By Dr. Steve Sjuggerud

Monday, September 15, 2014

Would you ever borrow money... to invest?

When would be the right time – if any – to do that?

Bill Gross – the billionaire known as "The Bond King" – thinks it's time to borrow money to invest.

"It's probably a good time to lever in a mild sort of way," Bill Gross said in a television interview last week.

What is Bill thinking? After all, stocks have soared since 2009. What is he talking about?

Here's what he means:

Chances are good that you won't make much money in interest in the next couple years. 10-year bonds are only paying you 2.5% interest – hardly enough to live on. And do you want to lend money to the government for 10 years? Plus, short-term interest rates are basically zero.

So here's what Bill is proposing...

Borrow money at short-term interest rates (which are near zero), and use that money to buy something that pays a higher rate.

Borrowing "short" and lending "long" (as this is called) is often a dangerous strategy... It has bankrupted many brilliant people.

But the brutal reality is, Bill Gross needs to "juice" his returns. 2.5% interest is not good enough. And short-term interest rates ARE low enough where he can make this work.

I don't advocate this strategy for most people. Bill became a billionaire by making smart interest rates bets – and that is darn tough to do.

But I do agree with Bill that you do want to take advantage of today's low interest rates if at all possible.

My number-one recommendation for you for taking advantage of today's low borrowing costs is U.S. housing – single-family homes...

I expect house prices can continue to soar even after the Federal Reserve starts raising interest rates. (I explained why in this DailyWealth essay a couple weeks ago. I urge you to go back and read that.)

Don't be stupid about it. Don't go crazy. Follow Bill Gross' advice, and do it, but "in a mild sort of way," as he said.

The goal is to amplify your returns a bit if I'm right. The goal is NOT to bankrupt you if I'm wrong.

Interest rates are at record lows. And house prices fell by a record amount in the bust, and still have plenty of upside.

Take advantage of both of those facts. Simple.

Good investing,

Steve

Further Reading:

The conventional wisdom is that rising interest rates are bad for stocks, gold, and housing. But according to Steve, history tells a different story. Check out Steve's latest research on how these assets have historically fared with rising rates:

Stocks: What Happens to Stocks When the Fed Raises Rates?

Gold: Why RISING Rates Are a Screaming "Buy" for Gold

Housing: House Prices to Soar AFTER the Fed Raises Rates