Is Borrowing Money to Invest a Good Idea? A 3-Step Financial Check-Up to Assess Risk and Timing

“Lan Da (懶大), can I borrow money to invest?”

This is probably one of the questions I get asked most often, and also the question I asked myself the most when I was younger. The answer is never a simple “yes” or “no.”

I like to compare “financial leverage” to a car’s “turbocharger.” It’s fascinating, giving you powerful momentum instantly, letting you experience unprecedented speed; but it also dramatically consumes your fuel and puts a huge load on your engine. One wrong move and you might blow your engine at high speed, resulting in a wreck.

Before we dive into any rules or methods, I want to share my own story about “blowing the engine.”

My Personal Confession: The Year I “Graduated” Directly from the Market

When I was in my late twenties, before I turned thirty, all I could think about was how to get rich quick through investment. My thinking was simple: I wanted to make big money fast.

I started playing with warrants. When the market was good, making NT$200,000-300,000 (USD $6,000-9,000) a day was commonplace. That kind of feeling makes your confidence swell to the extreme, making you feel like you’re the chosen one.

Gradually, greed consumed me. I was no longer satisfied with that rate of profit. I wanted more, faster. So, I turned my attention to futures, a world with even higher leverage. I used borrowed money, plus the high leverage of futures itself…

The final result was a complete defeat, “graduating” directly from the market.

That failure made me deeply realize that in the world of leverage, the speed at which risk amplifies is much faster and fiercer than you imagine. Since then, I have had a completely different understanding of the word “risk.” That’s why I want to share this with you today.

Next, let’s look at two stories that happened to other people, similar to mine but with different endings.

One Decision, Two Lives: Understanding the Power of Leverage Through Bystander Stories

✅ The Victorious Script: Engineer Xiao Hua’s Rational Path to Wealth

See, what was Xiao Hua’s smart move?

Back in 2020, when the pandemic just broke out, the market was full of panic. But Xiao Hua, who had a monthly income of NT$80,000 (USD $2,500) and no debt, already had NT$300,000 (USD $9,000) in emergency savings, and he had been investing in 0050 for three years. He wasn’t a “leek” ready to be harvested.

He saw the opportunity, but didn’t rush in headlessly. He carefully calculated and borrowed NT$800,000 (USD $25,000) from the bank at an interest rate of 1.68%, with monthly payments of NT$23,000 (USD $700), accounting for less than 30% of his income. What does this mean? It means that even if he got a pay cut, he could still live comfortably. That’s the confidence.

He put the money into 0050, which he knew best, and also set a stop-loss. Later, the market soared, and he made a net profit of more than NT$300,000 (USD $9,000). This wasn’t luck; it was a prepared person, at the right time, using the right method, doing the right thing.

❌ The Tragic Script: Office Worker Xiao Ming’s Leverage Destruction Path

The other story is much more tragic.

In 2021, at the peak of the stock market, everyone was shouting about young stock gods. Xiao Ming, with a monthly salary of NT$50,000 (USD $1,500), still had a car loan and less than NT$100,000 (USD $3,000) in emergency savings. He was provoked by his friend’s get-rich-quick story at a dinner party, and on a whim, he borrowed NT$1 million (USD $30,000) at an interest rate as high as 6.5%.

Do you know how scary that is? His total repayment pressure accounted for 76% of his monthly salary! More than 70% of his salary disappeared as soon as it came in, and he had to think twice even about having a meal with friends. His quality of life was completely destroyed.

Worse, he used the money to buy a stock tip from a friend, a single stock he didn’t understand at all. As a result, when the bear market came in 2022, the stock was cut in half, he couldn’t sleep at night, and finally, in the most panic, he cut his losses and “graduated” directly. After the settlement, he lost NT$460,000 (USD $14,000) and owed the bank a lot of money.

This is a typical tragedy. It stems from an unprepared person, at the wrong time, using the wrong method, doing the worst thing.

Three Major Financial Check-Ups Before Taking Action: Are You Ready?

After reading these stories, you should understand that the success or failure of borrowing to invest is basically 70% decided before you press the “Apply for Loan” button. Now, put down your fantasies of profit and, like a doctor about to perform surgery, honestly and without any侥幸, complete the following three self-assessments.

✅ First Hurdle: Ask Yourself, Can You Still Live Well After Repaying the Loan?

This is the most practical and most important hurdle. Investment can wait, the market is always there, but the bank bills won’t wait for you.

I think the simplest standard for assessing repayment ability is: “Will the principal and interest expenses of this loan affect your ‘original quality of life’?”

If you have to tighten your belt, dare not dine out, and dare not travel to repay the loan, then this leverage has seriously affected your life. The psychological pressure it brings will make you more likely to make wrong decisions in investment.

In addition to subjective feelings, the objective “Debt-to-Income Ratio (DTI)” is a number you must calculate. That is, your “total monthly debt expenses” divided by “pre-tax monthly income.” I strongly recommend that you keep this number below 30%. This means you still have room to cope with various accidents in life.

✅ Second Hurdle: Is Your Safety Net Thick Enough?

I often say that investment shouldn’t keep you up at night. And that net that allows you to sleep soundly is your emergency fund.

Before considering any leverage, you must have in the bank a reserve fund that is completely independent of investment and can cover at least 6 months of all living expenses.

I want to remind you specifically that the purpose of this money is to cope with “accidents in life,” such as suddenly being hospitalized, or the air conditioner at home breaking down and needing to be replaced. It’s not for you to use to average out investment losses, let alone to repay loans. If your plan is “if I can’t pay it back, I’ll use the emergency fund,” then this plan is wrong from the start.

The only function of this money is to give you the “right to peace of mind.” It ensures that when you face extreme situations such as unemployment or market crashes, you won’t be forced to sell your valuable assets at the lowest point in the market due to a break in cash flow.

✅ Third Hurdle: Is Your Heart Big Enough?

Leverage will act like a magnifying glass, ruthlessly amplifying all your emotions. When the market rises, you will be more greedy than others; when the market falls, you will be more fearful than others.

Therefore, I believe that before considering borrowing to invest, you should already have at least 2-3 years of actual investment experience. This isn’t just about how long you’ve had an account, but you must have personally experienced the market’s bull and bear cycles with your own hard-earned money. You’ve made mistakes, paid tuition, and you know what the pain of the market feels like.

You need to conduct an honest stress test on yourself: imagine that your overall investment portfolio falls by 20% in a month. Would you be sleepless, have a racing heart, and panic and want to immediately open the app and sell everything? Or would you make the best of it and comfort yourself, “My money hasn’t disappeared, it’s just turned into something I like”? If you are the former, it means that your psychological quality is not enough to control the beast of leverage.

Toolbox: If You Pass the Previous Three Hurdles

Okay, if you are very sure that you have passed the strict inspection of the previous three hurdles, then let’s talk about “tools.”

Part 1: Choose Your Borrowing Channel

Different borrowing channels are like different calibers of weapons, with different interest rates, amounts, and risks.

But I want to give all fresh graduates a piece of advice first: Don’t wait until you need money to deal with the bank for the first time.

Most young people without assets first think of “personal loans,” but this is often the worst option in terms of interest rates. I sincerely advise you to establish a long-term good relationship with a certain bank, and treat it as your main bank. When the bank sees your stable cash flow record over the years, it will be more likely to negotiate ideal terms when you need funds in the future.

Most importantly, you must recognize from the bottom of your heart that money from loans is “debt” with interest, and it is never an “asset” that you can spend at will.

Part 2: Choose Your Investment Target

When you use leverage, forget about “explosiveness” and make “stability” and “predictability” your only faith.

Therefore, my first choice recommendation is always index ETFs (such as 0050 or VTI). Why? Because when you buy an ETF, you are betting on the long-term economic development of an entire country or market, rather than the fate of a single company. This can effectively help you eliminate the most terrible “individual stock risk” (such as company bankruptcy, CEO scandals, financial statement fraud, etc.).

Don’t be like the jokes on the internet, “just all in,” that’s the biggest disrespect to your hard-earned money.

In contrast, cryptocurrencies, futures, options, speculative stocks that you are not familiar with at all… these should all be on your blacklist. Gambling with borrowed money is the fastest way to financial suicide. I walked this road when I was young, and I really don’t want you to walk it again.

Frequently Asked Questions FAQ

Lazy Conclusion (懶得有結論)

懶大

金融科技新創 CEO | 獨立財務顧問

Borrowing to invest is never a shortcut to financial freedom. It is a comprehensive art of mathematics, psychology, and risk management.

Please deeply engrave the three golden principles of mastering leverage in your mind:

1. Interest rate spread of at least 3%: Ensure that your investment return can steadily beat the loan interest rate.
2. DTI < 30%: Keep your repayment pressure within an absolutely comfortable zone.
3. 6 months of emergency savings: This is your last line of defense to stand firm in any storm.

If you pass all the tests and are ready to take this step, please remember my last words:

This money from the loan must be invested in the investment market you have already locked in with a goal and purpose.

Don’t blindly follow others’ “stock tips.” I don’t deny that there are opportunities in the market that can bring huge profits, but you must clearly recognize that you must ultimately take 100% responsibility for all successes and failures. This sense of responsibility is the most important amulet on your leverage journey.

Borrowing to invest is not gambling, but an investment technique that requires professional knowledge, financial discipline, and risk awareness. Remember: It’s okay to earn slowly, but you must never lose to the point where you can’t stand up.

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