I, for one, am rather confused by your calculations. According to my noob-friendly financial calculator, for a 20K investment to reach 21.7K in 5 years it needs to have an annual equivalent rate (AER) of just 1.64%.

You seem to be able to borrow at very good rates, and the idea of using some kind of leverage to supercharge one's investments during raging bull markets is not a particularly original one.

I don't think European quality debt will default, or rather will be allowed to default, so that bet is most likely a safe one.

The one on the MSCI World index is not.

Based on its track record (to be taken with a pinch of salt, because "past performance is no guarantee of future results"), as far as I remember it (I don't have the numbers at hand) if you had invested in Oct 2007, you would have managed a painful recovery all the way to those levels (in EUR terms) only in Jan 2013, and this is assuming you had not panic sold in the meantime.

Also, as you plan to pay back your debt by using your primary source of income, bear in mind that your employment may react procyclically to economic shocks. In other words, you may end up in a trifecta where your broad market ETF is down 45% and won't recover any time soon, you have lost your job, and you still have to pay back your loan.

Is it risky?

One of my colleague's answers reads "Any scheme of borrowing money to "invest" is in fact a gamble and should be avoided."

That sentence is not really correct.

ALL trading is a gamble.

It's more like this: "you are risking losing cash you don't have".

• Say I have a million bucks cash. I also have a job to live off. It's 1988. Every single living human in the world agrees that the Japanese stock market is about to start a huge boom, so I put the $1m in to the Nikkei. From there it went straight down for 20 years. So I have now lost all or most of the cash. I have no cash. At least I still have the job to live on.

• Say I have a house worth a million bucks. I also have a job to live off. I get a loan on the house for a million bucks, and invest it in the Nikkei, and I lose all the money as above. The problem is I now OWE a million bucks on the stupid house.

You can see that "B" is, in a sense, much worse.

HOWEVER ... that being said, note that in "B" I can then simply sell the house, and pay off the million bucks. So ....... it can be naive to say "B is absolutely worse and stupid".

Indeed: there's a serious danger in thinking that "A" is "less risky".

The fact is this:

trading anything risks you losing heaps of value. You can either "lose your house" (if you get an interest-only loan on it to gamble with) or you can "lose all your cash" (if you simply gamble with your cash).

I can assure you that when you make a big swing trade, and lose a few hundred thousand in cash, you do not feel smart. I have fortunately never lost a pile "on a house" but my guess is that would also suck.

I think the overwhelming takeaway is:

1. Sure, what you describe is completely commonplace, people do this all the time with assets

2. You do have to realize you can lose.

Personal rule for borrowing money in order to 'invest' in any kind of generally available thing:

Assume your investment will lose all of its value and you lose your job and need to live off your savings for 6 months to a year while still repaying the debt. (If you think losing its value is unrealistic, then assume the brokerage goes bankrupt and it takes 5 years for them to sort through the mess and finally release your assets back to you).

In that scenario, are you OK?

If yes, then consider the investment.

If no, then don't even consider it in the first place.

If you were genuinely being offered lower interest than the rate on your own government's bonds then this would be more interesting as that's pretty close to arbitrage territory, but you've already indicated that's not the case.

And, in fact, it should never happen in real life. Because if it did, why would a bank loan you the money when they could loan it to the government instead and get higher interest with a better chance of being repaid?

Think about it this way, the bank would rather trust you to pay back the loan with interest instead of denying you the loan and engaging in the scheme themselves.

They probably use larger envelopes for their math...

"Never invest anything you aren't comfortable losing" is some of the best financial advice out there.

If you lose everything, are you ok? Will you still have a house, food on the table, will your relationships endure the strain, etc.?

If your investment is borrowed money, then losing everything doesn't bring you down to $0, it brings you way past $0. That's why all the investing forums fill up with suicide hotlines whenever the market dips. You don't want to end up in that kind of situation.

Borrowing money to make an investment is called leverage. If the interest rate of the borrowed money is less than the return on the investment (considering of course all taxes and fees) then it is a profitable proposition.

Leverage is common in investing, though perhaps not in the specific way you describe. Some examples:

A widget factory might issue a bond to purchase an automated widget machine. They believe the return they will get in investing in the machine is greater than the interest they will pay on the bond.

Many brokerage accounts offer a margin account, which is effectively a loan the brokerage gives you, with your assets at the brokerage as colateral. The brokerage can lend you cash which you can use to buy more shares of a thing you believe will increase in price, or you can have the brokerage lend not cash but securities. You can then sell them to someone else, then buy them back later at a lower price and repay your loan. This is called short selling.

An individual that has a mortgage on their home may choose to invest some excess income in the stock market rather than paying down the mortgage balance. This is effectively deciding to pay more interest on the loan for a chance at making returns to cover that interest and more in an alternative investment.

Leverage multiplies gains, but it also multiplies losses. Additionally, it adds expenses of its own because the creditor will want to be compensated with interest on the loan. That interest diminishes your returns.

As such, leverage also increases risk and volatility. Before deciding to leverage your investments, you should think about the risks. Without leverage, you can't lose more money than you initially invested (the "cost basis"). But with a leveraged investment you can lose more than that. Your investment can lose all its value, and you still have to repay the loan.

Consequently you'll find more leverage in situations where there are limits on liability. For example, startup corporations are often extremely leveraged. They can do this because the liability of the corporation doesn't extend to the personal assets of the shareholders. If the company fails it can declare bankruptcy and the shareholders still have their home. For an individual however the stakes are higher: you could lose all your assets.

If you've duly considered the risks and still want to leverage your investments, I'd suggest looking for other ways to accomplish it besides what you've proposed. Your bank will probably want something for collateral, like your house. Or, they may be able to garnish your wages. You shouldn't risk more than you can afford to lose. Can you afford to lose your house or your income?

Instead, see if your broker can offer a margin account. Check the details, but in most cases the broker's recourse is limited to liquidating the assets in your account. This way you have some bound on the worst case outcome that doesn't leave you homeless.

In general though, I wouldn't recommend leveraging your investments as an individual. Keep in mind that anyone can do what you are proposing, and so if it truly was a "can't possibly lose" strategy, everyone would do it. This would then mean banks would have high demand for loans so they could charge more interest, and companies seeking investors would have many people offering them money, so they could get away with lesser returns. This dynamic creates pressure for the bank's interest rate and the return on investment to converge, making this scheme less profitable.

So if the market is efficient, the risk adjusted return of your loan and your investments should be the same, so by investing in this scheme you are betting that the market consensus has misjudged the risk of investing in the stock market or loaning money to individuals. If you don't have any particular data to support that view, then it is not a prudent investment.

Depends, how easy is it to discharge the loan you mention?

How certain are you that you will best the interest required? How would you arrive at your conclusion?e.g. What research have you done and why do you believe this is enough?

What are your plans if your investment loses in value? How much could your investment most likely lose? 10% of principle, 20%?

For the answers that say what if you lose everything. I have not seen many broad ETF's loose everything. Oh no, the sky is falling.

So if the market is efficient, the risk adjusted return of your loan and your investments should be the would be true but it is not efficient. There are many entities that are not permitted to do as you suggest by law. There are many who believe oh no I might loose everything.

P.S. Stop-loss is your friend.

P.P.S. My doctor did something similar. He was offered 0% credit card cash advance, bought a CD at 3%. cha-ching. But if the market was efficient, he could not do this, thankfully, it's not. Some people will take the cash advance and by a new car. Nothing like a depreciating asset.

I didn't see the numbers themselves analyzed in the other answers. Do you understand that according to your own estimates you would likely be earning below 5 EUR per month?

Including interest and fees I will have to pay back 21.7k EUR, amounting to an actual interest rate of around 3.8 % p.a.

My country, which has a Moody's rating of Aa1, issues (among others) bonds with interests of around 4.8 and 4.5 % p.a. with remaining bond periods of 5 or 6 years. Including fees and taxes the effective interest rate should still be in excess of 4 %, therefore being able to cover fees and interest of my loan as well as granting a small profit.

Let's assume your best scenario. You take money at 3.8% fee and invest it on 4.8%. 20k EUR that you have to return at the end of the period. So you gain 1% per year. That is 200 EUR. I would say that this number is small enough to just not bother with this hustle/hassle.

Let's get more realistic. You have to return the debt continuously, so on average throughout the period you will have 10k invested. You also estimated that because of fees and taxes you would get less, but "in excess of 4 %". Would 4.3% be fair estimate? We've now halved your investment and halved your margin. 50 EUR per year. 250 EUR total. Below 5 EUR per month.

Are you willing to go through all of that hassle for 250 EUR? Are you willing to log into your account each month to sell a small amount of your investment and return the debt? For 5 EUR?