[raab]

Originally Posted by bdub

If advisors are randomly suggesting this strategy to one and all, well that should be criminal.

That being said, using leverage to buy stocks might be worthwhile in certain instances based on the individuals circumstances and exactly what they are doing with it. There are two circumstances where I have used it over the years.

The first circumstances we used it was in our RRSP. When we were first starting out we always contributed a monthly sum to our RRSP with each paycheck but it wasn't enough to max out or contribution limits. At the end of the year we would borrow enough to top up the RRSP and use the tax refund to pay off the loan or a good chunk of it when it came in.

The second situation was during 2008-09. We were making good money, secure employment, we had no other debt, mortgage, vehicle loan, nothing. The market had already taken most of the beating from the GFC. Loans on our HELOC were charging around 2% if I recall. We borrowed a good chunk of money and bought blue chip dividend payers, banks, telcos, utilities etc. The dividends at the time paid double what the loan interest was. The investments were also held in a non-registered/cash account so that the interest was tax deductible as well. Still we were early and I remember at one time being down perhaps 20 or 25% on those holdings and wondering if I had made a huge mistake. The market eventually turned around and it turned out to be a good decision in the long run. But even in our circumstances I found it extremely stressful.

This is not a recommendation, just an example of how we used leverage. The second example of borrowing on the HELOC helped put us ahead. But circumstances in the equity market and with interest rates are completely different right now compared to 2009.

Right now the retail investor can get into plenty of trouble with leveraged products as it is without ever having to borrow a dime. For example we have 2x and even 3x leveraged long and short etf's that can quickly lay waste to you capital if things go the wrong way.

Leverage cuts both ways, you need a strong stomach and the right market and personnel circumstances to make it work imo. Not something to be blindly recommended to everyone with a line of credit.

I guess I should not say I would never borrow to buy stock. The price of the stock would have to be trading for pennies on the dollar though and be good strong business.

Bad enough watching the money you earned lose 30%. Not worth the stress of being absolutely wiped out if the market corrects. That said if you are going to use debt a HELOC or personal loan is the way to do it. You want a loan they can not call if things go sideways. Do not use a margin loan.

Edit: Not really directed at you Bdub, just a general warning.