Planning to take personal loan to invest in market? Speak to a wealth advisor first

To raise money for investing in a stock market, some investors resort to taking a personal loan. However causal it may sound, this is not a healthy practice and should ideally be avoided. And even if you have a strong desire or reason to do so, it is recommended to first speak to an investment advisor. Notably, being an unsecured loan — personal loan bears a higher rate of interest.  

So, if you too are plannning to raise a personal loan for investing in a stock market, you could speak to a wealth advisor or a financial planner.

Why should you speak to an investment advisor first?

1. High risk: Raising a personal loan to invest is leveraged investing, and it significantly increases both potential returns and losses. If the market falls, you would not only lose your investment, but you would still owe the loan along with interest.

2. Loan costs versus market returns: Personal loans often come with high interest rates which hover in the range of 11-18 percent. The stock market’s average annual return could be lower than this, and it is not guaranteed. The advisor can help assess whether this trade-off is sensible in your case.

3. Financial position: It is significant to evaluate your risk tolerance, debt-to-income ratio, emergency fund status and investment horizon before taking an investing call.

4. Other alternatives: There could be other lower-risk, tax-advantaged, or long-term options which are better suited to your goals than investing borrowed money.

5. Savings before investment: Last but not the least, savings typically precede investments. Therefore, if you want to invest, you should first save some money instead of borrowing loan, which may lead to depletion of savings. 

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