Over the last couple of months I went on a big shopping spree and splurged myself silly (~_~;)
$15,000 of unnecessary spending is not a very sustainable lifestyle, but at least I didn’t spend all my money in one place because that would be financially irresponsible (・_・;) When was your last shopping spree and how much did you spend? As you already know I like to be fully invested and usually don’t keep much in savings. I only managed to save up $5000 earlier this year. So where did I get the other $10,000 from to meet my $15,000 shopping binge? I borrowed it from the bank of course, at an interest rate of 4%. I know spending on credit can be a slippery slope, but I just can’t get enough of shopping centers, cell phones, and other nifty wireless gadgets ( ^^)
So let’s take a look at some of things I bought.
| Name | Symbol | Yield | $/share paid | # of shares | Total Book Value |
| Vodafone | VOD | 5.2 | 28 | 45 | $1260 |
| iShares DEX | XBB | 3.3 | 31 | 63 | $1953 |
| Riocan | REI.UN | 5.1 | 27 | 148 | $4000 |
| Bank of Nova Scotia | BNS | 4.1 | 53 | 40 | $2120 |
Vodafone is one of the largest and most diversified telecom operators in the world. They even own 45% of Verizon. Think about how many customers Verizon has. From April to June this year Verizon made over $1.5 Billion in profit. From now on, every time Verizon makes money, I will make money too! XBB is a straight forward bond index etf. Riocan was the first stock I ever bought. That was back in 2009 I think. The reason I’m buying more is because I want to have enough shares for a DRIP, which I finally do now. And finally Scotiabank is Canada’s most international bank with over 1000 branches in 48 different countries.
The $10,000 I borrowed from the bank was an RRSP loan. That’s why we saw a big boost to my retirement portfolio in the last Fiscal Update. So most of these companies I plan to hold until I’m 70 or older. The $10,000 I have to pay back the bank is nothing compared to the long term benefits these companies will bring me.
Those are just some of the companies I purchased but I’ve bought several others during this time too. I don’t want to make this post unnecessarily long so I will update my hedge fund some time next week so you can catch all the details there.
Nice purchases, i would have bought those companies too
They’re really good, solid names for the buy and hold type like us.
Wouldn’t it make more sense to hold those companies outside of your RSP? that way the interests is tax deductible.
It would be wonderful if I can buy these companies outside of my retirement account 🙂 Unfortunately they won’t let me use an RRSP loan to buy stocks outside of an RRSP. The reason I took an RRSP loan instead of a regular loan is because I already have over $30K of tax deductible loans. I want to diversify my debts so I have some variable, as well as some fixed rates.
ahh makes sense. Funny everyone complains about high taxes but few people bother to make the effort to learn!
I’m always intrigued when I hear about you borrowing money to invest. I don’t trust my job security enough to go that route, but your aggressive investing seems to be working quite well for you.
I don’t have a lot of faith in my current job either, haha. I’m lucky to have at least a part-time job on the side though.
ib4 ppl saying you’re a crazy foo for borrowing to invest. And to all the naysayers who are leery of ongoing financial obligations in a uncertain jobs market: I’m a starving artist. I don’t know when my next gig will happen if ever. And YES I borrow to invest. The more I try to think about my blog, the less interested I find myself trying to create fresh content that hammers home my point… People just don’t seem interested. Or they have such an ingrained hatred/loathing/misunderstanding of how things work they reply, “that’s just gambling!” People have no freakin’ clue what I’m talking about, how it works, why people do it, why I’m doing it, and they seem to think that I’m 30 seconds away from total financial ruin. /end_rant; I’m happy that I’m not the only “crazy foo” for using borrowed money for investing. Now that I’ve made the plunge into writing “naked puts” to help generate income, I wouldn’t be able to do it without margin credit. I’m going to go out on a limb here and say, those who do not want to embrace finance are doomed to a lifetime of financial servitude. For those of your… Read more »
Your wise words are always welcomed here. I think your analogy of financial servitude echoes true for all aspects of life. If you study and become knowledgeable or skilled at something then you will likely reap more benefits from whatever you’re doing than the average person. The more you draw the better artist you become. The more you read the better you can communicate. And the more you learn about personal finance the better your own financial situation will be. You’ll make more money if you understand how money works 😀
And I LOVE the “forever a loan” pic! Pure awesomeness!
My Portland trip, I spent about $400 over two days, and that doesn’t include going out to eat.
I remember you writing about it. $200 per day for traveling is quite thrifty.
I just spent $600 today on a truck load of dirt so my son can make dirt jumps with his bike… On a more serious level, similar to yours, I bought some bulk trucking (TMA), somebody that likes to do assemblies (AM), satellites are cool (MAL), some food (PBH), everybody needs insurance (SLF), a piper (VSN) and a heavy duty rental company (WTA). All total I spent $20K to fill my TFSA with these over the past several months… I think spending this way is an additction. But if I pick right, my addication might become self supporting one day:)
I have PBH and SLF too. It has certainly become an addiction for me. I have a list of things I want to buy but I lack the capital right now to buy everything I want. I don’t care about having a product. But I do anticipate having the money one day to partially own the maker of that product. Buy some bread and you eat for a day, buy a bakery and you eat for a lifetime.
My long list of things to buy too is also limited by a lack of fund… However things to consider: how many holdings are too many? You don’t want your portfolio to have a gazillion different companies… I’m thinking of starting to develop a time-frame system so that if they don’t do what I want in a timely enough fashion, I’m going to cull them.
As dumb as it sounds i hold most of my RRSP’s in Mutual funds (Bissett, PH&N and Sprott – Mostlly CDN Equities or Dividend type funds). I purchased them and have been adding to them. I tend each year to try and “predict” a low for the year and market time a bulk purchase. this has worked for me, over time and I have built solid investments, and have qualified as an accredited investor in the process thereby lowering my fees. Stocks wise I hold 4 in a non-registed account, and 7 in my TFSA as listed above. from my research and reading over the years 10-20 positions could replace my Mutual fund holdings, although at this point I’m too lazy and becasue they have averaged about 8% over the last 10 year time frame due to my timed purchases. Again it is really upto the individual for number, names and risk tolearnace. set your goal, as Liquid has done and go out and achieve it. It does not matter if others do better of worse. do what you want to do and you will be much happier.
Is 4.25% really the best rate you could get?
If you’re investing this aggresivley, I assume you have some equity in your house. What about a 1.99% heloc from penfed?
It’s not ideal but this is the lowest rate I could find right now for an unsecured loan. I’d love to hear if you have any interesting ideas 🙂 My margin rate is lower but I’ve pretty much maxed out my borrowing capacity there. And I don’t have enough equity in my home yet to take advantage of any home equity loans right now 🙁 The bank still owns about 80% of my home, lol.
RBC has been advertising a home-secured line of credit that costs P+ 0.5% lately. That might save you a blistering 0.75%. It’s essentially a mortgage… but if the terms of your mortgage are lower than P+0.5%, then you’re better off taking as long as you can to pay down your mortgage and just invest everything else.
One other place to look is to IB (Interactive Brokers). They have VERY low margin rates.
Liquid – Being of an analytic type mind, have you done the math on past investments to ensure you are covering your 4.25% after all expenses/taxes,etc… In a growing market, borrowing makes sense. But in a market like today, one needs to ensure the math works, otherwise, it is just gambling… I’m just saying… Like I mentioned in a previous post, I borrow to invest because the math tells me after all is said and done I will make 2x my current borrow rate, clear. Time is on your side (you are young) – don’t rush it by taking on too much debt when it might not be benefiting you. Cheers!
Hmm, I actually haven’t put too much thought into that. RRSPs loans as you know are short term debts. In my case it’s a 1 year loan. So every month I pay about $851 for 12 months, then the loan is paid off. After which I will have paid about $220 in total interest. So i asked myself what are my chances of making more than $220 of after tax income on $10,000 of investments in 1 year? After some consideration I would easily put it at over 50%. What I didn’t consider however was the opportunity cost of saving and investing $10,000 over that 1 year period, and also minor things like the fact that a dividend distribution is usually equal to a drop in stock price by the same amount. Thanks for your concern 🙂 I guess I am gambling a bit because in terms of cash flow, the dividends barely equal the interest I pay lol. So if the stocks lose any value at all then I’ll be underwater. Oh well, at least the TSX is 10% lower than it was a year ago so I know I’m not buying at the top. And DRIPs will help… Read more »
I’ve made you think about it, and you have… My philosophy has has changed from your approach overtime, but as a result of having accumulated some wealth, so I inderstand where you are coming from. Today, I borrow money only when it is a mathematical guarenteed money making venture. As to P/E ratios, they are only part of the equation. One needs to look at forward P/E’s and, sales growth, dividend growth, company debt levels etc… I know you know this. Just don’t get lost into thinking that if you put money in that it will work out. KNOW it will and you will succeed! Cheers! I look forward to your future posts.
How do you get a net benefit by borrowing to invest, especially in this case where the interest rate the same than the dividends (based on the numbers provided)? Are you expecting to profit from capital gains/tax deductibility? Is your 10K/yr dividend income goal net of interest costs from your loans/margins?
Good comment Jason – I posted above, and missed yours here, ewhere you have basically said the same thing.
Like Phil mentioned, excellent points Jason.The key strategy in this case is to get into the market early to have those dividends reinvest asap. Much like a mortgage the interest I pay on the loan goes DOWN every time I make a payment. However, the dividend income I’ll receive from this new $10,000 investment will go UP every time they pay out because I’ve opted to use the dividends to buy new shares. So for REI.UN for example, every month I will be getting a new unit, and at the end of 1 year I will have 12 more units than I had in the beginning, and each of those new units I’ve obtained will be generating $0.115 per month. Not much, but it all ads up over the long run I hope. You can also read the reply I wrote to Phil above for more info on my thinking. Even though I do think the markets are undervalued compared to historical P/E, I don’t really plan to profit from capital gains but that would a welcomed bonus. The 10K/year dividend goal is gross dividends, not counting any interest from loans/margins or any types of taxes.