Borrow to invest in dividend stocks

Added: 2026-05-14

[00:00:00]Borrowing to invest is a great way to get richer, but what Wealthsimple did a few weeks ago is just not right.

[00:00:09]Disclaimer, the following is for education and general information only.

[00:00:13]Not investment, legal, or tax advice, and not a recommendation to buy or sell anything. Investing involves risk, dividends are not guaranteed, and past performance does not predict the future.

[00:00:24]I may hold position in securities discussed and may trade at any time.

[00:00:28]Hey, what's up my good noodles? Mike from The Moose Zone on the Loose. How are you doing today? Uh, today I'm going to talk about Wealthsimple, a post that um generated a lot of attention last week.

[00:00:41]And I must say, I mean, I love math, but sometimes math is just like pure evil when you twist it enough. Um, they posted their it's their way to create like some promotion and probably like make a lot of people talk about it. So, I mean, I'm falling into the marketing trap here, but for a good purpose. Um, they were talking about how to borrow on margin and they were just like, "Hey, imagine this. You borrow like $50,000 on margin, you pay like 3.95% interest, and then you invest in dividend-paying stocks like paying like a 5.5% yield. So, you're making profit out of that and then if your stocks are going up, it's even better. And on top of that, you're getting some tax deduction on the interest that you pay. I mean, life is just peachy." And I'm like, "All right. So, it's all it's all it's all good. I mean, you borrow at 4%, you invest at 5.5% plus a capital gain, plus you get tax deduction, you make money on others people's money.

[00:01:44]Super simple math, but the maths are good. It's it's true. All of that what they said in their post was right. Um, but here's the thing.

[00:01:55]When you look at those basic math and then you run them, and you're just like, "Yeah, that totally makes sense. I should borrow to invest, and I can borrow on margin, and that I mean, I'm going to just be richer." And you know what? Investing in like 5.5% yield, probably not enough. How about I put that 50K into HHIS and get 26% yield instead. So, I still borrow at 3.95. So, and let's be honest, that's a very low yield, really really low interest rate. Um and invest in something that is going to give me more than 25%. So, technically, if you run those math, you wait 4 years, and that 50K is paid off completely, that debt, and now you're running on the house money. So, you only have to wait 4 years to get that money back. So, why would you just borrow 50K? I mean, let's borrow like 250K, and then in 4 years from now, that 250K is in your pocket, free of debt, and you have not lifted a finger. Actually, you probably lifted a finger just to click on the buy button a few times, but that's pretty much it, right? Super simple math. I What could go wrong, right? [laughter] It's kind of like crazy. And and now I'm not advocating HHIS. I mean, I know some people love covered calls ETFs, but the point is just to say that if you run those math, you're going to get quickly to the fact that you're going to borrow a huge amount of money, wait 4 years, get all your money back because 25% yield, that's how it should be working, right? So, that's the problem, and this is where math becomes evil because simple math will work. You can do You can run those calculation on a piece of paper, right? Like napkin calculation, that's totally fine. But, there are a lot of other things, you know? I want to make an analogy by like I'm going to make you a promise, like kind of like if I was in a gym, right? Burn 2,500 calories per day, eat 2,000 calories per day, and you're going to lose weight in 6 month promise. You know, simple math.

[00:03:57]You burn more than what you eat, you're all good. Simple math, right? Everyone should be in the top shape of their life by running this simple calculation. You burn 2,500, you eat for 2,000, so you're going to have a deficit of like 500 calories a day, and then naturally, you're going to keep on losing weight all the time. So, what's wrong with those math, right? Cuz it works, right?

[00:04:19]You cannot really argue with that. The math works. But, here's the problem. It works until it doesn't. Because if you keep on going with this analogy, uh you're going to have cheat days, right?

[00:04:30]You're going to be traveling, you're going to have like birthdays, it's going to be the weekend, it's going to be a rough day, uh whatever happens, but you're going to eat more than 2,000 calories. And on the other side, you may also skip gym because you're sick, because you're busy, because it didn't fit in your schedule. So, you're not even going to be able to burn that 25 calorie to 2,500 calories a day. So, because you're not going to follow that plan every single day at all time, you're not going to achieve your goals. Well, when it goes into investment, it gets even the worse because there's a huge part of investing that is not related to you. It's not related to your effort or your discipline or whatever you think or you do. It's related to the market. So, there's like a big unknown. There's a big factor that will affect how your investment works, and you have absolutely no control over it. You can control the tax you pay because you're going to know in advance, you can control your allocation, how you deploy that capital, but after that, whatever the market does, it's going to be what the market does, right? So, it's even the worse than the analogy with losing weight because there's a part it could go wrong, and you can do nothing about it. So, in that post, we should have also discussed what would happen if you invest in those magic dividend paying stocks at 5.5 yield and the market goes down. Oh, there's a something there's like a few lines below that this being called a margin call.

[00:06:05]And you know what the margin call is?

[00:06:07]It's a phone call. It's What happened is when you do not have enough fund in your portfolio to justify the amount that you borrowed. So, your broker is calling you and they're saying you pretty much have to put more money in your account now.

[00:06:22]Not in a week, not in a month, not in like 6 months, now. So, you have to put money now. If you don't, we're just going to sell your holdings. And of course, when your holdings are going down, it's probably not the good time to sell your holdings, right? Because you're probably in the semi market panic and market that is going down. It's not good and then you're selling maybe at a loss to cover your margin and in the end maybe you're going to end up with more money that you owe.

[00:06:49]So, please don't fall for those small simple math.

[00:06:55]Go back to your investment strategy. Go back to your situation.

[00:07:00]You should not even consider leverage if you do not have a high net worth, if you do not have a high tolerance for risk, and if you could not pay that loan besides the investment. So, if you borrow $50,000 or $100,000, you should be able to to pay that debt down without counting on the investment. Cuz of course, in the best of the world, the portfolio will go up. You're going to make money with others people money and then you're going to eventually pay off your debt and you're going to be a genius. But that's the best case scenario. We This is all we wish for, but there's the other side of that same coin where the market is not helping you and then you have a margin call, or you're just under the water of like you borrow 100k and you're at 90k in investment. So, you're down 10 $10,000, plus you have interest to pay, and you still have to wait.

[00:07:55]And I've seen leverage loans working very well, and also I've seen leverage loans during 2008, and that was ugly because then people were really getting that margin call, and that was not fine.

[00:08:06]So, borrowing on margin is the same way.

[00:08:10]Some people For some people it works, some people it doesn't. It's really a case-by-case scenario, but just don't let the simple math works for you cuz that is always working. Super simple, super clear. We love that.

[00:08:24]We think that we're going to be rich, and then, I mean, the whole point is to you invest today, you wait 10 years, and then you get your money back. If you're more aggressive and you found like leverage covered call ETFs or other types of products, you hope to pay back your money within 3 years, within 5 years, whatever, because you have like a super high yield. Well, then run the math once again.

[00:08:48]I'm I'll be curious to see someone borrowing 100k and investing in a very high yield types of funds or ETF and thinking that they're going to get their money back within 2 3 years and pay off that loan and then continue with the house money.

[00:09:03]It could happen if you invest in the perfect timing, but most of the time it's not going to happen. Again, that is also pure math. So, right Moose, I hope that you have understood that borrowing to invest could be great, but it could hurt your your your retirement plan a lot as well. We're going to talk again tomorrow. In the meantime, I'm curious to know if you're using leverage, if you think that it's a great strategy, and if you're just using the dividend to pay back your interest on it. I'll see you in on YouTube in the comments, and until tomorrow, don't forget to stay invested.