The more money you borrow, the greater the risk becomes because you have to repay the loan regardless of the performance of the investment.
- Investment income risk - The income from the investment may be lower than the loan costs. There may not be any return on investment if the market performs poorly.
- Income risk - What if the regular paycheck stops due to unforeseen sickness or injury? How do we manage to repay the loan?
- Capital risk - The value of the investment falls below the loan balance. Are there funds set aside to cover the loss and repay the loan?
I needed to make $1,200 give or take to break even per year.
I invested some of it in stocks and write covered calls, some in stock mutual funds, and some in high-yield bond funds.
Long story short, I made the monthly payment by using money from my regular paycheck. I wanted to keep the investment intact. In the end, 5 years later, I gained $14,000 in my account. Not bad.
Of course, it wasn't something easy to do because I was under consistent stress. There is a reason why people say only invest the money you can afford to lose. The money was borrowed. I could not afford to lose. The stress level was intense.
I was also fortunate because nothing happened to my day job. The paycheck came every other week. I was healthy. Thank goodness.
Will I do it again? Probably.
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