"Should I Borrow to Buy More?" Debt-Fueled Investing Returns as the Market Rebounds [The Joys and Sorrows of Wage Earners]

[Financial News] "Would it still be too late to get in now?"

When the conversation turned to stocks at a lunch table, a salaried worker in his 30s, identified as A, said this. A colleague across from him replied, "If I don't have cash, maybe I should use my overdraft account." As the stock market rebounded after a sharp sell-off, worries about debt-fueled investing, or so-called 'borrowed money investing,' are resurfacing.

South Korea's stock market has recovered over the past week. According to the Korea Exchange on the 12th, the KOSPI (Korea Composite Stock Price Index), which closed at 6,257.45 on the 3rd, rose to 6,299.66 on the 10th. Over the same period, the KOSDAQ Index climbed from 737.35 to 854.47. The KOSPI gained 0.67 percent, while the KOSDAQ rose 15.88 percent.

As the indices rose again, individual investors found themselves doing the math. When prices were falling, many cut back on their accounts out of fear. But as rising stocks caught their eye, the lack of cash became frustrating. Some investors are now thinking about margin trading or overdraft loans. Yet borrowing to invest can magnify returns, and it also increases losses and interest costs.


According to the Korea Financial Investment Association's comprehensive statistics portal, outstanding margin loans stood at 28.794 trillion won as of the 6th. That was up 376.1 billion won from the previous trading day. On the 5th, the balance had already risen by 1.0141 trillion won from the day before to 28.4179 trillion won.

Margin loans refer to the amount investors have borrowed from securities firms to buy stocks and have not yet repaid. They tend to increase when expectations for a market rally grow. By contrast, when stock prices plunge, balances usually fall because of concerns over insufficient collateral and forced selling.

The recent trend has been similar. Margin balances shrank during the sell-off, but as the indices rebounded, investors again moved to borrow and buy. From an investor's perspective, it is easy to think, "If I had put in just a little more, I would have recovered."

A said, "I sold some of my holdings when prices fell because I was scared, but when I saw them rise again a few days later, I felt empty." He added, "If I had cash, I would buy more, but since I don't, it's true that I start thinking about borrowing."


The problem lies in the nature of borrowed money. Stocks bought with one's own funds can be held through a downturn, but margin trading requires attention to repayment deadlines and collateral ratios. If prices fall further, investors may be asked to post additional collateral or face forced selling.
B, a salaried worker in his 40s, said, "I used to think margin trading would help me make money faster." He added, "But when stock prices actually fall, the notifications from the securities firm are scarier than the losses themselves." He also said, "Even when payday comes, living expenses and credit card bills come first, so repaying borrowed investment money feels like a burden."

Overdraft loans work the same way. In a stock account, they may look like investment capital, but in a bank account, they are debt that accrues interest every month. In a high-interest-rate environment, even if stock prices go nowhere, interest expenses can eat into returns.
This is especially true for investments made in hopes of a short-term rebound. If prices rise, investors wonder whether to buy more. If they fall, they must recalculate whether to lock in losses or hold on. It is not easy to keep checking the market during working hours.


In a May report titled 'Current Status and Implications of Margin Trading in the Domestic Stock Market,' the Korea Capital Market Institute analyzed that margin trading boosts buying demand during upswings but can increase selling pressure through forced liquidation during downturns. Margin trading stimulates investor sentiment when the market is rising, but it is structured in a way that accelerates losses when stock prices fall.
Borrowing to invest cannot be explained by stock outlook alone. The borrowed amount, interest rate, repayment deadline, and collateral ratio all become costs. If living expenses are also used as investment money, losses can spill over into the next paycheck, credit card bills, and loan interest payments.

B said, "When stock prices rise, loan interest looks like a small matter." He added, "But on days when prices fall, I start thinking about the interest too, and that makes me even more anxious."

A rebound also looks like a fresh investment opportunity. But if cash-strapped investors chase the market with borrowed money, account volatility can spill over into everyday living expenses. A said, "If I don't buy, I feel like I'll miss out again, but if I borrow to buy, I'm afraid of payday." He added, "These days, I find myself calculating how much I can actually afford before I even look at the stocks."


[email protected] Han Seung-gon Reporter