How to Borrow to Invest During Inflation
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Borrowing for real estate can be a winning strategy during inflation.house image by Byron Moore from Fotolia.com
Find a house you want to buy and obtain a 30-year mortgage. The real value of the fixed mortgage payment declines over time with inflation. For example, let's say you lock in a 30-year fixed mortgage for $100,000 with payments of about $1,000 a month and you are earning $60,000 in annual income. After 10 years let's assume you are earning $100,000 a year and the house value has grown to $150,000. Inflation over that time period would have caused your house to be worth more, and since the fixed payment remains the same it takes a smaller chunk of your salary to pay it. - 2
Borrowing to buy stocks during inflation can supercharge your returns.stock market analysis screenshot image by .shock from Fotolia.com
Find a stockbroker and open an account that allows you to buy stocks on margin. Instead of paying full price for the stock, you can borrow much of the cost from your broker. Suppose you buy 100 shares of a stock for $40 and through inflation it rises to $50. If you bought the stock with your own cash, your $4,000 investment would have increased to $5,000 for a return of 25 percent. But if you bought the stocks on margin using only $2,000 of your own money and $2,000 borrowed from the broker, your return would be 50 percent. You risk only $2,000 of your own money to earn a $1,000 profit. - 3
Inflation can be your friend when borrowing to invest in hard assets like gold.gold image by Raimundas from Fotolia.com
Take out a personal loan either from a bank or from your own 401(k) retirement account and then contact a reputable gold coin dealer. Buy 1-oz. investment-grade gold coins and store them either in a bank safe deposit box or a home safe. The price of gold will increase during inflation and your gold will end up being worth more than the debt. You can sell the coins back to the dealer, pay off the loan and keep the net profit--preferably to use for another investment.
