Many of my friends think I am crazy. To borrow money to invest it in the stock market in this unstable time?
Yep!
Hear me out.
I have have been saving and investing since I first arrived in Canada. Way back, 22 years ago, when I used to work as a janitor, while going to college, I used to save $25 per month.
Over the years I have saved, not a lot, but more than your average Canadian. It’s not much really, considering that most Canadian don’t like to save. And I have built a tolerance for the gyrations of the stock market.
This is not the first time I borrow to invest. In fact, every January 1st, when I re-balance my portfolio, I borrow a few thousands to invest for the year.
Well… My mortgage was coming for renewal, and the interest rates are so low, 2% for a variable 5-year term. This is practically free money.
At the same time, I took a look at my favorite Vanguard Canadian Index Fund ETF, the Vanguard Canada All Cap ETF (VCN).
Here is the kicker. The dividend of the ETF, at the time I purchased it was about 2.50%.
This means that right now, I can take the money from the dividends to pay the interest expense, and still have some change left over.
In addition, the interest I pay to make my investment are tax deductible.
Finally, I will continue putting money aside, every month ( I save about $500 per month), to pay my debt.
So I did borrow the money. I got a HELOC or Home Equity Line of Credit, putting my property as a collateral.
How is it turning out so far?
No good!
I bought VCN at $31.74 on June 9th. Today, June 26th, VCN is at 30.48. That means that my investment is down by about 4%.
But…
Assuming that I continue paying my debt to the bank at a rate of $500/month. I will be finished paying this debt in 20 months.
Here is my prediction
I am not a market timer, but over long periods of time, markets have a tendency to go up, not down.
My prediction is that 20 months from now, my VCN shares will be higher than my purchase price of $31.74. Not down.
The money didn’t cost me anything to borrow it, because the dividend paid the interest rate.
I think I will do good. And honestly, following this line of thinking, I wish I had the courage to borrow more, let’s say $250K. But I am not that courageous.
I will set up an alarm in my calendar to update this blog post 20 months from today to let you know how my investment turned out.
Question for you.
Are you making any investment decision during this crazy time? Please share it in the comments.
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