What do you consider the best way to:

  • Borrow money from private investors against a fixed interest rate

  • Use it to trade, yielding a higher return than the interest rate

  • Pay off the investors with profits gained

This strategy brings up a number of questions:

  • Will a governing financial body allow you to borrow money for investment? Or will they see it as an activity "on behalf of" the lending investor?

  • What would be the most suited location(s) to implement this strategy?

  • 1
    Borrowing money for investment The primary reason you need to find is why would somebody lend you the money to invest, considering there are already of glut of people and firms doing so. Are you sure you have the people behind you to lend you the capital ? – DumbCoder May 25 '16 at 9:18
  • Do you have any capital to bring to the table, or are you asking the investor for 100% of the money to be used for trading? Do you have any experience trading with your own money? – Chris May 25 '16 at 13:51

So, people deposit money with you, you agree to pay them fixed % back, and then you invest money for your own profit?

Sounds like a bank to me. Or a dividend-paying mutual fund, or a number of other similar ideas. Sure, you're welcome to start something like that up; it's unlikely you'd get money from people unless you had already proved yourself competent as an investor, though. After all, if it's possible to get a safe, comfortable 5%, why would anyone give you money at 2% or 3% instead of just getting that 5% for themselves? Or, more likely, finding a competitor who gives 4.9%?

As in most things, the market will find inefficiencies like this and squash them like bugs.

That said, there are some opportunities that take advantage of other kinds of situations. The most common I'd say is owning a home. You take out a mortgage for 80% of the value of the home, instead of buying it outright, and you instead invest the 80% in the market. You likely will beat your mortgage rate given the current 3.5%-4% rates. That's effectively doing the same thing, with an expense you'd have anyway (you always have to live somewhere); since it's a secured loan, you get better rates than the market will give (as it's quite safe) and you can use tax laws in your favor (mortgage interest deduction, in particular, and the capital gains break on primary residences).

  • Show me where you can get "a safe, comfortable 5%". :) – Comptonburger May 25 '16 at 23:11
  • @Comptonburger Correct... – Joe May 26 '16 at 14:12
  • Thank you for this answer. I had not thought of the clever mortgage construction. It's clever because it lowers the source interest rate and widens the gap between what you earn and what you have to pay. Also, I found two European countries that allow what's described in my question; Belgium and Liechtenstein. – x86 Jun 12 '16 at 21:11

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