Do you know the problem? One or more stocks on your watchlist have reached a favorable entry price, but the cash reserves are unfortunately not sufficient for a purchase. Then welcome to the club. Because I think that each of us has probably experienced this situation at some point. And in some circumstances, there can be a lot of frustration here quickly. Namely, when the prices have recovered after a short time again.
Thereby there is already an option to consider here. Namely, that such spontaneous stock purchases are simply financed with borrowed capital. However, some caution is advised when realizing purchases of securities with a loan. That said, let's take a look today at two ways you could get such debt financing off the ground
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The security loan
One of the most common ways to make your stock purchases with borrowed funds is probably the securities loan. In this form of financing, the loan amount is secured by the company's own portfolio. And specifically, this means that the securities in the portfolio are loaned measured by their individual risk. In the case of German and European stocks, the mortgage lending value here can be as high as 70% of the market value.
It runs in practice then so that a maximum possible loan amount is agreed upon. However, you can only ever claim the amount that is determined by the current collateral value of the securities account. So, for example, if you own German blue chips with a market value of 10.000 euros, you can now use the securities loan to borrow an additional 7 euros.000 euros available. If you use the money to buy more shares, you can also borrow against them, thus further increasing your financial flexibility.
Compared to other loans, with a securities loan you don't have to pay ongoing installments. Rather, you usually only pay interest on the amount of credit used. In most cases, the bank will then bill and collect these at the end of each quarter. And the interest rates are often also in a tolerable range. This simply has to do with the fact that one has assigned the securities one owns as collateral.
For your own safety, however, you should not stretch the existing credit limit too far. Personally, I have given myself here never to take more than 20% of the current deposit value as credit. This is because it gives me the security of knowing that even if the deposit value goes down by 50%, I don't have to worry about forced sales of my securities.
Conventional loan
Another option, of course, would be to resort to a traditional loan for your individual security purchases. Because with these one gets the financial means, which one needs, with many banks without the indication of a certain intended purpose disbursed. In my opinion, the advantage of such loans is obvious. As a rule, you do not have to deposit any collateral with a consumer loan. In most cases, a so-called assignment of wages is quite sufficient here.
And you even have something like planning security. After all, you know from the outset how long the loan will run and what monthly burden you will have to bear. Should you use the loan amount to invest in dividend-paying stocks, the distributions you receive could even help you significantly reduce your monthly expenses on the loan.
And one more advantage can be seen. While the loan amount decreases every month, it would be possible that the purchased shares not only remain stable in value, but that their price continues to increase. If the loan is finally repaid in full, one would have created a "share credit", so to speak. Whereas in the case of a real consumer loan, the purchased object is usually as good as worthless at the end of the term.
Conclusion
I find that with the above, you could partially leverage your stock purchases with a clear conscience. At least if you do it thoughtfully and prudently. Because, of course, one must always expect that a credit-financed stock will not perform as desired. And nothing would be worse than if this then puts you in a financial bind. However, I don't think I need to worry much about this with our Foolish readers.
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