Comments on: Should I Leverage Invest? http://blog.canadian-dream-free-at-45.com/2007/11/14/should-i-leverage-invest/ Wed, 08 Feb 2012 17:31:40 +0000 hourly 1 http://wordpress.org/?v=3.1 By: Canadian Dream http://blog.canadian-dream-free-at-45.com/2007/11/14/should-i-leverage-invest/comment-page-1/#comment-11350 Canadian Dream Thu, 25 Sep 2008 12:03:02 +0000 http://blog.canadian-dream-free-at-45.com/?p=270#comment-11350 Jiffy, Be careful how you do this. If possible keep all the accounts separate from everything else and keep copies of all the money transfer documents. Also make sure what you are buying will get you the tax break. See the following for some additional help. http://www.taxtips.ca/stocksandbonds/borrowtoinvest.htm Keep in mind the sleep at night factor and make sure you really want to do this. Tim Jiffy,

Be careful how you do this. If possible keep all the accounts separate from everything else and keep copies of all the money transfer documents.

Also make sure what you are buying will get you the tax break. See the following for some additional help.

http://www.taxtips.ca/stocksandbonds/borrowtoinvest.htm

Keep in mind the sleep at night factor and make sure you really want to do this.

Tim

]]> By: jiffy http://blog.canadian-dream-free-at-45.com/2007/11/14/should-i-leverage-invest/comment-page-1/#comment-11289 jiffy Wed, 24 Sep 2008 18:08:31 +0000 http://blog.canadian-dream-free-at-45.com/?p=270#comment-11289 I have a redfrog LOC, so it is essentially my mortgage et all. Interest is at prime + .25 so 5% right now. If I drew out 10k and invested in a product giving me more than 5% yield would that not be the way to go? I can write off the interest on 10k @ 5% for as long as it takes to return the funds to the LOC? Am I figuring this all right? I have a redfrog LOC, so it is essentially my mortgage et all. Interest is at prime + .25 so 5% right now. If I drew out 10k and invested in a product giving me more than 5% yield would that not be the way to go? I can write off the interest on 10k @ 5% for as long as it takes to return the funds to the LOC? Am I figuring this all right?

]]> By: How Low Can We Go? http://blog.canadian-dream-free-at-45.com/2007/11/14/should-i-leverage-invest/comment-page-1/#comment-6277 How Low Can We Go? Thu, 10 Jul 2008 12:58:10 +0000 http://blog.canadian-dream-free-at-45.com/?p=270#comment-6277 [...] I’ve been thinking about my little leverage experiment. I’m actually getting some what used to the idea of borrowing money to make money. So should [...] [...] I’ve been thinking about my little leverage experiment. I’m actually getting some what used to the idea of borrowing money to make money. So should [...]

]]> By: Lise http://blog.canadian-dream-free-at-45.com/2007/11/14/should-i-leverage-invest/comment-page-1/#comment-1973 Lise Sun, 02 Dec 2007 19:18:58 +0000 http://blog.canadian-dream-free-at-45.com/?p=270#comment-1973 I have used $75 K in my LOC to buy dividend funds, and I opened a bank account just for the interest on this LOC to make it easier come tax time. The monthly dividend payouts pay the interest and more, some of which I reinvest in the same funds (for now), and some of which I use to pay down my mortgage. The dividends are taxable at a very favourable rate. So I get a few tax benefits: tax-deductible interest and tax-favourable earnings. I think it's well worth it. I have used $75 K in my LOC to buy dividend funds, and I opened a bank account just for the interest on this LOC to make it easier come tax time.

The monthly dividend payouts pay the interest and more, some of which I reinvest in the same funds (for now), and some of which I use to pay down my mortgage.

The dividends are taxable at a very favourable rate.

So I get a few tax benefits: tax-deductible interest and tax-favourable earnings.

I think it’s well worth it.

]]> By: John S from Ottawa http://blog.canadian-dream-free-at-45.com/2007/11/14/should-i-leverage-invest/comment-page-1/#comment-1634 John S from Ottawa Sat, 17 Nov 2007 18:39:55 +0000 http://blog.canadian-dream-free-at-45.com/?p=270#comment-1634 One way to play game this now is to buy BCE. In the last week it is close to $40 The buyout, if it happens is at$42 plus Margin costs you just less then 7% at TD Return is 20% plus (assume April close) If deal happens, You walk away with 10 to 12% return Gains are div plus cap so easy on the tax I am in big (ie 500K plus) on this play this week which is 25% of my before margin portfolio Down side is no buy out (20% chance) and you are toasted for a drop back to $30 (ie $10 loss 25% chance, $2.75 Gain 75% chance) Enjoy the ride)))) One way to play game this now is to buy BCE.

In the last week it is close to $40

The buyout, if it happens is at$42 plus

Margin costs you just less then 7% at TD

Return is 20% plus (assume April close)

If deal happens, You walk away with 10 to 12% return

Gains are div plus cap so easy on the tax

I am in big (ie 500K plus) on this play this week which is 25% of my before margin portfolio

Down side is no buy out (20% chance) and you are toasted for a drop back to $30 (ie $10 loss 25% chance, $2.75 Gain 75% chance)

Enjoy the ride))))

]]> By: Mr. Cheap http://blog.canadian-dream-free-at-45.com/2007/11/14/should-i-leverage-invest/comment-page-1/#comment-1613 Mr. Cheap Fri, 16 Nov 2007 19:18:42 +0000 http://blog.canadian-dream-free-at-45.com/?p=270#comment-1613 Tim: I went through the same soul-searching when I first signed up for a margin account, then the first time I used it, and every time I've pushed to a new "level" of leverage. Start low and grow is a good approach, and if you can pay the interest payments out of your regular cashflow (as you say you'll be able to), I think you have your "worst case" covered (and probably won't be too worried about it). Good luck! (btw my average cost of purchase for BMO is $8 more expensive then it is right now, so I think its a killed time to get into a Canadian bank, income trusts are interesting, and the high yield would be nice for paying down the interest and loan but I would need to read more about them myself before I'd consider a purchase). Tim: I went through the same soul-searching when I first signed up for a margin account, then the first time I used it, and every time I’ve pushed to a new “level” of leverage.

Start low and grow is a good approach, and if you can pay the interest payments out of your regular cashflow (as you say you’ll be able to), I think you have your “worst case” covered (and probably won’t be too worried about it).

Good luck! (btw my average cost of purchase for BMO is $8 more expensive then it is right now, so I think its a killed time to get into a Canadian bank, income trusts are interesting, and the high yield would be nice for paying down the interest and loan but I would need to read more about them myself before I’d consider a purchase).

]]> By: telly http://blog.canadian-dream-free-at-45.com/2007/11/14/should-i-leverage-invest/comment-page-1/#comment-1589 telly Thu, 15 Nov 2007 18:02:23 +0000 http://blog.canadian-dream-free-at-45.com/?p=270#comment-1589 CC: Do you include your mortgage in that 10%? CC: Do you include your mortgage in that 10%?

]]> By: Canadian Dream http://blog.canadian-dream-free-at-45.com/2007/11/14/should-i-leverage-invest/comment-page-1/#comment-1582 Canadian Dream Thu, 15 Nov 2007 12:39:14 +0000 http://blog.canadian-dream-free-at-45.com/?p=270#comment-1582 Thanks for the feedback everyone. It's nice to get a little hand holding when your stepping up to something new. By the way I had intended to slowly pay down the loan and skip the interest only part. CC- I really like that rule. Thanks for the idea, it should keep me from getting in too deep. Mike - Good point you could invest that way, but I prefer a positive cash flow for my first time. WhereDAMMG - Thanks for all your insights and comments. It's nice to have someone challenge your ideas so you are forced to confirm them to yourself. Tim Thanks for the feedback everyone. It’s nice to get a little hand holding when your stepping up to something new.

By the way I had intended to slowly pay down the loan and skip the interest only part.

CC- I really like that rule. Thanks for the idea, it should keep me from getting in too deep.

Mike – Good point you could invest that way, but I prefer a positive cash flow for my first time.

WhereDAMMG – Thanks for all your insights and comments. It’s nice to have someone challenge your ideas so you are forced to confirm them to yourself.

Tim

]]> By: WhereDoesAllMyMoneyGo http://blog.canadian-dream-free-at-45.com/2007/11/14/should-i-leverage-invest/comment-page-1/#comment-1577 WhereDoesAllMyMoneyGo Thu, 15 Nov 2007 02:08:14 +0000 http://blog.canadian-dream-free-at-45.com/?p=270#comment-1577 Some people dipping their toes into leveraging for the first time might want to consider getting a term loan (or overpay the LOC interest only payment to replicate a term loan). While it will reduce your lump sum investment, and you will slowly erode the interest payments (and hence the deductions), it is psychologically easier to deal with. It is a good stepping stone before going interest only - and some people just stop there, they will never make that final leap to interest only. It's a nice compromise when you feel the market is on sale but don't want to take on a full leverage. I would add that not all leverages are designed to produce a positive cash-flow (known as a self-funding leverage). It has been known to lead to yield seeking and if distributions are cut, not only will cashflow be negative, the principal may be affected as the investment has probably lost value as well. Keeping your TDS and GDS within 40/32 is also a really good idea I think. Some people dipping their toes into leveraging for the first time might want to consider getting a term loan (or overpay the LOC interest only payment to replicate a term loan). While it will reduce your lump sum investment, and you will slowly erode the interest payments (and hence the deductions), it is psychologically easier to deal with.

It is a good stepping stone before going interest only – and some people just stop there, they will never make that final leap to interest only.

It’s a nice compromise when you feel the market is on sale but don’t want to take on a full leverage.

I would add that not all leverages are designed to produce a positive cash-flow (known as a self-funding leverage). It has been known to lead to yield seeking and if distributions are cut, not only will cashflow be negative, the principal may be affected as the investment has probably lost value as well.

Keeping your TDS and GDS within 40/32 is also a really good idea I think.

]]> By: FourPillars http://blog.canadian-dream-free-at-45.com/2007/11/14/should-i-leverage-invest/comment-page-1/#comment-1567 FourPillars Wed, 14 Nov 2007 17:45:01 +0000 http://blog.canadian-dream-free-at-45.com/?p=270#comment-1567 I'm doing it with BMO. I'm fine with it. My only comment is that if you buy a "dividend grower" ie Cdn banks then you don't need to have a positive cash flow right away. If the dividends continue to increase then over the long term you will make a profit. That said I'd rather keep the cash flow pretty close to break even to start (rather than go negative). Mike I’m doing it with BMO. I’m fine with it.

My only comment is that if you buy a “dividend grower” ie Cdn banks then you don’t need to have a positive cash flow right away. If the dividends continue to increase then over the long term you will make a profit. That said I’d rather keep the cash flow pretty close to break even to start (rather than go negative).

Mike

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