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Originally Posted by SAHM
Firstly, I am very impressed by some of the investment talk in here. I used to work as. Finance professional before I left the workforce to be a sahm. My husband is a legal professional who is working toward that one million dollar salary but is currently at only half that level. I was rather hesitant about spilling my financial details here but would love so much to obtain advice from the multimillionaires, as I aspire towards financial independence but am nowhere there yet. I am in my early thirties and my husband is in his mid thirties. I made a million sgd through property from 2004-2010 but has invested it in a landed property in 2011. I am 60 percent leveraged in this property which is also my primary residence.
Recently the bank from which I had obtained the loan, offered me cash of 1.3m since my property has risen 1m in value over the past two years and it is willing to gear me up to 80 percent. This would be our only loan because we have paid off our student loans and have no other property. My husband makes 500k sgd base salary a year. We have additional 300k in cash.
I am thinking that this 1.3m loan will come in handy in US equities now. I know I am nt very diversified like many of you here, and my investment strategies would be considered very aggressive by most of you as I put heavily in one or two stocks. I do consider a lot - both fundamentally and technically before I put in the buy. Would you recommend I take up this funds into equities? Should I even take up this offer to further leverage my home?
Thank you lots for your replies.
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On the balance of probability, I think you should borrow and invest but keep at least one year's worth of expenses as emergency cash in the bank.
(1) Your husband is in his thirties, hence young and healthy and should be able to sustain his career for a good number of years. Being a lawyer, the job security is much higher say compared to a banker.
(2) Mortgage loan is a cheap loan to use.
(3) You are using the money to invest, not consume.
What is the worst case scenario?
(1) The markets get into another turmoil hence your investments turn sour and the value of your home plunges.
(2) Your husband gets retrenched because of the slow business due to the economic turmoil.
Scenario (1) is to be expected and should that happen, you probably have sufficient buffer to cushion it. Take the loss on your equity investment and consider it a lesson learnt. The bank may make a margin call on mortgage loan (depending on how aggressively you leveraged it). The one year of emergency cash plus your husband's salary ought to be able to stave off this call. In any case, you could always negotiate with the bank to restructure the loan and as long as you can demonstrate the capability to repay, the bank will not foreclose unreasonaly as they are in the business of making loans, not making foreclosures.
What if scenario (2) happens? That would be very tricky for you, being solely dependent upon your husband's income to sustain the family. It would take a very sharp and prolonged economic crisis for scenario (2) to happen. Hence, the highest risk factor appear to be scenario (2). If you are comfortable with the likelihood of this scenario not panning out, go ahead and press the button.
However, always keep at least a year of emergency cash on standby. Yes, this is a drag on returns but consider it as an insurance policy in thesevolatile times that we are living in.
Would I do it if I were in your shoes? Probably yes but with that emergency cash set aside and a lower LTV of 70% instead of 80% for a little more buffer. You have time on your side even if you lose money on your investments and can afford to take such risks.