How Dumb is it to Buy Dividend Stocks with a Loan?

I wanted to explore the topic of buying high income / dividend stocks / etfs with margin or a loan in order to generate a spread or profit. The idea of borrowing money at a low rate and using it to generate a higher rate sounds appealing but there are risk involved.

Intro 0:00
Cost of a loan 0:58
Where to invest 3:35
Calculating the numbers 7:12

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[coliv]

People talk about this as if it was a crazy thing to do, however big investors do this all the time. One of the most common plays is to go to a country like Japan, borrow money for next to nothing, and invest in the US. This has been done for decades and has made a lot of people very rich.

[jrod]

Exactly what I do, except use my HELOC and Whole Life policy for loans. Using leverage/debt, in a responsible way, is truly the only way to really speed up the process. The time lost building adequate savings can't ever be recouped.

Even the billion/trillion dollar corps with billions of cash on the books don't use cash. They fund with debt/"margin".

[KennyZ]

Heck ya. My taxable account is 25% of DGRO, SCHD, DIVO, JEPI. Using M1 Borrow for the 2% interest to buy 50% each of DIVO & JEPI. Strong 6 months

[Thee_Ruger]

What your thoughts on yieldmax etfs. And doing this strategy

[Whoisbu]

I’ve actually just started playing with margin. I make about $1, 700/month in dividends. I’m starting out with buying my assets with $1, 000 in margin then before the month ends it’s already paid off by my dividends before the interest kicks in at the end of the month. I look at it as using a credit card, kinda the same thing except when I pay it off I get $1, 000 more invested instead of to resetting to 0 like a credit card.

[dominikfrohlich]

I’m using a little bit of margin to buy some stocks if there are good opportunities. However, I will always follow a 50% rule. So if my portfolio is e.g. 100k my margin line may be 60% so 60k. The 50% rule says to never take out a loan of more than 50% of your margin line. So if your portfolio falls by 50% you still wouldn’t run into a margin call. So in this case my limit would be 30k for a loan.

[briancroston]

Good video. I would add that these dividends are taxed as normal income so you need to figure 30% being taken for state and federal taxes.

[berniebenson]

Nick I’m glad you approach this as more of a plausibility argument, and not actual advice to buy on margin. I’ve been around investing working for or with family members in this capacity. It’s alway the margin investors that get burned in the long run. Still makes for an interesting discussion though. Thanks.

[averagedaddividendinvestor]

I always thought about this, but never actually tried. Thanks for the very interesting video! It was quite practical.

[bluecollarbullionballer]

I use my IUL cash value to buy assets all the time.I buy assets but pay myself back.My last purchase I bought silver at 17 ounce sold at 31.50oz.I repay myself back and wait for another chance to buy cashflow or bargins.I am not a finacial planer, insurance broker, or your fiduciary.Just sharing what I do.Happy investing/stacking.

[michaelgordon]

I buy dividend stocks on margin with yields higher than my interest rate..i would never leverage my home because of the volatility but its a way to cash flow my investments so that they pay for themselves

[mhtyler]

Fun video. I'd never do this _exactly_ myself, but I suppose in a way I'm doing something a bit similar right now. I just bought a house at 2.875 interest after selling one that I owned free and clear. I've used the low interest payment to leverage additional investment and the plan is to use the spread as additional income. Houses tend to appreciate at 3-5 per cent a year (lately a lot more) and so I think having the house to live in and as a fairly secure investment makes me feel that much better about the additional investments. DIVO will indeed be high on my list along with JEPI, NUSI, SCHD, a bit in QYLD, and I'm looking at XLMI and QQQX as well. BTW, since I've bought a more expensive house, the appreciation should generally be greater than the cheaper home I just sold. This is HIGH finance indeed for me. Fingers crossed.

[keltonjohnson]

JEPI is a little older than that if you look at the mutual fund version. Still not a super long track record, but makes it look a lot better.

[AyeItsXander]

Hi nick! Quick question, I’m currently interested in dividend investing and want to open up a ROTH IRA to do so. Do you recommend M1 finance for a ROTH IRA? I currently have a robinhood account and I don’t really want to build a dividend portfolio on there because of tax reasons. Any tips would help 🙂 keep up the great videos brother!

[robertedmond]

I did this last year, then I decided to trade options, very stupid. In a few months I'll repeat the process and start investing in dividends again!

[KaskoXeroVlogs]

I'm thinking about doing this for pflt

[arigutman]

Very interesting idea, 💡 that I would never do… however, I am a prudent investor and frugal person altogether. It is most important to spend only what you have and what you invest perhaps kiss away as if you won’t ever see it again… if it isn’t yours to begin with, not so smart to gamble, 🃏

[CalmerThanYouAre]

You forgot probably the most important consideration… a margin call. M1 Borrow is just portfolio margin with a nice user interface. M1 can change the required % equity you need to maintain at any time (worst possible moment during a market crash) and recall the loan anytime they want. Unless you can produce the cash in 24 hours, your holdings will get liquidated, locking in substantial permanent losses.

The probability is low, but it’s there, even with high quality assets like DIVO. If you’re going to use leverage, I would consider keeping the debt ratio to 25% or lower, and/or having rescue cash to deploy in the event of a market crash.

[pigbenis]

Heloc over margin any day. Margin loans are not fixed rate

[tonycrawford]

It wouldn't be worth it to do this if you're not using high dividend ETFs such as CONY, MSTY or NVDY..