Would you ever borrow money… to invest?
When would be the right time – if any – to do that?
Bill Gross – the billionaire known as “The Bond King” – thinks it’s time to borrow money to invest.
“It’s probably a good time to lever in a mild sort of way,” Bill Gross said in a television interview last week.
[ad#Google Adsense 336×280-IA]What is Bill thinking? After all, stocks have soared since 2009. What is he talking about?
Here’s what he means:
Chances are good that you won’t make much money in interest in the next couple years.
10-year bonds are only paying you 2.5% interest – hardly enough to live on. And do you want to lend money to the government for 10 years? Plus, short-term interest rates are basically zero.
So here’s what Bill is proposing…
Borrow money at short-term interest rates (which are near zero), and use that money to buy something that pays a higher rate.
Borrowing “short” and lending “long” (as this is called) is often a dangerous strategy… It has bankrupted many brilliant people.
But the brutal reality is, Bill Gross needs to “juice” his returns. 2.5% interest is not good enough. And short-term interest rates ARE low enough where he can make this work.
I don’t advocate this strategy for most people. Bill became a billionaire by making smart interest rates bets – and that is darn tough to do.
But I do agree with Bill that you do want to take advantage of today’s low interest rates if at all possible.
My number-one recommendation for you for taking advantage of today’s low borrowing costs is U.S. housing – single-family homes…
I expect house prices can continue to soar even after the Federal Reserve starts raising interest rates. (I explained why in this DailyWealth essay a couple weeks ago. I urge you to go back and read that.)
Don’t be stupid about it. Don’t go crazy. Follow Bill Gross’ advice, and do it, but “in a mild sort of way,” as he said.
The goal is to amplify your returns a bit if I’m right. The goal is NOT to bankrupt you if I’m wrong.
Interest rates are at record lows. And house prices fell by a record amount in the bust, and still have plenty of upside.
Take advantage of both of those facts. Simple.
Good investing,
Steve
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Source: Daily Wealth