How common is this? I put all my bills on my credit card each month and pay all my income to it, so this month, I kept 600 dollars that was meant for my credit card and invested it in old stable companies that are currently trading at penny stock prices.
Is this a bad idea? I figure if I borrow 00 this way, after five years it would only be 0 interest (My APR is 9% and my credit limit is ,000), but if these companies bounce back in that time I could potentially make between k to k.
The stock is Level 3 Communications. I bought a few hundred dollars worth when they were 1.39 but they took a hit and the lowest I saw them go was .60 but they shot back up to what I paid and are now down to .80. Every time they go below a dollar they seem to shoot back up so I bought 0 more at .80 a share. I have about 600 in so far the rest is diversified in smaller companies.
I can afford to lose 600-1000 dollars. I basically consider it betting that the following companies will not go under:
Level 3 Communications
Activision (runs World of Warcraft, if they go under so does my entertainment and will to live lol)
Charter Communications (I took a hit on this one for half but I only invested 80 bucks, the only one I invested more than 100 in was Level 3 since they have been around so long and run half the internet.
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enoriverbend 13th March 2010
It’s risky and your $1000 may very well turn into less than $0. (Oh, and by the way, the total interest will be more than $450 if you don’t pay anything back for 5 years — look up the term "compound interest".)
The normal way of borrowing to buy stocks is called a margin account. If you qualify for a margin account, they will charge you a lot less than 9% interest. So even if you want to do this — which I do not recommend for a novice investor — at least don’t do it via credit cards. And if you are a novice investor, a great way to multiply your losses is to use leverage.
But since you do sound like a novice investor, best to read up some more on the whole topic of investing before embarking on this or any form of investing.
fretboardmagic in NC 13th March 2010
there’s a reason they are called penny stocks.
that’s about all you ever get back.
unless you are in that very fractional small minority that gets lucky and picks the right one(s), you just wasted 600.
bobbino11 13th March 2010
You can open a margin account with your broker.
LVLT is not such a great stock. With penny stocks, you want to take profit asap. The chances of it going bk or getting delisted is extremely high, hence the low pps.
Katherine W 13th March 2010
Lousy idea. Instead, save money and make sure you have a couple months’ income in savings first. Stock prices may continue down.
If you MUST do this, only do it in stocks that pay a dividend, so you get money while you’re waiting. There is NO GUARANTEE that stocks will go back up soon, and you shouldn’t put money you need into something that will take several years.
Instead, concentrate on living on your income, not beyond your means. Sell some things to pay off debts. Once you have some savings, then you can invest.
Daniel K 13th March 2010
Actually, you can do this with your stockbroker. It is called buying on margin. It is great if the stock goes the direction you want it to, but that leverage can also work against you if the stock goes against you.
FWIW, I agree that the potential upside in the market at this point is much greater than the downside, but I wouldn’t borrow money to make that bet. I am more comfortable investing in stocks today than I was a year ago. I think this is a buying opportunity.
VidaLoca Libertarian 13th March 2010
I also borrowed to use the money for investing. However, my interest rate was only 4% which of course increases my potential rate of return WHEN the stocks go back up.
Penny stocks are a different animal. In the past 4 months, my penny stocks are down about 95% and expected to go bankrupt with a 100% loss! There are reasons companies go to the pink sheets and it is not always to reorganize and survive. Pink sheets are more like gambling than investing. You should never invest what you can’t afford to lose.
Also, do your research and keep up with the news concerning your investments. All in all, I don’t think it is absolutely wrong to borrow for investment. But, you have to weigh the potential gains and you will always be taking a risk on getting YOUR money even when the entity that loaned you the money will be taking a smaller risk, because you WILL be paying it back.