I have built up a solid portfolio comprised of long term holdings in both dividend and non-div paying stocks and etfs as well. I was contemplating margin investing in a specific manner. Buying a couple etfs that pay a decent dividend rate with the margin and using those dividends to pay against the interest payments. To beat the interest rate and payments would require a very high div rate which likely isn’t feasible, I have enough annual dividends coming in from my non-margin portfolio that would be able to cover the interest payment and decrease the amount owed. This serves to decrease the amount owed and subsequent interest payments, which could result in it being paid down quicker. By limiting my total margin balance to only 5-10% of my total portfolio I would be able to cover the interest payments with my dividends from the rest of my portfolio as well as be able to pay down some of the margin amount from my primary savings account. The goal would be to increase the amount of securities with leverage past what I would normally be able to through utilizing the income producing aspect of my portfolio.
Flaws in my mind include: securities bought on margin could decrease rapidly (not looking for a quick sale, looking for long term plays); lack of DRIP which I have been utilizing (this lack still creates more equity producing divs, but some is lost to interest); efficiency, leakage to interest payments(yes there is leakage but it is to obtain an income producing asset)
I have been investing and learning about the market, investing and finance for 7 years. Anyone with margin experience please critique this idea, don’t hesitate to point out flaws or potential benefits.
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