Between trips to Costco to stock up on supplies, or while working from home you may want to consider doing something given the market meltdown rather than just sitting on your haunches and letting opportunities slip by. Don’t get me wrong, I’m not bullish yet by a long shot (the economy’s troubles have just begun) but there are always smart decisions that be made while others are stunned.
One sensible move is to take advantage of low interest rates and stock prices that have been crushed – with a longer term view. People often take out 2nd mortgages or use the equity in their primary property to invest in another property. Rent from the 2nd property helps carry the mortgage. Makes sense.
On rare occasions, you can instead invest in dividend paying stocks that are less volatile (under ordinary circumstances) than the overall market. The dividends help carry a loan used to finance the investment. We are in the midst of such an occasion. Of course, your lender must be willing to extend the credit based on your collateral and provide an attractive (i.e. low) rate of interest. This may be difficult right now – check out the message below from a U.S. mortgage comparison site.
If you can get a good rate, there’s good reason to simply buy some bank stocks with the proceeds of a larger mortgage than you’ve been carrying (if renegotiating or moving to a new lender) or a 2nd mortgage – especially if you’re willing to buy Canadian banks which have been hit much harder (no doubt due to the potential for higher energy exposure) than their U.S. counterparts. Below is a table of yields corresponding to the four larger US and Canadian banks.
The interest paid should be tax deductible (it is in the US anyway) if the loan can be demonstrated to be strictly for investment purposes, and the dividends received are treated preferentially for tax purposes. The dividends finance the investment while you wait for the inevitable – the bank stocks recover and grow as they will once the economy and markets stabilize. It’s the proverbial no-brainer.
Keep in mind the dividend yields I quote were at a single point in time – you’ll want to keep track of them to make sure the program is still going to work for you financially.