Margin is a term used to refer to money borrowed from a broker or dealer to purchase securities. The purchase of shares in such a fashion is known as buying on margin.
The main cost involved with this investment strategy is interest on the money you borrow. And of course, when you sell a security that you’ve bought on margin, you must first pay back the loan from your broker.
The main risk of buying stocks on margin is that it increases your leverage. Leverage works two ways: It magnifies your profits when the market moves in your favour, but it magnifies your losses just as effectively when the market moves against you. That’s because the amount you owe on your investment loan stays the same, so every dollar your portfolio loses comes out of your equity.
Margin buying can help you cut your tax bill. That’s because you’ll be able to write off your margin interest in full against ordinary income in the current year. At the same time, you’ll pay less than ordinary income-tax rates on dividends from Canadian stocks. If you buy qualified Canadian stocks, you’ll pay taxes on dividends you receive at a rate that is well below the rate you pay on ordinary income. This tax break alone—getting a full deduction on your interest costs, and paying a lower tax rate on dividend income—adds appeal to margin investing.
All in all, we feel you should focus your efforts on long-term investing and building a well-balanced portfolio—and to do that, follow TSI Network and use our three-part Successful Investor strategy:
Invest mainly in well-established companies;
Spread your money out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; the Consumer sector; Finance; Utilities);
Downplay or avoid stocks in the broker/media limelight
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VICI PROPERTIES INC., $28.07, symbol VICI on New York, owns a major real-estate portfolio of gaming, hospitality and entertainment destinations. Its portfolio consists of 28 gaming facilities, and approximately 17,800 hotel rooms and more than 200 restaurants, bars, nightclubs and sportsbooks.
Shares of the Royal Bank of Canada—the country’s largest bank by market cap—plunged from around $109 at the start of the COVID-19 pandemic in March 2020, to a low around $72. After that, it reversed course and climbed to a recent peak near $150. That… Read More
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The profitability of banks is determined by a variety of factors including their business mix, lending profit-margins, loan and deposit growth, bad debts, and cost management. The top-performing banks consistently find the right balance between these factors, leading to strong results and stock market performance.
Lending… Read More
Shares of Lennar hit a new all-time high of $117.54 on December 13, 2021. That’s largely because low interest rates and the COVID-19 pandemic continue to spur demand for new houses.
We feel the stock will surpass that record in 2022 as the upcoming spin-off of… Read More
SHERWIN-WILLIAMS CO. $334 (www.sherwin-williams.com) is a hold. The paint maker is up 38% in the past year as COVID-19 lockdowns have prompted consumers to update their home decor. However, shortages of raw materials are driving up Sherwin’s costs. As a result, its gross profit margin in the third… Read More
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