Any loan always comes with a risk of not being paid back, there is no need for any kind of special contract stating this. This is true if you get the loan from a bank or wherever. Obviously all parties involved in a transaction should always evaluate the risk involved. Frankly, categorically refusing to even consider loans from family is a loser mentality. You are completely focused on the possibility of a disastrous downside instead of performing a rational level headed evaluation of your opportunities. Families that operate in this manner will have a disadvantage over those who cooperate with eachother rationally because when done properly it is win win for all involved. Family loans have the potential to be much larger and more easily available than what you could get from banks, which tend to depend on dumb computer algorithims for their underwriting.
I ventured my recommendation. I don't care what you think of it or how you handle your financial affairs. I hold one opinion, you another. Does that work for you? Or does anyone who disagrees with you have a loser mentality by default?
No, and it's not a matter of opinion. The statement that family loans should always be avoided is equivalent to a mathematical statement about economic utility. It implies that you have infinite loss aversion and thus cannot participate in certain transactions even if they have positive expectation. This is pretty much the definition of a loser mentality (you can't win because you won't play)
It implies a healthy mentality that when things go wrong with money that you don't want family involved. It's a futile approach to life in general. I respect your opinion but can't disagree more with your stance. But that does not make me call you as one with a loser mentality. You may want to overthink your previous comments.
"Loser mentality" is not some generic insult I am using against you, it has a specific meaning which accurately describes the kind of irrational thinking you are advocating for. It is a mental bias of focusing on negative outcomes and disregarding the positive. I believe your advice is meant to help people, but the advice is not correct for everyone. For example if I had blindly taken your advice when I was starting out then I would be significantly poorer than I am now. All I am advocating for is people to rationally evaluate their risk and reward. This is the optimal way to operate by definition. For some people this means taking loans from friends and family is a good choice for them.
Your comment makes very little sense. We are speaking of probabilistic outcomes. Your small sample size of 1 where the realization turned out to not cause any problems is insignificant. The world is littered with examples and stories where entire families broke apart because money came in between. Most every wealthy HK or Singapore family can tell you a story or two. You did not know at the time when you borrowed money from family members whether your venture would turn out well. It was a probabilistic event it could as well have gone wrong. When borrowing outside in the worst case you have angry lenders or outside investors but with family members things can go a very different way. I would never ever advise anyone to borrow from or lend to or otherwise get monetary issues in the way of family. Period.
My advice is use your brain. Consider the following people (both borrowers and lenders) can evaluate the probability of success beforehand it is possible that even if a venture fails, loans can still be paid back anyways it is possible that even if loans are not paid back, it doesn't have to be the end of the world The ultimate doom and destruction scenario you describe is easily avoided by sizing the loan correctly for both parties. In the specific case of trading it is even possible to guarantee repayment, as you are typically liquid all the time, all you need to do is liquidate before your NAV goes negative.
Dude, the problem is that in most cases it DOES end badly. Just because your case did not turn out bad has zero bearing on the larger sample size and probabilities of it going south, not just financially but that relationships get ruined.
"Why won't this dumb algo, designed by professional finance people tested on millions of data points, lend money to my home made amateur trading algo?" FWIW I have borrowed money from family members, but to only bridge real estate transactions over short well defined time periods. I've also had bad experiences of lending money to friends, and as the proverb goes losing both friends and money. Personally, I think it's usually better to treat it as a gift. Then if they repay you it's a bonus. (Not tax advice!) It's very stressful trading with OPM. I doubt many people on this thread have enjoyed the pleasure of losing 1bn in a week. I can tell you it's not much fun. When you actually know the people involved and will have to look them in the eye at Aunt Mauds funeral and explain how you lost a chunk of their inheritance on a speculative trading venture... it's much worse. Even though the sums involved are much smaller. Agreeing to pay a 7% coupon every year irrespective of performance creates yet more stress, and makes it more likely you will do something stupid that will hasten your implosion. Anyone who thinks any kind of trading profit is effectively guaranteed, is fooling themselves. I have been on ET for 7 years now. I have seen many such people come and go in that time. I doubt many of those who left did so because they had retired from trading with a vast fortune. Most likely they blew up. I note from your profile you have also been here for a long time- since 2014 (I initially assumed from your post count that you were a relative newcomer). So clearly you are one if the lucky ones. But as others have said, you shouldn't extrapolate from that single data point to all possible futures. You are also assuming the OP has the same likelihood of success as you did, which again is a huge assumption. Finslly saying someone is definitely a loser is very risky unless you are sure they are. Otherwise it just weakens the argument... GAT