I’ve looked through the messages in the link that you gave.
So even though it was just about the worst time to start, you’re happy that you took the plunge, and expect that at some time it will pay off very well?

It would be comforting to know that, because I’m planning to do something similar. I’ve organized a 300K loan using our house as collateral.

That’s Australian dollars (similar to Canadian). I plan to take 100K at first and invest in exchange traded funds tracking the Austr top 200 companies. Not particularly looking for high dividends.

If the market continues to move downwards I would take the rest of the loan in 50K chunks and invest. If it moves up strongly then I might not take any more of the loan.

If the market crashes after doing this, then I will be in a similar situation to you were a year and a bit ago.

I’m very confident that I will always be able to pay interest costs whatever the interest rates could reasonably move up to. So I would plan to just wait and wait until the approach finally paid off.

At the moment it all seems like a reasonable thing to do, but I’ve been struck by the horror shown by so many people when I talk about borrowing to invest in the sharemarket. It’s made me wonder whether I’m doing something very wrong! (I’ve never borrowed to invest in shares before)

(I wonder whether it’s because we’ve just gone through the GFC so any sort of leverage is out of fashion at the moment – maybe opinions were different pre GFC.)

That’s why I’m keen to get as many opinions as possible, so I’m looking around message boards and blogs etc to educate myself and get opinions wherever people are kind enough to give them.

I really appreciate the information you’ve made available on your web pages as it helps people like me to consider these sorts of things!

Would it be possible for anybody who has borrowed to buy shares to give feedback on their experiences, good or bad? (Now that we’re more than a year on since last post)

We came up with a mix of ETFs with solid dividend paying companies (the ETFs are yielding 6.5% to 7.5%). We borrowed money from our HELOC, which is still at prime (3%) since we got it in 2007 before the credit markets got messed up. This means that we’re averaging about 4% return on the investment, so we’ve got significant positive cash flow by using other people’s money. I haven’t decided if I’m going to take the extra cash flow to pay down the HELOC or continue to reinvest. Any thoughts?

Granted there is risk that companies will start cutting or lowering their dividends as their profits suffer in the year ahead, but we would have to see the payouts drop significantly (more than half) before we need to worry about not being able to cover our interest costs. Another risk is that interest rates start to climb again, but if you believe the media hype, this shouldn’t happen until the economy starts seeing significant improvement.

I personally think that now is a great time to leverage and buy stocks while they’re on sale. (With the caveat that you have a long term investing time horizon). I’m interested to see some updated comments on this thread since the market has changed a lot in the last year since it was posted.

thanks

If you’re aware of any resources (books/articles) on leveraged investing, could you recommend any? It would be interesting to see some more analysis on both optimistic and pessimistic sides of things.

The market conditions and especially low interest rates make the strategy seem very attractive for the mid-long term, but I wouldn’t want to jump in without doing some due diligence.

Thanks

BNS.TO – Since 1995, 16.87%.
CM.TO – Since 1995, 12.31%.
BMO.TO – Since 1995, 12.01%
SLF.TO – Since 2001, 18.72%.
CNR.TO – Since 1996, 17.40%

If that is the case, then each year you actually have a cash flow of -$3600 to pay the interest.

Or the other option is to use the dividends to pay the interest, in which case you are not cash flow positive until year 9 (using 0% div growth rate).

Have you taken a look at doing this leveraged strategy under the current conditions? With the interest Rate Cut, and the current high yield on all of the big banks it could be cash flow positive almost immediately.

Actually using the following numbers:

Prime Rate 5.50%
Marginal Tax Rate 43%
Div Tax Rate 19.61%
Market Cap Growth 4%
Div Growth 0%
Div Rate 4.00%
Loan Size $100,000.00

It is cash flow positive in year one.

Obviously, I am ignoring the risks that the big banks could cut their dividend (did set Div growth to 0%) or that they could continue to lose value. But if you can accept those risks (or diversify more, and keep the Div Rate) this could creat a positive cash flow very quickly.

I may be mistaken but looking at your numbers it appears you only apply the dividend growth of 2% in the very first year instead for each year after that. Or was it your intention to use 3.57% as the divdend rate for each year after the first? If it was, why that number?

[...] Leveraged Dividend Investing for Cash Flow [...]

[...] Of course the beauty of strong dividend paying companies is that they are known to increase their payments at least once a year. Increased dividend payouts from these companies usually result in higher stock prices.  Providing that you start investing in dividends early, then with time, the dividends will become increasingly more significant.  [...]

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