount that Jessica will pay the first year will be about $1053.
    --------------------------------------------------------

    I don't know if this was the reason you mentioned if it was too risky, or was it the fact that you were pointing out to the investment strategies I had?
    Last edited by JackieDan; 11-19-2010 at 06:59 AM.

  8. #7

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    The first thing I would do is to not seek advice here. No offense to those who are, but I don't think most of us are in a qualified position to give you a proper answer. However, if you want my opinion, I would say definitely no. You should take out a loan only if it's absolutely necessary for things such as getting a house, a car, or an education. The only type of loan you should take out for investment would be starting your business. Otherwise, it's not worth having the extra debt, especially in times of uncertainty.
    I do know basic economics. I have read some of Peter schiff's books and I think I have a clue on most of his advice - but still uncertain if it's worth all the mysteries involved. I would eventually go with a brokerage firm.
    Don't get me wrong, I like Peter Schiff and I think he's very knowledgeable. But relying on one man for all of your advice is a disaster waiting to happen, especially if you don't have any prior trading experience. You need to set out your own analysis and study the charts very closely if you really want to do this. But, if you are doing some trading on the side, I would take a look at Jim Rogers, who has tons of videos on YouTube.

    If you do decide to do this, double-check to make sure you can do it and there's not some moral hazard clause in it. But like I said, I think it's a bad idea.

  9. #8

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    Jessica is studying for three years with full student loan

    Jessica was born in 1985 and begin's to study the fall of 2010. She is studying for three years. In January 2014, she must start paying back her loans. Her debt is then about $24123, and she gets a payback period of 24 years. The amount that Jessica will pay the first year will be about $1053.
    Twenty four years to pay back a student loan? Sounds like a house mortgage. A person would end up paying a lot in interest (even at a low interest rate) over that time on a loan.






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