Does it make sense to borrow to invest? Today is the best time to do it

Talk about debts, loans and leverages is taboo for many investors. They avoid these things like the plague.

Sometimes I agree; however, the present is not that time.

Currently, anyone can secure loan for five years on a fixed mortgage at an interest of only 2.99%. And if I invest the money in a taxable account, the interests become tax-deductible. After tax, my loan interest goes down to almost 1.6%. So, if I am one with a 46% marginal tax-rate (income range from $136K to $514K in Ontario as of 2014), my after-tax expense is only more than 1.6%.

If you are aware that your cost is 1.6% yearly for five years, what are the chances that your investments will be profitable? What level of risk are you incurring?

One area to begin your search at is the last 991, five-year periods to get some valuable information. Personally, I would look at the wide U.S. market S&P500 starting in January 1926 until June 2013. More than 991 various five-year periods – a new period starting and ending each month – will show how many beat the pre-tax loan cost of 2.99%. Based on an after-tax view, U.S. stock dividends are taxed equally with interest income; however, capital gains are taxed only half of that rate. Perhaps, a good proxy to make the tax balanced would be a five-year return of 2.5%.

Surprisingly, there is a 79% of a chance you would return more than 2.5%, and gaining by borrowing at the current five-year mortgage interests. Certainly not a bad average. Interestingly, there are two quite long periods of success.

From December 1937 to April 1965 – for more than 27 successive years this would have been a sure bet, without any five-year rolling period with a total return less than 2.5% yearly.

After that, from December 1973 to July 1997 – yet another more than 23 years of straight five-year rolling periods with the same yearly total return not more than 2.5%.

Do we expect a new 20-year period soon? That is a possibility. Both long runs mentioned in the past occurred after a harsh recession.

Is there bad news?

The worst five-year era throughout our lifetimes was -6.64% from the period starting March 2004 until February 2009. The last time it was worse than -6.64% was 76 years ago (August 1937 to July 1942).

Assuming someone likes the 79% odds of winning and the fact that the average five-year total return is 9.8%, even if you get taxes and a tiny fee out of the way, we are looking at an after-tax gain at an average of 6%+, when the cost is only 1.6%. It is one tempting wealth-maker. Hence, if someone takes out a loan of $200,000, he will make an average of $50,000 of after-tax profit within five years.

Can we increase the 79% odds to 90%+ while managing a 5% after-tax return?

One possible scenario would be to primarily lock in a gain with just a slight risk involved.

If we loaned on a five-year mortgage, and put 75% into the S&P 500, and put the remaining 25% into mid-range corporate bonds, you could surely reduce your risk of losing your investment.

For example, we have a Corus Entertainment bond that becomes mature in 2020. The bond interest is 4.25%; but you can acquire it at a discount. In truth, its full yield when it matures is 4.69%. Meaning to say, if we assume that Corus Entertainment will eventually pay its bond at maturity, your total gain will be 4.69%. Since your interest cost is 2.99%, then you have an assured 1.7% gain annually. I know that this is nearer to a six-year bond; but it can readily be sold in five years at a price almost at 4.69% yield to sale.

This sort of bond stabilizer can make this approach (or any investment portfolio) incur lower chances of loss.

Other choices can be to augment blue-chip firms with strong Canadian dividends.

One other method would is 60% S&P 500, 20% bonds with a 4%+ yield to maturity and about five-year maturity, and 20% in TransCanada Pipeline, BCE and National Bank.

Put together, these three stocks will give an average dividend return of 4.37%, or 3.1% after-tax – the dividend alone has a 1.5% after-tax bonus over after-tax borrowing costs on the mortgage. Certainly, you take some risks of capital loss on stocks; but these three companies are some of the firms with lower volatility, that is, they have a low potential for a five-year price decrease.

From this discussion, I can confidently say without batting an eyelash: Taking out a loan at 1.6% after-tax and investing in an assorted portfolio for five years is a clever choice, and one that growth investors (who appreciate the risks involved) could do today to build wealth.

China factory PMI: Doubts against economy’s strength

Without warning, this April, growth in China’s manufacturing sector unexpectedly slowed because new export orders drop. This causes rise in doubts towards the strength of the economy after a disappointing first quarter. While analysts had expected the April PMI to be 51.0 it the official purchasing managers’ index (PMI)fell to 50.6 in April from an 11-month high in March of 50.9. A comparable turn down in a preliminary HSBC PMI in the previous week reflected the recoil on the official PMI, signifying China’s exports engine is encountering an opposite from the euro zone recession and slow-moving growth in the United States. Analysts said it will provide support for the economy in the second quarter if China’s new government has signaled it will step up infrastructure investment. Source Site

Tips to manage your financial paperwork

If your financial filing system consists of a basket full of receipts, warranties and paycheck stubs, you may find yourself dreading tackling the pile as you do your spring cleaning. But cleaning up your finances doesn’t have to be a big chore. You can do it while catching up on your DVR one evening. Not only will you put a better system into place to reduce clutter, you will also reconnect with your money and hopefully begin taking control of it

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Shell puts Geelong refinery on market

Shell, a Petroleum giant has publicized that its Geelong refinery is for sale. If a buyer cannot be found, the refinery could be converted into a fuel import terminal said Shell’s downstream vice president Andrew Smith. Decision to divest or close the asset, which has been operating for almost 60 years, was not easy said Mr Smith, speaking shortly after 11.30am on Thursday. Mr Smith further added that he wanted the sale process to completed by 2014. ”Shell is committed to a timely sale process … it is difficult to predict the outcome and timing,” he said. ”If a sale on agreeable terms cannot be reached there are options available, this could include converting the refinery into an import terminal.” If the site will be converted into an import terminal many people will lose their jobs, the Geelong refinery employs close to 470 people and these people is at the verge of losing their employments. These employees would reduce its numbers up to 80 per cent when Shell converted the Clyde refinery into an import terminal. Mr. Smith says he hoped to find a buyer who would want to continue operating at Geelong as he was unenthusiastic to speculate on the number of jobs that would be lost under the conversion to an import terminal. He said any new buyer would be bound by the workplace agreements in place and that Shell was committed to keeping its workers informed and providing counseling services. See it more

The 104 Mind blowing financial tips you should be aware of

The community is coming up with interesting personal finance tips for the consumers each week. These tips help consumers to have a grip on their finances and avoid making costly mistakes. The consumers are likely to be on top of their finances with the help of these

tips. Here are the 445 interesting financial tips published by the community for the benefit of the consumers:

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Cut Your Phone Bill

1. Switch to Internet calling. By limiting call expenses internet calling plans can help you on your personal finances. Compare to the traditional landline, adding local, long-distance, and calling features (such as voice mail, caller ID, and more) will be expensive while internet calling is as good as free.
You can use Skype to call other people, Skype accounts are free of registration and you can call for free to other Skype users while you can pay for calls to the regular phone network.
2. By placing calls over broadband you can save cell-phone minutes. What you need DSL, cable, or T-1 (a business-grade service) to do this. The good thing about it is also you’ll get dramatically better call quality inside your home.
3. Don’t be an impulsive buyer and automatically buy from the company store. Two-thirds of cell phones are bought at carrier stores, but according to some reports prices there can be higher than at warehouse stores, mass merchandisers, and electronics stores. In fact, a carrier’s walk-in stores can be even pricier than the company’s own website.
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Keep credit card information safe

It is remarkable how time has changed the ways of the world. Frank Piccolo, a longtime Omaha florist, remembers getting orders for bouquets just by writing down the entire customer’s information, this includes the customer’s credit card number.
“Looking back at those days, at how insecure credit card privacy was, it’s amazing,” Piccolo said. “You had all kinds of people having access to orders with these numbers on them.”
At present, Teleflora’s secure point-of-sale network is used by Piccolo’s flower shops to process sales, and more importantly customers’ credit card information is no longer kept at the shop or on its computers, Piccolo said.
“It’s not in anything that anybody could come back a few hours later and get their hands on,” Piccolo said.
Hackers break into retail sales networks and sell credit card numbers on the black market and keeping credit card numbers off retailers’ servers will shoot up their strategy.
First Data and PayPal are just two of the number of firms who fights the hackers in Omaha but it isn’t a easy game to win.
When the payment processor says, “I’m going to build a bigger wall,” the hacker says, “I’m going to build a bigger slingshot,” said Cliff Gray, who consults on payment data security for an Omaha-based company, the Strawhecker Group.
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