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Discussion in 'Investing' started by MrMike, Feb 9, 2021.
I don't borrow money because I don't want to pay interest.
Is that the ONLY reason? I borrow at 2.75% interest and I'm making a return of 10% in the market. The difference, and my profit, is 7.25% - the interest is a small price to pay to make more money.
What are your thoughts on that?
I don't really like the idea of borrowing money of other people in order to invest them for your own personal use.
I can't stomach how bad things can turn out if the money I borrowed got rekt in the stock market.
The only time it makes sense to borrow money for an investment is when the return on investment of the loan is high and the risk level of the investment is low.
Pro tip: don't invest in companies that can get rekt What I did was start small with blue chip companies; I started with Enbridge, Bell, Telus, Bank of Nova Scotia, and Bank of Montreal. Wait around 4-6 months for the dividends to accumulate (this increase your equity and give you confidence), then invest more in other blue chip companies; my 2nd round went to more Enbridge, ZWC & ZWK (not companies but BMO ETFs, both covered calls for higher yield) and RioCan. Again, wait 4-6 months for dividends to accumulate raising equity. My 3rd wave went into TD and Royal Bank while my dividends have been reinvested in a TD ETF, TGED and H&R RIET.
All those stocks I picked are nice blue-chip companies (or a fund from a blue-chip company) and combined, I'm collecting an average yield of 6.5% while paying 3% interest.
1) I'm not investing in anything crazy so the risk (and more importantly, the stress) is low
2) while I am only getting 3.5% yield on cost, that adds up over time. Plus the growth; in total my avg rate of return is 11% but that has more to do with the recovery from the pandemic - I don't expect that stay like that.
Exactly. Others have said I'm not getting enough return or I don't have growth stocks and they're right.... but I am mostly using borrowed money so I'm limited in what I can do safely. The return may not be as good as other people but if you compared where I was pre-loan vs where I am now, investing with borrowed money has been amazing for me! Slow and steady.
And to the growth stocks point, now that I have a good base in blue-chip stocks, I can reinvest the dividends into more growth ETFs like XUU, VGRO or XGRO. Each month that goes by makes this adventure more safe.
The risk isn't worth the relatively low amount you'll earn over the interest costs of the loan in the vast majority of cases. This means most people should avoid taking out a personal loan to invest.
I think that's my point! Blue-chip stocks are extremely low risk. So you can either make a little money or nothing. I'm OK making a little money safely.
I'm sure everyone would agree with you - people, business; It is "better" to spend money you have.
However, that doesn't mean borrowing money is bad and will always, even mostly, end bad. One is better - sure - but the other just has added risk and like most things in life, can work out great (millions of people borrow to buy a house, start up a business) or at the far end of the spectrum, it can ruin you (gambling).
So, all in all, an interest piquing thread and it gets me thinking, yeah, yeah, money is so cheap now, it makes perfect sense, borrow against the house and invest in stocks. Then it hits me. We're all F#%$*d. This market is going to implode into a black hole when all this leverage unwinds.
What did you purchase with the money you borrowed? How much? If you don't mind me asking of course.
previously, I did not understand how to use stocks at all, but now I have learned and understand how easy it is to trade
Stocks are very easy to trade.
Many people find it extremely difficult to not trade them.
LOL. That's a good one, a keeper.
It's officially been 1 year since I used my HELOC to invest. The growth is unique to the covid crash but I really believe that under normal circumstances, I'd get the same growth but maybe over 4 years instead of 1 year. BUT the dividends I receive are NOT COVID related.... well, the cuts were That's why I love dividend investing; the monthly (or quarterly) dividends you receive keep you happy and calm regardless of the day to day market volatility.
Strong words Can you provide more details? Why do you say it's "completely unjustified"? What happen? Who hurt you?
I'd very much like to hear your experience. What made you believe that?
Disclaimer: I am but one investment style and there's plenty out there so I'm speaking from my own personal experience. Also, you may have meant something different from that sentence - if so, I apologize.
With that out of the way, I don't think you have the right investing approach for yourself. I understand its hard to find a startup company that you can buy low and watch it sky rocket... so I don't do that. I'm also not getting RICH off the stock market. I'm making money, just not as much as others - I also make a modest amount from my job while others in the same field make a LOT more. I can only do what I can. So for those of us who are regular people with a modest amount of knowledge about investing, there are good stocks/companies EVERYWHERE!
Where do you buy clothes? Food? Where do you get your internet from? cable? cell? Do you heat your home? Who do you bank with?
In order of above: Nike, Walmart, McDonalds, Bell, Rogers, Enbridge, TD
But the list goes on: Royal Bank, Bank of Montreal, Nova Scotia, CIBC, Apple, Manulife, RioCan, Telus, Canada Utilities... any other blue chip company. There are a TON of great companies the general public knows about. Every single one of those has made me money (dividends and capital appreciation). Again, I'm sure others can make more money investing in other ways but this is what works for me. I'm happy to use my own money or leverage - those companies are as safe as you can get in the stock market. I'm also not saying go all in with McDonalds - spread your money around.
ETFs - and if buying individual companies are not your thing, there are ETFs with these stocks. Some are specific, like ZEB for all 5 Canadian banks, and some are a big basket of them all like XEQT.
Main Point: There are lots of safer stocks/funds to put your money, your own or borrowed.
I've only used margin with Questrade and it was instant. I did it for 1 month to test out and saw that the interest was 6%!!! That made me start the process of changing my HELOC from a standard one to a readvancable mortgage (where the HELOC and mortgage are together into a single HELOC). Once that was done, I quickly used the HELOC (2.65%) to pay Questrade (6%) back.
never end well... how very absolute I must say, it's going great for me but sure, it hasn't been very long - 1 year. If you stick with blue-chip companies, the risk of losing money is very low. I'm not sure what you mean by "pay both of them".
I don't think it's the best idea. But even sometimes it works. Everything starts from your investment idea, then from the investment field plus the knowledge you have in this field. Because if you have a very well structured plan that you know will bring success, Well you can risk and borrow money, otherwise I do not recommend such a thing. Important is how the investment will take place, for example, I have struggled a lot to find stocks to invest in. I, as a person, have barely gained confidence in a field, so I would not borrow money for investments.