Tuesday, December 20, 2016

Borrowing to Invest

In this Daily Buy and Sell Advisor article, the author comes out against borrowing to invest. However, he is talking about taking out a loan and only ever paying the interest on the loan.

Personally, I see nothing wrong with borrowing to invest in good stock. I do see a problem with only paying the interest and never the principal. In my budget is a monthly payment to my Line of Credit that I am using to invest in stocks.

The reason investors fail is because they panic when we hit a bear market. We will always hit a bear market at some time. If you are going to invest in dividend stock with a loan, you should focus on changes in dividend payments, not the change in the value of your portfolio.

What can be disastrous is if you borrow to invest and then panic at a bear market decline and sell. You still have to pay back the loan and you may sell stocks at a loss.

Also, if you borrow to invest, you should have a diversified portfolio, with at least 20 stocks and covering most stock categories. I say most because personally I do not invest in resource stock and I tend to not do Tech stocks for the long term as tech stocks often flame out after a while.

The bottom line is that you should not borrow to invest if you are going to be bothered by bear markets.

On my other blog I wrote yesterday about The Keg Royalties Income Fund (TSX-KEG.UN, OTC-KRIUF)... learn more. Tomorrow, I will write about FirstService Corp (TSX-FSV, NASDAQ-FSV)... report learn more on Wednesday, December 21, 2016 around 5 pm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my site for an index to these blog entries and for stocks followed. I have three blogs. The first talks only about specific stocks and is called Investment Talk. The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter.

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