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Before making a major financial decision you
should consult a qualified professional.
What to Do With the Dividends When you Have
Borrowed to Invest
You've borrowed to invest, and now you're collecting
dividends on your investments. What should you do with the dividends?
When you receive dividends on the investments that you have
purchased with borrowed money (leveraged),
you could transfer the dividends less the interest to
another account. This way, the amount of your debt will remain
equal to the cost basis of your investments, making record keeping much
easier. If you want to reinvest the dividends, this also keeps your leveraged investments separate from your
non-leveraged investments.
We don't transfer dividends to a separate account. We use them to pay
interest or to reinvest, or sometimes withdraw them for other purposes. However, we keep excellent records.
We also don't just purchase the stocks in our Recommended
Stocks for Novice Investors article, so when stocks start to look
overpriced, we sometimes dispose of a portion of them to reduce our loan amount.
Whatever you do, don't borrow to invest if it disrupts your ability to sleep
well at night!
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