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Dear Money Lady,
My sister borrowed $100,000 off her line of credit a few years ago at the advice of her investment advisor and put it into the stock market, using the interest as a tax write off. She said this was a “leverage lend strategy,” which I was very skeptical about at the time.
Since the market is so low now, I am wondering if you think I should do this too. Should I borrow to invest even though I still have debt?
Let’s first start with an explanation of a leverage lend for those who may not be familiar with the term. Leverage lending means borrowing money and often writing off the interest based on what the funds are used for; then investing in something that we feel will give us a higher return than the amount we are paying in interest on the borrowed funds. When most people think about leverage lending, they imagine taking out a margin loan on their stock portfolio or, as in your sister’s case, drawing down a secured line of credit to buy more stock.
While this is one method, I would caution you greatly to not do that, even now. Put simply, it is taking on a lot more debt - and you should always be careful when you consider going more into the red. That being said, wealthy people always have debt in their portfolios and are always on the lookout for opportunities to either invest, purchase, or transfer funds from investment to another to build wealth.
I know a lot of readers would like me to condone borrowing to invest in the stock market, especially since it is down so low. Unfortunately, I can’t. While I’m confident it will turn and go high, I can’t predict when this will happen and there is no real assurances it actually will - yet!
I would prefer you invest in something a little more tangible, such as real estate, an investment property or maybe yourself. Yes – you! Why not leverage yourself? You are a sure-fire exceptional risk to bet on, guaranteed. Use this new low rate environment to help fund your dreams, whatever they are. Entrepreneurs are always looking for a unique situation to give them an edge. This “new normal” could be it; an opportunity that may only come around once in a lifetime.
Successful people fill their minds with all the ways to get what they want. Sometimes all it takes is a concerted effort to let go of negativity and to positively and persistently improve your situation. Believe you can and leverage yourself and your dreams to do so. Like yourself for making a change and disregard the inevitable setbacks and obstacles that you will have to overcome in your journey. Just make a difference. All that is required is that you shift your mind toward believing that you can. Do it this time!
Good luck and best wishes,
Written by Christine Ibbotson, Author of the best-selling book, How to Retire Debt Free & Wealthy, and a new book Don’t Panic – How to Manage your Finances and Financial Anxieties During and After the Coronavirus, available at all bookstores across Canada. If you have a money question, please email on website