Should we take a loan to buy shares?

[carmanelectric]

You need to find a way to articulate and assert your own comfort levels with financial risk. If you are having to ask SmartCanuck then it is my guess that you are not comfortable with that kind of risk. Everyone here can only speculate as to the benefit or pitfalls. It is only good advice if it was right. And you are going to be grumpy at folks for giving you bad advice if they are wrong. Only invest if YOU are ok accepting the most negative situation. Not because other people tell you its a good idea. Because if you aren't, it can be a lot worse than being on the hook for a few thousand, it can destroy your marriage and friendships because of negative feelings.

[kerrylj]

With shares that are $2 this is likely not a profitable company. Those kind of companies are very high risk. Also with something this you can not hedge them and you get no real benefits to holding them like you would with a company that pays a dividend.

I would not invest in something like that unless you plan to hold the company for many yrs and have the capital to lose. The saying never invest money you can't afford to lose is a wise one and if you have to borrow the money to do it I would says- double NO.

[operabob]

kerry,

Can you tell us your general age range? <25, <30, 30 - 40,.....

General finances? (I don't want specifics. Just things like "We only have small amounts to invest" or "It wouldn't pose a hardship for us to do this" or "We have a mortgage". Things like that.

There are some very smart people on these threads who could lead you to sources where you could improve your knowledge without a lot of effort. I myself favour dividend investing especially in Cos. that have both a DRIP (dividend reinvestment plan) and an SPP (stock purchase plan). Others here go about it differently.

If you're a young couple planning a family I'd focus on:

Paying off the mortgage first.

Then:

TFSA!!!!!!!!!!
RRSP/RESP
DRIPs + SPPs

As to mutual funds, I'm not a fan but others are. If you do decide on mutual funds my preference would be low/no fee Index funds and "Couch Potato" them.

http://www.moneysense.ca/2006/04/05/...-introduction/

As to reading:

I like MoneySense magazine as a general all round financial magazine for people with limited experience. It's tainted by advertising but tries to be balanced.

As you learn more Canadian MoneySaver Magazine:

http://www.canadianmoneysaver.ca

You could also check to see if CMS runs a Share Club in your area. These are not investment clubs but informational sharing clubs. No one will try to sell you anything at a meeting. The club will have all levels of people from beginners to experts.

(Disclosure: I have written many articles for CMS and have been a contributing editor for them.)

[brunt]

The answer to your question (in my opinion) should almost always be "no".

If you cannot afford to buy a speculative investment with cash, then you cannot afford the investment.

Leverage is great if the price goes up, but it is disastrous if the price goes down as you still have to pay back the loan. Ask yourself this, if the price were to go down 90%, would your standard of living be hurt? If it would, then you cannot afford this investment.

[ashedfc]

Absolutely correct... First of all avoid using leverage in these kind of volatile markets...
If at all you are using leverage, than be extremely conservative, as preservation of capital (loan money in this case) is more important than the growth on that money.
In other words - "Return of Capital is more important than Return on Capital"..

The financial markets are like "Ocean infested with deadly sharks, mostly rigged by legalized insider trading" & you being a small fish will be gobbled up very soon if you play the speculative game..

[AliceStewart21]

actually, i wouldn't get a loan, and I'm not good at it.

[Carlotta]

[QUOTE=ashedfc;4855261]Absolutely correct... First of all avoid using leverage in these kind of volatile markets...
If at all you are using leverage, than be extremely conservative, as preservation of capital (loan money in this case) is more important than the growth on that money.
In other words - "Return of Capital is more important than Return on Capital"..

In order to get a leverage loan, you have to be willing to accept the risk. You also have to invest aggressively. One of the "rules" of leverage investing is that you must have a high risk tolerance and that means you must invest aggessively. You cannot get a leverage loan and then buy a conservative investment.... what would be the point? A conservative investment, even in a rising market would still earn less than the amount of interest you would be paying on your loan.
Please always remember .... If it sounds too good to be true, it IS too good to be true, so RUN the other way. Neveer gamble more than you can afford to lose.

[operabob]

Please always remember .... If it sounds too good to be true, it IS too good to be true, so RUN the other way.

Unless it's DRIPs + SPPs. As salespeople don't make commissions off them there's no incentive to tell you about them. Also, companies are prohibited from marketing them as they'd be in a conflict of interest (Yes, Nortel had a plan) but so do 4 of the 6 Canadian big banks, TELUS, BCE, Enbridge, TransCanada Pipeline, RioCan,...

There's even an article in today's Globe & Mail on my fellow moderator:

http://www.theglobeandmail.com/globe...rticle4445937/

You can tell from some of the comments just how unfamiliar some seasoned investors are with how they work. They understand the DRIP part but because of the lack of promotion of the SPP (Stock Purchase Plan) offered by about 50 Canadian Companies they don't understand how easy and low-cost it is to invest in the growth of many of Canada's biggest companies.

[hudsam]

Thanks for the advice everyone. We decided against borrowing and I scraped money together from some other accounts and money I had been putting away. Everyone is right that I am obviously very new to this so I started small I'm looking long term so hopefully in the next few years we will make a few bucks!

The posts about insider trading made me giggle...I'm just a lowly housewife with only 2 kids to talk to all day...the hottest tip I have gotten lately is from my 4 year old that let me know "nipples are stuck to you and don't come off!" LMAO

Thanks again everyone!

[Minou]

Good!

Don't forget about Black Tuesday, 1929... borrowing and speculation.

[blueeyetea]

If you're interested in buying shares and can't afford them right now, you might want to read The Lazy Investor by Derek Foster. He explains how to start buying shares via Dividend Re-Investment Plans and Share Savings Plans. By investing this way, you completely by-pass the need to pay for brokerage fees and once it's all set-up, you sent a cheque when you can afford it. Depending on the company, this could be as little as $50.

For a quick run-down on how it works, you can also look at the Canadian Drip Primer: http://www.dripprimer.ca/

[ashedfc]

If you're interested in buying shares and can't afford them right now, you might want to read The Lazy Investor by Derek Foster. He explains how to start buying shares via Dividend Re-Investment Plans and Share Savings Plans. By investing this way, you completely by-pass the need to pay for brokerage fees and once it's all set-up, you sent a cheque when you can afford it. Depending on the company, this could be as little as $50.

For a quick run-down on how it works, you can also look at the Canadian Drip Primer: http://www.dripprimer.ca/

Good one, I think everyone should follow this.. (only thing is one has to careful on what shares to pick)..
like couple decades back industrials were leaders, now banks are leaders, so the leading sector keeps changing, so the price value change too...

example - many had DRIP in Citibank (Citigroup).. or AIG, they all have lost over 90% of their money...
In Citi's case, an average price of $500 in 2007 is only $27 now..
In AIG's case, an average price of $1400 in 2007 is only $31 now..
these are just examples, there are some good ones too.. but its hard to predict how your DRIP company will perform in the future years & decades..

Diversification is the key..

[Crissy86]

I agree with the majority here. The stock market seem to be a very simple way to make money or invest but in actual fact is very complicated! You should always evoluate and know the risk that can be associate with it. What is the percentage you're willing to risk on your total portfolio. Always, do your study and have the basic understandings of the stock market before you proceed to do any investing. Here is a link to a blog with very knowledgable info on stocks. Check it out and you may learn a few things. Hope this helps

http://chndragun1.blogspot.ca/2012/0...-2012.html?m=1