What are your thoughts on borrowing money to invest?

Discussion in 'Investing' started by MrMike, Feb 9, 2021.

  1. Syynik

    Syynik Active Member

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    Mr. Mike, have you considered using Vanguard, Schwab, or Fidelity to invest this money for you? My 401k is with Vanguard and they're managing my account to my specs (too aggressive for my age) I am EXTREMELY happy with the results. Most important, I can sleep at night when I shoot myself in the foot with with my free cash.

    Back in the day when I first started buying and selling my own picks, I was terrified that I'd screw up and lose everything I'd saved. My deal with myself was, for every 1k I put into my personal let's-see-what-happens brokerage account, I'd put an equal amount into Fidelity or Vanguard. That way, when I lost everything trying to trade Pink Sheets crap, I still had gains because of Vanguard and Fidelity.

    I used margin about three times. Twice it worked in my favor, then one time I had to dash to the bank in the middle of the day in order to cover the call that came unexpectedly. Now, I have margin but haven't used it in years. It's there just in case.

    Just my 2 cents.
     
  2. MrMike

    MrMike Member

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    Good morning everyone,

    What have you seen? Like I mentioned above, when you hear Borrowing money to invest, I'm not talking about YOLO'ing into starters, hoping they go "to the moon". I feel that I'm being more cautious than that but I'm wondering what you, more experienced people think.
    1. I've been investing for 4 years. Not too much but we've been able to save $25K during that time so that is a good amount of money to buy and sell. It was at that point we decided to borrow $65K to invest, since things were going well.

    2. Older companies. I love dividends over growth though I can admit from what I've seen, growth stocks provide the better return. I prefer to invest in older companies and collect the dividends - feels safer AND the dividends allow me to buy other stocks - can't buy more stocks with growth (well you can if you sell).

      In order of pie%:
      • ENB (23%)
      • BNS (13%)
      • BCE(12%)
      • REI(11%)
      • ZWC(8%)
      • ZWK(7%)
      • BMO(5%)
      • T(5%)
      • and currently reinvesting dividends into H&R reit (price is still low from covid) and TGED (for growth)
    3. If we were to lose all the money, the plan would be to refinance the house and add that amount onto the mortgage. Currently our mortgage is $470K out of a $900K house so we have just under half the equity of the house.

    I didn't want ETFs at the beginning because a lot of popular ones had some of the same stocks (and older stable companies). I figure, why pay someone else to invest when I can do it myself. And I feel like investing in the companies themselves give you more dividends and more potential growth. Just as an example, many ETFs were giving 3% yield but BNS was paying 5.5% and the growth chart looked better.
     
    #22 MrMike, Feb 14, 2021
    Last edited: Feb 14, 2021
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  3. Rustic1

    Rustic1 Well-Known Member

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    Glad to see the story has changed since your original post. Left a lot of unknowns in the air.
    Nice to see you aren't someone with good intentions that has no idea of what they are doing.

    The whole point is everyone wants to see your plan succeed regardless if we approve of borrowing money to invest.

    Make it happen. Keep us informed.
     
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  4. MrMike

    MrMike Member

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    ... a little idea ;) I mean, on another tread I've been criticized for not having enough growth stocks - and I appreciated the feedback. And now that I have lots of money coming in each month, I've started to put some of it towards growth ETFs like TGED. That's more global so in time, I'd like to add XUU.TO which is US companies.

    and people who don't approve usually have reasons but so far, I've found they don't apply to me. Reasons not to borrow money have been:
    • Taking out a 3-5 year loan with higher interest rate and monthly payments
    • Having the loan "called in"... though I've never experienced that. Maybe that's a specific type of loan?
    • investing in "get rich quick" stocks... like Tesla. not that its a bad stock but its all growth and way overpriced. I think investing at this point in more of a gamble... not 100% gamble :) but more of one thank, say, a bank.
    • The stress of investing with borrowed money... let alone if the investments tank
     
  5. Brinnuss

    Brinnuss New Member

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    I am thinking now of taking mortgage and borrow money a little for it from my friend, but it`s a bit scary with conditions we have in the world now
     
  6. MrMike

    MrMike Member

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    wait, pardon? You're thinking about taking money out on your mortgage (HELOC i assume) and lending it to a friend? I wouldn't do that... you know, its funny, I say I wouldn't do THAT but taking money from the mortgage to invest I did.

    If you end up doing that, good luck! Hopefully nothing goes wrong like not paying you back or something.
     
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  7. TomB16

    TomB16 Well-Known Member

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    Hey, Magic Mike.

    My investment strategy involves using profound levels of research to invest in a couple of specific companies. Because of that, I don't want to comment on your specific companies, other than to say I respect your approach and believe you will succeed.

    As for using leverage, you are probably one of the few who will use this mechanism to excellent advantage.

    One day soon, you will ask to change your name to MrMikeXXL.

    :thumbsup:
     
  8. MrMike

    MrMike Member

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    Are you saying you don't want to comment on my stocks because you haven't done any "profound levels of research" .... or do you mean you have done "profound levels of research" and don't want to comment in case it makes me feel sad? Sorry - I can read your sentence both ways, but if its the latter, no worries. I'd like to hear what you have to say.

    Thank you for that :) I know I'm not doing "the best" and there are other ways to increase my returns.... BUT considering I could NOT be doing any of this, any amount of return is great! I could be spending my money on vacations, new cars, new iPhone, buying groceries at full price, renting my water heater, buying alcohol at LCBO haha yes, I've started making my own wine a couple years ago to save money to invest. $1/bottle... $1.50 if the box isn't on sale but I try to buy a lot of boxes when they're on sale :)
     
  9. TomB16

    TomB16 Well-Known Member

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    Mr. Mike.

    I haven't done a deep dive on any of those companies, although I will admit to doing some investigation into a few of them, some years ago. It's a good looking list, to me, but I'm no investment adviser. I'm not even an advisor. Look up "adviser vs advisor" if you want to see how greasy Canadian retail investing is.

    If you know you aren't doing "the best", why don't you do better? It looks to me like you are in good shape.

    These sort of sites attract self aggrandizing assholes who roll in and tell everyone to shut the f* up because they are about to school everyone. They are like flies. New people either come in swinging or they come in meek. It's not necessary to be at either extreme, IMO.

    I will say this, however. People who come in with some humility seem far more likely to succeed, in my opinion. If I were a betting man, I would bet on you.

    My advice to you is this: Believe in yourself. Do the best you can. Admit your mistakes; primarily to yourself but there is no reason you should not be able to admit them to anyone. Read everything you can and learn as you evolve.

    You could easily out perform me in 2021. Who knows?

    The best thing I can do for you is encourage you to embrace your own ideas because there is no proof that mine are any better.
     
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  10. MrMike

    MrMike Member

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    The reason is, the best is hindsight or other strategies I don't understand. I have a friend is invest a lot in Tesla and Apple and he's made... a lot! But I feel like he's just betting that someone will pay him more for tesla than what he paid for it. Apple... yes, I own apple and its one of my biggest gain stocks. Why don't I invest more in it.... meh, I like Apple for the gains but I cant guarantee it.... even though it keeps going up haha I can guarantee ENB paying me 8% and I like that better.

    There may be more profitable ways to do things but this is what I like; This is what I've settled on and I feel great. It's a balance, I think, of growing my investment and risk tolerance.

    Actually, I may have nailed it - risk tolerance. If I made a lot of money then I may not mind betting some money on better returns. Until then, slow and steady. It's not the most profitable but it keeps me in the game which is more important.
     
  11. TomB16

    TomB16 Well-Known Member

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    MrMike, if you are comparing yourself with anecdotal performance citations of your friends, you will never succeed. The amount of truth in reported returns is approximately zero. Even good people misreport their performance. They might even believe their own numbers but there is just no way.

    Not everyone can be above average.

    Investing is a personal journey. The only success is figuring out where you need to go and then getting there. No one else matters.
     
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  12. MrMike

    MrMike Member

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    arg, just venting here....Why is it that it's normal to take out a mortgage and buy a house but when you take out money to invest, everyone is scared/hesitant. I mean I get some stocks can go bust but if you pick safe blue chip companies that's a lot less of an issue.

    Mortgage:
    • you take money from the bank
    • buy a property
    • each month you pay a portion back to the bank
    • you equity goes up
    Loan to Invest
    • you take money from the bank
    • buy stocks blue chip stocks
    • each month they pay dividends, reinvest for compounding
    • stocks go up
    In fact, Stocks are more hands off and allow for compounding. Property ownership takes effort and can't compound.

    Things that make Investing safer:

    • pick good blue chip stocks
    • don't put more than ~15% in a single blue chip stock
    and to answer my own question, i guess its more normal because a lot of people own property, we all need to live somewhere. but the majority of people do not invest.
     
  13. StockJock-e

    StockJock-e Brew Master
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    When you take out a mortgage to buy a house, and the value of the house drops, you still have a house.

    The people who are scared/hesitant have most likely been through a bear market. Im not talking a two week stock sell off, Im talking 2001 bubble pop.
     
  14. MrMike

    MrMike Member

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    When you take out a loan to buy shares of a company, and the value of those shares drop, you still have those shares. :)

    I think this all boils down to what you invest in - I admit, you can choose stocks that drop in value, takes away dividends or companies that go out of business all together. But to do this right, you need safer business (blue chip stocks) that pay a dividend; That way if the value of the stock goes down, you wont care because it's still paying you a dividend. All you need to do is wait it out, collect the dividends and in time, the stocks will go back up in value.

    I've been doing this for 6 months now and it's been AMAZING! Even without the capital gains - lets assume all my stocks went down in value, that doesn't change the fact I'm collecting $780/month in dividends while paying $250 in interest each month. I'm able to reinvest those dividends each month building my equity and the snowball effect.

    But again, you need to choose good companies. I wouldn't advise to borrow money and invest in Tesla. They don't pay a dividend while you're paying interest. Then the only way to make money is with capital gains which like you said, if the stock goes down in value, you're in a bad position of paying the bank while not getting anything in return.
     
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  15. Heena khan

    Heena khan New Member

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    No, I think we should avoid boring money for investment because you are not sure you will earn profit for sure. Things can turn around and then returning the borrowed money is very difficult.
     
  16. StockJock-e

    StockJock-e Brew Master
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    Those shares will not keep you warm at night and protect you from the rain.

    Ah well that explains a lot, you have known nothing but a raging bull market.

    Let me take you back to 1999 when AMZN was the darling of its time. If you got a loan to buy some AMZN, enjoy paying interest and waiting 7yrs to break even on that trade:

    upload_2021-3-11_23-51-20.png
     
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  17. Rustic1

    Rustic1 Well-Known Member

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    Some just don't seem to understand.
     
  18. MrMike

    MrMike Member

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    Look, you're not wrong. But that's why it's unfair to simply ask "is borrowing to invest a good decision" because the answer depends on what you invest in. I wouldn't borrow money to invest in growth stocks like Amazon, Tesla, Netflix ... personally I don't even like investing in them with my own money. I don't like having stocks who sole value is in capital gains and for the reason you outlined above.

    But borrowing money to invest in Enbridge for example - that's what I've been doing and the difference is, if the price of ENB goes down, it doesn't matter because while you're waiting for the price to go back up, you're collection a nice dividend that can either go to paying back the loan or reinvest for the snowball effect.

    I created a spreadsheet of all the stocks I own. After paying back the loan, I'm collecting 4.35% return on my invest - for free! (excluding the general risk of investing) And as I said above, if the value of the stocks go down, no problem since I'm collecting the dividends. But the danger comes from companies cutting their dividend and since March 2020, RioCan is the only one that did that - 33%; and that only happened Feb 2021.
    https://1drv.ms/x/s!AkX5GgH_9WH5hB_PzagOA-9igOfT?e=P6nL5F
     
  19. Dave Kraayeveld

    Dave Kraayeveld Active Member

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    Mr.Mike. I suggest you first of all to understand the definition of opinion. You are going to generate what is known as an anecdotal story from people. Someones personal experience doesn't guarantee you the same result. You will have your own answer in about a year. There are hypothetical returns possible. You made a choice, the infamous piper always makes his rounds.
     
  20. B Russ

    B Russ Well-Known Member

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    Or you could buy real estate like i did in 2008, and also not break even again for about 7 yrs?
     

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