Weekend Reading – To leverage or not to leverage

Weekend Reading – To leverage or not to leverage

Welcome to a new Weekend Reading edition, to leverage or not to leverage edition.

I’ll come back to some thinking on that, in a bit!

First up, some recent articles in case you missed them!

I highlighted a MarketWatch article recently that suggested some younger workers need not save for retirement at all, and why.

I’m in the process of giving away a new personal finance book:

Learn why you should Buy This, Not That

Weekend Reading – To leverage or not to leverage – is that the question?

Weekend Reading - To leverage or not to leverage

Borrowing money today to invest in the future, for expected higher returns over time, is a legitimate strategy to build wealth.

We do it all the time, at least most of us do – with housing. The same could also be true with your education, that’s an investment in you and your human capital. Same goes for launching a business, borrowing money to grow that as well. 

A less common path maybe, but a much more scrutinized path, is borrowing money to build an investment portfolio.

Borrowing for investment purposes essentially means you intend to invest large amounts of capital either all at once or over a period of time, to typcially buy publicly-traded companies.

This approach can also be tax deductible.

If you use borrowed money to buy investments, for investment income, the interest may be deductible. As long as your investments generate income such as dividends or interest, or if you have a reasonable expectation that they will generate income, you can deduct the interest on your loan from your total income. Capital gains are not income for the purposes of this deduction. If you borrow to invest only in shares that don’t pay dividends and rely on capital gains to make money, the interest is not deductible.

This brings me to this new point: borrowing to invest can also trigger major financial consequences.

Folks in their 20s or 30s, or even 40s, growing a career or family or both, likely have many competing financial choices and obligations. Rent, mortgages, car payments, childcare expenses, expenses related to childrens’ activities – let alone saving for your financial future – all compete with each other. Add on too much leverage, and this makes life and your personal finances, much more complicated to maintain. 

Leveraged investing comes with many risks:

  • the investment made with borrowed money may drop in value, which can trigger bad investor behaviour.
  • the investment made with borrowed money may not deliver the desired investment income to cover loan costs.
  • any investment made should ideally be aligned with any investor long-term financial goals, measured in years or decades, related to any well thoughtout financial plan. 

All too often, I see these risks underestimated.

I think people, including myself, don’t know what you don’t know. 

For years now, investors have been able to borrow money against their home through a home-equity line of credit. But such borrowing might only be good for folks who have considerable wealth tied up in their home, and/or who have the financial discipline to pay off any debt should they need to. Tapping a home-equity loan like an ATM machine might be far from smart for many individuals.

Coming back to what you don’t know – risk is generally defined as the possibility of something negative happening: some harm, danger or loss. Risk involves uncertainty about the effects/implications of an activity or impacting things we value. While there are many elements of risk and risk management, most of us would agree it’s the uncertainty part that could deliver undesired effects or significant losses – and risk usually keeps most people financially-worried.

So therein lies the rub for me: unless you are very skilled at risk management (and some investors are) – I would avoid too much leverage. That means, borrowing some money for your house, for your education, for your business and even for your portfolio is all fine and good, but you should only borrow lots of money and take on higher financial risk IF you are a practicing expert in risk management. 

Do you know in detail how inflation will work out?

Do you know where interest rates are going and what direct impact that will have on you?

Have you considered what happens if any financial decision doesn’t work as intended, including what you will do next in any of those conditions?

I doubt it, but there’s no shame in that. True risk management work is tedious and ongoing, and quite frankly, most of us don’t have the time for it to become an expert-at-home or keep up our proficiency! Myself included. 🙂 

This is why I don’t borrow huge sums of money to invest, in a house or my portfolio, and likely won’t. 

Instead, my personal finance recipe is boringly simple but effective for me:

  1. I do take on debt, mortgage debt, but not too much – I pay it off at a very low-interest rate (1.69%).
  2. I pay myself first, maxing out my TFSA first and then RRSP next. 
  3. I invest in my/our taxable accounts if and when I have money to invest beyond our TFSAs and RRSPs.  
  4. I live my life and try to spend money leftover as I please, because life is short and time is precious. 

No lengthy credit applications to sell my soul. No margin calls. No massive lines of credit to worry about it.

I have full confidence there are many investors out there who are savvy at leverage and are well-suited to borrow and keep borrowing for wealth-building purposes. I’m simply not one of them and it doesn’t bother me one bit. 

What are your thoughts on leverage? Do it, still doing it? Avoiding it? Share with me in a comment!

More Weekend Reading – To leverage or not to leverage

Part of my inspiration for this week’s theme was from Rob at Passive Canadian Income, who just deleveraged I suspect for some of the reasons I wrote about above. From Rob:

“While its unfortunate to lose that much in forward income our heloc was charging 6% (and will probably increase before falling down a bit) on 100k those payments would cost $7200 a year…. I wanted to pay off all our debts and will continue dollar cost averaging into positions each month.”

If you want to make a few extra bucks, fast, Maple Money has some ideas. 

My friend GenY Money continues to compound money like mad.

“My September 2022 Forward Dividend Income is $27,099 and this is a 3.6 % increase from last month, or $931 increase in annual dividend income.”

Incredible stuff by Dividend Daddy.

“This means that in September:

  • I earned $155.41 every day from dividends ($4,662.42 / 30 days).
  • I earned $26.49 per hour from dividends (assuming a 9-5pm job).
  • I earned $6.48 every hour of every day of the month from dividends.”

Vibrant Dreamer keeps a fine list of monthly dividend income updates, and I’m happy to be on it!

VibrantDreamer - August 2022

Source: VibrantDreamer

Like most DIY investors in Canada, we like stocks but we really enjoy buying and holding stocks that Beat the TSX index!

Check out our interview with DividendStrategy.ca on Cashflows & Portfolios about when the BTSX investing strategy works and when it doesn’t for your wealth-building ideas. 

Further Reading: Can you have too much income from dividends??? 

Dividend Growth Investor shared his analysis of Microsoft stock, well worth a read. 

Watch and listen to me at the 2022 Canadian Financial Summit!

This year’s Summit is coming fast – next Wednesday, October 12th!

Some fast-facts about the Summit:

  • I’m speaking 🙂

2022 Canadian Financial Summit

I encourage you to get that currently discounted All-Access Pass to watch all speakers, all topics, whenever you wish!!

Once you sign up, from October 13th to October 15th, you’ll get an email each day that will contain the links to all the interviews and presentations for that day.

Remember that if you did not buy the All-Access Pass, those videos will only be available for free viewing for 48 hours from the time that they launch. There are 35+ sessions at this year’s Summit, plus 6 bonus interviews and 4 live Q&A sessions for those who purchase the All-Access Pass from my link.

Feel free to head on over to the Canadian Financial Summit, sign up for free, AND be automatically entered to win one of the free Premium All-Access Passes the team will be giving away when the event goes LIVE on October 12th.

A final reminder that the Early Bird Discount on the All-Access Pass will end on October 12th, so this is one of your last chances to get it at the reduced price. Once the Summit starts on the 12th, the price will increase to $97, and after the Summit is over the All-Access Pass will immediately revert back to its full $197 price tag.

Here is my link again to secure your Early Bird Discount (at 56% off!) before the price goes up October 12th.

Have a great weekend!


My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.

27 Responses to "Weekend Reading – To leverage or not to leverage"

  1. A reasonable and strategic approach to leveraging is opportunity and I’m happy to see you haven’t ruled it out in the future.
    Leveraged a bit during Covid drop and that worked out fine. Bought banks and telecom to go in TFSA.
    How is it that borrowing to buy a house (leveraging) is acceptable but borrowing to buy the stock of the bank that holds that mortgage is gambling? I would suggest the stock is more secure then the house, especially since the stock has more diversification.
    People will indebt themselves for a tens of thousands on a vehicle – a depreciating asset, while afraid to indebt themselves to buy a potential appreciating asset like a bank, utility, telecom, RR etc…

    Borrow small amounts <5% of house value
    Automate interest only payments
    Always pay a bit of principal each month – this lowers the average annual interest paid over a given time frame.
    Pay back with 3-5 years from cash flow and not dividends. Get the dividends working harder and not paying the loan
    Time the market – buy the dips or DCA down
    Buy only dividend payers with a strong track record of dividends and low payout ratio
    Buy only what you plan to hold for decades
    Health before wealth – if debt stresses you dump it
    Don't make leveraging your main investment plan – this is a bonus if done correctly

    Always have an escape plan.
    Time to stuff a turkey. Happy thanksgiving

    1. I’m with you Gruff.

      “How is it that borrowing to buy a house (leveraging) is acceptable but borrowing to buy the stock of the bank that holds that mortgage is gambling?”

      A basket of stocks can be more diversification for sure…

      I have no issue with leverage, really. People borrow money all the time. I have an issue with some people borrowing too much money since I don’t believe that’s a good risk-based decision and most folks are very poor at managing risk.

  2. Hi Mark,

    Awesome article, and sometimes I think you’re writing these ones just for me – LOL :p

    So far this year my leveraged portfolio has produced over $20k in dividends and I’ve paid just under $8,000 in interest. Indeed, the interest in the fourth quarter will come close to the total interest for Q1 & Q2 combined due to the interest hikes. 2022 will come in with 21% more dividends than 2022. I only borrowed about $20k in new money this year. Other than for AQN, which I think might yet go lower, I have no intention of borrowing any additional funds. Even with the continued drop in real estate (I’m in the GTA) I’m well below 50% leveraged (including the mortgage)

    I predict with the next interest hikes my interest charges will be getting closer to 58% of dividends received. Not great, but when you also consider the longer term capital appreciation ahead I am not compelled to sell. Even at today’s prices I would pay more in capitals gains by selling then I will in interest. With my (hopeful) five year timeline to retirement I’m much more interested in continuing the dividend snowball.

    Still, I recognize my situation is unique in that I took a significant risk (at the time) by grabbing a ton of stock with my HELOC money after the COVID dump. For example, my average price for BMO is $82.22! And, I’ve collected almost $4,000 in dividends since May 2020.

    For sure, if I experienced a job loss, or other catastrophic event, I would likely be forced to sell enough stock to eliminate the HELOC and I am prepared to do that if such an event occurs, but in the meantime it’s steady as she goes.

    1. James, very good!

      “So far this year my leveraged portfolio has produced over $20k in dividends and I’ve paid just under $8,000 in interest.”

      If you can invest that way, with conviction, great!

      I will consider borrowing to invest when I have no further mortgage, < 2 years now. No debt should be liberating 🙂 But yes, to your point, to be able to borrow $20k, afford the interest, pay off your mortgage and I assume max out TFSA and RRSP (otherwise, why leverage invest if you have room in those accounts?) you're in a rare space! Thoughts? Mark

      1. Yes, TFSAs are maxed. At the time I started our leveraged investing (Q2 2020) TFSAs and RSPs were all maxed. Currently I only regularly contribute the minimum to my work DPSP to get my employer’s match. I’m reserving the remaining RSP room to mitigate anticipated future capital gains and also to minimize any tax owing come tax time. While my interest is tax deductible it does not completely “cancel out” my taxes on the dividends received (although with higher rates, it might eventually). So, I generally make a decision for additional contributions before the RSP deadline to try and avoid paying additional taxes. As my wife has a generous DB plan, we do have more RSP room available there, but since she works part time we again only contribute if it makes sense at tax time. Our cash flow is highly variable, so we do what we can. Other than the TFSAs we haven’t had a lot of opportunity for new investing in 2022.

  3. Poor Rob at PCI. He went and stuck his political views in a financial article. Getting somewhat raked over the coals for it, including from myself. Surprised me that one can be logical and analytical on finance and then listen to political conjecture and not be logical and analytical on that as well.
    On the financial side I think he has overblown it but that is up to him. As I said, to each their pwn.
    As to leverage I believe that if you can make money from your investments be it through dividends or cap gains then the interest incurred is tax deductible. However, if you only sustain losses and never make a cent then the CRA will more than most likely deny your interest expenses as they will view it as a non-viable business. After all, if you can’t claim interest to earn a cap gain then why should you have to pay taxes on the gain? Tit for Tat so to say.

    As to leveraging education I am all for that unless it is just for personal satisfaction (look, I have a degree). Too many young people have been brought up thinking that the world is just waiting for them. Don’t get me wrong, I am all for education but be realistic about it. Are you studying for future employment or for personal satisfaction? Among other things is that not everyone is suited for higher education. Unfortunate to say but not everyone has the brains or comportment for it and it is not because they are stupid. You education matters but your work ethics and job comprehension are also just as important
    Not everyone is suited to be a doctor or attorney. Not everyone is suited for sales. Certain fields are more in demand than others. If you can find something that you enjoy doing, then that education degree is irrelevant Hopefully though it will help you to analyze the world and not blindly follow other people’s ideas just because you believe they know something that you do not.


    1. “Too many young people have been brought up thinking that the world is just waiting for them.”

      I would agree. It’s quite the generational shift. Not all younger folks, but many.

      I feel education or high acquisition of skills/trades is very much tied to work ethic, to your point. You cannot finish a degree (I have 2 degrees BTW) or a Masters if you don’t have work ethic. Something to think about.

      The ability to think independently is highly underrated.

  4. Hello Mark
    I just wanted to question one thing in your assumptions on leverage. You suggest that if you only buy stocks for capital gains, then the interest would not be deductible. I do not believe this is the case at all. All stocks have the ABILITY to generate dividends and the interest is therefore deductible. I have spoken with many tax advisors and investment advisors over the past 30 years and there is no issue at all. I am pretty sure CRA has a ruling/guideline for this. Most investors have a mix of both types of stocks and I do not know of anyone that tracks it.. In my career I have dealt with this many times. Investors use margin accounts all the time and the interest deduction is never questioned by CRA or tax preparers. Of course this does not apply to registered accounts.

    Would like to hear if my comments and assumptions are now inaccurate.

      1. Correct, for the income to be tax deductible, you have to be investing with the intent and purpose to generate income. This isn’t strictly a capital gains/appreciation approach.

    1. Thanks, Ken.

      Where I was personally coming from is, from a taxable account, both dividends and capital gains are treated differently. Inside an RRSP, RRIF, LIRA, or TFSA, etc. inside a registered account it doesn’t matter.

      Margins are fine, but they can be risky. Buying on margin is the only stock-based investment where you stand to lose more money than you invested. Example, a speculative dive of 50% or more will cause you to lose more; factoring in interest and commissions on top of that. I’m not questionning the interest deduction for the paper-trail by CRA. I question most investors ability to pay back the debt at some point if they had to.


        1. Although I use my HELOC, not margin in my trading accounts, I feel the same way. Luckily all my positions have always been green as I loaded up during the COVID crash.

          But, if some financial calamity occurred I could easily find my way to push the sell button and pay off the HELOC.

    2. I have heard, that unless a company specifically says it will never pay a dividend then that company can be suitable for leveraged investing and the interest would be deductible. Having said that, in my own leveraged account I only buy companies with a fully eligible Canadian dividend.

  5. Deane Hennigar (RBull) · Edit

    I like it. Very well said Mark.

    People today would be wise to read and carefully consider the points you’ve written. Times change. There will be much pain but I think we’re going to a better place.

    1. I agree. Pain now and coming out of it better on the other side. Rates have to go up (even more) and some suffering will occur for folks not ready. That has happened before and it will happen again! It will be what it will be!

      Have a great long weekend,

      PS – 20 km on bike today so I don’t feel guilty about a craft beer or two today!

      1. Deane Hennigar (RBull) · Edit

        Right on.
        Thanks, you have a great weekend too.

        Great on the bike ride. I got in a 21k run and just dragged and raked brush down a steep hill across lawn for last 3 hrs.

        Beer and rest time!!

  6. I have read many times that one thing really wealthy people do is avoid leverage. Of course, if you have more than enough money, why would you take on risk to earn more.

    When looking at your financial goals, you determine how much risk you need to take on to meet those goals. Maybe you increase your allocation to stocks, or focus on small-cap stocks. Maybe you use options. Another viable alternative is to use leverage. It’s just another way to dial up risk to try and increase returns.

    I use a lot of leverage. Probably too much. When it works, it’s wonderful. When it doesn’t work, it leaves a sick feeling in the pit of your stomach. I’m still trying to find the right balance.

    Borrowing to invest certainly got a lot more expensive this year!

      1. Well, I just keep paying the interest 🙂

        A portion of my leverage is a fixed mortgage against my house. That will remain at 2.47% for 3 1/2 more years.

        A larger portion is the borrowed money in the margin account; currently at 5.85%, and expected to rise again on October 26th. I am slowly de-leveraging this. The investment account is earning enough in dividends to cover the monthly interest and mortgage payment, but that will stop being the case if rates get too much higher.

        1. That’s the key: The investment account is earning enough in dividends to cover the monthly interest and mortgage payments…as long as that can continue, no worries, but something to actively manage.

  7. Hi Mark,

    You’ve brought up a timely subject.

    I’ve been investing for forty years and I’ve never felt the need to leverage our investments at any time, and this on a mediocre salary. I’ve had exactly two debts in my lifetime. The first in 1970 to buy my first (used) car, which I paid off within six months. The second debt was on a small mortgage for a bungalow my wife and I purchased in 1999. I sold off our taxable portfolio during what was a bull market, to buy a home where at the time house prices had remained stagnant for near a decade. The mortgage was paid off in just over three years and in 2003 I could slowly start building up our new all-Canadian dividend portfolio which has seen us get through the market turbulence that came along with it. We’ve been completely debt free since. This portfolio has been sector diversified since 2010 after witnessing the tech sector collapse in the early 2000’s and then seeing what happened to the U.S. and European/British financial stocks in 2008-09. I learn from major financial collapses, not from bull markets. Black swan events can and still do occur.

    We took out a line of credit with the bank in 1999, (just in case) but it was never used and has lain dormant since.

    When I was a teenager I was shaken after watching the classic “The Grapes Of Wrath”, and I swore I’d never put myself in that position. Now at 73, so far so good.

    It’s not just the 30’s but the late 60’s though the early 80’s markets as well. I don’t think people realize how bad it can get. I always say, “know your history.” All of a sudden now inflation has reared it’s ugly head yet again.

    Did you read the latest research paper broadcast a week ago by Mark Hulbert in MarketWatch? The safe portfolio withdrawal rate of 4% has now been revised downward to 1.9%.

    Meanwhile I’m back to reading my favourite investment book of all time published during the roaring 20’s. “The Richest Man In Babylon”. I tend to keep investing simple. Works better for me, than trying to make it complicated.

    1. This one?

      I think the 4% remains a good starting rule of thumb but that’s about it. It’s dead to me otherwise 🙂 I should write about that. Ha.

      Because Black Swan events can and do occur, I’ll remain invested in my basket of stocks and ETFs. I really don’t know where things are going long-term but I do believe my collective holdings should do well – I suspect we own many of the same stocks!

      Have you shared your current portfolio anywhere with me?
      Happy to point to a page where I have most (not all) of my stocks.


      1. Yes, Mark. The link you have is much the same as in MarketWatch.

        Most of the same stocks you own, we also own, but right now we have a total of 32 companies in our portfolio. The seven sectors we have are Consumer Discretionary, Consumer Staples, Energy – Pipelines, Financials, Industrials, Communications and Electric Utilities. Any other sectors we don’t own directly in this taxable portfolio will be in our TFSA’s and RRIF’s using ZBAL.

        I’d prefer not to list the individual equities we own since I’m not an analyst. These are just companies that I happen to like (some more than others) for a long term buy and hold, hopefully for many years to come. We continue to add to any lagging sectors using a combination of savings and dividends. Super simple.


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