Dividend investing with leverage (SPOILER: the numbers might surprise you)
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- เผยแพร่เมื่อ 4 ต.ค. 2024
- Dividend investing with leverage is a very controversial topic. In this video, I dig into the numbers around investing in the stock market with leveraging a home equity loan.
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Would you ever invest in the stock market using leverage?
Disclaimer: I do not currently invest on leverage and you should understand the risks associated with this type of strategy before investing on leverage.
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I'm just starting the video but you should check out Ben Felix's podcast. He has a recent episode on this subject. Rational Reminder is the podcast name. Episode 91, The Smith Maneuver
Gino L thanks for letting me know. I’ll check it out!
I tired the whole leverage thing but somehow the compounding negative interest rate felt worse than the positive cash flow, especially with capital at risk in the balance. I’d only suggest it if the market crashed hard again and you buy rock solid jnj and msft
@Dividend Growth Investing I was actually thinking about Taking 6,000 Loan from my 401K at work and put this towards my Roth IRA on M1 finance and invest all on SPHD and now i see your video about this. Again the Idea is since you take the loan out from your 401k you are paying interest to yourselves but you lose whatever percentage you were going to get in the 401k? does that make sense?
Love this video and your other video on new construction home $0 down w/ M1 Borrow. Future video idea How to use Leverage in Personal Finance.
My grandfather in 2008 sold his house for 280k, house was paid off, took 150k of that and averaged it in into the market he never tried to guess the bottom he just knew that the market was at extreme discount rates, I believe he invested into 5 etfs and 1 stock which was MSFT, he than rented a house which to this day he still rents for 1150 a month, my whole family though he was crazy and that he would loose it all and were almost about to take legal action and take control of his money, I was only 23 when this happend and I remember this like it was yesterday he told me this " kid in life there are those who are chicken shit and those that make things happen this was my one in a life time opportunity " well hes a multi millionaire living off dividends right know and was the main reason I got into dividend investing, lots of people see fear on the markets and all i see is money signs off discounted stock prices like never before, sorry for the long story.
Great story! He's a smart man!
Guy has some big balls. Glad he stuck to his plan. Maybe that's the real trick - sticking to a plan and blocking out the noise from everyone else
Awesome story. Grandfather is a champ - no fucks given. That's some Big Dick Energy and a successful outcome.
Your grandpa would have seen what the market had done before on downturns and knew it would happen again. Great for him and for you for having learnt to buy on discount!!!
@@timwidner8751 That is one of the most important life lessons in general.
I leveraged into the down market, my only regret was not having access to more equity before the crash.
I felt the exact same way when I saw the market go down. The hard thing is to not let your emotions take over and make irrational life altering decisions.
@Where's Waldo??? ? Yeah, we burned through that, leveraged another 30K but would have loved to buy even more.
8% growth rate with 6.5% dividend yield is a lot to ask for
I think most people run into problems with trading on margin because they are trying to trade rather than invest. If you buy a penny stock with borrowed $50,000 and it crashes, then you owe that money. Your strategy seems like it would work even with no increase in asset value or even a decrease in value. You are using dividend growth and cash flow to pay the debt down. The principle is irrelevant. It's not about doubling money you borrowed. It's about getting access to cash flow that you didn't have before the loan (literally like buying a rental property). I've considered the same thing with M1 borrow. Using it to then acquire more cash flow that can pay for the loan itself, but I get to keep the assets at the end of the loan.
I'm so glad you commented this. This is exactly what I was trying to get across! I've considered doing it with M1 Borrow, but that would only be short term and not long-term like with a fixed rate. Great comment!
How can you beat M1 Plus Borrow's 2% interest rate?!? Even still, most people are not disciplined enough to make it work, but true investors will use leverage to their advantage in this way. Buy and hold quality companies of course and leverage should work imho
Leverage is certainly something I would like to be cautious with. People often say “only invest with money you can afford to lose.” Money you don’t have with interest doesn’t fall in that category.
Words of wisdom I think most people would benefit from. Thanks for watching!
most definitely agree, never invested in stocks with leverage, don't plan on doing it either if i'm quite honest.
Taking it literally, sure, however it is naive to not realize that there is good debt and bad debt
So you buy houses with cash?
@@watson457 not yet. Soon enough
You said “we could have the greatest economic recovery ever” well we did... watching this a year later tho. I still wonder how many people became millionaires from leverage in the market.
crazy to look back at this a year later.
@@DividendGrowthInvesting and even more interesting 2 years later!
@@BigmikeReviews lesson learned, leverage is for short term period lmao
4 yr later...uh oh.
Thanks.. I think leverage is something that some folks can capitalize on, and others get eaten alive -- so as a general guideline I'd say tread carefully ;) I've just taken a slow and steady path to grow wealth, using my own cash for downpayments and such...
Slow and steady wins the race! Love hearing your perspective!
Pussy
I saw your video,well after the fact, but yes, I have been investing on leverage for 6 months now. I have the pleasant problem of oweing taxes on a 3200.00 monthly dividend income. I didn't bother risking my house. My broker provided plenty of margin and I borrowed another 20 k from Citibank at a blended 9%. My yield from the assets I purchased - 30%. So my costs are 1100 a month to make 3200.00 a month. My divs pay the margin interest and I pay the loan from cash to help the income grow. As my dividends pay back the margin I own more and more assets. It's been a great ride. I have a high risk tolerance so not for everyone but Iam on pace to retire by 50.
Leverage is different when there isn't personal liability attached to it. When you have a loss and you have a margin call that you could be personally responsible for then you might want to think twice
Yeah.. It will likely be a long time before this strategy could work with rates so high.
I have been using my E Trade margin account to invest in high quality dividend stocks..... my dividends pay my margin balance..... Been tougher now as margin rate has gone up but I am still doing extremely well with a portfolio balance of about 2.4 million and a margin balance of 500k net/net that's a balance of 1.9 million
You're 100% correct. Many people think they can only invest what they save. But there is another way: get a loan and invest it. I have started to do this but on small scale. However I expect to increase this as time goes.
If it’s a rental property you will also deduct the interest paid. Your home will also increase in value (likely) and your mortgage will amortize. This is the best use of equity - much better than the Dave Ramsey approach.
I agree :)
My "dream" would be that the bank would allow me a 30 year bond issue so that i could buy a bunch of utilities, telecoms and infrastrucutres, high dividend payers, repaying the debt and living of the rest. I noticed that the richest families in my country ended up doing this to buy our known electric, utilities, oil, infrastructures and telecoms. The difierence is that theyre shares have control of the company, and they could use theyre influence to increase the dividends or even extra dividends
Bruno Manco that is the power of leverage and control.
rewatched this today and what you said @18:10 hit me like a brick. the most expensive car payment I've ever had was $172.
I’ll be honest I was surprised by the number as well!!! I try and buy consumer items in cash (if I’m able). Hope you are staying safe!! Cheers from Austin Texas!
Two other scenarios I’d like to have seen broken down. 1- instead of reinvesting div for all 15 years, only start reinvesting once you’re cash positive so that would be in year 4. So the monthly payment is covered and all the extra is reinvested ( cant be on a drip obviously it would have to be done manually). 2- again at the 4 year mark once you’re cash positive, using the extra cash to pay the principle down faster. So the 15 year loan would be paid off much sooner, you will save on the interest being paid, and once it’s all paid off you can start the reinvesting. And see where it is at the end of 15 years. I didn’t do the math but say in the second scenario the loan is paid off in year 11 or 12 and then you start reinvesting that large sum for the last few years up to year 15. I probably didn’t type this out the best way lol. I hope it makes sense what I’m saying. LOVE your videos and what you do! Thank you 😎
Thank you so much for taking the time to comment this. Yeah it makes sense! That could work as well.
M1 u can borrow at 2%
Travis Shooks yup! The catch here is it’s a variable rate. It can go up and down and it’s on margin. The risk is higher because it’s tied to your portfolio value.
i love this. thinking about doing similar (smaller scale) with M1 finance! would really love if you touched on something like this in a future video. would love to hear if you ever did this or if you ever considered with M1 and also how your thoughts have changed over time! 🙌 again, thank you for this video!
Great topic. The OG move is to get the loan and rent the house to let tenants pay for the expense. You then go n rent a house. You now have a 1) Rental property/appreciating asset with ideally a tenant paying the primary n equity loan 2) tax free $50k 3) RE-evaluate this strategy with the dividends eventually reducing your rental housing cost. Did this years ago n it worked perfectly with awesome flexibility!
Lastly remember non -Ira dividends are taxed n will eat into your compounding interest Calc
My $.02 good luck 🍀
Great video and really appreciate for taking your time to do all these research. This is exactly what I am doing right now, in the process to take a equity loan and invest the money into high dividend etfs. You are absolutely right about one thing, the numbers don’t lie. With a proper plan and stick to it, long term investment with compound interest to build a wealthy life. I’ve been playing the banks game for too long, it’s time for bank to play with me. Again, appreciate for what you do and keep up the great work and good luck with your investment with this crazy market.
How is it working out for you one year later?
What about the taxes you incurred on the dividends
I avoid leverage with stocks. I’d rather use leverage with something like Real Estate, especially now securing a low interest rate loan.
I think you aren't alone! I can imagine investing in real estate is very intimidating to a lot of people. Have you ever considered or done research on investing into the stock market with debt? It doesn't seem like a lot of people talk about it. My initial thought is too many people lost a lot during the last financial crisis.
I recently started using leverage, bought Nvidia during the dip at 95 a share, current price is 116 about a month later, I'm already up the annual interest. I've heavily researched into the company and also understand and accept the risks of leverage, i only use 50% of my margin and only buy during sharp drops. Leverage is POWERFUL if you are well educated and calculated on what you're doing.
I believe a leveraged ratio of 10%-15% of your net worth into dividend investing (or real estate, or both), is reasonable risk. At the outset, your net worth does not change and there is significant probability of improvement.
Hey Mike! I could see that working out as well.
It's interesting because M1 is offering 2% I think to leverage your account. I am about to have my second car pair off here in the next 3 months. I already have more than the 350 monthly worked into my budget because of the car payment. Even if dividends do get cut and replaced by other lower paying companies in that ETF you are still invested in a lot of good companies that will eventually appreciate over 15 years.
That is why I was thinking about going with the ETF with this approach. This will add that extra layer of "safety". I really like M1 Borrow especially at 2%. However, I wouldn't use M1 Borrow long-term simply because of the adjustable rate and extra risk that comes with investing on margin. Thanks for watching!
@@DividendGrowthInvesting Absolutely, leveraging a variable rate is kind of what got a lot of people screwed in 2008 with ARMs and houses they couldn't afford even at the lower rate.
There is a small arithmetic error in your calculation. The total yield (dividend yield + share price increase). With your assumed 6.5% dividend yield + 8% share price increase, this ETF would have to achieve an average performance of 14.5% over 15 years, which is anything but conservative. More realistic are 6%-10% Total return/ average.
Nevertheless, this strategy can work, for example, I am currently thinking about investing in a few tobacco companies with leverage, which all pay out around 8%. I would use the dividends to pay off the loan installment. Price gains would be great, but I don't expect them.
Wouldn’t do it myself, but I think the comparison to borrowing for a car is interesting. As much as anything, you’ve made an argument for making an extra $50k and investing it long-term!
Hey Austin! I was really surprised by the amount that people spend each month on a car! This investing strategy is not for everyone. Thanks for watching!
@@DividendGrowthInvesting not for everyone but if you invest in a blue chip/aristocrat dividend portfolio I think it can change someone's life.
Don't forget taxes 15% off the dividend each year
Justin Shearer very good point! Plus the %0.003 off for the expense ratio.
@@DividendGrowthInvesting can you run the numbers again with the tax and ep ratio?
I thought there is a story about Graham and the 29 crash regarding leverage. It didn’t have a pretty outcome. Taught him a lesson I believe.
There are a lot of stories both good and bad when investing in this type of strategy. I don't think this is the right approach for everyone. I think we usually only hear about the really crazy stories of how people got completely rich off of this or completely lost their ass :) We write the pages in our own book of life. Thanks for watching!
I believe your numbers are wrong. You can't have a Dividend Yield of 6,5% AND share price appreciation of 8%. That's too much. Also when using companies with a high dividend yield, that comes mostly at expense of the dividend growth. A company with 6,5% dividend yield AND a dividend growth of 8% is somewhat rare. Usually it's one or the other. 1% yield with 10% growth p.a. , or 5% yield with 4% growth. Your example is not realistic.
SPHD was yielding these numbers back in march when the market crashed.
Personal don't invest in the stock market with leverage right now. I might use a small amount in the future but will have to think about! I always love to learn from you!
Thanks for watching!!
I think if your going to leverage anything it good to have a plan like what you just showed to see if there is a benefit from it. I think I would let the dividend keep reinvesting and treat the loan payment as part of monthly deposit til it is paid off
Dividend Driver James I agree. If I did this, I would do it with the intention of reinvesting but it would be nice to know that you had the option to always use it to pay the loan if you had to. Thanks for watching!
Hol’ up, you are taking 6.5% yield, 8% growth of dividend and 8% stock growth. Damn son.
lol well when I recorded this video, this was back when rates were low and stock prices were crashing. Now it wouldn't work as easy with rates so high.
@@DividendGrowthInvesting my point was, you can have either high yield or high price growth, both don't go usually hand in hand. Also now would be very painful to actually return that loan with a variable interest rate...
I often consider this, but the best thing is a margin loan and leverage that way. Leave some 20% downturn room and hope for the best.
Whats the update?have u done it?now 2024
I recently thought about this topic. Sadly it’s when rates are absolutely crazy. I created a spread sheet and ran the numbers . It’s definitely less attractive nowadays but during certain market conditions it does seem attractive.
Currently I’m looking at a 13% interest rate. With very limited risky options to invest in to even make this profitable I don’t think it would be wise to jump into something like this now. Even with something high yielding like JEPI I couldn’t cover the interest without dipping into dividends earned from my own money.
It’ll definitely be something I can look into the next time interest rates are low.
yeah it doesnt make sense with high interest rates :(
@@DividendGrowthInvesting I also looked at taking a home equity loan. If I can get a 3-3.5% interest rate then it’ll be a huge opportunity. Sadly I didn’t do much research into stocks 3 years ago but if I could have locked in under a 3% loan and took out say a 100k loan, I could have easily put the whole amount in SCHD and paid off the monthly interest myself. That would have created a dividend machine!
I’ll look into it when interest rates hopefully fall below 4%.
After the market goes back up, I could borrow a hardship loan from my 401k interest free to jump-start the divideds. Plus, I quit smoking five days ago, there's $6-$10 a day i can invest.
Congrats on not smoking!! That is so exciting! Im really happy for you! Use the investopedia dividend calculator to calculate how much $10 will save you over 10-15 years. It will blow you away!
Thanks, I put the numbers in the calculator. That's a lot of retirement money! lol
Hall Paint And Body :)
I think this type of investing CAN work but for most people it definitely is risky and in times like these it can kill you IF you can not setup right. If you have the cash and can make it work however it does make sense to do it if you are comfortable with the risk. Thanks for the video was interesting!
Robin Haney thanks for watching! It’s definitely something interesting to think about.
I would use leverage on growth stocks which are at or near the bottom of a market crash, and then sell them after they have appreciated back to their pre-drop prices (or higher if you can). You take those profits and then you buy the dividend paying stocks and funds. But the hard part of course is knowing when the bottom is in. Many pundits claim that we will see a drop of 30 to 50% in the next crash, so if you can find a solid growth ticker that looks like it'll rebound after a hard crash, I say it wouldn't be out of place to take out a loan in order to buy on a big dip, then sell it for the income plays.
I think an interesting exercise would be to revisit this and see where you would be at 2 1/2 years later if you had put the 50k into SPHD. Also the off handed comments about the recovery and inflation are pure gold 😄
But why would you invest in stocks with that money? You can easily find a rental property that have 12-35% on roi if you understand the local market and find a good deal. Yes tenants are big headache but thats why property managers are here to ease that problem and you can basically repeat this process on every single property you own once your equity builds up enough. House price will appreciate and you can get cashflow from renters same concept but way more higher return than stocks and stocks are very volatile and does not guarantee same dividend payout
I invest in dividend stocks, ETF, ETN. I was thinking of doing the sameish with loans from my Whole Life insurance.
Very interesting approach 👍 Honestly the investing in dividend growth stocks strategy which you presented here in the channel without leveraging, convinced me more 😉 It’s a really good feeling to fall asleep without debts every night. But assumed we have a coming depression and the Dow Jones is halved to 12k, I am not loosing my bank job, then I am really considering to using the leveraging effect. I think I would taking then 20-30k EUR. Unfortunately here in Germany we are paying 25% taxes for the dividends 🤔 Greetz from Offenbach and stay healthy my friend ✌️
Rol Ando I think you are right. The emotional impact debt can have is often not really worth it for most people.
Ich hoffe es geht dir und deine Familie in dieser schwierigen Zeit gut! I habe ein Jahr in Frankfurt und sechs Jahre in München gewohnt. Vg aus Texas!
Dividend Growth Investing You said it.
Thanks my friend, we are all good and healthy ✌️
Wow. Great video. Not for everyone, but its a real eye opener!
Thomas Winter I agree! Thanks for watching!
Kind of an old video but you can use leverage in M1 at 2 percent which is quite a bit lower than your rate here. I feel this would be a better option long term because worst comes worst you’re not risking your house. I might do this after watching your video. I love your video! Keep it up.
I did do it. I did $7500(12% of my portfolio value) at 2% with SPHD. I love SPHD. Prior to the margin it was tied as my largest holding. While I love the covered call ETFs and own a few, I would consider going with something with a qualified dividend. Depending on your tax bracket you could get killed with taxes on something like QYLD. Idk your situation though. Something I thought of earlier would be to buy tax free dividend government bonds that have a dividend payout percent larger than the loan interest and make money that way. The dividend would be tax free and you could deduct the interest payed on taxes. What do you think of this?
I’m 100% with you, and exactly exploring the same route. By using the bank system in your favor, using the equity of my house, and with the know risk ahead leverage my investment tremendously :)
And thank you for such a explanatory video!
Hey Ricardo! Thank you for watching! I think if done responsibly, this could be an incredible opportunity for long-term investors! I'm so glad you liked the video!
Unless you have a crystal ball, leveraging is always a huge risk, but huge risk is what has made many people millionaires. You just got to hope that you'll be one of the ones that made it.
I couldn't say it better myself. There are certain things you can do to increase your odds, but there will always be risk. Happy Sunday Tailong!
Margin loans are crap. Too risky, Banks equate price to value. For example, consider this scenario, if the stock Johnson and Johnson went down 40% and I bought JNJ on margin the banks would force me to sell most or all my shares(assuming no cash in brokerage account), despite JNJ having:
A rock solid balance sheet
An excellent credit rating and
Selling essential products that people need
Would consider investing with leverage if lenders offered products that did not collateralise my shares and the interest rate was low...
Use portfolio margin with Protective puts to solve this problem.
nice video topic unique ;) How have you been Jake?
Hey Dejan! Doing well. I haven't left my house in 4.5 weeks... I now see going out to the mailbox as an activity :)
Hope you and your family are staying safe!
What if you just used M1 borrow? You could borrow 10k from your portfolio with less interest. Less reward but also less risky
The catch here is it’s a variable rate. It can go up and down and it’s on margin. The risk is higher because it’s tied to your portfolio value. I personally would prefer a fixed rate for a long-term investment strategy like this (10-15 years for example). M1 Borrow is something that I would focus on something short-term.
Great video, thanks for doing all the research! I have used my leverage recently to buy a piece of land that was a screaming deal. I would have a hard time investing 50k in an ETF and would probably invest in real estate.
I remember you mentioning that you bought a piece of land! I’m really excited for you! I think if you had the choice between a good re deal and an ETF, the re deal would usually be the better choice - in my opinion.
Nice video but your returns way off. You are forecasting. 14% plus total return per annum. Half that and run again I think
WOW! This is "off the chain"! I need to watch this again! I wouldn't do it myself, because I'm allergic to leverage. 🤣
Man, this is trippin'! Great video!
:) Thanks for watching!
i got a 2.7 fixed thirty year cash out refinance. Its a jumbo size loan of half a million dollars. I can get long term RE equity appreciation and live for free. I'm thinking of selling cash secured puts and buying in on 7% dips.
Not bad at all!
@@DividendGrowthInvesting The people who are saying leverage is bad arent differentiating between good and bad leverage. Margin is bad leverage because markets are volatile and broker margin money is slippery and will not stay with us during market drawdowns. I follow kiyosaki rich dad principles and the many real estate developers who do this. Actually if you have a 401K and a mortgage, then you are effectively leveraging. higher inflation is the FED policy which means that a fixed interest expense is a downward sloping line over a long time horizon and if you believe in dividend growth then that means revenue is a upward sloping line. The growing gap difference between revenue and expense is the interest arbitrage.
Thanks for sharing interesting topic. I 'm just curious about some other factors that might effects the return on investment in stock market like you have to pay tax once you cashing out (how do you calculate this to make the number more accurate?), Assume if we are in the recession or bear market , when you need to cash out. is this will decrease portfolio value significantly from the number in your illustrate?
This is a great question! This is not something I address in the video, but very important nonetheless! To really dive into the nitty gritty, the tax rate would be 15% in this case and you would also need to factor in the 0.003% expense ratio. In my personal opinion I would put a plan in place where you would never have to "cash out" the portfolio. If you had to sell off the portfolio during a 20-30% correction, this would cause a major financial hardship. If I were to invest in this type of a strategy, I would make sure I had multiple options that would prevent me from having to cash out due to a hardship. However, hardships and unexpected situations occur all the time... hope for the best but plan for the worst.
I using margin facility from IB and the interest rate much lower than home equity. Only 1.5% if u borrow EUR. then invest in REIT like ARR which give above 8% dividend yield, easily earn money using broker's money. Of coz ARR is just a example, you can consider KO which DY still beat interest rate paid to IB. What do you think ?
There is always risk that comes with this. When it comes to this, I just like to plan for the worst case scenario. If the worst case scenario doesn't involve you not being able to pay your rent or buy food, then I think it could work. Just be careful is what I always like to say.
@@DividendGrowthInvesting thanks for reply. the journey will not be lonely with community support like this. :)
I believe people use conservative and risky as a substitute for ignorance and lack of understanding of markets and investing strategies. I actually thought you were going to buy dividend royalty stocks on margins. That is the kind of leverage I was looking for. Take $50K out of your house, place it in a margin account and buy $100K stock in the right stock(s). I would love to see what that looks like.
Then maybe sell covered calls for additional cash flow as an additional scenario
Interesting approach.
Something to be aware of but most definitely not for everyone!
If you are going to do it, then buy only the best blue-chip companies. Most people use leverage to buy cars or homes. Most companies use leverage to expand their businesses. I would wait for a 50% market downturn, then average in with leverage. I don't think we are going in another "Great Depression", but I could be wrong. If we are, then you will have missed the worst part of the sell-off. If you have a very secure job, like working for the government or military, I would go all-in after a 60% sell-off.
Very interesting perspective! I think everyone is walking on egg shells right now trying not to make the mistake of their lives.. time will tell. Thanks for watching!
I load up on margin baby.
Hey Nic! High risk and high reward is how I see it! Investing on margin is very different than investing with leverage in terms of how I explain the scenario in this video. The main difference with the scenario in this video, is as long as you are paying the monthly loan, you can never get a margin call from the bank when the portfolio value goes down.
Dividend Growth Investing Some people take high risks investing in pot stocks, Tesla, and other spec plays. I prefer the risk of using margin to load up on dividend growth favorites like MSFT, JNJ, UNP, CLX. I’d rather get a margin call and have to send Chuck some money to hold onto my blue chips favorites than bag holding a spec play headed to bankruptcy. Though I’m only 26 years old and am more comfortable with this strategy having time on my side.
@@nicpalmeri6176 9/10 people would tell you are crazy. I think so many people are against this type of strategy because they lost their asses by doing exactly what you mentioned with the speculative investments (most notably back in 2008). At the end of the day it comes down to cash flow. As long as you can continue to fund your portfolio should it go down, you will likely do very well long-term. The cash flow is key.
Dividend Growth Investing I had margin blow up on me in 2015 when I only had 4 different holding and my biggest position was KMI. I learned my lesson then and I feel comfortable covering a margin call and right now have 20 different holdings! I wouldn’t do it if I only had a 5 or 10 year outlook
Amazing! I get free leverage use so i have been looking for a video like this!
Thanks for watching!!
Very interesting !
Thanks for watching!!
Could you or someone else provide a link to this calculator? I can't seem to find it online
Interesting! I would do this with an amount Im willing to lose Incase things go sideways
Very good call!
Great video. Keep up the good work :)
Thanks for watching!!!
As long as the return is equal or greater than the borrowed interest rate, you cant go wrong.
I see it that way as well!
But of course there is risk. As you pointed out.
I’m curious what your thoughts are on Jake Broe and many other Credit Card TH-camrs that are suddenly giving investing advice. That guy in particular put out a video about dividend investing that made me unsubscribe from his channel...
Hey Matt, just curious, I am a new investor,(2 yrs) what line of thinking did Jake have that you disagree with? Thanks in advance
Hey Matt! I just watched the video you were referring to. I don’t follow Jake Broe’s channel but at a glance it appears he centers his content around finance (mostly credit cards like you mentioned). Jake B is correct when he compares the total market return of dividend vs non dividend companies. Another popular youtuber who stresses this is Ben Felix. I do not agree with Jake B on his characterization that dividends and capital appreciation are the same thing. I like to think of this when comparing investing in real estate to “flip” or buy and sell or to rent the property for cash flow. Think of investing in growth stocks as buying a house to buy and sell. Once you sell that asset your investment is complete. When you buy a house to rent, you focus on monthly cash flow. The price of the house is no longer in focus. You want to focus on the monthly cash flow. This is what creates generational wealth.
Capital appreciation is important especially when it comes to the overall health of the company/ asset. That’s why we talk about dividend growth but the focus is on continual cash flow forever.
alex hazuda
Well, he said a lot I disagree with, but he did disclaim he’s a “new investor.” However, in the same breath he claimed to have done enough “research” to debunk dividend investing. More importantly, it’s what he left out about dividend investing that bugs me most, his comparisons were incomplete and misleading. Here’s a few items I took issue to:
1. dividend investor videos are just a “get rich quick scheme.”
2. That there’s zero advantage to dividends, and that growth stocks are better.
3. That the numbers for dividend stocks don’t add up.
Dividend Growth Investing
That’s exactly what I meant in my last comment when I said “it’s what he left out that bugged me most.” Great explanation.
Great video
Yashwanth Naidu thanks for watching!!
Seems awfully similar to buying on margin which I think you told us you had a bad experience with some years ago? Thanks for the videos BTW!
Hey Steve! I learned my lesson a long time ago! This is similar but in some cases very different. The main difference is the money in this example is at a fixed rate and is not tied to the value of your portfolio. I personally will only use margin from M1 borrow for short term expenses and not to buy stocks. I’m considering using M1 borrow for a down payment on a rental. Thanks for watching!
@@DividendGrowthInvesting I am thinking about using M1 borrow for my first place too, good luck to us both and thanks for the content!
Margin debt is tied to the value of your portfolio, so if a market crash happens, they may call your loan or sell depressed stocks to pay it off. Using a HELOC good luck in your debt service, so as long as you keep paying it, it’s fine and doesn’t concern itself with your portfolio value.
is 4x leverage high?
playing a money cliff hanger a dangerous game
This is definitely not something for every stomach. Thanks for watching!
Be careful. This appears to be a Reg T violation. Borrowing money to invest is subject to rules. Know the rules.
The tax laws are important to understand.
What about the income tax on the dividend? That's going to take away at least 10-15% for the average Joe.
Hi Gary! Very important point. This is very true.
@@DividendGrowthInvesting If I were to do this the $ would go into a tax free Roth IRA
@@PitDaddy That would be a really good choice! I love investing in my Roth IRA for the tax advantages that come with it!
I'm buying dubble the amount of stocks these days, half ST with margin and I keep half for LT investing. Lending seems like a solid idea to do, but I want to be debtfree in the long run. I don't really see margin plays as debt (as long as it is used wisely) ie hitting those swings, letting the market do it's thing and using your brain. Great video, something to think about really. Great work.
Hey Jonathan! Thank you!!!
6.5 % yield + 8% growth seems way high
LifeCoach44 back in March that is what it was yielding. Crazy how fast the market has corrected
Great video. I think 2 years on this is going to be at play after the crash.
Of course there’s risk but I think it’s a good risk
I agree!
Seem logic you borrow at 3.5 % Buy something that give you 6.5% and growing, at lowest share price cause of the crash, backup by 50 big companys, it a Win if you ask me
It is something really to consider!
Even at a higher interest rate (2% higher than dividends) works out after 4 years as the growth in the dividend plus the growth in the stock are compounding upwards where as the interest is reducing and the most you will pay is your first month. I would do this by buying a dividend growth etf (VDY in Canada) which has a 3.77 yield and a 9.3% annualized return over 10 years. This way you remove the risk of a single stock becoming obsolete and also eliminate the risk of dividend reduction one would have in a 7% yield etf. Vanguard also has 1b in assets so the chance of this etf being closed is extremely minimal. By doing this at year 4 you can funnel the excess of dividends over interest back into the loan which can reduce the loan term by 1-3 years depending on the income spread (assuming 10 year term).
There is still risk involved with this, but if you have the free income (from a very secure job - and well managed expense and budget) to clear the basic principal and interest payments there is really only an upside to this as your return on investment would be calculated as your earned income in a year / interest which should start swinging really high the further you pay down the loan. The maximum that could be called would be the principal at any given time but if you are able to repay the principal and interest this should not occur.
I have to stress that something like this should never be done if you do not have an extreme grasp on your expenses and an extremely secure job or the ability to liquidate other assets to clear the liability if the need arises.
You could do this video nowadays!!!
I know right!!! A lot of value out there right now!
@@DividendGrowthInvesting I am looking forward. Thank you
Sphd sucks there’s a lot of better dividned etfs
SPHD is definitely not my favorite dividend growth ETF; however, it is one of the better monthly dividend ETFs out there in my opinion.
lol imagine if he was really doing it on the side.
Lol naw at least not right now but maybe in the future :)
This obsession with dividends is just dumb. If you only buy dividend paying stocks, you're cutting your diversification short. You'd miss out on great stocks like Tesla, for example. A total market ETF would've captured Tesla's massive growth. And it will capture the next Tesla's massive growth.
You could just buy the companies yourself no expense ratio
Hey Fred! Very True! M1 is a great platform to do exactly that!
Not a bad method to invest with leverage, but I think there are better ways. I'm utilizing the Hedgefundie UPRO/TMF Strategy. Only time will tell how it all turns out.
Very interesting! Thanks for the recommendation!
*I don't use leverage to invest.* 😉
It is definitely not for everyone. Most people would prefer to sleep well at night and not stress about all the potential unknowns. It is hard though to watch people go spend $500 a month on a car but say investing in real estate on leverage is too risky.
I stay away from leverage :)
It is most definitely not for everyone! I am completely against bad debt. Thanks for watching jason!
you know what they say, 5% a day, keeps the dayjob away!
lol i love this!
Completely nuts!!!!! At least get a mortage on a house you don't live, market is doing crazy things and people do crazy things , not always is going to work out as you thought and dividends is just a candy of the investment , the money is in capital gains. Just use CFD is you can .