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If you were my buddy....POLL
edmundfitzgerald
Posts: 4,306 ✭✭
My buddy is thinking about buying 15 ounces of gold with borrowed money. He would have to pay 3k in interest over the next three years.
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edmundfitzgerald
Posts: 4,306 ✭✭
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Liberty: Parent of Science & Industry
Do it IF you're sure it wont cause any loss of sleep and/or stress.
It's basically a gamble though, so being that it's "borrowed" money, I would say don't do it.
I knew it would happen.
Give Me Liberty or Give Me Debt
<< <i>choices one and four amount to the same thing. >>
Yup---same thought---don't borrow money to speculate on PM's and an overwhelming majority of forumites agree with this sentimemt.
Worry is the interest you pay on a debt you may not owe.
Even though it may only be $3k in interest and only 15 ounces of gold, which for all we know is next to nothing to the guy asking, playing a game you don't understand with borrowed money tends to be about the dumbest thing a person can do. In the worst case, it might be a lot of money, and the guy asking might be retired on a limited and fixed income. At that point it becomes beyond dumb and becomes irresponsible.
NB this is a forum with lots of people who believe that the dollar is doomed and PMs are a major safe way to preserve value. And even so, almost everyone is advising your friend against such a course.
Here's a warning parable for coin collectors...
from what is typically the summer beat down season. Have him wait until July/August and make the same arguments then.
roadrunner
Now if it was a 200+ oz plan, that would be justified imo and I'd say do it, but not for 15 oz..
Fellas, leave the tight pants to the ladies. If I can count the coins in your pockets you better use them to call a tailor. Stay thirsty my friends......
But just to play devil's advocate, whats the difference between borrowing money to have gold today as opposed to borrowing money to do any number of things that arent exactly necessities?
For example, lets say his friend decided to borrow $25,000 for a sports car, or $25,000 for a family dream vacation, or maybe $25,000 for a park model trailer home in a camping resort?
I think that borrowing $25,000 to buy gold would be just as "smart" / "dumb" as any of the other above reasons to borrow money.
I personally have never borrowed a single dime to fund a metals purchase EVER with the exception of paying for an online order with a CC and paying off the balance in full 3 days later. However, I DID borrow money to buy a sports car. So whats a better bet? A modern, used sports car, or the equivalent amount in gold bullion?
Let's round off numbers and say gold is at $1500.
Then 15 oz x $1500 = $22,500.
Add the 3K interest and the total is $25,500.
Divide this by 15 oz to find the 'buddies' break even point, which is 25500 divide by 15 = $1700 an ounce.
For those of you that think this is a bad idea..you're telling me that in the next three years, Gold will never reach $1700 an ounce??
Boy, I'd sure like to take that bet!!
"“Those who sacrifice liberty for security/safety deserve neither.“(Benjamin Franklin)
"I only golf on days that end in 'Y'" (DE59)
Are you planning on becoming his enabler?
For those of you that think this is a bad idea..you're telling me that in the next three years, Gold will never reach $1700 an ounce??
do you think it's a good idea to go into debt and "hope" to break even? How about not do it and be guaranteed to break even?
I'm with those that say the potential downside outweighs the potential upside.
better to buy one ounce that he can afford than 15 that he cannot.
Liberty: Parent of Science & Industry
Remember that the interest is only 3k but if the price goes down in the 3 years then it could potentially cost a lot more than 3k in losses.
But yes, grand scheme of things, lets say he makes 5k over 3 years with a risk, nothing like getting a promotion or having the price of your house go up a few %, won't make him rich (unless theres a SHTF scenario then God help us all).
That was my subtle and polite way of saying that he would be a fool to buy gold with borrowed money, unless he happened to have about $300,000 or so in other liquid assets to back him up. I think that gold will top $1,700 in 3 years but I also think he could just buy gold as he can afford it and average in.
Jumping in with borrowed money and no backup is a good way to get himself into a bind. If gold dropped, what's the plan? Buying a big chunk increases market risk and doing it with borrowed money only magnifies the risk even more.
Most likely a bad idea, and better options abound.
I knew it would happen.
I always go by gut feelings, when I question them I usually shy away.
My policy NEVER gamble on someone else's $$. If you ain't got it to loose = DO NOT gamble.
I still think if you have any outstanding debt, ie mortgage, and not the funds to cover it, yet buy Whatever, including PMs, that is the virtual equivalent of buying on margin.
At least I can't sleep doing that, so retiring debt has always been my favored investment. YMMV, to each his own, etc etc etc. and I know gamblilng like that does pay off when the spread from your interest rate and return on investment would be what it has been (Mortgage rate vs Gold appreciation), for what, 10 years now.
<< <i>My buddy is thinking about buying 15 ounces of gold with borrowed money. He would have to pay 3k in interest over the next three years. >>
this reminds me of CSCO years ago............NO!
The PM's would be the only debt he would take on, plus he has extra money left in the bank in case of emergencies.
I presented him roadrunners advice (letting gold possibly come in a bit this summer in case he decides to pull the trigger), along
with the consistent nays also.
is he also Asset-free, or does he have significant assets? What about expenses, cash flow, little details like that? you mention an emergency fund, but how come he can't sell a different asset or save up to get a little gold?
Lots of people dream of being a Midas, especially during/after a big run.
then, they find out that all that glitters is not gold, and gold just sitting there oscillating around $1500 might get a little boring, not to mention irritating as the interest adds up.
Liberty: Parent of Science & Industry
No college, braces, home improvements, new car purchases. He said he saves 15k a year, and could pay it off
in two years probably.
<< <i>He said he had 30k in cash that was available with no immediate expenditures on the horizon.
No college, braces, home improvements, new car purchases. He said he saves 15k a year, and could pay it off
in two years probably. >>
Sounds like he should be able to make the purchase and hold the gold longer than 3 years if need be, if that is the case then I see no harm in pulling the trigger. I think gekko said it best, if he took a loan and bought a car he looses 30 percent right out the door, in this case he is taking a loan to invest on something that could potentially make him a little cash. Nothing wrong with that as long as he is able to hold on to the gold if things go south.
<< <i>......if he took a loan and bought a car he looses 30 percent right out the door, in this case he is taking a loan to invest on something that could potentially make him a little cash. >>
Bad analogy. People don't buy their car as an investment---they buy it because they need it for transportation such as getting to and from their job to earn a salary.
Worry is the interest you pay on a debt you may not owe.
In God We Trust.... all others pay in Gold and Silver!
“We are only their care-takers,” he posed, “if we take good care of them, then centuries from now they may still be here … ”
Todd - BHNC #242
<< <i>
<< <i>......if he took a loan and bought a car he looses 30 percent right out the door, in this case he is taking a loan to invest on something that could potentially make him a little cash. >>
Bad analogy. People don't buy their car as an investment---they buy it because they need it for transportation such as getting to and from their job to earn a salary. >>
Not a sports car that is simply a 3rd vehicle. People borrow money all the time for that......might not be the smartest move, but it IS a decent analogy to buying gold bullion on credit.
<< <i>No, only buy within your means. >>
So you have NEVER financed anything your entire life huh?
Savvy, millionaire commodities traders buy on margin ALL THE TIME. Some are obscenely successful. How is this any different than buying on margin?
Just because you finance something doesn't imply you are living outside your means. If you take out a responsible mortgage whereby the monthly payments are reasonable given your income and other financial commitments, I would consider that "within one's means". Same with a new car.
Taking out a $300K mortgage when you make $40K a year, that's another story.
Commodities traders also have access to many things that us regular Joes do not. Information being one of them.
He said he had 30k in cash that was available with no immediate expenditures on the horizon.
So why not use that available cash and avoid the interest? He'd still have $7K after buying 15 oz, and if things went south and he needed more, sell a few oz.
<< <i>So you have NEVER financed anything your entire life huh?
Just because you finance something doesn't imply you are living outside your means. If you take out a responsible mortgage whereby the monthly payments are reasonable given your income and other financial commitments, I would consider that "within one's means". Same with a new car.
Taking out a $300K mortgage when you make $40K a year, that's another story.
Commodities traders also have access to many things that us regular Joes do not. Information being one of them.
He said he had 30k in cash that was available with no immediate expenditures on the horizon.
So why not use that available cash and avoid the interest? He'd still have $7K after buying 15 oz, and if things went south and he needed more, sell a few oz. >>
Thats what I would do.....use the cash already saved to buy.
Liberty: Parent of Science & Industry
<< <i> He said he saves 15k a year. >>
saving at this rate, he could purchase almost 10oz a year.
he would have the 15oz in ~18mos (beacuse gold wont inc/dec while he is saving LOL), intrest free.
even if it rose the $200/oz needed to break even during this time, he would still be ahead $$ in less time
I would never borrow money to invest in a non performing asset.
<< <i>I voted no.
But just to play devil's advocate, whats the difference between borrowing money to have gold today as opposed to borrowing money to do any number of things that arent exactly necessities?
For example, lets say his friend decided to borrow $25,000 for a sports car, or $25,000 for a family dream vacation, or maybe $25,000 for a park model trailer home in a camping resort?
I think that borrowing $25,000 to buy gold would be just as "smart" / "dumb" as any of the other above reasons to borrow money.
>>
The difference is the obvious in instances where he must borro $. He doesn't really need to buy the gold, but perhaps he does need to borrow $ to fix a roof, or buy a new car.
<< <i>The one bonus of being in debt is that hyperinflation is on your side. If you are 3k in debt after a year but we see, 100% inflation that year you are only in 1.5K of debt. You get to pay your debts in inflated currency. It is exactly what the government is doing >>
As long as your salary also doubles.