After a year of posting, I'm always hesitant in posting my ideas. Primarily, the ideas are met with some mixture of disbelief and outright anger. I don't quite understand why people are not capable of providing some coherent or rational additions to this conversation I'm having with the world. After all, the money I use in my ideas are my own, and I take nothing from any reader who themselves may feel far more risk-adverse than I.
But to answer anonymous questions, and as I stated yesterday, I will be adding the next portion of my analysis today, which is calculating true return I need, post taxes and brokerage costs.
As a starting point, I will use the 4.25% annualized rate from my calculations from yesterday. Short term gains are taxed @ 35% (assuming maximum tax rate). Brokerage fees for me are minimal, but I will say 1 cent per investment dollar.
Therefore: ($8,500 * 99%)*(1+0.65R) = $9,564.11
[translation: (Take Original funds and take out brokerage fees) * (Rate of return discounted by tax rate) and then solve for R to find the break even point for the loan]
where R is the required return for the duration of the 36 months.
R = 21.0%
Annual rate of return to break even is 6.6%.
That rate of return is not that tough to achieve, even just using index funds. However, I will add a third part to it tomorrow that may throw a wrench into this decision: investment funds are declining as I pay interest every month.
Tuesday, April 8, 2008
Borrowing cheaply to fund investments - Pt. 2
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2 comments:
Do you need to add this new minimum annualized tax and brokerage cost covering ROI to your required minimum ROI to cover the fees and interest of the initial loan? 6.6% + 4.25% = 10.85% min annualized ROI to break even? I dont mean to be harsh I am just interested in the large challenge of beating the market by a lot in order to justify short term trading, especially with borrowed money at interest. I dont believe any single individual investor has really ever made any significant money after taxes, fees, time of research invested, etc, by short term trading. I could be wrong. I am interested in following your results. Thank you for continuing to share your ideas, and sparking converstation.
6.6% is the total ROI required.
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