You can make money with other’s people money.
I’m sure you have heard this somewhere else before. And I’m sure that many of you will disagree with me. But I think that making money with other’s people money is one of the best, if not the best way to acquire wealth.
On Monday, I was talking about how 2012 might be the investing opportunity of the decade. You may agree with me but it doesn’t mean that you have more money to invest. What if you don’t need money to invest? What am I talking about?
Something evil.
Something frightening.
But something that, when combined with the right assets at the right time, can become the most prolific way to make money ever. And with this timing, we have it right here:
I’m talking about a low interest rate environment for a while (at least another 12 to 24 months)
I’m talking about a depreciated stock market (you can’t argue with me on this one!)
I’m talking about high dividend yield (3.5% and up!)
Yup, you guessed it – I’m talking about leverage!
My partner and I have decided to write our perception about leveraging as borrowing to invest has probably been the most controversial topic over the past decade. You can read his perception here. Some people made a fortune while investing with loans from 2003 to 2007. Unfortunately, the human being is a greedy beast and most investors who leveraged went too far and got severely burned in 2008.
But right now is the perfect time to consider leveraging… again ;-). But this time, you can do it intelligently and make some great money. How? By combining dividend investing with leverage.
Find someone to lend you the money at a cheap rate and find someone else to pay the interest
Said like this, it sounds just too good to be true. But it is almost the situation that we are in at the moment. If you are able to borrow money at 3.50% for example (by refinancing your house most likely), and build a portfolio paying a 4% dividend; it’s almost like you don’t have to pay a penny and you can buy cheap stocks!
I say almost because even if you use your dividend payout to pay off your interest on a monthly basis, you will still have to pay taxes on them at the end of the year. Also, if you can’t refinance under a line of credit, your dividend payouts will pay your interest but won’t be enough to reimburse the capital. So it’s not the perfect world yet, but you can still invest $25,000 now without having saved.
Pros and Cons of Leveraging
To be honest, I’m a big fan of leveraging. I’ve done it with great success several times in my life and I think that one can make some great returns with the banks’ money (for once we are using them instead of being used 
). In the current situation, I think the pros are obvious:
– The ability to buy cheap stocks while borrowing at a low interest rate
– The opportunity of having your interest expense paid by your dividends
– The opportunity of cashing in an important capital gain in the upcoming future
– Seeing dividend payouts increased over time and make even more money with your portfololio
However, there are still some cons with this structure:
– You still have a debt over your head and payments to make. If you are on a tight budget, this may not be a good idea!
– I might be wrong and capitalism may collapse. In this case, you would lose a big chunk of money that is not yours…
After giving it some thought, I’ve come to the conclusion that borrowing a reasonable amount (such as $25,000) makes the most sense in the world. While stocks are cheap and chances are that you will see the value of your portfolio rise in the double digits over the upcoming years (once all the Government debt problems are solved!). On top of this, since there is a lot of liquidity in the companies’ bank account, you should get some nice dividend increases in the meantime. I guess you can expect to see your 4% dividend portfolio become a 5% dividend portfolio within 5 years (assuming a 5% dividend growth rate). Not bad huh?
If you take a $25,000 loan at 3.50% over 300 months (25 years), the payment will be $124/month. You should get about $83/month in dividend and pay $25/month in taxes (assuming a 30% tax rate). Therefore, your $124/month becomes a $60/month payment for a $25K investment. That’s probably lower than your cell phone bill!
There are a lot of opportunities!
I’ll be talking more about how to build a leveraged portfolio in December but, just for fun, I’ve pulled out US stocks with the following criteria:
Dividend yield over 3%
P/E ratio under 15
EPS for the past 5 years positive
Dividend Payout Ratio under 70%
ROE over 10%
I was able to find 87 stocks:
| Ticker | Company | Sector | P/E | Price | Dividend Yield | Sales growth past 5 yrs | EPS growth past 5 yrs | ROE |
|---|---|---|---|---|---|---|---|---|
| ADI | Analog Devices Inc. | Technology | 11.57 | 32.28 | 3.10% | 5.87% | 14.82% | 24.61% |
| AFL | AFLAC Inc. | Financial | 9.89 | 39.05 | 3.38% | 7.62% | 11.15% | 15.57% |
| AHGP | Alliance Holdings GP, L.P. | Basic Materials | 13.79 | 48.25 | 5.06% | 13.93% | 12.77% | 60.61% |
| AMAT | Applied Materials Inc. | Technology | 7.01 | 10.16 | 3.15% | 2.79% | 8.37% | 23.59% |
| APD | Air Products & Chemicals Inc. | Basic Materials | 13.73 | 76.74 | 3.02% | 5.04% | 11.60% | 21.43% |
| ARLP | Alliance Resource Partners LP | Basic Materials | 8.57 | 68.67 | 5.56% | 13.93% | 10.86% | 36.93% |
| AROW | Arrow Financial Corporation | Financial | 11.66 | 21.58 | 4.63% | 3.33% | 4.39% | 13.47% |
| AVY | Avery Dennison Corporation | Industrial Goods | 9.22 | 24.25 | 4.12% | 3.54% | 0.41% | 17.20% |
| BMS | Bemis Company, Inc. | Consumer Goods | 13.88 | 27.62 | 3.48% | 6.84% | 4.02% | 11.91% |
| BRKS | Brooks Automation Inc. | Technology | 4.3 | 8.51 | 3.76% | 2.52% | 45.00% | 28.31% |
| CAG | ConAgra Foods, Inc. | Consumer Goods | 13.16 | 23.95 | 4.01% | 3.72% | 16.39% | 15.98% |
| CATO | Cato Corp. | Services | 10.67 | 22.83 | 4.03% | 2.05% | 6.79% | 17.92% |
| CBU | Community Bank System Inc. | Financial | 12.12 | 23.88 | 4.36% | 2.50% | 2.75% | 10.14% |
| CMS | CMS Energy Corp. | Utilities | 12.8 | 19.71 | 4.26% | 1.39% | 13.09% | 13.74% |
| CNK | Cinemark Holdings Inc. | Services | 14.17 | 18.56 | 4.53% | 15.97% | 56.64% | 14.85% |
| CNL | Cleco Corporation | Utilities | 11.09 | 33.81 | 3.70% | 4.54% | 3.53% | 13.67% |
| CPK | Chesapeake Utilities Corporation | Utilities | 14.57 | 40.64 | 3.40% | 13.25% | 8.59% | 11.65% |
| CTB | Cooper Tire & Rubber Co. | Consumer Goods | 9.28 | 12.53 | 3.35% | 10.55% | 18.80% | 18.04% |
| CVX | Chevron Corporation | Basic Materials | 6.84 | 92.29 | 3.51% | 0.67% | 7.69% | 24.26% |
| DCOM | Dime Community Bancshares Inc. | Financial | 8.07 | 10.81 | 5.18% | 4.82% | 4.03% | 13.33% |
| DD | E. I. du Pont de Nemours and Company | Basic Materials | 11.92 | 43.86 | 3.74% | 2.81% | 9.64% | 34.21% |
| DDIC | DDI Corp. | Technology | 8.84 | 8.22 | 4.87% | 7.72% | 66.82% | 21.33% |
| DPS | Dr Pepper Snapple Group, Inc. | Consumer Goods | 14.15 | 34.96 | 3.66% | 11.95% | 2.53% | 22.81% |
| DRI | Darden Restaurants, Inc. | Services | 13.16 | 44.6 | 3.86% | 6.98% | 8.76% | 25.03% |
| DTE | DTE Energy Co. | Utilities | 11.8 | 49.43 | 4.75% | 1.12% | 19.26% | 10.47% |
| ELRC | Electro Rent Corp. | Services | 12.6 | 14.11 | 5.67% | 14.50% | 2.76% | 11.44% |
| EMR | Emerson Electric Co. | Industrial Goods | 14.45 | 47.11 | 3.40% | 4.18% | 7.86% | 24.31% |
| ETN | Eaton Corporation | Industrial Goods | 10.99 | 40.55 | 3.35% | 4.75% | 1.48% | 16.99% |
| ETR | Entergy Corporation | Utilities | 8.38 | 66.54 | 4.99% | 2.60% | 8.64% | 16.05% |
| EV | Eaton Vance Corp. | Financial | 12.37 | 21.77 | 3.49% | 7.88% | 8.73% | 48.54% |
| EXC | Exelon Corporation | Utilities | 11.55 | 41.93 | 5.01% | 3.96% | 22.41% | 17.05% |
| FFIN | First Financial Bankshares Inc. | Financial | 13.9 | 29.33 | 3.27% | 3.85% | 5.70% | 13.98% |
| FII | Federated Investors, Inc. | Financial | 9.75 | 15.12 | 6.35% | 1.21% | 3.04% | 31.76% |
| GABC | German American Bancorp Inc. | Financial | 11.38 | 16.5 | 3.39% | 5.04% | 6.24% | 12.30% |
| GD | General Dynamics Corp. | Industrial Goods | 8.51 | 61.13 | 3.08% | 9.13% | 13.78% | 19.69% |
| GEF | Greif, Inc. | Consumer Goods | 9.12 | 44.61 | 3.77% | 7.38% | 14.58% | 18.38% |
| GIS | General Mills, Inc. | Consumer Goods | 14.65 | 38.23 | 3.19% | 4.90% | 13.27% | 29.80% |
| HAS | Hasbro Inc. | Consumer Goods | 11.74 | 34.15 | 3.51% | 5.33% | 20.33% | 27.92% |
| HRB | H&R Block, Inc. | Services | 11.81 | 14.41 | 4.16% | 1.09% | 8.62% | 32.97% |
| HRS | Harris Corp. | Technology | 7.68 | 33.26 | 3.37% | 11.26% | 21.91% | 24.21% |
| HUN | Huntsman Corporation | Basic Materials | 12.57 | 9.43 | 4.24% | 1.84% | 7.70% | 10.03% |
| IDA | IdaCorp, Inc. | Utilities | 10.72 | 38.27 | 3.14% | 4.21% | 7.86% | 11.22% |
| INTC | Intel Corporation | Technology | 9.84 | 22.73 | 3.70% | 2.36% | 7.49% | 27.21% |
| INTX | Intersections Inc. | Services | 9.78 | 10.46 | 7.65% | 17.13% | 2.91% | 18.72% |
| IP | International Paper Co. | Consumer Goods | 8.32 | 25.89 | 4.06% | 3.02% | 1.16% | 19.59% |
| ITW | Illinois Tool Works Inc. | Industrial Goods | 10.75 | 42.58 | 3.38% | 4.82% | 3.20% | 21.08% |
| JCOM | j2 Global Communications, Inc. | Technology | 11.08 | 26.48 | 3.10% | 12.15% | 12.82% | 23.88% |
| JNJ | Johnson & Johnson | Healthcare | 14.94 | 61.27 | 3.72% | 4.04% | 7.35% | 19.18% |
| JNS | Janus Capital Group, Inc. | Financial | 6.23 | 5.86 | 3.41% | 3.19% | 10.51% | 14.71% |
| JPM | JPMorgan Chase & Co. | Financial | 6.07 | 28.48 | 3.51% | 7.19% | 11.34% | 10.90% |
| KLAC | KLA-Tencor Corporation | Technology | 8.62 | 42.08 | 3.33% | 8.93% | 20.13% | 31.55% |
| KOP | Koppers Holdings Inc. | Basic Materials | 10.5 | 28.45 | 3.09% | 4.95% | 0.94% | 52.11% |
| KRO | Kronos Worldwide Inc. | Basic Materials | 7.65 | 18.05 | 3.32% | 3.91% | 12.17% | 41.90% |
| LLTC | Linear Technology Corp. | Technology | 11.98 | 28.39 | 3.38% | 6.31% | 12.77% | 159.64% |
| LMT | Lockheed Martin Corporation | Industrial Goods | 9.46 | 75.39 | 5.31% | 4.24% | 11.89% | 81.56% |
| LNCR | Lincare Holdings Inc. | Healthcare | 11.64 | 22.12 | 3.62% | 5.67% | 6.38% | 18.64% |
| MAIN | Main Street Capital Corporation | Financial | 7.61 | 18.64 | 8.69% | 37.02% | 23.48% | 18.20% |
| MBVT | Merchants Bancshares Inc. | Financial | 12.06 | 26.17 | 4.28% | 2.29% | 6.01% | 12.97% |
| MOLX | Molex Inc. | Technology | 12.81 | 22.16 | 3.61% | 4.63% | 6.16% | 13.62% |
| MSFT | Microsoft Corporation | Technology | 8.84 | 24.3 | 3.29% | 9.57% | 17.63% | 44.16% |
| MXIM | Maxim Integrated Products Inc. | Technology | 14.32 | 23.92 | 3.68% | 5.89% | 7.08% | 20.80% |
| NBTB | NBT Bancorp, Inc. | Financial | 11.26 | 19.26 | 4.15% | 1.59% | 0.74% | 10.92% |
| NEE | NextEra Energy, Inc. | Utilities | 14.48 | 52.57 | 4.18% | 5.27% | 15.19% | 10.46% |
| NHC | National Healthcare Corp. | Healthcare | 8.85 | 35.31 | 3.40% | 5.70% | 7.53% | 13.92% |
| PETS | PetMed Express Inc. | Healthcare | 11.19 | 8.95 | 5.58% | 10.98% | 13.09% | 19.37% |
| PKG | Packaging Corp. of America | Consumer Goods | 14.3 | 24.46 | 3.27% | 4.09% | 32.70% | 17.88% |
| PPL | PPL Corporation | Utilities | 10.82 | 28.57 | 4.90% | 9.00% | 4.06% | 14.25% |
| QCCO | QC Holdings, Inc. | Financial | 5.51 | 3.8 | 5.26% | 4.23% | 22.69% | 16.22% |
| RBCAA | Republic Bancorp Inc. | Financial | 4.57 | 20.09 | 3.07% | 5.49% | 17.24% | 22.42% |
| RTN | Raytheon Co. | Industrial Goods | 8.5 | 43.12 | 3.99% | 6.37% | 19.29% | 17.88% |
| SBSI | Southside Bancshares Inc. | Financial | 8.79 | 20.05 | 3.59% | 10.52% | 21.41% | 15.58% |
| SEE | Sealed Air Corporation | Consumer Goods | 10.8 | 16.31 | 3.19% | 1.91% | 1.28% | 10.05% |
| SON | Sonoco Products Co. | Consumer Goods | 14.07 | 30.53 | 3.80% | 3.17% | 3.99% | 14.74% |
| STRA | Strayer Education Inc. | Services | 9.52 | 88.03 | 4.54% | 23.63% | 24.36% | 97.37% |
| SWY | Safeway Inc. | Services | 12.72 | 18.83 | 3.08% | 1.34% | 4.49% | 11.24% |
| SXL | Sunoco Logistics Partners L.P. | Basic Materials | 14.3 | 103.42 | 4.80% | 11.75% | 31.78% | 24.61% |
| SYY | Sysco Corp. | Services | 13.81 | 27.07 | 3.99% | 3.80% | 7.78% | 26.77% |
| TAL | TAL International Group, Inc. | Services | 7.37 | 25.27 | 8.23% | 2.75% | 13.52% | 23.02% |
| TCAP | Triangle Capital Corporation | Financial | 5.85 | 16.78 | 11.20% | 43.26% | 33.67% | 20.22% |
| TE | TECO Energy, Inc. | Utilities | 13.68 | 17.51 | 4.91% | 2.99% | 1.93% | 12.44% |
| TESS | TESSCO Technologies Inc. | Services | 8.32 | 13.23 | 4.54% | 4.86% | 19.01% | 15.51% |
| TMP | Tompkins Financial Corporation. | Financial | 11.63 | 36.88 | 3.90% | 6.19% | 4.35% | 11.99% |
| TWC | Time Warner Cable Inc. | Services | 13.37 | 57.64 | 3.33% | 16.45% | 0.95% | 17.39% |
| UNS | UniSource Energy Corporation | Utilities | 12.32 | 34.74 | 4.84% | 3.50% | 14.43% | 13.20% |
| WDR | Waddell & Reed Financial Inc. | Financial | 11.29 | 23.94 | 3.34% | 10.93% | 20.12% | 38.81% |
| WEC | Wisconsin Energy Corp. | Utilities | 14.37 | 31.91 | 3.26% | 1.95% | 8.40% | 13.67% |
| XEL | Xcel Energy Inc. | Utilities | 14.65 | 25.2 | 4.13% | 1.39% | 6.17% | 10.34% |
You could also pick among lists from What is Dividend:
Then, I did a similar exercise with CDN stocks with the following criteria:
Dividend yield over 3%
P/E Ratio under 15
ROE over 10%
5 years Dividend growth rate positive
5 years Revenue growth rate positive
And found 43 stocks:
| Symbol | Company Name | P/E Ratio | Yield | ROE | 5yr Revenue Growh | 5 Yr Div growth |
|---|---|---|---|---|---|---|
| TD | Toronto-Dominion Bank (The) | 11.8 | 4 | 13.1 | 4.52 | 9.09 |
| BNS | Bank of Nova Scotia (The) | 10.6 | 4.3 | 18.1 | 3.4 | 7.93 |
| BCE | BCE Inc. | 13.9 | 5.3 | 21.1 | 3.67 | 11.21 |
| HSE | Husky Energy Inc. | 10 | 5.2 | 12.3 | 9.33 | 12.72 |
| GWO | Great-West Lifeco Inc. | 9.8 | 6.3 | 16.9 | 1.64 | 5.98 |
| RCI.B | Rogers Communications Inc. | 13 | 3.9 | 43.7 | 10.04 | 79.37 |
| SLF | Sun Life Financial Inc. | 15 | 7.9 | 6.7 | 3 | 8.5 |
| COS | Canadian Oil Sands Limited | 7.7 | 6.2 | 29.3 | 4.9 | 1.99 |
| T | TELUS Corporation | 14.5 | 4.3 | 16.4 | 6 | 11.74 |
| POW | Power Corporation of Canada | 9.9 | 5.4 | 16.1 | 0.87 | 10.3 |
| BPO | Brookfield Office Properties Inc. | 3.7 | 4 | 29.4 | 22.3 | 0.98 |
| REI.UN | RioCan Real Estate Investment Trust | 8 | 5.6 | 17.2 | 11.54 | 1.35 |
| TA | TransAlta Corporation | 14.5 | 5.5 | 13.2 | 2.69 | 5.64 |
| X | TMX Group Inc. | 14.3 | 3.6 | 19.9 | 12.53 | 2.86 |
| FCR | First Capital Realty Inc. | 9.9 | 4.8 | 14.1 | 9.56 | 0.99 |
| IAG | Industrial Alliance Insurance and Fina... | 9.2 | 3.6 | 9.6 | 8.84 | 10.49 |
| BEI.UN | Boardwalk Real Estate Investment Trust | 2.3 | 3.6 | 47.6 | 11.23 | 41.46 |
| LIF.UN | Labrador Iron Ore Royalty Corporation | 10.7 | 3 | 75 | 13.82 | 17.29 |
| PMZ.UN | Primaris Retail Real Estate Investment... | 11.2 | 6.1 | 7.9 | 11.26 | 1.74 |
| CUF.UN | Cominar Real Estate Investment Trust | 15 | 6.6 | 8.1 | 18.09 | 3.89 |
| S | Sherritt International Corporation | 5.9 | 3.1 | 6.6 | 10.48 | 8.27 |
| CJR.B | Corus Entertainment Inc. | 12.3 | 4.7 | 11.9 | 2.96 | 33.43 |
| AP.UN | Allied Properties Real Estate Investme... | 11.2 | 5.5 | 8.9 | 23.21 | 1.49 |
| AX.UN | Artis Real Estate Investment Trust | 4.8 | 8.1 | 21.9 | 49.27 | 8.91 |
| LB | Laurentian Bank of Canada | 8.3 | 4.1 | 12 | 3.58 | 6.03 |
| NWC | The North West Company Inc. | 13.8 | 5.1 | 23.1 | 10.58 | 10.49 |
| NPR.UN | Northern Property Real Estate Investme... | 14.5 | 5.3 | 15.8 | 12.89 | 2.79 |
| LNF | Leon\'s Furniture Limited | 14.1 | 3.4 | 14 | 3.21 | 1.91 |
| RSI | Rogers Sugar Inc. | 11.4 | 6.6 | 15.2 | 4.45 | 0.88 |
| LIQ | Liquor Stores N.A. Ltd. | 12.1 | 7.2 | 7.4 | 22.34 | 3.04 |
| MKP | MCAN Mortgage Corporation | 7.8 | 7.7 | 17.9 | 6.99 | 8.61 |
| GH | Gamehost Inc. | 14.1 | 8 | 39.7 | 5.71 | 2.33 |
| CVL | Cervus Equipment Corporation | 13 | 4.9 | 9.6 | 14.06 | 0.91 |
| CLK | ClubLink Enterprises Limited | 12.6 | 4.6 | 7.3 | 33.04 | 5.17 |
| CFN.UN | Carfinco Income Fund | 7.9 | 5.4 | 61.2 | 21.55 | 19.55 |
| IBG | IBI Group Inc. | 12.7 | 8.9 | 11.6 | 16.57 | 2.85 |
| CTY | Calian Technologies Ltd. | 10.4 | 5.9 | 20.8 | 4.23 | 32.31 |
| BCI | New Look Eyewear Inc. | 12 | 7.5 | 28.4 | 10.95 | 9.52 |
| TMA | Trimac Transportation Ltd. | 11.7 | 6.1 | 19.7 | 71.64 | 15.24 |
| EH | easyhome Ltd. | 8.8 | 5.9 | 7.9 | 14.44 | 9.62 |
| CTU.A | Le Chateau Inc. | 11.6 | 9.8 | 4.8 | 1.06 | 11.84 |
| ACD | Accord Financial Corp. | 7.4 | 4.5 | 17.3 | 0.45 | 8.38 |
| BEK.B | Becker Milk Company Ltd. (The) | 14.3 | 6.5 | 4.4 | 1.03 | 1.99 |
You can also find great dividend stocks at Canadian Dividend Stock:
Top 100 Canadian Dividend Stocks
Fast Growing Canadian Dividend Stocks
Don’t you think there is enough choice to build a solid dividend portfolio with that? What do you think of leveraging to invest in dividend stocks? Do you think it’s worth it or is it too risky?
Shouldn’t be the interests deductible for tax purposes? Also – I’m not from US, so sorry for a stupid question… But you really tax the dividends by 30%? That’s extremely high IMO…
Really enjoyed the article made me feel good on what I have been doing for the past few years. Although, I wish the dividend payout ratio was included in your analysis – Good to know if a company can continue to pay or be able to increase their dividend for years to come.
I am wondering if you could determine if my strategy in play is the most efficient tax wise?
Currently I am borrowing 40k investing in quality CDN dividend stocks. Currently yielding about 4.5% on the dividends and borrowing at 3%. I believe I am in the lowest tax bracket (Ontario) making about 25k a year.
I am wondering if it would make more sense if my Wife purchased the dividend stocks as her tax bracket is higher? She makes 55k and will only increase each year. Mine won’t change until I find a new job and I have been looking for the past year.
I know I can write off my interest expenses at my marginal tax rate which is quite low but be taxed much lower on the dividend income.
Would it make more sense to write off the interest expense at my wife’s marginal tax rate but be taxed higher on the dividend income?
Looking forward to your response or anyone who can give me some insight on the matter.
Thank you.
@ Geoff
I would venture that you are better off keeping the leverage in the lowest tax bracket simpily because you will pay less tax.
Nothing stopping the Missus from doing the same though and leverageing more.
Just remember the market goes up AND down. Don’t play with money you can not afford to ride out the lows.
If you are in a non-registerd account then keep your stocks Canadian just to avoid the hassle of US withholding taxes which obviously lowers the yield.
3% for a loan! Way to go. Best I could get was 4%
I tend to buy stuff I use. OIL (gas & heat), finances (banks), telecoms (land line, cell, video), utilities (electricity), Booze (who doesn’t like a glass of wine or beer or rum), some food (nothing like three square meals a day)
I have lost three K on one stock account but still have more money in it now than from the start because of dividends. Looking for the stocks to recover and the div$’s keep coming in.
This site can clarify your tax rates by all provinces.
Think I will move out of Quebec. LOL
But then other expenses such as electricity are higher else where.
If they don’t have their hand in your right pocket they have it in the left one.
http://www.walterharder.ca/MarginalTaxRateCalculator.asp
@Inwebstor,
depending on where you live, interest can be tax deductible. I didn’t want to go into details in regards to tax implication ’cause rules are different from one province/country to another. I live in Quebec, Canada. As Richard mentioned, we are taxed like crazy (this is why I’ve picked 30% tax on dividend
).
@Geoff,
I agree with Richard, lower marginal tax rate should have the investment. In the end, you will pay less taxes. The interest won’t be enough to write-off all your gains (technically
) so you will still be paying taxes. Therefore, the one with the lower tax bracket should have the investment.
I’d be curious to see your portfolio, do you mind sending it to me via email? thefinancialblogger at gmail dot com.
cheers,
Mike
@Richards,
The sad part about my HELOC is that it use to be at 2.5% (Prime -0.5%) Then I went in to the bank to split it into two HELOCs to keep it clean for accounting purposes with this leveraged account. They had to redo it because it was done on their old system and they could no longer split the HELOC on that system. They assured me my rate would stay the same, well it came back at Prime + 1% I ended up fighting with them for 2 months to get my rate back. They said I was the only person in all of Canada that had Prime – 0.5% (I highly doubt that) and that they couldn’t physically program it to Prime – 0.5%, and that the error was to my benefit. They finally agreed to Prime + 0%. Wish I never went in there and just left it as it was.
@Mike
Will do, just need to clean up my leveraged portfolio spreadsheet a bit. I recently opened another non-registered CDN trading account # to keep as my leveraged investments account to keep it clean tax wise. I am putting all my new leveraged purchases in there but will eventually transfer over the other leveraged purchase from my non-leveraged non-registered trading account…if that all makes sense.
How do you invest with leverage? Using options?
Where can one read about how captical gains an dividends are taxed in the US?
Thanks all!
I love the idea, all based on being able to make the payments if something tanks.
Just need to get-er-done.
What are your thoughts on leveraging on mutual funds or even seg funds? If so, which ones do you recommend. I live in Ontario.
Thanks
Hello Linda,
I think that Seg funds are way too expensive for what they give (capital garanty over 10 years + ). As in regards to mutual funds, I did leveraged with them a while back with success but, unfortuntately, I can’t recommend you anything… you a better off consulting a financial advisor that will guide you through.
Cheers,
Mike
I love the leverage deal. The interest is definately tax deductible anywhere in Canada. Also I have a HELOC just implemented at a fixed locked in rate of 2.99 for 4 year term, 25 year ammortization. I get my broker to transfer the equivalent of the interest payment from the non registered account to my bank account. Now I may end up paying some extra trading fees to ensure that the payment is made to cover the interest and principle – just started the leverage plan. I call this the OPM plan use “other peoples money” to make money.
Hi,
I think you should read the three following links. It will clarify a few things; please note, this is for Canadians. There is a lot of scenarios in which this can go down. This is what is happening in my family. It is the most tax efficient. Your case might be different.
1. The higher income is the one borrowing to invest. This allows them to claim the interest at the higher marginal tax rate.
2. The low income earner can claim the dividends. Thus the dividends are taxed at a lower marginal tax rate. (Maternity)
http://www.taxtips.ca/personaltax/investing/interestexpense.htm
http://www.taxtips.ca/personaltax/investing/investmentincometaxrates.htm
http://www.taxtips.ca/filing/spousereturn.htm
I hope this helps. I like tax tips as they have some calculators as well. The internet is full of wonderful free advice. Just do your own homework. I love this blog and although I’ve come to trust the site, I still do my own investigating. Don’t be lazy, just take the time, your future will thank you for it.
Rob