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Advise on taking a loan to purchase stocks
Rank: Elder Joined: 7/22/2009 Posts: 7,460
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@ulekijana - In my opinion, the best advice you have been given is to avoid the loan (for now) save and invest your savings. Open a different account and have the accountant send the 50k of your salary to that account every month. Alternatively, have a standing order in your salary account so that 50k is sent to the second account every month. Never use the money from the second account for anything other than investments. Make sure you don't have an ATM card, mobile banking etc. for that account. Using the money in that account, slowly buy your target shares every month or every couple of months. Reasoning: You are to pay 20% interest every year. Chances of you making 20% on shares this year and next year are slim. Not impossible but slim especially because of the market emotions due to the elections. We don't know how strong the emotions will be and which side they will swing but they are definitely a factor! And remember, even if you make the 20%, that will just be enough for interest payments. So, starting NOW save and use the savings to buy shares. Do this this year and next year (election year). Next year you can review the situation and decide if you still want to take the loan. And by then you will have shares worth at least a million bob (buying cost) despite whatever decision you will make! To fast track your wealth accumulation, you can deposit ALL your side hustle money into the investment account. Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good returns.
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Rank: Elder Joined: 9/23/2009 Posts: 8,083 Location: Enk are Nyirobi
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Cash sitting in a bank savings account is money losing value due to inflation. If he buys shares with a DY of 10%, his real cost of purchase is reduced to 10%. The share just needs to rise by 10% and he will have broken even. Its easy to make 10% in this market by trading the ranges eg Kengen 5.40-8.90, NMG 137-180, Britam 10-15, Centum 40-50 Bamburi 150-185. Hapa he needs some crash course on bollingo bands, RSI and MACD. Life is short. Live passionately.
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Rank: Elder Joined: 7/22/2009 Posts: 7,460
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@ulekijana Have a look at thisAnd please note: I am not discouraging you from ever taking a loan to invest. All I am saying is that for a loan to make sense, the earnings accruing due to the loan should be more than the interest payments. Chances are that this will not be true in your case for the next two years. If you could make 50% as you had envisioned in your earlier post, then it would be a no brainer to take a loan at 20% coz that is 30% in your pocket. But expecting that to happen this year and next year is highly unlikely - unless of course the market emotions totally ignore the elections next year. But with the war mongering, PEV predicting idiot politicians on the lose, it will be extremely hard for the market to ignore the elections. Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good returns.
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Rank: Elder Joined: 9/23/2010 Posts: 2,221 Location: Sundowner,Amboseli
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Really great advice from members  Go ahead and take the plunge. This is your time, it's now or never. If you must take the loan........remember to put some in the soil. Promising counties at the moment include Nakuru and Nanyuki(Laikipia), where you can buy from an acre onwards, then fence it and put up a mabati structure for your farmhand. You can be visiting the farm once every month just to show your farm hand WHO IS THE BOSS  In the meantime, your property will be appreciating in value and you can be making small improvements to it every now and then, as cash allows, to increase value and eventually start earning from either rentals or agriculture. If you should buy stocks with part of the loan, @Sparkly has given some valuable advice. Remember, Stocks/Treasuries/FDRs are good for cash flow, real estate for value appreciation. You need both! Happy investing! @SufficientlyP
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Rank: Member Joined: 8/17/2007 Posts: 294
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MaichBlack wrote:@ulekijana - In my opinion, the best advice you have been given is to avoid the loan (for now) save and invest your savings.
Open a different account and have the accountant send the 50k of your salary to that account every month. Alternatively, have a standing order in your salary account so that 50k is sent to the second account every month. Never use the money from the second account for anything other than investments. Make sure you don't have an ATM card, mobile banking etc. for that account.
Using the money in that account, slowly buy your target shares every month or every couple of months.
Reasoning: You are to pay 20% interest every year. Chances of you making 20% on shares this year and next year are slim. Not impossible but slim especially because of the market emotions due to the elections. We don't know how strong the emotions will be and which side they will swing but they are definitely a factor! And remember, even if you make the 20%, that will just be enough for interest payments.
So, starting NOW save and use the savings to buy shares. Do this this year and next year (election year). Next year you can review the situation and decide if you still want to take the loan. And by then you will have shares worth at least a million bob (buying cost) despite whatever decision you will make! To fast track your wealth accumulation, you can deposit ALL your side hustle money into the investment account. Roger that
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Rank: Member Joined: 7/18/2008 Posts: 9 Location: Nairobi
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@ ulekijana
You have clearly said you want to trade so I won't bog you down with advice on building a portfolio and putting small amounts each month. I assume you understand that trading is high risk. But high risk = high returns. You have time on your side. And one year into it, you can liquidate your positions and take your losses and lessons if things don't go your way.
My fear is the 20% loan. Debt is good but that rate is high considering you are using the money to play the stock market. How about you join a sacco and get 12% rate or better yet convince people to invest with you. You sound like you can.
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Rank: Veteran Joined: 4/4/2016 Posts: 1,997 Location: Kitale
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If its a MUST that you should take the loan,fine take it BUT DONT TRADE on shares.Instead buy land with the money and build rental houses.They will pay off the loan while u remain with something small. Towards the goal of financial freedom
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Rank: Member Joined: 9/9/2015 Posts: 233
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I thought wazuans clearly see the current real estate bubble. Its risky to take a loan for it these days. "Buy when there's blood in the streets, even if the blood is your own."
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Rank: Member Joined: 9/9/2015 Posts: 233
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Kindly do farming on leased land. PS its time to change our mindsets from value appreciation of real estate to buying below market price "Buy when there's blood in the streets, even if the blood is your own."
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Rank: Elder Joined: 12/25/2014 Posts: 2,300 Location: kenya
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ulekijana wrote:Wassup everybody,
I am thinking of getting into stocks well. I have a very small portfolio of around Kshs 90K currently invested in stocks.
I want to really get in stocks this time since it is the worst market we've had in 3yrs.
I currently work for an investment firm in the tech department with a net salary of 100K.
Today I approached my bank for an unsecured loan of 3M to put into this but I was only eligible for an unsecured loan of 2M i.e. based on my payslips, banking history and current savings of around 91K etc.
I was given a rate of around 20.2% interest for a period of 72months on condition I take take a credit card and my employer always deposits my salary into that specific bank only. They have different rates for different offers i.e. 20.19, 22.3 and 23.1.
Based on calculation with the bank representative, I will be making monthly payments of about Kshs 48,995 per month for the 72 months.
Total payment: Kshs 3,527,640
The bank really seems like they want to give me this loan and the bank rep was really pushing me to even fill in the forms today and wrap up the process tomorrow with the employer letters but I am really having 2nd thoughts and I am literally scared :o !!
Now my concern is this,
1. I am very jittery since this is my first ever loan. I have never taken a loan even a small one of 200 bob as hard as it may seem to believe in my life so this is the scariest thing I have ever done.
2. I just finished campus last year. My net salary is around Kshs 99K.
So from the payments this leaves me with 50K of which 21K goes into my rent, water & elec bill. Which leaves me with about 28k to spend. If I subtract 7k for transport(i.e. mat on most occasions and an occasional uber for the nights I have to be in the office till 10pm), 3k for internet and 3k for phone that leaves me with 14k for food plus additional costs i.e. entertainment.
I do not have any obligations to anybody at least in the next 7yrs but paying half of my salary is really something that is stressing me even before I take the next step.
3. I notice I have to make around 1.8m profit inclusive of 5% capital gains tax and brokerage fees to breakeven of the 1.53m loan interest from the investment.
Now my question is;
Is this a worthy venture? Has anyone done this before(i.e. taken a loan to trade? If you did, did you break even?)
The stocks I want to get into are WTK AT 180, SCAN at 18, KAPC AT 80-85, EGAD at Ksh 18-20 and TPSE(currently @Kshs 20) if it ever gets to Ksh 15 since it's election time and it is a bit scary for that. I also want to get into EQTY(at 36) and CO-OP(at Ksh 15)
Another thing I am wary of is increasing loan interest rates during the 6yr period due to inflation and the massive loans we are undertaking now as a country You should be 24 yrs I guess .you still young . Peleka 50k supposedly for loan repayment and take it to a SACCO as your monthly comtribution. Invest in this sacco this July till next year july.you will have 720k making you eligible for 2.6m loan from sacco. So next year July before elections apply for loan from sacco at a rate of 12% (cheaper than 20% from bank) and buy stocks since the prices will be even lower because of elections a month later .... After one year (i guess you will be 26 yrs)if there is no PEV 2017 sell it off and pay off the loan.Not only would you make profit but will get something that kids of your age don't think of...."experience of multiplying money." Note : stocks is a risky business . Put money you are ready ,very ready to lose and should you lose ,you won't be shaken . You challenged me alot.when I was your age partying was the in thing. Should I have been taught financial investment that early would have been far by now ...so kudos to you man. Should you succeed,plz come and give back to the well that quenched your thirst,yaani come back to wazua and contribute . NB the reason I quote your age is not to make you feel inferior rather to learn the virtue of patience .don't be over ambitious when it comes to investments. I burnt my fingers and I'm still learning.so take advantage of patience and play it with your tender age Best of luck
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Rank: Elder Joined: 9/23/2009 Posts: 8,083 Location: Enk are Nyirobi
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MaichBlack wrote:@ulekijana Have a look at thisAnd please note: I am not discouraging you from ever taking a loan to invest. All I am saying is that for a loan to make sense, the earnings accruing due to the loan should be more than the interest payments. Chances are that this will not be true in your case for the next two years. If you could make 50% as you had envisioned in your earlier post, then it would be a no brainer to take a loan at 20% coz that is 30% in your pocket. But expecting that to happen this year and next year is highly unlikely - unless of course the market emotions totally ignore the elections next year. But with the war mongering, PEV predicting idiot politicians on the lose, it will be extremely hard for the market to ignore the elections. @Stocksmaster made a similar prediction in 2013, sold his stocks and bought dollars... The he missed the 2013 bull run and KShs strengthened against the dollar! Life is short. Live passionately.
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Rank: Veteran Joined: 6/23/2011 Posts: 1,740 Location: Nairobi
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If the market believes there will be no trouble just before or after the election then there will be no negative effect.
One has to watch very carefully and like Warren Buffet says keep a chest of money
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Rank: Elder Joined: 7/22/2009 Posts: 7,460
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sparkly wrote:MaichBlack wrote:@ulekijana Have a look at thisAnd please note: I am not discouraging you from ever taking a loan to invest. All I am saying is that for a loan to make sense, the earnings accruing due to the loan should be more than the interest payments. Chances are that this will not be true in your case for the next two years. If you could make 50% as you had envisioned in your earlier post, then it would be a no brainer to take a loan at 20% coz that is 30% in your pocket. But expecting that to happen this year and next year is highly unlikely - unless of course the market emotions totally ignore the elections next year. But with the war mongering, PEV predicting idiot politicians on the lose, it will be extremely hard for the market to ignore the elections. @Stocksmaster made a similar prediction in 2013, sold his stocks and bought dollars... The he missed the 2013 bull run and KShs strengthened against the dollar! See post #41 MaichBlack wrote:
.......
Reasoning: You are to pay 20% interest every year. Chances of you making 20% on shares this year and next year are slim. Not impossible but slim especially because of the market emotions due to the elections. We don't know how strong the emotions will be and which side they will swing but they are definitely a factor! And remember, even if you make the 20%, that will just be enough for interest payments.
Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good returns.
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Rank: Elder Joined: 2/22/2009 Posts: 2,449 Location: Africa
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@ulekijana,did you take the loan? How has the fall in bank stocks affected your portfolio?
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Rank: New-farer Joined: 9/12/2014 Posts: 31
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MaichBlack wrote:sparkly wrote:MaichBlack wrote:@ulekijana Have a look at thisAnd please note: I am not discouraging you from ever taking a loan to invest. All I am saying is that for a loan to make sense, the earnings accruing due to the loan should be more than the interest payments. Chances are that this will not be true in your case for the next two years. If you could make 50% as you had envisioned in your earlier post, then it would be a no brainer to take a loan at 20% coz that is 30% in your pocket. But expecting that to happen this year and next year is highly unlikely - unless of course the market emotions totally ignore the elections next year. But with the war mongering, PEV predicting idiot politicians on the lose, it will be extremely hard for the market to ignore the elections. @Stocksmaster made a similar prediction in 2013, sold his stocks and bought dollars... The he missed the 2013 bull run and KShs strengthened against the dollar! See post #41 MaichBlack wrote:
.......
Reasoning: You are to pay 20% interest every year. Chances of you making 20% on shares this year and next year are slim. Not impossible but slim especially because of the market emotions due to the elections. We don't know how strong the emotions will be and which side they will swing but they are definitely a factor! And remember, even if you make the 20%, that will just be enough for interest payments.
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Rank: New-farer Joined: 9/12/2014 Posts: 31
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Mangs wrote:MaichBlack wrote:sparkly wrote:MaichBlack wrote:@ulekijana Have a look at thisAnd please note: I am not discouraging you from ever taking a loan to invest. All I am saying is that for a loan to make sense, the earnings accruing due to the loan should be more than the interest payments. Chances are that this will not be true in your case for the next two years. If you could make 50% as you had envisioned in your earlier post, then it would be a no brainer to take a loan at 20% coz that is 30% in your pocket. But expecting that to happen this year and next year is highly unlikely - unless of course the market emotions totally ignore the elections next year. But with the war mongering, PEV predicting idiot politicians on the lose, it will be extremely hard for the market to ignore the elections. @Stocksmaster made a similar prediction in 2013, sold his stocks and bought dollars... The he missed the 2013 bull run and KShs strengthened against the dollar! See post #41 MaichBlack wrote:
.......
Reasoning: You are to pay 20% interest every year. Chances of you making 20% on shares this year and next year are slim. Not impossible but slim especially because of the market emotions due to the elections. We don't know how strong the emotions will be and which side they will swing but they are definitely a factor! And remember, even if you make the 20%, that will just be enough for interest payments.
Taking a loan to put into stock market can only make economic sense if you are either a company insider with good secret information that the public doesn't know about yet and will result in a rally once the news hits the streets, or you want to buy founder shares in a company that's about to list. If not, kindly keep the stock market investment to your routine savings (I hope you did so). Otherwise the volatility at the stock market may force you to walk around with your cardiac doctor due to frequent risk of heart attacks every time you look up the share prices. The smartest thing since you sound like a smart young chap would be to only take a loan and put it into enterprise. Get into business; at least there you will have control over your investment. I could suggest land but at the moment real estate is too overpriced; almost too overvalued to too-good-to-be-true rates. So if you buy that half or quarter acre plot in the middle of nowhere at those inflated prices you may end up in a real estate value trap. My suggestion would be you stay off the loan until you're sure of what exact business you want to do it...hopefully not the stock market. Leave the stock market to your savings. Even during a bull market there are stocks with negative beta that can still disappoint so don't bet on those annual percentage returns so much however bullish the market may be.
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Rank: Member Joined: 8/17/2007 Posts: 294
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now you can
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Rank: Veteran Joined: 6/23/2014 Posts: 1,652
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instinct wrote:now you can Hutia Mundu!!
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Rank: Member Joined: 8/17/2007 Posts: 294
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so what did this kid do eventually? ama analilia kwa choo?😃
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Rank: Elder Joined: 9/23/2009 Posts: 8,083 Location: Enk are Nyirobi
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instinct wrote:so what did this kid do eventually? ama analilia kwa choo?😃 He should come back and update. 14.5% is a good rate. If he didn't take a loan then, the bank will have second thoughts about lending him after the capping law. Life is short. Live passionately.
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