What are your thoughts on borrowing money to invest?

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

  1. MrMike

    MrMike Member

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    Hi all, Another Interest rate hike, another update [​IMG] Here we go:

    Pre Interest Hike
    Interest: 6.15% or $1,258/month
    Net profit: $636/month

    After Interest Hike
    Interest: 6.65% or $1,360/month
    Net profit: $502/month

    Amount invested: $280,000 ($245,485 is from HELOC)
    Market value: $330,762
    Gains: +$51,034 (18.23%)
    Avg Monthly dividends: $1,862/month

    So $502/month... getting lower and lower. And buying growth stocks/funds for the past 6 months or so hasn't helped increase that amount - I did it though because growth is only 6.8% of my portfolio; I want that number higher. But during this time of increasing interest rates, I'll put that on hold for now. It's too bad - I'm on a timer for growth as I'm only 13 years away from retirement and with each passing year, growth stocks/fund will lose their value to me (their total return for me will be lower). oh well, I blame 20 year old MrMikeDD for not investing. If I lose that time then all I can do is teach my kids to do better (which I am).

    My plan going forward is:
    • Non-reg: Use dividends to pay down the heloc (the TFSA portion)
    • TFSAs: Reinvest into Canadian blue-chips that pay higher yield such as AQN, GWO but most likely I'll start building a position in POW.
    I'd like to hold off using my TFSA to pay down the loan because - normally you want your TFSA maxed at all times so if I take dividends out, I'll receive more contribution room the following year and I'll want to fill back up. Why use that money if I'm just going to want to add it back later? With that in mind, I'd like to try and keep dividends reinvested in there for as long as possible. By using dividends from my non-reg account, I don't feel compelled to add that back.... well, maybe if interest rates drop back to 3% again [​IMG]

    What are you thoughts?

    Thanks all and take care,
     
    anotherdevilsadvocate likes this.
  2. IndependentCandy14

    IndependentCandy14 Active Member

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    Howdy, Mr.Mike.

    I have Skimmed this Thread, forgive me if I am wrong, but are you in Canada, and are you Investing in a Taxable Account?

    I am Assuming So, and at a 15% Income Tax Rate on Dividends, isn't your Profit ~$280 less per month?

    Sorry, I am in the USA and Do Not Know Canada Laws.

    This Just Jumped out at me.

    -IndependentCandy14
     
  3. MrMike

    MrMike Member

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    Hey, no need to be sorry - all questions are welcomed. And yes, I'm in Canada.

    About 1/2 of my HELOC was used to top up my wife's and my own Tax Free Savings account. The other 1/2 is in a non-registered account (a taxable account).

    Obviously the TFSA is tax-free, I don't pay taxes but I'm also not able to claim the HELOC interest for the amount used in this account.

    In the non-reg account, I do need to pay taxes but I'm also allowed to claim the interest accrued from that HELOC. In April 2022 (for the tax year of 2021), I actually made $272 because of the money I got back from the government. But to your point, you are correct that the $502/month is before tax - but at 2.65% and claiming it, I got back $272 in 2021. I'm very interest to see what I get back for the 2022 year when interest rates have been a lot higher and I've paid a lot more in interest.

    On other forums, people are reporting the same thing - that the claimed interest is a clean wash for the taxes you would have paid.

    Come April 2023, I'll update you on that (as well as before then too) :)
     
  4. MrMike

    MrMike Member

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    Hi all, Another Interest rate hike, another update :) Here we go:

    Pre Interest Hike
    Interest: 6.65% or $1,360/month
    Net profit: $575/month

    After Interest Hike
    Interest: 6.9% or $1,412/month
    Net profit: $524/month

    Current Status
    Amount invested: $280,000 ($245,485 is from HELOC)
    Market value: $333,813
    Gains: +$53,813 (19.2%)
    Avg Monthly dividends: $1,978/month


    Plan going forward
    I want to start a new position in CNQ and PPL. Both are Canadian blue-chips with solid past performance with dividend-growth doubling over the past 10 and 20 years. See this post for chart.

    That will take me awhile to buildup but after that, I do want FTS as well. Once those 3 new positions are in, I think I'm done (for now) with new holdings; I want to increase my position in TD, RY and Telus. That should take to me the end of the year.


    Current Portfolio (ending Dec 31, 2022 I believe)
    [​IMG]


    Dividend growth
    The chart below shows my 2022 dividend-growth as 16.28%. I know that seems high so please let me know if how I'm calculating it is incorrect. If that's the case then put this in a calculator, take my avg monthly dividends ($1,978) x 1.1628 and press Equals 10 times.

    Today: $1,978/month
    10 years from today: $8,938/month all while my heloc interest rate is $1,412/month (assuming same interest rate). I know anything can happen but this is still fun to think about :)

    [​IMG]


    Note: Said plan is not binding and I do reserve the right to change my strategy at any time of my choosing ;P
     

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