Say a youtuber with index funds or a financial guru in the USA

Recently some youtubers and some gurus they are giving dangerous advice for personal finances, endorse yourself and invest. Why? Well, let’s say that in recent years the sharp increase in prices is making some think that they can make easy money.

However, that implies a strong risk in our personal economy that many experts recommend not to assume. That is, it is possible to borrow to invest in financial markets just as there are those who skip the restriction of 20% entry and 10% taxes to buy a house, But that does not mean that we should recommend this type of action since it implies an excessive risk in our personal finances.

The indexed argument

S And P 500 Chart 1950 To 2016 With Averages

The most important stock exchange in the world is in historical limits, all after the crashes in March 2020 when the quarantines looked like they were going to destroy the world economy. The creation of money by the major central banks and their injection of money into the economy, has accompanied the rapid economic reactivation after the coronavirus, and has pushed the markets into an unprecedented “stock rally”.

To this we must add that the stock market had been rising almost uninterruptedly for several years until the crisis. In other words, winning in a short term on the stock market has not been excessively complicated. One simply had to choose a series of stocks, or better yet invest in an index fund or an ETF that tracked a major index, such as the S & P500 or the NASDAQ, and watch their investment grow almost continuously.

Bull markets make everyone an expert. That’s a phrase repeated by many that when they have some experience, the problem that short-term bull markets entail counts. Every day new investors are incorporated who do not know that in the stock market although in the long term you tend to gain with economic growth, in the short term you can lose. But reaching the market and having strong profits makes us think that we are experts or that it is very easy to make money. The cake will come later.

The argument is simple, now it is very easy to go into debt to buy a car or a house at very low interest rates. The market grows more than interest rates, so what they recommend is that even if we have the money to buy the car or the house, we go into debt, and thus use the surplus to invest in index funds. This is called leverage. This is being recommended right now by youtubers or gurus on their podcast.

So we have to personal finance gurus on their podcast or car youtubers recommending that we take advantage of our opportunities to get into debt to invest, recommending even doing it in index funds and using others who recommend investing in index funds using as an argument that it is the investment recommended by the American guru Dave Ramsey.

Funny thing is not hard to find Dave Ramsey recommending repaying debts before investing, stating that what works in theory (to take advantage of a spread) it does not work in practice and nobody has become a millionaire like that. But these gurus have not investigated well, or they have not wanted to do it. Sometimes these youtubers promote this even putting your affiliate links on the videos (that is, receiving commissions or another type of reward for each client they get).

What they don’t tell you: you risk too much

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Those who recommend doing this do not tell you is that the financial markets as they go up, they go down. The drops can also happen in bad times for our economy, For example, the North American stock market collapsed in April 2020, if at that time we had had to recover savings because we were with our income canceled or limited by the exposed quarantine of Covid19, it would have of course we would have had to sell at a loss. If we did not have the debt shortly before, we would find that the value of the investment was less than what we owe. It is not a pleasant prospect.

We do not know if soon after the withdrawal of the extraordinary stimuli due to the Covid19 pandemic, the markets will fall or continue to rise, but we must be extremely cautious. More especially if we are assuming obligations to invest.

The recommendation is not only mine, indexed investment experts such as Unai Asenjo, Co-CEO of Indexa Capital clearly recommends not borrowing to invest in financial marketsas it states that a maximum risk investment in debt-free financial markets already poses sufficient risk for most investors.

Ask readers Would they go into debt to invest in the stock market?

In The Salmon Blog | How to Protect Your Life Savings from Hyperinflation and Depression, by John T Reed and How the descendants of the world’s richest tech millionaire stopped being rich

Image | jetheriot

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