Loan-to-Invest Calculator

Frequently Asked Questions

What exactly is this comparing?

Two ways to deploy the same money. 'Borrow & lump-sum' means borrowing a sum, investing all of it immediately into an index, then repaying principal and interest monthly. 'Dollar-cost averaging' means not borrowing, and instead investing that same monthly amount into the same index over time. Both strategies have identical monthly cash outflows, so it's a fair comparison. Borrowing front-loads the capital (more time in the market, more compounding) at the cost of interest; DCA pays no interest but deploys capital more slowly.

What does 'break-even return rate' mean?

It's the investment return at which both strategies finish with exactly the same assets. Above that threshold, borrowing to lump-sum invest wins; below it, dollar-cost averaging is better. The threshold rises with the loan rate — the more expensive the borrowing, the higher the return you need for it to pay off.

How is the annualized return (IRR) computed?

For each strategy we solve the internal rate of return on your monthly cash outflows (the fixed monthly payment) and the assets you end with, then annualize it. Because both strategies have the same monthly outflow, whichever ends with more assets has the higher IRR. The cards show both IRRs and the gap between them.

Why does the green line start near zero?

The green line is the net worth of the 'borrow & lump-sum' strategy — portfolio value minus the outstanding loan balance. At the start you borrow and immediately invest, so assets and debt offset and net worth is near zero. Over time the investment compounds and the loan amortizes, so net worth pulls ahead. At the end the loan is zero and net worth equals the portfolio value.

What return and loan rate should I use?

A globally diversified index fund has returned roughly 5–8% annually over long periods; past performance doesn't guarantee future results. Loan rates depend on the product: mortgages around 2–3%, personal loans 3–8%, margin or pledged-asset loans vary. This tool uses nominal returns (not inflation-adjusted) and does not net out ETF expense ratios, so shave a little off the rate if you want to account for fund fees.

Is borrowing to invest actually viable? What are the risks?

In theory, as long as long-term returns stay above the borrowing cost, there's a positive spread — but reality has three big risks. Sequence-of-returns risk: if a crash hits right after you invest, you still owe the payments and may be forced to sell low. Cash-flow risk: the monthly payment is a hard obligation that hurts if your income stops. Behavioral risk: paper losses combined with debt make irrational decisions likely. This tool deliberately uses a fixed return and does not simulate this volatility, so treat the result as a best-case mathematical ceiling — keep an emergency fund and size your bets responsibly.