# Are you borrowing in this market?



## SimpleCanuck (Apr 4, 2009)

Along the lines of 'Are you Buying in This Market?', I'm curious how other people are borrowing in times being; are you borrowing to invest?

With the interest rates as low as they are, are you borrowing in this market environment?


Cheers.


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## FrugalTrader (Oct 13, 2008)

I have about $50k borrowed from my HELOC, but that was back in early 2008. I haven't borrowed any new money lately. However, that may change if we get another correction.


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## ethos1 (Apr 4, 2009)

SimpleCanuck said:


> Along the lines of 'Are you Buying in This Market?', I'm curious how other people are borrowing in times being; are you borrowing to invest?
> 
> With the interest rates as low as they are, are you borrowing in this market environment?
> 
> ...


good one!

I will borrow if they pay me to take their money 

To answer - no, I am not borrowing, although the borrowing rates are looking better.

Consider this: 

1. If money can be got at todays prime 2.25%, even though the interest is not tax deductable, I would max on my RRSP's.

With the tax back I would put that into a TFSA

2. Pay off all debt which is higher than the 2.25% prime money borrowed

3. If its possible to get enough on an HELOC which has a lower rate than the mortgage that someone is holding - then I would suggest that you pay off the mortgage with the lower HELOC money. That done go back and get a higher ceiling level on the HELOC even if you dont have any use for it

Now all you'd have to do is figure how to get a higher rate of return than what you're paying in interest & at some point pay back the loan - ever


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## Rickson9 (Apr 9, 2009)

SimpleCanuck said:


> With the interest rates as low as they are, are you borrowing in this market environment?


I have to admit that my wife and I found it VERY tempting to use leverage, especially considering how cheap stock prices are. However we decided against it. A few quotes by Warren Buffett came to mind when we made the decision to avoid leverage:

"I've seen more people fail because of liquor and leverage - leverage being borrowed money. You really don't need leverage in this world much. If you're smart, you're going to make a lot of money without borrowing."

"The most dramatic way we protect ourselves is we don't use leverage. We believe almost anything can happen in financial markets... [so] even smart people can get clobbered with leverage. It's the one thing that can prevent you from playing out your hand."

“Leverage,” he said, “is the only way a smart guy can go broke … You do smart things, you eventually get very rich. If you do smart things and use leverage and you do one wrong thing along the way, it could wipe you out, because anything times zero is zero. But it’s reinforcing when the people around you are doing it successfully, you’re doing it successfully, and it’s a lot like Cinderella at the ball. The guys look better all the time, the music sounds better, it’s more and more fun, you think, ‘Why the hell should I leave at a quarter to 12? I’ll leave at two minutes to 12.’ But the trouble is, there are no clocks on the wall. And everybody thinks they’re going to leave at two minutes to 12.”

Is my wife and I missing out because we decided not to use leverage? We'll probably never know...


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## msimms (Apr 17, 2009)

Right now I only invest what I can save from my job, no leverage. However once stocks hit a price where they are almost out of bargin territory, I'll leverage just a little bit to get the last of the good stock deals before they are gone. 
I won't leverage any more than 3 to 6 months worth of savings that I can generate from my job, anything more and it's risky.


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## moneygardener (Apr 3, 2009)

I've borrowed about $22,000 and am claiming the interest. I've paid about 20% of that back in the last few months as the market has bounced.

My plan was/is to essentially give myself a cash advance by putting borrowed money into the market and producing dividends:

1. at lower stock price levels (2008 post Sept. levels) than 2007 & early 2008
2. 1 year earlier than I could have using saved money month to month

Whether this is successful or not depends on what the markets do but I saw little risk with this strategy. My borrowing costs should stay low, dividends will continue to pay interest, and the wild card is that I am betting that stock prices were much lower Sept.08-Jan.09 than they'll be 5-10 years out. I'll likely have the money paid back before I know if it was a wise move or not.


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## Bullseye (Apr 5, 2009)

Yes, about 30% of my overall portfolio is leveraged, currently. That ratio moves around depending on the market, I regularly take profits on my leveraged positions, and then wait for the next correction to leverage up again.

So far, it's working out well for me, my leveraged portfolio has done well enough to wipe out almost all my paper losses in my non-leveraged one. 

My leveraged strategy is to only buy stocks that a) pay dividends at a decently higher rate than my borrowing cost, and b) that I am willing to hold for the long term, if necessary. This allows me to sleep easy at night, as even when my leveraged portfolio is down, I know that I am getting 'paid to wait' until the eventual recovery. I'm only buying stocks that are intentionally lower-risk, telecoms, utilities, whole index funds, etc. Even if the market takes years to return, I still have positive cash flow annually on these.

I'm essentially running two concurrent strategies right now, the first is my non-leveraged portfolio, where it's pure couch potato, a mix of low cost index funds held for the long term. I've sold nothing, and made no changes, since the recession began. The second is my leveraged portfolio, discussed above. The latter is just to add value where possible.

Like the poster above, I also intend to pay off some or all of my leveraged portion, depending on how the market goes. I don't want to be stuck buying equities in x years from now with the TSX at 15k.


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## CanadianCapitalist (Mar 31, 2009)

No leverage here. Just investing out of regular savings, typically every month in the asset class that is below my target allocation.


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## Brad911 (Apr 19, 2009)

CDN dividend portfolio (DivG) is leveraged approximately 13% through a LOC at prime + 1%. If you leverage conservatively I see no problem with borrowing to invest.

The problem many investors get into is leveraging their portfolio too high, taking too great a risk in the investments they choose or not having discipline to stick with a plan/strategy.

At current valuations it makes more sense to borrow to invest in stocks than to borrow to invest in real estate. Interest is tax deductible, dividend income is tax advantaged and you can diversify into more than one sector (vs. just RE)


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## mfd (Apr 3, 2009)

I burrowed $40k to invest. I ran the numbers and determined that if interest rates spiked to 20% I would still have no problem paying the interest.


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## moneygardener (Apr 3, 2009)

Brad911 said:


> At current valuations it makes more sense to borrow to invest in stocks than to borrow to invest in real estate. Interest is tax deductible, dividend income is tax advantaged and you can diversify into more than one sector (vs. just RE)


Great point Brad.


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## wx_junkie (Apr 3, 2009)

Just started my SM this past week, and used the available 22k in my HELOC to invest. From here, I'll be investing about $800 / month (leveraged) to continue my SM.


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## DrStan (Apr 5, 2009)

I leveraged $20K from home equity in March to purchase the iShares Dividend ETF at a yield of about 5.1%. This just seemed like a good opportunity and I consider it a long term hold. The loan should be paid back in about 3-4 years, slowly but surely. However, I think it's wise to look into other avenues before leveraging in large amounts, and it all depends on risk tolerance. With stable jobs, no debt, fully maxed-out RRSPs, TFSAs and RESPs, plus a non registered portfolio, there was some room to borrow. It's not for everyone... especially not for the panicky types as there may be rough times ahead.


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## infomercialscams (Apr 28, 2009)

Hello..

Sometimes i borrow money to invest the money on the Stock or the Real Estate Market..
When i dont have the sufficient money to invest in the market and the market is gone very good, at that time i borrow some money from the bank, friends or the relatives..


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## jambo411 (Apr 6, 2009)

We changed our brokerage account to a margin account last month. Last November my daughter finished graduate school and we paid off the mortgage at the same time. All of a sudden we had cash flow. We have a time horizon of 52 months to retirement for the primary wage earner and need to play catch up. 

With moderate leverage we are buying dividend paying stocks and prefferreds. We will keep it tame and put money in every two weeks and can always pay it off with the HELOC if required. I just thought it would be a clearer paper trail to write off the interest cost for taxes.


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## The_Number (Apr 3, 2009)

No leverage here. Simply debt averse.


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## ernestmanning922 (Apr 29, 2009)

Your borrowing capacity – that is, the amount you are likely to be able to borrow based on your circumstances and income.


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## AshleyT (May 1, 2009)

Yes we are borrowing. I couldn't resist in January in what seemed like the opportunity of a generation. After convincing my boyfriend, we borrowed using a HELOC and leveraged 4x our yearly investment contributions. It was all said and done by the end of January, and then I watched in horror as the market dropped below the 11/20/08 lows and found a new bottom in early March, 15% below where we leveraged in January.  The investing time horizon is long, so there was no need for panic, and things have certainly righted themselves (and then some) since then, but I sure wish I could have hit those March lows with the leveraged cash.


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## moneygardener (Apr 3, 2009)

Who doesn't? I was early as well.


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## darrylgonzalez46 (May 12, 2009)

I too have stopped borrowing money any more. Rather I am concentrating to increase sell so get some cash flow and utilizing it in production


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## Spidey (May 11, 2009)

I think leveraging can make sense, if you don't have other debts. I wouldn't do it if I still had a mortgage and especially if I had credit card debt. I've borrowed with a HELOC (now @ 2.25%). The interest is tax deductible which lowers my borrowing costs even more. I've bought mostly bank preferred shares, REITs and a couple of high dividend blue chips. Was a little too early timing the bottom so the portfolio is below book value but the dividends more than pay the loan rate (probably averaging 7% on the original investments). As long as that continues I will be happy.

Something to consider: If you have, say $25,000 in non-registered investments and need a new car, then instead of taking a car loan, you cash in the investments and buy the car. You then you borrow the money and purchase either the same or similar investments (may need to be similar investments, if you don't want to lose a capital loss). You now have a tax-deductible loan and you still have the car and your investments.


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## Taraz (Nov 24, 2013)

Wow, you guys sure like living on the edge!  Personally, I don't borrow money (except for credit cards that are paid in full each month). I haven't borrowed for stocks, university, houses, or cars. I also have a big pile of cash not in stocks, cause right now I'm working on my own projects (that will hopefully generate a lot of cash in the long run). 

That said, I agree that borrowing to invest in stocks can be a smarter move than borrowing to invest in real estate. People seem to think that because the house price won't go to zero, houses are a safe investment. What they often fail to notice, however, is that their down payment can _easily_ go to zero, even become negative, making a house purchase far more risky than a (non-leveraged) stock market investment.

If you're going to go the leverage route, index funds would be safer than a Canadian real estate investment, especially in the more overheated markets (Vancouver, Toronto, etc.), and the stock market has had a higher return over time than real estate (although a capital gain from your personal residence would be tax exempt).


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## peterk (May 16, 2010)

It feels like Back to the Future in here!


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## jcgd (Oct 30, 2011)

Wow, looks like some of these folks would have made out pretty well. They borrowed at just the right time.


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## FrugalTrader (Oct 13, 2008)

Unfortunately, I started borrowing at the peak of the market in 2008. However, I kept buying throughout the years and up to $100k borrowed.


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## andrewf (Mar 1, 2010)

I have a small amount of leverage. Since market valuations are just middling, I'm keeping some borrowing room in the event there is a significant correction. We are probably due for a decent correction some time in the next two years.


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## james4beach (Nov 15, 2012)

I used to use a bit of leverage with Interactive Brokers, but when they blind sided me by changing TSX stock margin requirements with very little notice (September I think? there's a thread somewhere), it taught me a lesson -- don't count on margin being available and don't assume margin policies will be stable. It can disappear in the blink of an eye.

Currently I am not borrowing to invest


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## Eclectic12 (Oct 20, 2010)

Borrowed over 60% of the total loan against my HeLOC between Feb to July 2009.
Cashed in some TFSA and some leveraged stocks that were up 80% to 200% over the next two years to pay off the mortgage, as much as was allowed per year.

It's been fluctuating since as I dabble a bit whenever I see bargains or short term opportunities.

I have to run the numbers as I've re-shuffled lately but I think I'm around 180% of the interest costs being paid as dividends/cash distributions, with a third or better trading up between 80% to 120%.


Cheers


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## blin10 (Jun 27, 2011)

nice timing electric... if 08/09 will happen again i'll be maxing out everything possible


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## Hawkdog (Oct 26, 2012)

blin10 said:


> nice timing electric... if 08/09 will happen again i'll be maxing out everything possible


for sure, if RY were drop below 25 bucks again.................


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## marina628 (Dec 14, 2010)

In 08/09 my husband lost 100k of his RSP VALUE ,he convinced me we should borrow $100,000 in non registered accounts to buy the same investments and 'hopefully' they recover 50% and he will break even which turned into a good thing.These were mix of mutual funds and some stocks .


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## Eclectic12 (Oct 20, 2010)

blin10 said:


> nice timing electric... if 08/09 will happen again i'll be maxing out everything possible


 ... being a conservative type - I made sure that my cash flow + dividends would give a substantial cushion.

I'm not sure I'd max everything out.


Cheers


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## My Own Advisor (Sep 24, 2012)

I owe over $200k on my mortgage still, so no more borrowing until it's close to paid off


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## marina628 (Dec 14, 2010)

We have the cash to pay our home off now but mortgage is not up until feb 2016 so for now we are maxing the payments and prepayments.Sometimes I want to just pay the bank the penalty and be done with it.


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## My Own Advisor (Sep 24, 2012)

I could see that marina628, but you're investing a bunch as well. 

I suppose if we liquidated all our investments, we'd be mortgage free but then again, we'd have almost zero investments and no emergency fund. Not sure that would be wise.

Once my mortgage is below $100,000, and if borrowing rates remain low, I will consider borrowing to invest.


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## Jon_Snow (May 20, 2009)

As much as it might make sense in certain situations, I don't think borrowing to invest is in my DNA. 

I think I am one of those who thinks that there is no such thing as "good debt".


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## marina628 (Dec 14, 2010)

We were paying about 1.5% on the variable mortgage which is why it made sense at that time.


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## sags (May 15, 2010)

Good debt and bad debt.

Unfortunately, both good and bad debt can cause bankruptcy.

No debt doesn't cause bankruptcy.


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## Islenska (May 4, 2011)

Not trying to sway anyones ideas but the way I approach borrowing on 3% rates----------we may never see this for a long long time

So I have a large account on margin that I pay ~$20 k yearly interest and nets me ~$30k after charges, pretty much gravy money and also I find trading way different with borrowed money. If say I'm up $500 will take the profit vs using saved money I would wait it out trying for a higher return----psychological I know.

The real trick (I think ) is keep your margin to less than 30% net worth, using not your own funds to generate a return, that is what banks do with your deposits!


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## My Own Advisor (Sep 24, 2012)

Fair Islenska.

However, if I lose my job or the same happens to my wife, with a >$200k, things are not going to be fun.

I guess it all comes down to a comfort level. Once the mortgage is under $100k, I will consider, maybe, borrowing to invest. Until then, I continue to make lump sum payments on my mortgage and I also take any other savings and invest.


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## Retired Peasant (Apr 22, 2013)

Jon_Snow said:


> As much as it might make sense in certain situations, I don't think borrowing to invest is in my DNA.
> 
> I think I am one of those who thinks that there is no such thing as "good debt".


Us too. We have always hated debt. Thankfully we were like-minded in this, and paid off our mortgage in three years.


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## dogcom (May 23, 2009)

I have borrowed to invest in a value fund in the past and that seemed to work out well at the time.

Today however with the entire financial system on the brink of collapse and bail-ins ready to go if needed I will not be taking on any kind of debt or margin for investing.


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## blin10 (Jun 27, 2011)

dogcom said:


> I have borrowed to invest in a value fund in the past and that seemed to work out well at the time.
> 
> Today however with the entire financial system on the brink of collapse and bail-ins ready to go if needed I will not be taking on any kind of debt or margin for investing.


that way you can this, put a short hedge with borrowed money :>


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## HaroldCrump (Jun 10, 2009)

blin10 said:


> that way you can this, put a short hedge with borrowed money :>


I realize your comment was tongue-in-cheek, but that is actually one of the most dangerous trades possible.
Going short in a strong bull market with borrowed money.
What could go wrong? :rolleyes2:


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## dogcom (May 23, 2009)

Your right haroldcrump I wouldn't even consider shorting in this market borrowed money or not. The biggest push to the upside is usually at the end of a bull market.


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## blin10 (Jun 27, 2011)

HaroldCrump said:


> I realize your comment was tongue-in-cheek, but that is actually one of the most dangerous trades possible.
> Going short in a strong bull market with borrowed money.
> What could go wrong? :rolleyes2:


when you have your longs going, hedging with some type of short position is not as bad as you think


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## jcgd (Oct 30, 2011)

blin10 said:


> when you have your longs going, hedging with some type of short position is not as bad as you think


I thought this was an interesting tidbit:

http://dasan888.blogspot.ca/2013/11/idea-velocity.html



> 4. SHORTING INDICES. Many fund managers think they are great stock pickers. Actually, we all do, by definition, because we are charging people for our great skills- otherwise they could cheaply invest in an unmanaged index. But these same managers decide they will pick the longs in the fund and then use an ETF to short against the longs, as a “hedge.” WTF kind of backward thinking is this? So you can pick what stocks will go up, and not the stocks that can go down? Does this make any sense? Then the clever among this group will argue with you that because the market goes up over time, it’s important to spend time on longs and “hedges always lose money.” NONSENSE. Even in a bull market there are stocks that are going down. (Do you need examples? IBM, “Big Blue,” the bluest of the blue chip techs, is down 8.5% as I write this, versus the NASDAQ up 33% for the year.) I’ll tell you what- if you want to play with indices, and you tell me the market goes up most of the time, I will suggest that you LONG the index and spend all your time finding individual name shorts instead. Did your brain just blow a fuse? Let me suggest the best approach and that is pick longs and shorts and never short an index. If you don’t have enough shorts, because “Shorting is hard” and all that, then go re-read RULE NUMBER ONE.


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## Mike Ashley (Dec 6, 2013)

*Borrowing Money Now*

Hi Guys, 

*Should We Borrow Money Now?*

I think borrowing money is more than having good debt or bad debt. It is also important to review our financial strength and cicumstances. Below are my thoughts. Hope it helps. Thanks. 

My opinion for borrowing money to grow wealth is dependent on a few factors as follows:-

a. Age
b. Risk Profile
c. Financial Profile
d. Purpose of Debt
e. Ability to service Debt

Age
The general rule is if we are younger then we can better afford to borrow money. Why? Because time is on our side for our investments to yield a good return. 

*Risk Profile*
Our risk profile is a key criteria if we can take on borrowing. A good yardstick to measure this is Can We Sleep Properly at Night? Most people are comfortable to take on some form of debt, but there will be a level that exceeds that comfort zone. Exceed this zone and we are unable to sleep properly at night. 

*Financial Profile*
What is our Financial Profile? We do not want to jumble this with risk profile. Here we are referring to your financial muscle or net worth. Net worth will be total assets minus total liabilites. Your net worth should ideally be positive. 

But, it can be negative especially if we are younger because then we are likely to take on more debt. The saving grace or key will be to have a buffer to withstand any unforeseen circumstances e.g. if we lose our jobs. It can be in the form of a time bank i.e. having 6 to 9 months of liquid cash in the bank to meet monthly financial commitments and living expenses. 

*Purpose of Debt*
We do want to take on debt unnecessarily. The purpose of our Debt should be clear. Is the debt funding a need e.g. a house for us to live versus a want e.g. an exotic holiday in Africa? We can travel to Africa but it may not be wise to take on a high 4 to 5 figure debt to fund this holiday. 

*Ability to Service Debt *
This is not to be confuse with financial profile. Here we are not measuring net worth, rather we are trying find out our income versus monthly cash out-flows by debt commitments. Ideally, we our monthly debt repayment/ interest expense should not exceed 40% of our monthly income.


Above can be considered when we want to borrow. Cheers. 

Mike Ashley


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