When people see how much margin debt I have they always ask me âDoesnât that amount of debt stress you outâ? What happens if the market crashed? For me I had to reframe my thought process. When I set out this year to match my employment income with distributions I came out swinging with the big hammer. My money, other peopleâs money doesnât matter to me as long as the spread is high enough. The first thing I did is just simplify how much does it cost me to maintain this level of equity exposure. Currently it costs me $612 per month to cash flow $3950 in distributions, this is my whole income portfolio combined not just whatâs rented. The debt does not stress me out in the slightest. Itâs tied to an appreciating income producing asset that has the potential to self sustain itself over time. Yes I also know distributions are not the whole picture and I also know that yield alone is not the whole picture. TOTAL RETURNS is the whole picture. I structured my portfolio to be ROC heavy to defer taxes to whenever the end game is where I have allowed the portfolio to self sustain and payoff the loan on its own accord. My margin account is mixed use so writing off interest is off the table for now. I used in my opinion the best income products on the market. I also acknowledge that with a yield at 17-19% most of my returns will be via distributions and not much for capital appreciation. There are only 2 choices for income earned from my portfolio. Reinvest or Pay Loan. Taking anything out for personal spending is not to my benefit until the loan is paid off. When I decide to flip the switch to payoff mode this portfolio should pay itself off between 5-7 years if I just leave it be and divert all distributions to margin debt if everything remains stable. Which may or may not happen but Iâm not going to let what ifs distract me. I understand completely that most of my portfolio is not my money. I may end up taking it on the chin at some point. It was a decision I made to invest my whole income from every income stream I have outside of investments and allow a larger equity base to compound over time. Most of these positions would not have existed if I hadnât have made that decision. In the event of a downturn that pushes me close to the brink of a margin call the plan is to simply sell the bare minimum required, hold distributions in cash or pay loan and continue with the strategy of investing my pay every week. Just keeping the train on the tracks. I know this doesnât make a whole lot of sense to a lot of people but it makes sense to me.
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19 Comments
Gary @freshstart123 ¡ 4h
Well said đ!!! I wish I had the stomach for what youâre doing but I wish you success anyways! Everyoneâs strategy is different and itâs no oneâs cash but your own! So the haters need to calm the f down.
Matt Gray@matt.41 ¡ 4h
You do what makes sense to you. Understanding the risk/reward is important and you already know what those outcomes can bring.
Christopher J@cjs033 ¡ 2h
10-12% can be easily obtained investing in broad based index funds. 17-20% returns with passive income funds is next level. đł Iâll be watching buddy to see if itâs sustainable over the long term. Who cares about a 1.5-2% MER when your total return is 20%?? đłđł
Joseph @cheap.dad ¡ 3h
Net worth means nothing and cash flow means everything... $$ đđ
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