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Methods of Borrowing to Invest

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Financial Planning -> Stocks, Bonds etc. -> Borrowing to Invest -> Methods of Borrowing to Invest

Methods of Borrowing to Invest

With both of the following methods of borrowing, you can borrow slowly over time as you use the money to invest, principal repayments are not necessary, and you can usually get a relatively low interest rate.

Line of credit mortgage

This is probably the best way to borrow to invest.  If your house is paid off, you can probably get a line of credit mortgage at the bank prime interest rate.  You should arrange a line of credit for more than you plan to invest.  This gives you a cushion should any unforeseen event happen.

Margin brokerage account

With a margin brokerage account, you must have some money or stocks in a non-registered account with the brokerage before you can buy stocks on margin.

If there is a crash in the stock markets, you may get a margin call, and have to either sell stocks or transfer money into the account.  For this reason, it is important to ensure that you have enough margin available to withstand a sizeable drop in your market value.  This helps to avoid a margin call, which results in selling the stocks when they are at a low.

Next:

bullet Setting up the brokerage account
bullet Buying the stocks and ETFs
bullet What to do with the dividends
bullet Selling the stocks and ETFs

Tax Tip:  Be cautious, don't overextend yourself, invest in good quality stocks and ETFs.

 

Revised: September 19, 2017

 

 

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