Monday, April 17, 2017

Borrowing to invest? Everyone is doing it.

A lot of people will consider this once or twice in their life: 'Should I borrow money to invest into an opportunity?' The answer will depend on your own risk tolerance and what you are investing into. I know...what a disappointing answer. But at the end of the day, if you did your research, then the strategy is a viable. You'll need to understand all the risks and figure out how to mitigate it.

However, what I wanted to express in this post is that a lot of people are already doing it without realizing it. MORTGAGE! That's right, when you get a mortgage, you are basically borrowing money and investing into the housing market. The "dividend" from your investment is having a place to live.

I remember the first time someone said that to me... My mind was blown. Imagine if I told you I have a $200,000 mortgage, you will think I am a normal sane person like everyone else. But what if I told you I borrowed $200,000 and invested into Bell (TSX: BCE), you'll probably think I am a crazy adrenaline junky with a serious gambling problem. Why the drastic difference? Because a lot of people believe that real estate is low risk and the stock market is pretty risky. The truth is all investments are low risk if you know what you are doing and high risk if you don't. If you already have a mortgage then you are already investing. The next step is to start diversifying your investments, don't put all your investment into your house.

3 comments:

  1. Nice post. As you are just starting and have looked into, read and seem to have a pretty good understanding of finances, don't get too caught up in diversification. Its the mentality of those who preach Passive Index ETF investing. One can own everything with only a few etf's and all at a low fee. What could be better? I think a lot. ETF's are great for those who don't want to take the time or don't know what they are doing, which may be the majority of stock investors, but there is a better way at least in my opinion.

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    1. I agree, I don't hold any ETF just e-series Index fund with TD bank. The only reason for Index fund is because I can do small monthly contribution each month without having to incur commission fee. However, I am confuse from your post, is there a way to continue buying share without commission besides DRIP.

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  2. I was referring to Company DRIP's as my posts suggest at MOA. Personally I feel owning individual stocks will produce better income than owning etf's. If one can only invest $50, $100 or even $500 invest in quality DG stock(s), with a long history of paying and growing their dividend, than thinking you are better off spreading over 70, 250 or even 7000 stocks which comprise an etf.

    If one can afford to invest $1,000 or more than paying a small commission may be simplier but again stick with solid DG stocks

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