📈 BORROW to invest in the stock market? YES and here’s the BEST way

The common concept with borrowing to invest in the stock market is that it's risky and if the investment fails then you can’t pay back debts and loan sharks come after you. But if you want bigger investment returns, then borrowing money to invest will help you with that.

So long as you can keep your risks to a minimum and follow a few conditions, then borrowing to invest can make a lot of sense.

But before I proceed, I wouldn’t borrow if you’re someone who is uncomfortable with taking risks or stock market fluctuations, and you simply just don’t understand the financial math behind it. There’s no need to take unnecessary risks and just plain vanilla investing without borrowing is fine too.

So here’s the best way I would go about borrowing to invest in the stock market:

First find an investment in the stock market that you think will have a high predictability of making money. We want to invest in something that you feel has the highest probability of working than one that makes the most money, because once you find something that works, you can magnify the smaller gains using your borrowings. I would essentially choose an investment where the business keeps making money in any environment.

Second I would go for a dividend investment, preferably ones that pay out cash on a monthly basis and has a track record of never suspending or decreasing their dividend. Because when you take out a loan, you have to make monthly interest payments so the point of the monthly dividend is to directly pay it on time. You will want to choose a dividend stock that has a dividend yield that will be greater than your interest rate on your loan. This will ensure that the dividend can cover the interest payment and you will have money to keep in excess.

Third, for loans, the cheapest way to borrow will be through a secured investment like your home or your existing investment portfolio. With the prime rate so low and an economic environment where we probably won’t see rising interest rates in a while, we can expect the rates to stay low for a while or possibly go lower in the future. So a variable rate loan makes more sense right now than a fixed rate loan, and there’s more flexibility in fees. Ideally, an investment-secured line of credit is what we want to use for borrowing. You can focus on just paying the interest and choose how much of the borrowings you want to repay.

Fourth, with the excess dividends you’re going to want to double down on this strategy. You will have cash left after making those interest payments. You want to take any excess cash to pay down the loans or use it to buy more stock. By paying down the loans, you will have less interest charges in the future. If you decide to buy more stock, you end up getting even more dividends and a chance for capital gains. Either option you can magnify your returns.

Last, for your investment account, you can choose to do this in either a registered or non-register account but I prefer the tax-free accounts. With registered accounts like TFSA or RRSP, you simply get tax-exempt privileges. With non-registered accounts, you will get taxed on your gains but you can apply for the dividend tax credit to help reduce your tax costs, and also get a break on your interest payments based on your marginal tax rate because they are tax deductible.

Dividend Tax credit:

Deducting interest payments:

#Canadianinvestor #leverage #invest

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[TIMVESTMENTS]

What dividend stock would you buy with borrowed money?

[harrisonjamie]

Nobody can become financially successful overnight. They put in background work but we tend to see the finished part. Fear is a dangerous component, hindering us from taking the bold steps we need in other to reach our goals.

[vsbhddh]

This is a very aggressive strategy but it can boost up your wealth faster if it's executed right. I like doing it in my none-registered account since I can deduct my borrowing interests when I file my tax return and also I don't have extra room in my RRSP anyway. Currently I am investing in BMO's cover call ETFs which provides me the monthly distributions and I re-invest all of them back in. The downside of that is the upside is capped. I might try mixing up with some growth stocks just to keep up with the inflation. If the market is experiencing another major correction, I think I will borrow more. 😉

[mikep]

I select bank / insurance stocks and lever just 25%. Also write covered calls for the additional premium and can typically return 10% + capital gain. Rising markets usually get your stock called. There are many ETF's that follow this practice and even consider Split Share ETF's. Returns there are in the 12%-15% range, (very little capital gain though). Just keep the leverage reasonable by using a percent...not a multiple.

[ArielTirado]

I borrowed 15, 000 turn it Into 40, 000 in one year !

[ajits]

Amazing video, exactly what I was looking for. I wanted to borrow half to invest in safe stocks.

[thomaswayne]

Going with Shaw Communications (Freedom Mobile). The dividend yield is 7.2% so I would make even more profits!!

[wulisacheung]

Very deep insight of aggressive investment 👍🏻👍🏻👍🏻

[awkb]

this is the best financial analysis I have seen out of the dozens of videos I've watched on this topic. excellent job. how has this worked for you ? is it still proditable?

[adrianwysocki]

But how is it work if you have to pay this loan off on the monthly basis? You will have to withdraw monthly from your investment. How would that calculation go?

[rosemariel.]

Nice video. Question: what happens if your interest expense is bigger than the dividend received. Can the excess interest expense on borrowed money write off against your earned income. If not, can it be carried forward for subsequent years.

[richardrodriguez]

This didnt age well. Choosing a variable interest rate would have rekt your life.😂 fixed is almost always the way to go.

[TheTays]

Hmm does this apply to high growth stocks like TSLA that are up 40% YoY?? ...wondering if it's worth it if you can't write off the same way as dividend stocks..

[kristurner]

Thank you for making this video! I've been looking tirelessly for info on borrowing to buy high yield dividend stocks.

[psychologyfactstothinkabout]

Make more videos like these with safe dividend paying companies

[jessieeubanks]

This kind of topic hit me Saturday and here I am. The math makes too much sense to me. I'm gonna do it

[thedanyopang]

if you're investing in a non-registered account, do you recommend to target dividends slightly above interest rate and the rest target capital gains, since higher dividends also get taxed each time they are paid? thanks.

[AxLegend]

Nice video, but how can you pay back a loan only paying the interest? Doesn't it makes snowball the interest?

[MTN]

Great content I was actually doing the math yesterday and planned on doing this but see if others out there were doing it and I just found your video this is crazy I am going to focus on Scotiabank and CIBC Stocks I will cover the payments until I get paid the dividend for the first quater from there I will put money aside to cover the minimum pmnts for the next Q and buy more stocks what do you think?

[scottbailey]

I don't think you should compare your ROI based off just your personal investment. You needed that borrowed money to make a return. What if you used debt to invest the whole 20k, so now you made $1708/$0? You needed that debt to make money so your ROI should be based off the whole 20k regardless of how much was personal and how much was debt.