[SimpleCanuck]

Along the lines of 'Are you Buying in This Market?', I'm curious how other people are borrowing in times being; are you borrowing to invest?

With the interest rates as low as they are, are you borrowing in this market environment?


Cheers.

 

[FrugalTrader]

I have about $50k borrowed from my HELOC, but that was back in early 2008. I haven't borrowed any new money lately. However, that may change if we get another correction.

 

[ethos1]

Along the lines of 'Are you Buying in This Market?', I'm curious how other people are borrowing in times being; are you borrowing to invest?

With the interest rates as low as they are, are you borrowing in this market environment?


Cheers.

good one!

I will borrow if they pay me to take their money

To answer - no, I am not borrowing, although the borrowing rates are looking better.

Consider this:

1. If money can be got at todays prime 2.25%, even though the interest is not tax deductable, I would max on my RRSP's.

With the tax back I would put that into a TFSA

2. Pay off all debt which is higher than the 2.25% prime money borrowed

3. If its possible to get enough on an HELOC which has a lower rate than the mortgage that someone is holding - then I would suggest that you pay off the mortgage with the lower HELOC money. That done go back and get a higher ceiling level on the HELOC even if you dont have any use for it

Now all you'd have to do is figure how to get a higher rate of return than what you're paying in interest & at some point pay back the loan - ever

 

[Rickson9]

With the interest rates as low as they are, are you borrowing in this market environment?

I have to admit that my wife and I found it VERY tempting to use leverage, especially considering how cheap stock prices are. However we decided against it. A few quotes by Warren Buffett came to mind when we made the decision to avoid leverage:

"I've seen more people fail because of liquor and leverage - leverage being borrowed money. You really don't need leverage in this world much. If you're smart, you're going to make a lot of money without borrowing."

"The most dramatic way we protect ourselves is we don't use leverage. We believe almost anything can happen in financial markets... [so] even smart people can get clobbered with leverage. It's the one thing that can prevent you from playing out your hand."

“Leverage,” he said, “is the only way a smart guy can go broke … You do smart things, you eventually get very rich. If you do smart things and use leverage and you do one wrong thing along the way, it could wipe you out, because anything times zero is zero. But it’s reinforcing when the people around you are doing it successfully, you’re doing it successfully, and it’s a lot like Cinderella at the ball. The guys look better all the time, the music sounds better, it’s more and more fun, you think, ‘Why the hell should I leave at a quarter to 12? I’ll leave at two minutes to 12.’ But the trouble is, there are no clocks on the wall. And everybody thinks they’re going to leave at two minutes to 12.”

Is my wife and I missing out because we decided not to use leverage? We'll probably never know...

 

[msimms]

Right now I only invest what I can save from my job, no leverage. However once stocks hit a price where they are almost out of bargin territory, I'll leverage just a little bit to get the last of the good stock deals before they are gone.
I won't leverage any more than 3 to 6 months worth of savings that I can generate from my job, anything more and it's risky.

 

[moneygardener]

I've borrowed about $22,000 and am claiming the interest. I've paid about 20% of that back in the last few months as the market has bounced.

My plan was/is to essentially give myself a cash advance by putting borrowed money into the market and producing dividends:

1. at lower stock price levels (2008 post Sept. levels) than 2007 & early 2008
2. 1 year earlier than I could have using saved money month to month

Whether this is successful or not depends on what the markets do but I saw little risk with this strategy. My borrowing costs should stay low, dividends will continue to pay interest, and the wild card is that I am betting that stock prices were much lower Sept.08-Jan.09 than they'll be 5-10 years out. I'll likely have the money paid back before I know if it was a wise move or not.

 

[Bullseye]

Yes, about 30% of my overall portfolio is leveraged, currently. That ratio moves around depending on the market, I regularly take profits on my leveraged positions, and then wait for the next correction to leverage up again.

So far, it's working out well for me, my leveraged portfolio has done well enough to wipe out almost all my paper losses in my non-leveraged one.

My leveraged strategy is to only buy stocks that a) pay dividends at a decently higher rate than my borrowing cost, and b) that I am willing to hold for the long term, if necessary. This allows me to sleep easy at night, as even when my leveraged portfolio is down, I know that I am getting 'paid to wait' until the eventual recovery. I'm only buying stocks that are intentionally lower-risk, telecoms, utilities, whole index funds, etc. Even if the market takes years to return, I still have positive cash flow annually on these.

I'm essentially running two concurrent strategies right now, the first is my non-leveraged portfolio, where it's pure couch potato, a mix of low cost index funds held for the long term. I've sold nothing, and made no changes, since the recession began. The second is my leveraged portfolio, discussed above. The latter is just to add value where possible.

Like the poster above, I also intend to pay off some or all of my leveraged portion, depending on how the market goes. I don't want to be stuck buying equities in x years from now with the TSX at 15k.

 

[CanadianCapitalist]

No leverage here. Just investing out of regular savings, typically every month in the asset class that is below my target allocation.

 

[Brad911]

CDN dividend portfolio (DivG) is leveraged approximately 13% through a LOC at prime + 1%. If you leverage conservatively I see no problem with borrowing to invest.

The problem many investors get into is leveraging their portfolio too high, taking too great a risk in the investments they choose or not having discipline to stick with a plan/strategy.

At current valuations it makes more sense to borrow to invest in stocks than to borrow to invest in real estate. Interest is tax deductible, dividend income is tax advantaged and you can diversify into more than one sector (vs. just RE)

 

[mfd]

I burrowed $40k to invest. I ran the numbers and determined that if interest rates spiked to 20% I would still have no problem paying the interest.

 

[moneygardener]

At current valuations it makes more sense to borrow to invest in stocks than to borrow to invest in real estate. Interest is tax deductible, dividend income is tax advantaged and you can diversify into more than one sector (vs. just RE)

Great point Brad.

 

[wx_junkie]

Just started my SM this past week, and used the available 22k in my HELOC to invest. From here, I'll be investing about $800 / month (leveraged) to continue my SM.

 

[DrStan]

I leveraged $20K from home equity in March to purchase the iShares Dividend ETF at a yield of about 5.1%. This just seemed like a good opportunity and I consider it a long term hold. The loan should be paid back in about 3-4 years, slowly but surely. However, I think it's wise to look into other avenues before leveraging in large amounts, and it all depends on risk tolerance. With stable jobs, no debt, fully maxed-out RRSPs, TFSAs and RESPs, plus a non registered portfolio, there was some room to borrow. It's not for everyone... especially not for the panicky types as there may be rough times ahead.

 

[infomercialscams]

Hello..

Sometimes i borrow money to invest the money on the Stock or the Real Estate Market..
When i dont have the sufficient money to invest in the market and the market is gone very good, at that time i borrow some money from the bank, friends or the relatives..

 

[jambo411]

We changed our brokerage account to a margin account last month. Last November my daughter finished graduate school and we paid off the mortgage at the same time. All of a sudden we had cash flow. We have a time horizon of 52 months to retirement for the primary wage earner and need to play catch up.

With moderate leverage we are buying dividend paying stocks and prefferreds. We will keep it tame and put money in every two weeks and can always pay it off with the HELOC if required. I just thought it would be a clearer paper trail to write off the interest cost for taxes.

 

[The_Number]

No leverage here. Simply debt averse.

 

[ernestmanning922]

Your borrowing capacity – that is, the amount you are likely to be able to borrow based on your circumstances and income.

 

[AshleyT]

Yes we are borrowing. I couldn't resist in January in what seemed like the opportunity of a generation. After convincing my boyfriend, we borrowed using a HELOC and leveraged 4x our yearly investment contributions. It was all said and done by the end of January, and then I watched in horror as the market dropped below the 11/20/08 lows and found a new bottom in early March, 15% below where we leveraged in January. The investing time horizon is long, so there was no need for panic, and things have certainly righted themselves (and then some) since then, but I sure wish I could have hit those March lows with the leveraged cash.

 

[moneygardener]

Who doesn't? I was early as well.

 

[darrylgonzalez46]

I too have stopped borrowing money any more. Rather I am concentrating to increase sell so get some cash flow and utilizing it in production