My line of credit: two months on
It’s been two months since I purchased my first stocks (60x JD.com on the 20th of July) with my new line of credit. Let’s look back and reflect and I will share my views and opinions about this credit. Hopefully this post triggers a discussion about the use of credit, I’d love to hear your opinions and insights!
So my line of credit, what is it and what are the exact conditions?
Well through my broker which is also my employer I get the opportunity to use a x-amount of cash for 1,5% interest a year (compared to the normal 6%). It works as follows:
Your portfolio value (if it consists of solid stocks) * 0,7. So if you have a portfolio worth €10.000 they give me the ability to use €7.000 in credit, IF you invest in stocks, and these stocks are solid companies and no OTC (over the counter) stocks.
Yet if you use the €7.000 to buy more solid stocks, they only deduct 30% from the available money. If I’d buy Unilever shares for €1.000, they would only deduct €300 from my available credit.
This can be a dangerous thing, as it could seem like you have more money than you actually have. And if the available credit comes below €0, you have five days to transfer in extra money to get the amount of credit positive again, or the broker will sell of your positions. That is the catch. However I think I have enough equity in my portfolio (full of solid stocks in my opinion) and enough awareness to stay away from that negative available credit.
And thus I opted to use a part of this available credit to buy some stocks, as long as the dividend from these purchases is bigger than the interest paid it seems like a fairly good deal. Also the dividends I get paid immediatly pay down the debt and so it’s decreasing every day.
The buys I’ve made with my credit.
-20-7 I’ve purchased 60x JD.com for a total amount of $2137,03. The interest costs $32,06 and JD pays no dividends.
-25-7 I purchased 100x AT&T for a total amount of $3032,01. The interest costs $45,48 and these shares pay a net $170.
-6-8 I purchased 20x Alibaba for a total amount of $3606,93. The interest costs $54,10 and BABA pays no dividends.
-29-8 I purchased 25x Philip Morris for a total amount of $1982,00. The interest costs $29,73 and PM pays a net $96,90.
-5-9 I purchased another 87x JD.com for a total amount of $2399,48. The interest costs $35,99 and it pays me back nothing.
-6-9 I purchased 15x ASML for a total amount of €2406,00. The interest costs €36,09 and it pays me a net €19,25.
-6-9 I also purchased another 15x Alibaba for a total amount of $2406,97. Interest costs $36,10 and it pays me nothing.
Together these stocks cost me $275,63 a year, but deliver me $289,39. I increased my forward dividend income a little bit, even while heavily diversifying into growth stocks as JD, BABA and ASML. As long as I keep a big enough margin to that negative spending limit I should be fine.
My plans with the credit.
In the near term I’m looking to add around €3500 of Royal Dutch Shell shares to my portfolio (or another attractively priced high yielder like ABBV or MO). This is to add quite a bit of forward income to the portfolio. From then on I will place very low limit orders on all kinds of stocks, think about MSFT, AAPL, V, GOOGL, BLK, ITW, UN, MMM etc etc, and just basicly wait for a recession to deploy the capital I can afford to spend.
While saving a lot of money everytime a paycheck hits my bank account, a small sum goes into my ETF’s every month. The leftovers will pay down the outstanding debt (credit) together with received dividends.
Have you ever used a credit for stocks, or have you thought about it? Why did you use it, or why not, let me know in the comments down below!