I started investing two years ago. Currently my situation is as follows:

  • I earn 1700 € per month and manage to save 1200. To be Conservative and as rents are going up in my country, we can assume that I save 1000 € per month. Note: this is a country where we have universal healthcare and this is a "decent" salary. Not very high, not very low.

  • I have 5000 € in my account and 24000 € invested in the stocks market.

  • No debt. No other assets.

  • Dividend yield is around 900€ yearly after taxes.

My bank has offered me a credit of up to 60000€ with an interest rate of 3.95%, meaning that if I borrowed 60000 € I would have to pay a total amount (capital + interest) of 68775 € over 7 years, i. e. 818.75 € monthly.

I would borrow the money for investing in blue chips with temporal diversification.

Borrowing 60000 € seems like too much for me, so I wonder which quantity would you think could be reasonable in my situation. For example 30000 € would mean 409.36 € per month. This does seem like a good compromise between risk and profit.

What do you think? First, should I use leverage? If so, how much should I borrow.

The intention is to kick-start my Investments in order to invest as soon as possible to make use of compound interest.

  • 1
    Welcome to personal finance. The question as worded is opinion based. The general way you need to compute is; if you borrow at x%; how confident are you to achieve y% of actual returns factoring taxes and commissions. How large this difference is and whether its worth the risk. – Dheer Sep 14 '18 at 10:59
  • Are your numbers right? 60.000€ x 1.0395^7 = 78.690€ not 68.775€. – redleo85 Sep 14 '18 at 14:22
  • To make this question more on-topic, it should be rephrased from: "should I use leverage? If so, how much should I borrow." to something along the lines of "what are the pros and cons of using leverage in my situation". – Grade 'Eh' Bacon Sep 14 '18 at 14:35
  • @redleo you usually don't pay your credit back at once, he starts to pay back the credit from day one. The numbers look valid to me – chris Sep 14 '18 at 15:28
  • Is "temporal diversification" a fancy way of saying "dollar cost averaging"? – Acccumulation Sep 14 '18 at 17:05

I wonder which quantity would you think could be reasonable in my situation.

How about zero? You are borrowing at a fixed rate of interest in order to invest and get a risky variable rate. I don't know what markets are like in your country, but in the US, we've had a great run as of late, but historically returns in the broad equity market have fluctuated between -30% (crashes) to +40% (recoveries after crashes). with an average return of about 10%. So you might be OK. But you might also be forced to liquidate your investments in order to make your fixed loan payment, and risk losing ALL of your investments (but still have to make loan payments). Remember that leverage multiplies your gains and your losses. That leverage will really pummel you in the down years.

I appreciate the desire to jump start your investing, but with just two years of investing under your belt, I don't think leverage is the wisest move for you. Saving 1,000 a month at a conservative 5% average rate of return, your investments will be worth over 800K in 30 years. At a more moderate 8% average return, the end value is nearly 1.5 Million. And that does not take raises into account. Certainly your income will go up over that time, raising your savings amount even more.

I would not get too impatient. Keep doing what you're doing, saving regularly and you'll be fine.


With an interest rate of nearly 4 per cent, I believe that this is gambling. On average, you would beat that, but even with blue chips, there isn't certainty. Your odds aren't bad, assuming an average annual increase of 5 per cent but they're not good either. You might argue that it's a conservative number because the historical increase is higher but I wouldn't be to enthusiastic about your investment.

I like the concept of constant investment to avoid "bad timing" so why not build the stock with your left overs at the end of the month? With a big credited investment, you might have to sell your stocks out of need, forcing you to sit out a small crisis which might also affect the money remaining at the end of the month. Consider limiting this risk to no more than 10k so that your accumulated money is much higher than the credit you paid.

Edit: What are conditions at your broker for buying and selling? For diversification, you should buy 'single' stocks in the 2 to 5k€ range. Fees can be a noticeable drain on the income.

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    Buying single stocks is not a good method of diversification for an amateur investor. Broadly investing in stock indexes / mutual funds / ETFs is typically a more diverse form of investing (with the added benefit for low-$ value investors that there will be fewer transactional fees to make up the same number of ultimate products being invested in). – Grade 'Eh' Bacon Sep 14 '18 at 14:37
  • He isn't unexperienced, and is considering to invest lot more then i think is it good for him. Expecting he takes 30k credit, he would have stocks for 55k. With buying in the 2-3k area from each stock, he nearly has as much blue chips then the Dowjones and Dax and many other big indexes. If he share then well, it could be a better balanced portfolio then those two big players (no country bias, no tech fokus from the country etc). – chris Sep 14 '18 at 15:21

You say that the reason you want to invest the money now is to make use of compound interest.

But compound interest is relative to your original investment; you don't get a higher rate of interest for having had the money invested for longer, it just means that you have more money earning interest.

In other words, if in seven years' time you have €60,000 in investments, then in eight years you will have €60,000 plus one year's interest/ROI; it doesn't matter whether you've had that €60,000 in the account for seven years or for none.

So the question is actually: how can you have the most money available to invest in seven years' time?

How to do this depends on how profitable your investments will be over the next seven years. If you expect a high rate of return, then by all means borrow the money - but it is definitely gambling, and remember that the bank is taking €8,775 of anything you make. If they fail to perform as well as you expect, then you'd probably be better off just investing what you can save as it comes in. That'll compound too, but without the bank taking a cut.

  • I'm not sure this really gets at the root of the benefit of compound interest; the sooner you invest, the quicker your money begins earning profit, and then that profit can be invested the following year. If you invest $10k today, earning 7% interest each year, you will have ~doubled it in 10 years. So in 10 years, you would then get to invest $20k, where if you waited to invest, then in 10 years you would only be able to invest $10k. – Grade 'Eh' Bacon Sep 14 '18 at 14:40
  • Absolutely - but if you have to borrow to be able to invest $10k today, then the cost of that borrowing has to be offset against the profits. If you earn $10k on the investment but pay $10k in interest then you are in the same position in seven years as you would be if you didn't borrow, with the same amount in your account and the same potential to accrue interest in the future. But the cost (interest) is guaranteed whereas the return could be lower (or if you're lucky higher) than you expect. – WellRedQuaker Sep 14 '18 at 15:54
  • Right, but that is a reason not to do this course of action (as suggested in other answers); it doesn't mean compound interest doesn't apply. I find the wording of this answer in that regard to be slightly misleading. – Grade 'Eh' Bacon Sep 14 '18 at 15:56
  • That's fair. I was focusing on OP saying that their reasoning to do it now is to benefit from compound interest, when by becoming a borrower the compounding cuts both ways and could easily cost them as much as they profit. – WellRedQuaker Sep 14 '18 at 16:02

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