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Is Trading With Margin Worth It?
In a previous post I ran the numbers and came to the conclusion that you could retire in 15.73 years.
One problem though. This all assumes you invest 100% of what you need to retire. This is fairly easy for me as I don’t have many expenses and expect to retire as an expat. But the average person does not invest 100%. They only invest 10%. Putting that into the above equation and you get a whopping 55.6 years. Which if you start working in your 20s, does not give you much time to enjoy retirement.
Can we speed this up? Yes we can. Using margin.
Now, margin gets a bad rap. People think it’s risky. And it can be if you don’t know what you’re doing. But as long as you don’t do anything stupid margin is not really that risky.
So what is margin? It’s basically a loan. One where you use your existing shares as collateral. That means you can get very low rates because if you don’t pay, the bank can just liquidate your shares. For me I’m using Wealthsimple and they give me a 4.45% margin rate for Canadian dollars which is also the Bank of Canada’s prime rate. I wish I had more money, then it would only be 3.95%. Oh well.
I should also note that 4.45% is based on the Bank of Canada’s policy rate which is currently 2.25%. If this goes down it makes margin trading a little more attractive. And if…
