I participate in the Fidelity Investments Investor Community as a “Senior Member.” Members of the community can post questions and then various members contribute their thoughts regarding the question. Recently a member asked if it was a good idea to use a home equity line of credit (HELOC) to borrow money to invest. The clear majority of the seasoned investors gave a resounding “NO!”
Here is what I said: “I would never borrow money, even from “myself” using a HELOC for investing purposes. For that matter, I would not borrow money from any source to invest. In the end, you may make some money, but adding debt to investment equation has never made sense to me. Far too many have tried this and lost. I helped two friends dig out from this kind of mess in the past, and they regret their decision to finance investing with debt. I would not use margin debt either. The life of being debt free is far to liberating to take that road into bondage.”
Another wise investor said that this was as foolish as borrowing money against your home to go to the casino. The HELOC is a lien holder on your home. If you lose the money and can’t pay it back for some reason you will be very sorry. A home equity line (HELOC) is secured with the collateral of your house.
Never think of clever ways to make money in the stock market. Clever ways have many pitfalls. You cannot rush to success with borrowing money. Think about getting rid of debt and then use the money you are saving in being debt free to invest.
Proverbs 22:7 (ESV) – “The rich rules over the poor, and the borrower is the slave of the lender.”
Proverbs 22:26-27 (ESV) – “Be not one of those who give pledges, who put up security for debts. If you have nothing with which to pay, why should your bed be taken from under you?”
Want to read more? Here is a link with some additional thoughts regarding combining two risks: debt risk and investment risk. THINK!