Investing

How to leverage - long term strategy?

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  • Jun 24th, 2019 3:06 pm
[OP]
Jr. Member
Jun 3, 2017
199 posts
172 upvotes

How to leverage - long term strategy?

I'm looking to accelerate my portfolio growth by taking some risk. What does everyone think of leveraging + Canadian dividend ETF?

From what I understand, borrowing to invest makes the interest tax deductible as long as there is expectation of the future dividend payments. Furthermore, I can take advantage of the Federal dividend tax credit.

What's the best way to go about implementing this? Withdraw from LOC, purchase something like XEI or ZDV, and keep track of interest payments for tax time? or do it via margin account?

My time horizon is 20 years+ so I'm happy to weather out dips. I don't expect the LOC being called, but the margin account I will have to continue adding $ if the value of the portfolio drops past a certain threshold, correct?

Thoughts? Thanks in advance.
7 replies
Deal Addict
Jan 18, 2014
1514 posts
507 upvotes
Rouyn-Noranda
Hey there, there have been a few very informative threads on the subject in the past couple of years --- search them out. They were very useful to me when I started doing it.
[OP]
Jr. Member
Jun 3, 2017
199 posts
172 upvotes
John47 wrote: Hey there, there have been a few very informative threads on the subject in the past couple of years --- search them out. They were very useful to me when I started doing it.
Thanks for the response, I'm new here - I did a quick search but couldn't really find what I was looking for. I'll try it again. If anyone can share any threads useful I'd really appreciate it! Thank you,
Deal Addict
Jan 18, 2014
1514 posts
507 upvotes
Rouyn-Noranda
Sure, here's a few that are in my "subscribed" threads:
viewtopic.php?f=134&t=2201949
viewtopic.php?f=134&t=2212842
what-peoples-margin-ratios-2181775/
viewtopic.php?f=41&t=2174703
viewtopic.php?f=134&t=2104732
viewtopic.php?f=134&t=2155711

A lot of them are people asking questions and others responding with their opinions and experience. Good luck!

There are also some informative threads on reddit and blogs.
Deal Addict
Nov 9, 2013
4540 posts
4817 upvotes
Edmonton, AB
kinz186 wrote: I'm looking to accelerate my portfolio growth by taking some risk. What does everyone think of leveraging + Canadian dividend ETF?

From what I understand, borrowing to invest makes the interest tax deductible as long as there is expectation of the future dividend payments. Furthermore, I can take advantage of the Federal dividend tax credit.

What's the best way to go about implementing this? Withdraw from LOC, purchase something like XEI or ZDV, and keep track of interest payments for tax time? or do it via margin account?

My time horizon is 20 years+ so I'm happy to weather out dips. I don't expect the LOC being called, but the margin account I will have to continue adding $ if the value of the portfolio drops past a certain threshold, correct?

Thoughts? Thanks in advance.
I am doing this although I am fairly risk adverse. My leverage thread, as also linked by @John47 above, is here - avoiding-stupidity-leverage-2201949/

I opened a LOC that's prime + 0.9% and this is my source of leverage. I purposefully wanted to avoid brokerage margin which I perceive to be a way to decrease the risk of a margin call, although in theory my LOC provider (RBC) could call the LOC at any time. This LOC is only used for investing and so it's fairly straight forward tracking interest costs.

The last time I used it was in early January 2019, shortly after the Christmas decline. I don't use it to buy ETFs, only dividend paying stocks. In Jan, specifically I bought BAM.A at 51, CP at 238, EMA at 43, PBH at 74, T at 44 and TD at 67. So far, I think it's worked out pretty well.

My strategy is to keep it rules based so it takes the emotions out of it, as I really don't want to blow myself or my portfolio up. I set specific hurdle rate for when I will allow myself to deploy it, and if I can't meet this hurdle I don't use it. Since the above purchases in Jan, I haven't used it and I'll probably won't really touch it until the next major dip / decline, in which case I hope I can be aggressive again.
Keep calm and go long
Deal Addict
Jan 18, 2014
1514 posts
507 upvotes
Rouyn-Noranda
treva84 wrote: I am doing this although I am fairly risk adverse. My leverage thread, as also linked by @John47 above, is here - https://forums.redflagdeals.com/avoidin ... e-2201949/

I opened a LOC that's prime + 0.9% and this is my source of leverage. I purposefully wanted to avoid brokerage margin which I perceive to be a way to decrease the risk of a margin call, although in theory my LOC provider (RBC) could call the LOC at any time. This LOC is only used for investing and so it's fairly straight forward tracking interest costs.

The last time I used it was in early January 2019, shortly after the Christmas decline. I don't use it to buy ETFs, only dividend paying stocks. In Jan, specifically I bought BAM.A at 51, CP at 238, EMA at 43, PBH at 74, T at 44 and TD at 67. So far, I think it's worked out pretty well.

My strategy is to keep it rules based so it takes the emotions out of it, as I really don't want to blow myself or my portfolio up. I set specific hurdle rate for when I will allow myself to deploy it, and if I can't meet this hurdle I don't use it. Since the above purchases in Jan, I haven't used it and I'll probably won't really touch it until the next major dip / decline, in which case I hope I can be aggressive again.
Is your LOC completely separate from your regular chequing account? Is that how you can ensure that your interest charges are more easily trackable? And not blended with other everyday transactions.

I've been able to get $34K from a low interest credit card. Transferred it as a cash advance to my chequing account. Now, I want to transfer it to IB --- however, I used part of it to pay off an existing balance with another credit card.

I wonder, if I transfer less than the full $34K amount from my chequing account to IB, will that jeopardize my ability to dedut the interest I pay?

Let's say I initially transfer only $25K, do you think I can still deduct the interest charges for that $25K (but not the full $34K) ?
Deal Addict
Nov 9, 2013
4540 posts
4817 upvotes
Edmonton, AB
John47 wrote: Is your LOC completely separate from your regular chequing account? Is that how you can ensure that your interest charges are more easily trackable? And not blended with other everyday transactions.

I've been able to get $34K from a low interest credit card. Transferred it as a cash advance to my chequing account. Now, I want to transfer it to IB --- however, I used part of it to pay off an existing balance with another credit card.

I wonder, if I transfer less than the full $34K amount from my chequing account to IB, will that jeopardize my ability to dedut the interest I pay?

Let's say I initially transfer only $25K, do you think I can still deduct the interest charges for that $25K (but not the full $34K) ?
Yes, it is completely separate.

I think you would still be able to deduct the interest, just keep really good records incase you are ever audited.
Keep calm and go long
Deal Addict
Jan 18, 2014
1514 posts
507 upvotes
Rouyn-Noranda
treva84 wrote: Yes, it is completely separate.

I think you would still be able to deduct the interest, just keep really good records incase you are ever audited.
Thanks!

I've been thinking of making one transfer of $34K from my chequing account to IB ---- and thus dipping into my ULOC.

Would make it easier and simpler to claim the interest on the $34K.
I'd be in the red $9K on the ULOC, which I'd be able to reimburse in about 3-4 months.
I would not claim the interest charged by the ULOC.

Moving $34K into IB would pay off most of my IB loan. Would give me more flexibility.

The interest amounts are negligible, whichever option I choose.

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