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Leveraged Funds-Manulife

1957 Views 3 Replies 4 Participants Last post by  OnlyMyOpinion
I was recommended by my banker to 'Prometheus Private Advisory Group' in Vancouver.. I met the advisor and decided to sign up for a $200,000 Manulife leveraged fund back in July. I pay the $750 interest monthly. So far its only been over 200k once and now is valued at $195k. I am supposed to get a tax deduction, but I'm getting antsy. What are peoples experience of this type of investment, I'm 56 and looking to only work another 11 years. I do have other investments but I'm not sure if I should bail out on this once its back to 200k.

Appreciate insight
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You will get all kinds of opinions on this question and at the end of the day they are only opinions, including my own.

I am not a big fan of leveraging. Not because the math does not work. Because investors have a hard time making it work. I am sure that if the fund you invested in was worth $220,000, we would not be reading your question. In that scenario you would be quite happy with it. In this scenario you are down and questioning it. Obviously, any questions about the plan should have been reviewed properly BEFORE you made the investment, not after it is down.

But your response is probably similar to most people's response in that you will wait until you are down before you question whether you should keep it or not. Obviously the better time to get rid of it, is when you are at a gain, but at those times the questions rarely come. Do you see what I mean here? Since the plan will fluctuate, and you will only think about getting rid of it when it is down...and it will most likely see some downside in the first few months and sometimes years of the plan, you may very well doom the plan yourself, and that doom has nothing to do with the math that surrounds the plan.

That was a very long winded way to get to the point that you and most others should never use leverage because you and most others are not wired properly to benefit from it. Is this something that an advisor, who makes a big commission on these things, thinks about before they recommend them? No, because if they did, they would rarely recommend it and of course make less money. Again, this has nothing to do with the merits of the investments or tax perks, but deals with the fact that if this was your own $200,000 that is now worth only $195,000, you would probably not be questioning it as much. Since it is not and it requires $750 every month to keep it, we now receive the questions.

Anyway, you are in it now. In time it will be all right but will you give it the time? My best advice would be for you to think about 2020. If it was worth $150,000 in 2020 and you have also paid over $18,000 to service it, would you still think the plan was working or would you think that it is definitely a bad plan (I did not ask whether you would like it. I know the answer to that and it is a different question). If the answer is probably no, and you would think the plan was broken, then sell it on Monday and get to heck out. If you decide that the fund being worth $150,000 has nothing to do with this plan having merit or not, which it doesn't, but has only to do with where the stock market temporarily goes in the next 2 years, which you, your advisor and myself do not control, then keep it. In 20 years you will be glad you did, but in 2 years...who knows. That depends on you.

Good luck.
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You're paying $9,000 a year in interest. How much did you borrow? How much are you leveraged?
I have no idea what you bought (and I wouldn't have), but I do note it is down $5k or 2.5% and you have paid out what $3k or $3.75k? so 'down' something like 4 or 4.3% all in (excling tax deductability)?
Meanwhile XIU is down 4.3% and VGRO -2.3%.
So it doesn't seem like the sky is falling to me.
Revisit the reasons you bought it and the volatility you should expect. As optsy notes, this is intended as a longer term term product. Revisit next year, particularly as it's performance relates to other investments.
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