An investment loan Singapore is useful for borrowers. It funds the growth of your portfolio with realised returns over the years so that you can accumulate wealth as time goes by. There is a profitable cash flow to get after an investment if the loan is used wisely.
Using an investment loan to fund your investments can only be done if you spot a good opportunity for investing. It depends on the particular financial product or market that you are investing in. Whether it is a derivative, equity, foreign exchange currency, commodity, cryptocurrency or real estate, the investment loan is useful in these investing purposes. Surely, borrowing money to invest so as to make more money is very attractive and tempting.
But what if the investment fails? How do you know if the investment does not turn sour? Or how do you know you have even invested properly with your investment loan? Can you actually ensure a prudent management of your investment loan, given the volatility of the financial markets, even for bonds which are relatively safer? There are some pros and cons to be discussed with the use of the investment loan.
Having returns on your portfolio can be of good use of an investment loan, but it may take years for you to be achieving your wealth dream. Without a proper due diligence, the investment may be disastrous so the investment loan ends up doing more harm than good.
Some products such as derivatives and currencies can be used to leverage to magnify your returns by more than twice. An investment loan can be used for this purpose to fund and get back. But as leveraging comes with leveraging risks, if the market goes against your favour, the losses can also be augmented. This type of leveraging opportunity is a multiplier effect for both good and bad. Sometimes losses can exceed 100% of your initial investments. You still have to make repayments on your investment loans even if you suffer heavy losses on your failed investments. So this adds to the cost incurred by interest rates and other investment loan charges. Your debt grows even wider with such larger amount of costs incurred and the risk of default on the investment loan is going to be easier to reach.
A general rule of thumb when considering an investment loan is to make an estimation on the rate of return. Can the return be able to exceed the interest rate on the investment loan? There is indeed no guarantee about this. However, the best way forward is to check with your trading representative, financial planner or portfolio specialist if the investment loan is worth applying to fund the financial instruments you intend to play. You can also do a personal in-depth research on the markets through news and social media by listening to financial or investing experts on their research, opinions and analyses.
Also, you must consider the investment loans and make comparisons, especially with their written investment loan terms. Are the repayment flexible enough? Do they come with clauses that an be tricky? Read more about the definition and uses of investment - https://en.wikipedia.org/wiki/Investment
