Using Loan to Invest - Paying Monthly Installments by Selling Originally Bought Shares
In addition to the answer from CQM, let me answer your 'am I missing anything?' question. Then I'll talk about how your approach of simplifying this is making it both harder and easier for you. Last I'll show what my model for this would look like, but if you aren't capable of stacking this up yourself, then you REALLY shouldn't be borrowing 10,000 to try to make money on the margin. Am I missing anything? YES. You're forgetting (1) taxes, specifically income tax, and (2) sales commissions//transaction fees.  On the first: You have not considered anything in your financial model for taxes. You should include at least 25% of your expected returns going to taxes, because anything that you buy... and then sell within 12 months... is taxed as income. Not capital gains. On the second: you will incur sales commissions and/or transaction fees depending on the brokerage you are using for your plan. These tend to vary widely, but I would expect to spend at least $25 per sale. So if I were building out this model I would think that your break-even would have to at least cover: monthly interest + monthly principal payment income tax when sold commissions and broker's fees every time you sell holdings On over-simplifying: You have the right idea with thinking about both interest and principal in trying to sketch this out. But as I mentioned above, you're making this both harder and easier for yourself. You are making it harder because you are doing the math wrong. The actual payment for this loan (assuming it is a normal loan) can be found most easily with the PMT function in Excel: =PMT(rate,NPER,PV,FV)... =PMT(.003, 24, -10000, 0). That returns a monthly payment  (of principal + interest) of 432.47.  So you actually are over-calculating the payment by $14/month with your ballpark approach. However, you didn't actually have all the factors in the model to begin with, so that doesn't matter much.  You are making it artificially easier because you have not thought about the impact of repaying principal. What I mean is this--in your question you indicate:  I'm guessing the necessary profit is just the total interest on this loan = 0.30%($10000)(24) = $720 USD ? So I'll break even on this loan - if and only if - I make $720 from stocks over 24 months (so the rate of return is 720/(10000 + 720) = 6.716%). This sounds great-- all you need is a 6.716% total return across two years. But, assuming this is a normal loan and not an 'interest-only' loan, you have to get rid of your capital a little bit at a time to pay back the loan. In essence, you will pay back 1/3 of your principal the first year... and then you have to keep making the same Fixed interest + principal payments out of a smaller base of capital.  So for the first few months you can cover the interest easily, but by the end you have to be making phenomenal returns to cover it.  Here is how I would build a model for it (I actually did... and your breakeven is about 1.019% per month. At that outstanding 12.228% annual return you would be earning a whopping $4.) At least as far as the variables are concerned, you need to be considering: Your current capital balance (because month 1 you may have $10,000 but month 2 you have just 9,619 after paying back some principal).  Your rate of return (if you do this in Excel you can play with it some, but you should save the time and just invest somewhere else.) Your actual return that month (rate of return * existing capital balance).  Loan payment = 432 for the parameters you gave earlier.  Income tax = (Actual Return) * (.25). With this kind of loan, you're not actually making enough to preserve the 10,000 capital and you're selling everything you've gained each month.  Commission = ($25 per month) ... assuming that covers your trade fees and broker commissions. I guarantee you that this is not the deal breaker in the model, so don't get excited if you think I'm over-estimating this and you realize that Scottrade or somewhere will let you have trades at $7.95 each.   Monthly ending balance == next month's starting capital balance.  Stack it all up in Excel for 24 months and see for yourself if you like. The key thing you left out is that you're repaying each month out of capital that you'd like to use to invest with. This makes you need much higher returns.  Even if your initial description wasn't clear and this is an interest-only loan, you're still looking at a rate of about 7.6% annually that you need to hit in order to just break even on the costs of holding the loan and transferring your gains into cash. The market can stay irrational longer than you can remain solvent -John Maynard Keynes The stocks could stagnate and trade in a thin range, or decline in value. You assume that your stocks will offer you ANY positive return for every month over 24 months. Just one month of negative returns puts you underwater. Thats whats wrong with it.  Even if you identified any stock that has been up every month for a consecutive 24 months in the past, there is nothing that says it will be so in the future, and a broad market selloff will effect both indexes as well as individual stocks.  Literally any adverse macroeconomic event in the next two years will put you underwater on your loan, no matter how much research you do on individual stocks. I will add one point missing from the answers by CQM and THEAO. When you take a loan and invest the proceeds, the interest that you pay on the loan is deductible on Schedule A, Line 14 of your Federal income tax return under the category of Investment Interest Expense.  If the  interest expense is larger than all your investment earnings (not just those from the loan proceeds), then you can deduct at most the amount of the earnings, and carry over the excess investment interest paid this year for deduction  against investment earnings in future years. Also, if some of the earnings are long-term capital gains and you choose to deduct the corresponding investment interest expense, then those capital gains are taxed as ordinary income instead of at the favored LTCG rate. You also have the option of choosing to deduct only that amount of interest that offsets dividend (and short-term capital gain) income that is taxed at ordinary rates, pay tax at the LTCG rate on the capital gains, and carry over rest of the interest for deduction in future years. In previous years when the tax laws called for  reduction in the Schedule A deductions for high-income earners, this investment interest expense was exempt from the reduction. Whether future tax laws will allow this exemption depends on Congress. So, this should be taken into account when dealing with the taxes issue in deciding whether to take a loan to invest in the stock market.
"You cannot get ""your investment"" out and ""leave only the capital gains"" until they become taxable at the long-term rate. When you sell some shares after holding them for less than a year, you have capital gains on which you will have to pay taxes at the short-term capital gains rate (that is, at the same rate as ordinary income).  As an example, if you bought 100 shares at $70 for a net investment of $7000, and sell 70 of them at $100 after five months to get your ""initial investment back"", you will have short-term capital gains of $30 per share on the 70 shares that you sold and so you have to pay tax on that $30x70=$2100. The other $4900 = $7000-$2100 is ""tax-free"" since it is just your purchase price of the 70 shares being returned to you.  So after paying the tax on your short-term capital gains, you really don't have your  ""initial investment back""; you have something less. The capital gains on  the 30 shares that you continue to hold will become (long-term capital gains) income to you only when you sell the shares after having held them for a full year or more: the gains on the shares sold after five months are taxable income in the year of sale." "A major thing to consider when deciding whether to invest or pay off debt is cash flow. Specifically, how each choice affects your cash flow, and how your cash flow is affected by various events. Simply enough, your cash flow is the amount of money that passes through your finances during a given period (often a month or a year). Some of this is necessary payments, like staying current on loans, rent, etc., while other parts are not necessary, such as eating out. For example, you currently have $5,500 debt at 3% and another $2,500 at 5%. This means that every month, your cashflow effect of these loans is ($5,500 * 3% / 12) + ($2,500 * 5% / 12) = $24 interest (before any applicable tax effects), plus any required payments toward the principal which you don't state. To have the $8,000 paid off in 30 years, you'd be paying another $33 toward the principal, for a total of about $60 per month before tax effects in your case. If you take the full $7,000 you have available and use it to pay off the debt starting with the higher-interest loan, then your situation changes such that you now: Assuming that the repayment timeline remains the same, the cashflow effect of the above becomes $1,000 * 3% / 12 = $2.50/month interest plus $2.78/month toward the principal, again before tax effects. In one fell swoop, you just reduced your monthly payment from $60 to $5.25. Per year, this means $720 to $63, so on the $7,000 ""invested"" in repayment you get $657 in return every year for a 9.4% annual return on investment. It will take you about 11 years to use only this money to save another $7,000, as opposed to the 30 years original repayment schedule. If the extra payment goes toward knocking time off the existing repayment schedule but keeping the amount paid toward the principal per month the same, you are now paying $33 toward the principal plus $2.50 interest against the $1,000 loan, which means by paying $35.50/month you will be debt free in 30 months: two and a half years, instead of 30 years, an effective 92% reduction in repayment time. You immediately have another about $25/month in your budget, and in two and a half years you will have $60 per month that you wouldn't have if you stuck with the original repayment schedule. If instead the total amount paid remains the same, you are then paying about $57.50/month toward the principal and will be debt free in less than a year and a half. Not too shabby, if you ask me. Also, don't forget that this is a known, guaranteed return in that you know what you would be paying in interest if you didn't do this, and you know what you will be paying in interest if you do this. Even if the interest rate is variable, you can calculate this to a reasonable degree of certainty. The difference between those two is your return on investment. Compare this to the fact that while an investment in the S&P might have similar returns over long periods of time, the stock market is much more volatile in the shorter term (as the past two decades have so eloquently demonstrated). It doesn't do you much good if an investment returns 10% per year over 30 years, if when you need the money it's down 30% because you bought at a local peak and have held the investment for only a year. Also consider if you go back to school, are you going to feel better about a $5.25/month payment or a $60/month payment? (Even if the payments on old debt are deferred while you are studying, you will still have to pay the money, and it will likely be accruing interest in the meantime.) Now, I really don't advocate emptying your savings account entirely the way I did in the example above. Stuff happens all the time, and some stuff that happens costs money. Instead, you should be keeping some of that money easily available in a liquid, non-volatile form (which basically means a savings account without withdrawal penalties or a money market fund, not the stock market). How much depends on your necessary expenses; a buffer of three months' worth of expenses is an often recommended starting point for an emergency fund. The above should however help you evaluate how much to keep, how much to invest and how much to use to pay off loans early, respectively." It is very likely that the fund paid out a dividend in the form of reinvested shares.  This happens with many funds, especially as we come to the end of the year. Here's a simplified example of how it works.  Assume you invested $1000 and bought 100 units at $10/unit.  Ignoring the daily price fluctuations, if the fund paid out a 20% dividend, you would get $200 and the unit price would drop to $8/unit.  Assuming you chose to reinvest your dividends, you would automatically purchase another $200 worth of units at the new price (so 25 more units).  You would now have 125 units @ $8/unit = $1000 invested. In your example, notice that you now have more shares than you originally purchased, but that the price dropped significantly.  Your market value is above what you originally invested, so there was probably also a bit of a price increase for the day.  You should see the dividend transaction listed somewhere in your account. Just to confirm, I did a quick search on ICENX and found that they did indeed pay a dividend yesterday. My friend Harry Sit wrote an excellent article No Tax Advantage In RSU.  The punchline is this. The day the RSUs vested, it's pretty much you got $XXX in taxable income and then bought the stock at the price at that moment. The clock for long term gain starts the same as if I bought the stock that day.  Historical side note - In the insane days of the Dotcom bubble, people found they got RSUs vested and worth, say, $1M. Crash. The shares are worth $100K. The $1M was ordinary income, the basis was $1M and the $900K loss could offset cap gains, not ordinary income above $3000/yr. Let me be clear - the tax bill was $250K+ but the poor taxpayer had $100K in stock to sell to pay that bill. Ooops. This is the origin of the 'sell the day it vests' advice.  The shares you own will be long term for capital gain a year after vesting. After the year, be sure to sell those particular shares and you're all set. No different than anyone selling the LT shares of stock when owning multiple lots. But. Don't let the tax tail wag the investing dog. If you feel it's time to sell, you can easily lose the tax savings while watching the stock fall waiting for the clock to tick to one year. Answers here are correct but I'll offer an extremely (overly) simple explanation that should help you in understanding the more detailed answers.  When most people own stock they do so through a broker.  Unless you jump through some hoops, the broker keeps the shares in the name of the brokerage.  This is called holding the stock in street name. When you sell short through a brokerage, the broker is letting you borrow a certain number of shares owned by someone else and sell them for cash now.  At some point, you need to repay this loan with the same number of shares you borrowed.  Ideally, you want the stock to drop to $0.  The reason you might be forced to purchase the stock is that the actual owner(s) of the stock want to sell.  If the broker has too many people wanting to sell, you will need to repay some of all of the loan (in shares) i.e. purchasing shares at the current market price. "I'm in the US, so there may be idiosyncrasies with UK taxes that I'm not familiar with, but here's how I've always treated stock I get as compensation.   Suppose the vested shares are worth X.  If I had X in cash, would I buy my company's stock as an investment?  Usually the answer is no, not because I think the stock will tank, but because there's better things I can do with that cash (pay off debt, unfortunately).  Therefore I sell the shares and use the cash for something else. You have stock options. So suppose the stock value is X but you can buy it for Y.  You can either: Therefore, the math is the same. If you had X in cash, would you buy your company's stock as an investment?  If so, then option 2 is best, because you can get X in stock for a lower cost. (Option 3 might be better if the gain on the stock will be taxed higher, but they're pretty much equivalent if there's no chance that the stock will drop below Y) If not, then option 4 is best since you will likely get more than X-Y from selling the options that by exercising them and selling the stock (since options have time value). If option 4 is not a possibility, then option 1 is best - you pocket X-Y as ""income"" and invest it however you see fit." "Could have done a [put option](http://en.wikipedia.org/wiki/Put_option) if you wanted to bet against it in another way. It's not technically ""shorting"", but in a layman-shorthand it's the same thing - making money gambling on the ""pessimistic side"" of possibility. You don't actually need to borrow any shares to do that, just find someone who thinks the price at some later date will be higher than you think it will be." Most likely, this will not work they way you think. First things first, to get a loan, the bank needs to accept your collateral. Note that this is not directly related to the question what you plan to do with the loan. Example: you have a portfolio of stocks and bonds worth USD 2 million. The bank decides to give you a loan of USD 1 million against that collateral. The bank doesn't care if you will use the loan to invest in foreign RE or use it up in a casino, it has your collateral as safety. So, from the way you describe it, I take it you don't have the necessary local collateral but you wish to use your foreign investments as such. In this case it really doesn't matter where you live or where you incorporate a company, the bank will only give you the loan if it accepts the foreign collateral. From professional experience with this exact question I can tell you, there are very few banks that will lend against foreign property. And there are even less banks, if any, that will lend against foreign projects. To sum it up: Just forget banks. You might find a private lender to help you out but it will cost you dearly. The best option you have is to find a strategic partner who can cough up the money you need but since he is taking the bigger risk, he will also take the bigger profit share.