Comments on: Leveraged Investments – The Risks http://www.moneysmartsblog.com/leveraged-investments-%e2%80%93-the-risks/ Investing and Personal Finance Sat, 11 Feb 2012 17:11:02 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Leveraged Investments – Exit Strategies http://www.moneysmartsblog.com/leveraged-investments-%e2%80%93-the-risks/comment-page-1/#comment-1777 Leveraged Investments – Exit Strategies Sat, 27 Oct 2007 03:17:35 +0000 http://www.moneysmartsblog.com/leveraged-investments-%e2%80%93-the-risks/#comment-1777 [...] Leveraged Investments – The Risks [...]

]]> By: Leveraged Investments – Interest Rate Exposure http://www.moneysmartsblog.com/leveraged-investments-%e2%80%93-the-risks/comment-page-1/#comment-1774 Leveraged Investments – Interest Rate Exposure Sat, 27 Oct 2007 03:09:33 +0000 http://www.moneysmartsblog.com/leveraged-investments-%e2%80%93-the-risks/#comment-1774 [...] This is the third post in the “Leveraged Investments” series. Check out the previous post entitled “Leveraged Investments - The Risks”. [...] [...] This is the third post in the “Leveraged Investments” series. Check out the previous post entitled “Leveraged Investments – The Risks”. [...]

]]> By: Leveraged Investments – My Grand Plan http://www.moneysmartsblog.com/leveraged-investments-%e2%80%93-the-risks/comment-page-1/#comment-1771 Leveraged Investments – My Grand Plan Sat, 27 Oct 2007 02:54:39 +0000 http://www.moneysmartsblog.com/leveraged-investments-%e2%80%93-the-risks/#comment-1771 [...] See the next post in this series “The Risks”. [...] [...] See the next post in this series “The Risks”. [...]

]]> By: FourPillars http://www.moneysmartsblog.com/leveraged-investments-%e2%80%93-the-risks/comment-page-1/#comment-106 FourPillars Fri, 15 Jun 2007 16:36:30 +0000 http://www.moneysmartsblog.com/leveraged-investments-%e2%80%93-the-risks/#comment-106 Good point TMW - eventually we'll have to look at more diversification within the leveraged portfolio. Mike Good point TMW – eventually we’ll have to look at more diversification within the leveraged portfolio.

Mike

]]> By: ThickenMyWallet http://www.moneysmartsblog.com/leveraged-investments-%e2%80%93-the-risks/comment-page-1/#comment-105 ThickenMyWallet Fri, 15 Jun 2007 16:06:30 +0000 http://www.moneysmartsblog.com/leveraged-investments-%e2%80%93-the-risks/#comment-105 Great post. Just remember that financial services companies are sensitive to interest rate hikes- banks tend to perform worse in a high interest rate environment so your interest rate hike risk bleeds into your equity risk as well. You may want to look at companies that have positive cash flow regardless of interest rate cycles such as telecommunications and health care (albeit the choice in Canada is poor in this industry) to reduce the risk of interest rate hikes bleeding into equity risk. Great post. Just remember that financial services companies are sensitive to interest rate hikes- banks tend to perform worse in a high interest rate environment so your interest rate hike risk bleeds into your equity risk as well.

You may want to look at companies that have positive cash flow regardless of interest rate cycles such as telecommunications and health care (albeit the choice in Canada is poor in this industry) to reduce the risk of interest rate hikes bleeding into equity risk.

]]> By: FourPillars http://www.moneysmartsblog.com/leveraged-investments-%e2%80%93-the-risks/comment-page-1/#comment-103 FourPillars Thu, 14 Jun 2007 16:03:50 +0000 http://www.moneysmartsblog.com/leveraged-investments-%e2%80%93-the-risks/#comment-103 CC - I guess I am ignoring the trend. Mr C - I think paying down the mortgage eventually is a good idea if you have the money. I actually came up with a fourth post for this series where I discuss different exit plans. CC – I guess I am ignoring the trend.

Mr C – I think paying down the mortgage eventually is a good idea if you have the money. I actually came up with a fourth post for this series where I discuss different exit plans.

]]> By: Mr. Cheap http://www.moneysmartsblog.com/leveraged-investments-%e2%80%93-the-risks/comment-page-1/#comment-102 Mr. Cheap Thu, 14 Jun 2007 14:29:54 +0000 http://www.moneysmartsblog.com/leveraged-investments-%e2%80%93-the-risks/#comment-102 Great series, keep it up! As you mentioned, I think getting a fixed rate loan would be a good idea (cheap insurance against one of your risks) I'd also pay down the principle out of the proceeds. You can still pay it off after 25 years (if that's what you decide to do), but each payment that you make help minimize your future risk (since you KNOW the debt is then gone). As long as you don't max out your credit, the increased interest rate risk shouldn't sink you either (if it gets beyond what you can afford from income, start borrowing to cover the excess, this would suck but it SHOULD work out, and borrow to pay investment interest *IS* tax deductible). Great series, keep it up!

As you mentioned, I think getting a fixed rate loan would be a good idea (cheap insurance against one of your risks)

I’d also pay down the principle out of the proceeds. You can still pay it off after 25 years (if that’s what you decide to do), but each payment that you make help minimize your future risk (since you KNOW the debt is then gone).

As long as you don’t max out your credit, the increased interest rate risk shouldn’t sink you either (if it gets beyond what you can afford from income, start borrowing to cover the excess, this would suck but it SHOULD work out, and borrow to pay investment interest *IS* tax deductible).

]]> By: Canadian Capitalist http://www.moneysmartsblog.com/leveraged-investments-%e2%80%93-the-risks/comment-page-1/#comment-101 Canadian Capitalist Thu, 14 Jun 2007 12:25:10 +0000 http://www.moneysmartsblog.com/leveraged-investments-%e2%80%93-the-risks/#comment-101 FB: Companies do no such thing. They have a policy of how much of their earnings they want to payout as a dividend. Stock price increases are not in the hands of management. They also try hard to at least maintain the dividend, so future dividend growth depends on how confident they are that earnings can be sustained. Mike: I actually think you are following the "ignore the recent trend" suggestion. (Wisely so, because recency is one of the biggest traps investors fall into). Dividends have increased at a double digit pace recently and you are assuming a 5% increase over 25 years. FB: Companies do no such thing. They have a policy of how much of their earnings they want to payout as a dividend. Stock price increases are not in the hands of management. They also try hard to at least maintain the dividend, so future dividend growth depends on how confident they are that earnings can be sustained.

Mike: I actually think you are following the “ignore the recent trend” suggestion. (Wisely so, because recency is one of the biggest traps investors fall into). Dividends have increased at a double digit pace recently and you are assuming a 5% increase over 25 years.

]]> By: FourPillars http://www.moneysmartsblog.com/leveraged-investments-%e2%80%93-the-risks/comment-page-1/#comment-100 FourPillars Thu, 14 Jun 2007 11:27:42 +0000 http://www.moneysmartsblog.com/leveraged-investments-%e2%80%93-the-risks/#comment-100 Thanks FP, I would have thought the relationship between dividend and stock price was the other way around. As the dividend goes up, the stock price goes up so that the yield is the same. That's what been happening in the past. Mike Thanks FP, I would have thought the relationship between dividend and stock price was the other way around. As the dividend goes up, the stock price goes up so that the yield is the same. That’s what been happening in the past.

Mike

]]> By: TheFinancialBlogger http://www.moneysmartsblog.com/leveraged-investments-%e2%80%93-the-risks/comment-page-1/#comment-99 TheFinancialBlogger Thu, 14 Jun 2007 10:46:22 +0000 http://www.moneysmartsblog.com/leveraged-investments-%e2%80%93-the-risks/#comment-99 Great Series so far FP! I got too late to comment the 1st post but it was quite interesting. Banks and other companies will more likely increase their dividend rate if the stock is increasing. They will aim a fixed dividend yield (let's say 3%) and try to stick to it. Therefore, if the stock increase by 20%, they will have to increase their dividend. those two risks are then linked together. In regards to banks perception of investment loan vs individual asking for mortgage, the applicant will surely see his TDSR jumps. However, the fact that he has liquid assets and that he can pay most of his investment loans payments from the them will reassure the bank. However, if your debt servicing ratio is over 50%, you will definitely be penalized. Keep it up! FB. Great Series so far FP!
I got too late to comment the 1st post but it was quite interesting. Banks and other companies will more likely increase their dividend rate if the stock is increasing. They will aim a fixed dividend yield (let’s say 3%) and try to stick to it. Therefore, if the stock increase by 20%, they will have to increase their dividend. those two risks are then linked together.

In regards to banks perception of investment loan vs individual asking for mortgage, the applicant will surely see his TDSR jumps. However, the fact that he has liquid assets and that he can pay most of his investment loans payments from the them will reassure the bank. However, if your debt servicing ratio is over 50%, you will definitely be penalized.

Keep it up!
FB.

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