This post is the second in a series of updates on my HELOC investing experiment. My last post was in March 2024 and things were looking good. Click here to see post.
Lots has changed in almost a year. The Bank of Canada (BOC) cut interest rates 5 times since the beginning of 2024. This is good for HELOC investing because I have to pay the bank monthly interest payments. My current interest rate is 6.2%.
I invest my HELOC into two funds; XAW and VCN.
XAW (85%) – iShares Core MSCI All Country World ex Canada Index ETF
VCN (15%) – Vanguard FTSE Canada All Cap Index ETF
Update – December 30th, 2024
On December 31st, 2024, I held 769 shares of XAW and 129 shares of VCN.
In 2024, I was paid $648 in dividends from the two funds and reinvested them into XAW and VCN.
At some point, I’ll have to pay back the $34 000 borrowed to invest. In addition to paying back the borrowed funds, I have to pay monthly interest payments. To date, I’ve paid $2099 in interest payments.
The majority of the interest payments have been in 2024 but I’ll be able to deduct them from my taxes. I’ll also have to pay tax on my dividend payments but for simplicity sake, I’m not going to include those numbers.
The total gain can be calculated by taking the current value of the investment holdings and subtracting the amount borrowed plus interest paid.
One of the nice perks of borrowing to invest is that you get a refund come tax time. I’m going to use the refund to pay down my mortgage.
Wrap Up and Takeaway
The stock market has shot up this year….again! I’m not naive to think this rise will continue. Even with high interest rates, this leverage investing experiment has been profitable. However, I do realize that there will be a market correction, recession, or crash in the future. At that point, my strategy will be put to the test. I’m confident that this will work over the long term so long as I don’t sell.
If I have the cash flow to service the debt, I’ll be okay. When it’s time to renew my mortgage in a few years, I’m going to merge my HELOC and mortgage into a readvanceable or fusion mortgage. This way I won’t need to have cash in hand to pay the interest. This isn’t investment advice. I’m just a bored middle aged man trying to earn some extra money without working too hard.