This post is not to be taken seriously, but if you actually tried it, it would work.
Steps:
1. Have marginable assets (i.e. shares of widely held and liquid companies) in Interactive Brokers.
2. Withdraw cash from Interactive Brokers. For every $100 in shares you have, you will be able to borrow $70 in cash (using Canadian shares of widely held companies as an example, which allow for 30% margin). This obviously leaves zero room for a decline in equity price, so you would have to judge accordingly.
3. Observe margin rate. Currently 1.753% for the first $120,000 and 1.253% for the next $980,000.
4. Deposit cash proceeds into Ally, with a current interest rate of 2%. (Note: The risk here is that Ally would go belly-up, and CDIC only covers $100,000).
5. Whenever the margin spread goes to zero, close the transaction.
6. When it comes to tax time, remember to deduct the interest expense (margin) against the interest earned.
Assuming you had $142,857 in stocks in your account, you could conceivably pull out $100,000 cash and be able to earn an extra pre-tax $247/year, at current rates risk-free!
Obviously there is a limit to how this scales up, but you can easily see how the same procedure can apply to anything else with a higher yield. The risk you have to manage is the risk of losing principal on the investment (in this case you are investing in cash earning 2%, but in real-life scenarios people would typically invest in preferred shares or corporate debt or any other yield-bearing investment), liquidity risk (if another 9/11 happened and you were not able to sell your shares, you would be in trouble) and margin risk (making sure that you are not forced to liquidate the holdings).
Borrowing money at low rates and investing it in higher rate products is what banks and insurance companies typically do, but there is no reason why retail investors, assuming they know what they are doing, can’t get in the action as well.
Not that it matters at all, but i found it amusing you serve on the Cultus lake board with my old elementary school VP MR Skonberg.
I loved going to Cultus growing up. I hope it stays more park like than Chilliwack. Every time i go back to visit Chilliwack (Sardis) everything just keeps growing. That and rain are 2 things which pushed me away.
Why is governments are so focused on growth? Every time i go back signs between Abbotsford and Chilliwack are always touting Chilliwack as growing. Is there ever a point when a city says ‘we are happy with our growth and now choose to just maintain our excellent city and improve on existing structure, crime, poverty, refuse/recycling?
Derek
I think governments equate growth with higher revenues, and thus more control/power that comes with the increased cash flow.
Growth for the sake of growth is a mistake a lot of governments and corporations make – exponential functions do collide with the laws of reality eventually. Learning how to manage with the inevitable leveling and/or decline is equally important.
I do notice people using the word “sustainability” but it is very cliche now to use that word since it is very easy to say, but very difficult to actually implement.