I've heard from MDs that investing with your Line of Credit is a good idea/opportunity (e.g. investing in real estate). I've also heard it's irresponsible to invest with your LoC. What's your take?

[OldManNearTheSea]

 

Apologies, I'm not great with these block quote things. I will try and tackle this in order.

Quote

Because I literally said it's OK if you dump it in Vanguard ETFs and you shouldn't dabble in financial products unless you're on Wall Street.

Your quote was

19 hours ago, zoxy said:

It's not. Not unless you start dabbling in derivatives, which you shouldn't unless you're Jane Street or Bridgewater. You don't need to know them to buy Vanguard ETFs if you're not getting more leverage than what the LOC provides.

My understanding is a LoC represents $350,000 of potential leverage. Vanguard Canada has about 40 different ETFs. It's closer to 80 if you are talking Vanguard US. Was I wrong in reading that as you don't think someone should be familiar with basic financial risk concepts before leveraging up to $350,000 on anything in that Vanguard mix?

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17 minutes ago, zoxy said:

You extrapolated that. In my first comment I said you shouldn't use your LOC for investments as a student or resident as it will reduce flexibility and training is long and unpredictable.

While you did originally state you would not do so you then followed up with the comment above about it being unnecessary to understand delta and beta as long as you only invested in Vanguard ETFs. I read that follow up comment as endorsing up to $350,000 of leveraged investment for a student as long as it was only in Vanguard ETFs. If my interpretation was incorrect then I apologize. 

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24 minutes ago, zoxy said:

Again, in my first comment I literally said you shouldn't do it due to unforeseen events during and after training. You don't need to understand Beta and Delta to understand you might run out of credit if you dump it into investments and the market goes south and you need to liquidate.

Again, I was relying on the follow up comment as endorsing up to $350,000 of leveraged investment for a student as long as it was only in Vanguard ETFs. If my interpretation was incorrect then I apologize. 

30 minutes ago, zoxy said:

Again, these have to do with derivatives and no one here is advocating for that. Implying that people who don't understand derivatives modelling (and they're models not facts) don't understand the risk of leveraging an LOC to invest is what I disagree with.

Equity beta is a cash market concept. While interest rate delta is used in derivatives analysis it is also applicable to linear cash products. I could have used the term duration, but fixed income derivatives have durations too so I'm not sure what that changes about my comment. 

39 minutes ago, zoxy said:

Literally the dude you quoted, Charlie Munger: “Beta and modern portfolio theory and the like — none of it makes any sense to me. We’re trying to buy businesses with sustainable competitive advantages at a low, or even a fair, price.” You don't need financial math to make reasonable investment decisions.

This is a rather disingenuous quotation for our discussion. The context of your quote is Charlie Munger, an active investor that picks individual stocks based on fundamental analysis, is trashing quantitative finance investment strategies that rely on beta or other such quantitative factors to construct a portfolio. 

45 minutes ago, zoxy said:

These are standardized products. I don't get a special one from Scotia or RBC and neither does another colleague. We all have the same product so I don't see how I'm speaking with a "certainty" that I don't have.

I literally work at a big 5 Canadian bank and have personally had our lawyers change the language in similar "standard" legal agreements because my firm views those particular products differently than our competitors. I said people should read their contracts because "I wouldn't be surprised" if there were restrictions not that there were restrictions. 

[OldManNearTheSea]

18 minutes ago, JohnGrisham said:

Definitely the case! 

I like to think though, that with financial education being readily available, increase in easy to understand and "less fancy" investing products and more younger physicians being interested in finance...this is getting better. Hopefully in another decade, long will be the days of people handing money over to their parents older financial advisors taking huge MER cuts etc.  For most people, the main piece isn't even the intricacies of financial products and types of investing: its the tried and true spend less and save more. Most high income earners succumb to lifestyle creep really easily. And while life is short, and you have to live, you don't always *need* to spend on frivolous over the top expenditures that don't always provide a commensurate enjoyment value.  When you have more disposable income, these types of decisions creep up much more commonly.

 

There is a lot of wisdom in this post. Focusing on low MERs, saving early, and avoiding lifestyle creep is the best possible advice to give.

[AndrewWithMedTax.ca]

Hi, my name is Andrew. I’m part of the MedTax team here in Canada and can help with your question.

This will always be debated. Our take is that borrowing to invest is a good idea assuming the investment is secure and/or creates monthly income flow to offset the cost of borrowing. Real estate can be an example of this assuming the property meets certain criteria. There are other options that can make sense depending on your situation and needs. We do not recommend a leveraged investment be placed in the open market (stocks, ETF's mutual funds, etc.) as there is higher risk and the possibility of the investment losses value compared to the loan amount. 

If you have other questions, just reach out, and I will be happy to help.