[stinsont]

What is everyone's thoughts on borrowing to invest? I have a large LOC at prime. I don't need my LOC for anything right now so it is just sitting there and I think I can make more than the interest rate (which is tax deductible).

Wondering what others have done and what strategy they use ie. dividend/income based vs. value plays.

 

[CanadianCapitalist]

See this thread:

http://www.canadianmoneyforum.com/showthread.php?t=1280

 

[Rickson9]

I would borrow to invest if the investment cash flowed.

 

[stinsont]

I would borrow to invest if the investment cash flowed.

what do you mean 'flowed'?

 

[FrugalTrader]

what do you mean 'flowed'?

Basically if the investment income exceeded the interest expense after tax. It's a strategy I use with the modified smith manoeuvre.

 

[Spidey]

I would consider borrowing to invest under the following conditions:

- my RRSP and TSRP are maxed out
- I have no consumer loans and particulary no credit card debt
- my mortgage is within 5 years to be being paid off and in my case I would want it completely paid off
- the amount borrowed was very manageable (eg. could be covered if one partner lost their job)
- the market seemed to show significant value

I did borrow with a HELOC after the last crash began and invested in high yielding stocks (some bank preferred shares, REITs, bank shares, Encana, TRP, etc.) Unfortunately, my timing was for the most part way too early, but I'm now in positive territory. I apply all the dividends against the HELOC which currently is at 2.25% (about to raise this month) and is fully tax deductible. My average dividend yield is probably about 6.5%.

It can work, but be very, very careful.

 

[stinsont]

I would consider borrowing to invest under the following conditions:

- my RRSP and TSRP are maxed out
- I have no consumer loans and particulary no credit card debt
- my mortgage is within 5 years to be being paid off and in my case I would want it completely paid off
- the amount borrowed was very manageable (eg. could be covered if one partner lost their job)
- the market seemed to show significant value

I did borrow with a HELOC after the last crash began and invested in high yielding stocks (some bank preferred shares, REITs, bank shares, Encana, TRP, etc.) Unfortunately, my timing was for the most part way too early, but I'm now in positive territory. I apply all the dividends against the HELOC which currently is at 2.25% (about to raise this month) and is fully tax deductible. My average dividend yield is probably about 6.5%.

It can work, but be very, very careful.

By your measure I should consider since I answered 'yes' to all your bullets. With your portfolio what is your capital gain?

BTW; that is a great yield.

 

[Spidey]

By your measure I should consider since I answered 'yes' to all your bullets. With your portfolio what is your capital gain?

My capital gain is almost nil. Some holdings like my preferred shares and REITs are up significantly but the portfolio is weighed down mostly by 2 stocks - MBT and HSE which are still significantly below book value (as I mentioned, my timing was a little too early). However, I'm not overly concerned with capital gains in the short term because the dividends keep chugging along and more than cover the expenses.

 

[stinsont]

Interesting. I like MBT; I would own it however I am a little overweight on telecom with RCI.B, BCE and T.

How many stocks would you have in this, or a typical portfolio? You are obviously favoring income in this portfolio; do you do the same in over non-leveraged portfolio's?

 

[Spidey]

I believe I have about 8 stocks in the leveraged portfolio. My non registered portfolios (leveraged and non leveraged) tends to be a little more high-dividend oriented than my registered portfolios. TSRPs are totally in cash. RRSP tends to be about 70% couch potato (combination of index funds) and perhaps 30% dividend stocks- no REITs or preferreds in the RRSP -- more along the lines of TRP, JNJ and ECA. RESP tends to be a combination of cash (due to needing it soon) and couch potato. In general I do have a preference toward dividend stocks.

 

[jason26]

Does it make sense to borrow from a HELOC to invest in a TFSA account? Can you still tax deduct the interest on the HELOC? Mortgage is done, have HELOC and a good 20 years til retirement so I figure this might be useful.

 

[FrugalTrader]

Investment loan interest is not tax deductible if the proceeds are used within a TFSA.

 

[DrStan]

Borrowing to invest can be effective if the investor has a solid financial backbone and the wherewithal to hold investments and not sell in a panic if there is a downturn.

I agree with previous posts that priorities, before borrowing to invest, should be 1) clearing all consumer debt; and 2) maxing out registered tax-advantaged accounts, including RRSPs, TFSAs, and RESPs. Getting a grip on mortgage debt depends on one's perspective; some prefer to invest as a priority before paying off their mortgage, others would rather clear the mortgage and then invest. There is no clear cut answer here.

I personally did borrow $35K in March from my HELOC at prime to purchase the XDV ETF (among other things), with a nice dividend yield and some capital appreciation over the past few months. This only represents about 7% of my net worth, so there is very little risk, and the dividend yield more than covers the interest. Since I have no other debt of any kind (and no mortgage), I will gradually pay off the HELOC a few hundreds of dollars at a time, making the income "clear" at some point.

 

[stinsont]

Ok; so I signed the papers yesterday and now officially in debt. Invested half of my LOC with my advisors assistance.

Should easily finance the debt and fees with the income. Most of the gain potential is really tied up in capital gains.

 

[Fain]

Good luck on your investments. i'm trying to get a margin loan from my broker currently but i haven't sent in all the required info.