Loans for Investing?
Loans for Investing?
What are your thoughts about getting a loan for investing? Maybe you think of all the people who were maxing out their credit cards and lines of credits to buy bitcoin at its peak of 18k just 2 months ago…… What about the dope hype? People were doing that as well… Your crazy Rob, why would we do that. I want to state that I never did that or thought it was a good idea. It was crazy. I am going to tell ya why we just took a loan out to invest in the market though.
There is a massive difference between good debt and bad debt. Good debt should go up in value or generate some type of income. Bad debt basically costs you money. I’m a guy who is really against bad debt! If your a follower of mine, you already know how we refinanced our house last year. We used that equity in various investments which generate approximately 12,000 in yearly passive income now. We are (well were) debt free other than our house. This loan we just created will be gone completely in 2-3 months.
The Stock Market Is Bleeding
Right now the market is pulling back nicely, especially the tsx. I’ll be honest for probably the last week and a half, I have logged onto our investing account and we were down each day. It kinda sucks seeing red. You wonder to yourself…… Am I a shitty investor? Why did I buy that stock? Why didn’t I sell and take the profits…… Ultimately though you know why you bought those stocks, They are solid dividend stocks! I know next time they pay a dividend I have a chance of dripping a.k.a accumulating more stocks now that their price is down.
It is also easier to buy a good company that is in the red vs in the green. Naturally you are dollar cost averaging down your price of the stock. Not to mention the yield on cost is also higher!
I’m sure if I was at retirement age or near, it would be a stressful time. Being young and knowing I got a lot more years in the market helps. These are the times we should be throwing money into the market, not the all time highs! I try to buy every month regardless but currently its time to grind and get more money into the market.
Back To The Loan
This technique is nothing new. It has been around forever and the banks love to push it. In Canada our rrsp deadlines for tax time is March 1st. That means for your 2017 taxes you have until March 1st 2018 to make contributions to your rrsp tax year 2017. Its a weird system, I know. Honestly I have no idea why its setup like this, but it helps for this technique.
If you have no money and want to get more tax benefits come tax time. Use your line of credit or loans (whatever has lowest fees/interest) and contribute that money to your rrsp. Simple! If you do some rough math and calculator’s you can figure roughly what you will get back come tax time and contribute that.
I googled tax brackets and came across Money Coaches Canada. Seems to be a great site to figure out your taxes and what bracket your in. At the bottom they have a link to a great rrsp calculator as well.
We contributed $15,000 last yr to our rrsp and I can see we will get $5,156 back just from this rrsp contribution. So you take a loan out for 5000 bucks and contribute that before March 1st. In the calculator I now enter 20,000 in rrsp invested and see we will now get $6,699 back come tax time. Sweet a extra $1700! You can play with these numbers until you break even if you want and contribute the perfect amount.
Note – All tax brackets are different and your numbers may not work out the same. Also make sure you have rrsp contribution room left. Check with the Canada Revenue Agency if you don’t know. Last years taxes should of told you your remaining contribution room.
We have decided to only put in a extra $5000 to our 2017 rrsp contributions. Now after we file our taxes (in a month or 2) and the government deposits the money into our account, we pay the line of credit off instantly. Sure we lost a couple bucks on interest, but we get that money working for us when the market is currently down. The dividends alone should cover that interest on the loan.
All the extra income we get will be there if we need it come tax time (if we need to pay) or for her to buy me something nice! Just kidding, it will probably go to our tfsa… I’m boring, just give me them dividend’s!
Here’s hoping the market continues to fall, I will be watching it closely to try to deploy the money at the right time. I know don’t time the market, but I think this may fall for a couple days. People have been waiting for this a long time! Once it hits that floor though, its gonna rocket up!
Hope you learned something. Don’t be dumb, No one knows what the bottom will be. Don’t max out all your credit cards and loans etc. Use debt wisely and it can be your friend!
What are you buying?
“There’s Greatness Within You!” – Les Brown
Hey I’m Rob, creator of Passive Canadian Income.
In 2011 me and my wife had almost $60,000 in debt and a negative $7,000 Net Worth. Through hard work and financial education we paid all that off. Now we are focusing on increasing our Passive Income Streams to make the money work for us. Feel Free to Follow along the Journey by clicking the Social Media links below or subscribing to get notified of new posts on the sidebar.
Makes sense – if you know you will get a refund and you have the contribution room (and are disciplined enough to pay off the line with your refund) haha
If I had any extra room this year I’d probably consider this as well – but instead i’ll just use my refund to pay for my Jets season tickets (my yearly tradition of being non frugal, but rewarding myself for my RRSP contributions all year) haha
You guys got Laine…. always liked the guy full of character.
Sweet that you got your rrsp maxed
For a moment i thought it was about borrowing and investing in speculative stocks. But, what you mentioned makes absolute sense. Hard to counter solid logic. Although, it might not have been a bad idea to borrow and invest in 2013. Should have made me a millionaire by now 🙂
Thanks, i like the move. Just hope I dont kick myself for not deploying it earlier today.
Yeah or taking a loan and putting it all on the eagles winning the superbowl!
Hi Rob, I’m pretty debt averse. I would never take a loan to invest the proceeds. I even paid my mortgage off early rather than deploy the excess funds in my investments. I tend to take the sure thing when its available. Your scenario is different to me and well thought out. Tom
Congrats on paying off your mortgage earlier that’s fantastic! Once all our tax advantaged accounts are maxed, I think I will be focusing on hammering the mortgage down again. Who knows though some cool investment could come up!
Glad you like the example!
I used to think debt was an awesome idea (free money!) – until it burnt me many years ago. It was only a light burn but a great lesson – I don’t think many people truly appreciate the power debt has to hurt you if it goes the wrong way.
In saying that, what you’re doing sounds pretty sensible. If you had said ‘Margin Loan’ on the other hand, my comments would not have been so nice….
Thanks. Yeah always sucks getting burnt but at the same time. Learning lessons are the best way to grow.