[luckych]

Hi,

Can someone recommend any good book on leveraged investing that would also cover tax aspects for Canadians (tax credit on interest)? I found a couple articles on www.milliondollarjourney.com but have not found full comprehensive guide with tips and tricks. Any information would be greatly appreciated!

Thanks,
Denis

 

[HaroldCrump]

Hi,
but have not found full comprehensive guide with tips and tricks.

I don't think one can be created that will be universally applicable.
It is a risky venture, only to be undertaken by seasoned investors.
The interest on the loan is tax deductible, but other than that, the tax treatment of various returns (dividends, capital gains, etc.) should be no different than any other non-registered investment.
"Tips and tricks" (for most people) can be summarized by one word - Don't

 

[CanadianCapitalist]

"Tips and tricks" (for most people) can be summarized by one word - Don't

That's my opinion as well. Leveraged investing should be really handled with caution.

 

[Rickson9]

"Leveraged investing" would cover virtually all real estate investment books.

 

[luckych]

Thanks for all your replies! Sorry I wasn't very specific about what I need. I was thinking about opening personal Line of Credit (not Heloc) to fund leveraged investing into index ETFs (XDV, XIU etc) in non-registered investment account.
I know that leveraged investing is very risky and this is why I would like to find more information first and try this technique on a small scale for a couple of years.

 

[HaroldCrump]

I was thinking about opening personal Line of Credit (not Heloc) to fund leveraged investing into index ETFs (XDV, XIU etc) in non-registered investment account.

Have you done the cost vs returns analysis?
It doesn't seem like you can come out ahead in this transaction.
The rate of interest on a regular LOC is higher than a typical HELOC.
The distributions in XDV and XIU are probably not high enough to cover the interest (and once you account for taxes payable on the distributions).
Esp. during times of dividend cuts.
You will go through a lot of trouble organizing all this, managing all this and keeping track of everything (including more complex tax returns) that it may not be worthwhile.
Were it this simple to make nice profits through passive investing, everyone would have been doing it.

 

[CanadianCapitalist]

Thanks for all your replies! Sorry I wasn't very specific about what I need. I was thinking about opening personal Line of Credit (not Heloc) to fund leveraged investing into index ETFs (XDV, XIU etc) in non-registered investment account.
I know that leveraged investing is very risky and this is why I would like to find more information first and try this technique on a small scale for a couple of years.

Think of it this way. Stocks, on average, provide returns about 3 to 5 percent higher than the risk-free rate (the interest rate on T-bills) over most time periods (of ten years or more). The prime rate is around 2% more than the risk-free rate. Add another 2% because the LOC is unsecured. What are you left with? You are breaking even. Granted, I've ignored the deductibility of interest but I've also ignored the tax consequences of dividends and capital gains.

Now, consider the risks. Stock returns may suck compared to even T-bills. Your bank may want its money back right away at exactly the most inopportune moment.

Of course, this is my personal opinion. YMMV.

 

[gwcanuck]

I got a copy from my financial planner of 'Dispelling the Myths of Borrowing to Invest' by Talbot Stephens (maybe spelled Stevens?). It's not a how-to book but it details cash flows / rates of returns / tax implications. I found it very informative but have not had the xxxx to try it yet. The biggest revelation is that you can earn less of a rate of return on the investment than you're paying in interest and still come out ahead. It would be a good book to start with.

 

[humble_pie]

CC everybody & his grandmother, except me, is borrowing cheap money on margin & investing it for a greater return. Nouriel roubini calls this the US dollar carry trade. One of the drivers in north american markets.

 

[leslie]

Learn the basic of leverage.

http://www.cxoadvisory.com/blog/external/blog6-02-08/
Gives a synthesis of an academic study on leveraging by age.

http://www.investmentreview.com/archives/2003/winter/leveraged_portfolios.pdf
Long Run Effects of Leverage on Cdn Investors

 

[luckych]

I really appreciate everyone's feedback!!! Thanks for information, I found answers that I was looking for.

-Denis