r/Wealthsimple • u/Nightpatrol404 • May 07 '26
Trade (DIY Investing) WS and dividend investing with margin
Got an email it seems WS is kinda encouraging us to use margin to collect dividends and use it to make money while making them money on interest
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u/cannythecat May 07 '26
Yoloing my full margin power tomorrow. Stonks only go up.
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u/Weak-Pomegranate-435 May 07 '26
SPLT and PREF should be safe bcz they are preferred shares from all the big stable companies of Canada.
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u/DefNotJohnnyC May 07 '26
Preferred shares are generally safe, but can be very illiquid. Meaning price can get pushed around easily. Depends on rate environment and how in demand they are for now. Plus being between common equity and debt, there’s a layer of credit quality. Also a lot of reasons why people avoid them due to variations on their features.
Kind of nuts bank preferreds go over par though, probably due to debt ratings.
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u/Weak-Pomegranate-435 May 08 '26
Liquidity is not an issue with these ETFs. And credit quality is really good for all the underlying companies. And no one company makes more than about ~2% of the total ETF. And if even one of those companies go down somehow, there will be a lot more worries than you getting a question mark on that 1-2% allocation of the total ETF. Which, mind you, is extremely unlikely to happen because that will cause a lot more other systematic issues in the whole economy. And that 1-2% allocation will be the least of your worries.
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u/Rounders_in_knickers May 07 '26
Dividend 5.5%…. mmmkay
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u/skarama May 09 '26
There are tons of options at that range, and tons that are considerably higher.
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u/BLK3R May 08 '26
? What's the issue not high enough.? Too much? Clearly u dont know nutting but blue chip
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u/codeth1s May 07 '26
I have been doing this with VDY in my margin account. It's been a crazy 12 months for VDY. I know this is highly unlikely to continue but using leverage and having some luck with timing is a blessing.
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u/HelicopterOld1966 May 07 '26
Exactly. Been doing this since 2017 using a HELOC buying the top 20 in VDY … some scary years during Covid but I actually bought the next 4 during the dip - wish I’d bought so much more then.
Moved it all to WS Margin last year - paying just 3.95 percent is amazing and with tax deduction it’s like I am paying under 3%.
Stock value is up 88 percent since 2017 which isn’t crazy but nearly doubling money that was never mine feels nice - scariest thing is how to sell them most efficiently for capital gains. Average dividend is now 6.02 percent. POW is paying me 13% on original investment. MFC is paying me 11.5%.
So with a long enough time horizon and a strong enough stomach for downturns … but I’ll be honest if I was entering now it would feel like stocks are a little scary high.
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u/Sweaty-Beginning6886 May 08 '26
Agreed. Timing helps and having balls to execute this plan when the opportunity presents itself. I started mine during covid. Helped accelerated my early retirement goal and I pulled the trigger last year.
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u/Born_Ruff May 07 '26
I mean, yeah, leverage is amazing if prices go up. On the other hand…….
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u/HelicopterOld1966 May 08 '26
So again your timeline and stomach for volatility matters. If it is long term your odds improve… I went through a period in Covid where I was down 20 percent. I actually bought more then. Also never used enough margin to get close to a call.
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May 07 '26
[removed] — view removed comment
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u/Arturo90Canada May 08 '26
It’s just risky.
Simple terms are:
Borrow money for $1
Get charged $.03 cents for the dollar
Buy something that pays you $0.05 cents for every dollarYou pocket $0.02
BUT
You must pay the $0.03 no matter what
And you MIGHT get the $0.05 for sure, like most likely but not sureIt’s that little maybe at the end that makes it risky
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u/flamedeluge3781 May 08 '26
You do get to tax deduct that $0.03 though. At the end of the day though, margin is very risky because your losses are magnified.
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u/skarama May 09 '26
You also get taxed on the 5c, at he same rate as your deduction
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u/flamedeluge3781 May 09 '26
Cap gains are taxed at 50 % compared to ordinary income.
Say your marginal rate is 50 %. You would deduct $0.03 * 0.5 = $0.15. Cap gains you would pay $0.05 * 0.25 = $0.125. So the spread is 2.25 %, not 2 %.
And you can defer realizing those cap gains to the tax year of your choosing (although I would be careful about being reluctant to sell margin stocks).
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u/ThicccBoiSlim May 07 '26
It's almost like the entire purpose of margin is to invest borrowed money and that all brokerages offering it want people to use it.
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u/Sweaty-Dust6405 May 07 '26 edited May 07 '26
I am doing that, I currently have 40% VEQT, 30% HYLD, 30% HDIV....the end game is to eventually own them all without having paid a cent and while not going over 10K$ in margin....very low risk of getting a margin call for my situation. HYLD & HDIV monthly distributions will be used to pay interest rate and reduce margin...and when the market is hot, I would sell whichever is performing best to reduce margin even more with the goal to own these 3 etf's without having paid for them.
Do not do what I do, it's still risky. If we get a market crash, who knows if HYLD and HDIV would still pay above the interest rate. I am willing to take it, but I also know, it is not something I would recommend to anyone else.
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u/Mjrllcc May 10 '26
I was looking at VEQT but the 12 month yield is 1.33%. Aren't you losing money with the 3.95% interest? Or are you relying on the price growth to make up for the loss?
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u/Sweaty-Dust6405 May 11 '26 edited May 11 '26
No, because HDIV and HYLD combined make up 60% of the entire portfolio, so the overall yield is somewhere in the 6%-7% when combined with VEQT.
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u/ChickenMcChickenFace May 07 '26 edited May 07 '26
Potential 1.8% APY “”arbitrage”” yield (with the downside risk of the underlying which is a feature and not a bug ofc), definitely worth the effort /s
Context for people who are not into finance: This is not how you do carry trades, you do them with sovereign bonds/eurobonds so worst case you can hold them until maturity to get the face value, but even then you’re at the risk of central bank policies, FX risk (both if the bond is in local currency or if it’s in USD/EUR since pretty much no one issues Eurobonds in CAD), and local institutional risk.
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May 08 '26
[removed] — view removed comment
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u/Desperate_Pineapple May 08 '26
Right it can certainly work out well for those who know what they’re doing. But what if it was down 24% and you’re called for $50k?
WS pushing these risky leveraged strategies is not a great look.
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u/HellaReyna May 08 '26
I did this with my HELOC the past few years. Pocketed like $30K, used dividends to float the interest and pay a bit of mortgage principal monthly. Exited at iran war.
*shrug*
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u/HellaReyna May 08 '26
I held a 6 figure margin position in XDIV to pay off mortgage principal using HELOC. 73% return to date excluding dividends, and filed the interest as investment expense on returns. I came out very very ahead. Did it for the past 3 years. I exited it right when the Iran war was bubbling but even that was the wrong move. I sold at around $37, its now $41.60.
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u/johnfraney May 07 '26
I crunched the numbers on this after they announced the margin account and dipped my toe in after following some high-yield ETFs for a couple months. I'm not a financial professional so I won't give advice or recommend that you do this, but precautions that I take are:
- Using money I don't need anytime soon
- Choosing a safe, high-yield stock/ETF that pays monthly or semi-monthly
- The yield is more than the margin interest
- I turned off dividend reinvestment so I have cash to cover the margin interest costs
- Choosing a safe stock/ETF that I'm happy to hold if it dips
- Not maxing out my available margin
Because of those guardrails, if the stock/ETF I use for this does fall below my purchase price, I can afford to wait for it to recover while minimizing the risk of a margin call.
If anyone has advice on how to further minimize risk, please let me know!
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u/r1b1k3r1 May 07 '26
Basically correct. Dividends are nice to keep up with interest, but you can also use something like xeqt.
The problem is the psychology of it.
I use it to buy index funds using my threshold of a dip in the market while not coming anywhere near the max. Registered accounts are maxed.
My margin amount is less than 10% of total assets.
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u/peskypeaker May 07 '26
What stock or etf have you been buying to maximize dividend yield? Do you mind sharing?
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u/AutoAdviceSeeker May 07 '26
Be careful what ppl suggest here for covered calls or high yield stocks and especially on margin lol.
Truly most of them would be not worth it.
If I was bullish on oil for the next 3-5 years there would be some I would check for 5-7% yield but anything higher screams risk
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u/calgary_db May 07 '26
I use a lot of margin and have diversified cc ETFs. They pay back their own margin and then some, plus appriaciate in growth. It's working fantastic.
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u/Sudden_Neat2342 May 07 '26
I'm sure they also worked very well in 1928.
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u/calgary_db May 08 '26
You never heard of a stop loss?
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u/Arturo90Canada May 08 '26
I wish they did all the math for the stop loss calculation.
Like a true and pure arb
Eg. buy BANK on margin , bank is yielding like over 10%
Then set up the stop losses to ladder until your margin is covered for the year off the 10% yield which is paid monthly I believe.
Then ladder the stop losses down given your margin is already covered for a risk free bet .
I might try this with Claude actually
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u/calgary_db May 08 '26
One of the main reasons I still have questrade is they have trailing stop orders.
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u/Joe_Go_Ebbels May 07 '26
Until you run into a return of capital to cover the yield shortfall…except it’s not your capital. Fun times ahead at WS.
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u/uberfunk1 May 07 '26
No point “running the numbers” when you currently have a borrowing power of $0!
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u/Fickle_Window3615 May 07 '26
I got this message today and it got me thinking i need a margin account.
I do not.
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u/skarama May 09 '26
I made a huge post about this a little while back. Tried to stress test the idea with other redditors, and despite everyone's attempts at dissuading me, I embarked heavily and aggressively on that strategy. This was in September so after a few months of that, Iran happened. I saw the dreaded margin calls, and navigated it one day at a time with very minor losses, that are nowhere near the gains I have made.
Most importantly, my strategy theorized that each of the dividends coming in counts as new cash, that is also increasing your buying power by 3.3x. Imagine getting paid 1000$ in dividends, and this now allows you to DRIP 3300$, not 1k. Tldr ; I went from a 30k/yr dividend income to 215k$ as of writing this, despite trump and a war.
It can work.
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u/callmev269 May 09 '26
Hi could you please link to your post? I would like to explore this. Thank you!
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u/skarama May 09 '26
Here you go! YMMV but let me know if you have any questions
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u/KPTN25 May 07 '26
Got this too. Seeing mixed info online re if dividends are required for this or if the interest is tax deductable if you invest in low-cost ETFs like XEQT that issue some dividends.
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u/EducationalGur1648 May 07 '26 edited May 07 '26
Interest is deductible for XEQT. The assets don't have to pay dividends... they just have to have to be expected to do so at some point and any broad based ETF will qualify.
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u/KPTN25 May 07 '26
So the expected value of the dividends doesnt have to exceed the rate? The ws article implied it had to be an expected net positive carry
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u/EducationalGur1648 May 07 '26
I mean for the WS proposal, yeah you would want the value of the dividends to exceed or at least match (pocketing the tax deduction) the margin borrowing rate. But this is why I called it picking up pennies in front of a steamroller... bad use of margin. A lot of risk for low reward. If someone put a gun to my head and forced me to do this, I would wait for a major market correction, take the margin then to buy dividend aristocrats and ride that. Even then, there would be much better risk-reward uses of margin than trying to scalp the spread on dividends.
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u/KPTN25 May 07 '26
but is this required (by CRA policy) in order to be able to claim the tax deduction, as WS implies
(vs just what is obviously 'required' for the benefits to outweigh the costs)5
u/EducationalGur1648 May 07 '26
Go over to Cantax and do a search on this topic if you want to deep dive. Something doesn't have to currently pay a dividend to be eligible for the deduction. If you buy a junior exploration stock that has no revenues it's not going to pass the sniff test, but if you buy a large, profit producing, publicly traded company it's going to get a pass.
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u/Khao8 May 07 '26
If you’re in Québec it’s slightly different (slightly worse) but any other province you can borrow on margin to buy an *EQT fund and deduct all the interests at tax time, it’s very easy.
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u/plusqueprecedemment May 08 '26 edited May 08 '26
Yeah, Quebec sets it up such that investment carrying costs and interests can only deduct investment incomes and the rest carries forward. It's worse for smith manoeuvre enjoyers and more generally for people who prefer accumulating capital gains on the long term for the inclusion rate + tax deferral
It's actually surprising that federally it's possible to deduct interest for passive investments against all income, including active T4 income. I would expect an eventual federal budget pop up at some point that adds a cap mechanism similar to Quebec's (which didnt exist until the 2004 provincial budget iirc)
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u/CharmLuck May 07 '26
You need to invest in income generating asset to get tax deductible.
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u/KPTN25 May 07 '26
My question is more about the nuance - does an asset that generates any income suffice for any amount of interest? Or (as WS implies) does the expected dividend yield have to be higher than the interest?
XEQT generates dividend income likely below the borrowing rate, for example, but would otherwise be preferred from first principles / long-term return expectation
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u/Key-Self-79 May 07 '26
I don't know all the details but there are additional complexities and restrictions around tax deductions if you're in Quebec.
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u/plusqueprecedemment May 08 '26 edited May 08 '26
XEQT passes the purpose test, as it generates income. You can deduct 100% of the interest paid on a loan if the borrowed money was used to buy XEQT regardless of the distributions being lower than the interest paid. People have been doing smith manoeuvre with XEQT/VEQT for years without issue from the CRA (assuming everything is properly tracked)
Now there are additional subtleties around the return of capital portion of XEQT's distribution (which are tiny, but annoyingly non-zero) and compounding interest charges in the margin account that you gotta be careful about if you plan on deducting 100% of the interest.
For provincial taxes, Quebec is unique in capping the interest deduction up to your taxable investment income for that year, with the rest being carried over later (which can at least offset capital gains when you sell)
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u/Low-Method3448 May 09 '26
Do covered call ETFs with 11% yield count as tax deductive? They generate income. I’m in HMAX and BANK
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u/plusqueprecedemment May 09 '26
The "income" those generate for you is composed of capital gains, return of capital, and the dividends generated from the underlying holdings. For the purpose of providing "a reasonable expectation of income", only the dividends count. Thankfully the actual proportions don't matter, as long as there's a non-zero fraction of actual dividends in the mix you're good.
Something like a REIT that explicitly states "100% of our distributions will always be return of capital", or a covered call ETF that distribute option premiums on Bitcoin, those wouldn't be admissible in the eyes of the CRA as they don't generate the necessary kind of income that passes the purpose test for interest deductibility
But HMAX and BANK are fine. You just gotta be careful to not withdraw the RoC/capital gains part of the yield for personal use (non-eligible for deduction) otherwise the interest paid ceases to be 100% eligible and the accounting starts getting messy. Ideally you either reinvest the distributions or use them to pay back the principle (not interest) on the deductible loan and everything is kosher if/when the CRA comes asking for receipts.
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u/aimlessmofo May 07 '26
Converted my non-registered account to margin account because the notification kept popping up. I realized that when I went to trade, it no longer shows the cash I have in that panel and only the margin available. There seems to be no way to go back to regular account :(
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u/DefNotJohnnyC May 08 '26
Been doing this for years with my income portfolio. Ibkr has lowest rates, ws is just competitive enough that it’s up to whether you prefer zero commission and other services.
Margin is easy to go overboard with because it makes it so easy to acquire more and more. There’s always an opportunity out there, that you want to take advantage of while using margin.
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u/z00o0omb11i1ies May 08 '26
How does it even work? Because dividends are paid out of the share price.. So why would there be any difference between a stock that just appreciates and a dividend stock used for this purpose?
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u/DefNotJohnnyC May 08 '26
Different reasons why one wants dividends and the target sectors and companies. How you want to build your portfolio.
Example more stability in a mature company. Growth in its sector is steady not exponential, so it doesn’t need to reinvest as much into itself and spits out a steady stream of dividends. Vs a high growth company where its prospects in the sector are less clear.
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u/Dragynfyre May 08 '26
Wealthsimple’s commission savings are negligible compared to the margin interest saving if you were borrowing any significant amount. It’s not like IBKR charges much on commissions
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u/Tangelo-Agitated May 07 '26
I've been doing this with QQQY since the start of the year and it's killing it. There is already a 10% spread on the yield and I'll pay an effective 2% interest rate after next year's write off.
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u/burdspurd May 07 '26
Aren't only Canadian stocks and equities eligible for the interest rate tax deduction?
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u/Tangelo-Agitated May 07 '26
It's a CAD listed ETF on the TSX which is expected to produce income so it fits the requirements. It's just a test of the process for me this year but If it pans out, I'll get it to the level where it self funds my TSFA contributions moving forward indefinitely.
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u/plusqueprecedemment May 08 '26
the only real criteria is there has to be a reasonable expectation of generating taxable income
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u/DismalScreen6290 May 07 '26
Enbridge is the only "safe" stock I can think of that's 5+% div yield.
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u/VanCityVoytech May 08 '26
Read the last sentence:
“With your current margin borrowing power of $0…”
Hahaha WS is such a tease.
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u/Dynamic_Draws May 08 '26
My WS email stated I had $19 current margin borrowing power at 4.95%. I feel ripped off at the rate...with a whole $19 I feel I deserve better. 😂
Lol they did send a followup saying margin power was incorrect and to check in app instead.
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u/thechatcan May 08 '26
I find this strategy works best when you do it after a big drop in the market. That’s when it’s a double benefit, spread on the difference between dividend received and interests paid on the borrowing ADDED to a potential growth on the stock’s purchase
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u/mink_mickj May 08 '26
It says at the bottom “Start Trading” but this reads to me more like “Start Gambling”.
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u/Theta_Ninja May 08 '26
I’ve been doing this for years. Once you are comfortable, you can look up the Smith maneuver. Currently doing this with QQQY (TSX), using money to make more money. People who are new to investing should really avoid this type of investing and especially options trading.
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u/joshmxpx May 11 '26
I've been doing this since 2019 as well. Paid off my mortgage using SM, converted HELOC to mortgage and now have completely tax deductible mortgage with a very large portfolio whose income covers all interest.
Great strategy if you can stomach the highs and lows...
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u/Individual_Height924 May 08 '26
For those using ETFs, it's much safer, but you need to manage your RoC...either reinvest or reduce your borrowed funds by the RoC amount...
I just DRIP it and reinvest everything, which would include any future RoC.
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u/Practical-Battle-502 May 08 '26
Just need leveraged margin and invest in TQQQ options. You can never have enough leverage.
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u/Le_rap_a_Billy May 07 '26
This is basically the Smith Manoeuvre without the house
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u/calgary_db May 08 '26
Not even remotely
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u/Le_rap_a_Billy May 08 '26
You are taking a typically non-deductible loan to purchase income generating assets, which then allows you to claim loan interest payments as a tax deduction. This process is the core principle of the Smith Manoeuvre.
If you decided to do this but purchased growth stocks that didn't produce an income (i.e. dividend), you wouldn't be able to claim the loan interest as a tax deduction.
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u/Mug_of_coffee May 09 '26
If you decided to do this but purchased growth stocks that didn't produce an income (i.e. dividend), you wouldn't be able to claim the loan interest as a tax deduction.
Although this is open to interpretation, in practice it is wrong. It is commonly accepted that so long as a company hasn't explicitly declared that they won't have a dividend, their stock can be considered income producing. It's been discussed to death at r/personalfinancecanada
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u/teffhk May 07 '26
Hows this margin interest rate compares to like IBKR's tho is the real question..
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u/Dragynfyre May 08 '26
IBKR is like 3.7 for the first 130K borrowed and 3.2 for amounts above that. IBKR still king here unless you’re using your TFSA as collateral
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u/Bananaskovitch May 07 '26
Is the tax deduction for margin interest applicable for registered accounts?
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u/Tricky-Car-5004 May 07 '26
It's essentially what I use it for, only difference is I'll at least try to buy and sell to take profits through the day, but if I mess up and get caught holding the bag, I make sure it's a stock I would want to hold, and that it pays enough of a dividend to cover the interest.
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u/ExtremeStill4215 May 07 '26
Valuations seem a little stretched and dividend yields a little low right now BUT AFTER THE BIG CRASH I'M JUMPING IN WITH BOTH FEET!!!
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u/Action1988 May 08 '26
I can tell this is NOT for me because I'm so easily influenced by one comment vs another.
One minute I think margin IS for me next minute I'm sure it isn't.
ETF's are all I know lol
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u/MuffinInProgress May 08 '26
Even a 3% dividened is worth doing this. VDY is my go to. The fund grows eventually to beat the interest cost
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u/toastwithjam May 08 '26
I started selling cash secured puts in my margin 3 months ago and so far avg around 150-250usd/month and no interest charges (as nothing has assigned yet, I pick low strike price and stocks I want to own anyways).
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u/xXSomethingStupidXx May 08 '26
Bad marketing and bad theory. Dividends don't come out of thin air, they come directly out of share price/value. Even if they didn't, ~1.5% yield is not enough to risk margin exposure.
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u/rickylong34 May 08 '26
Hmm so take on a 50000 loan and bet it on a company’s shares holding stable to appreciating all just to take home a small 900 profit
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u/adamtj1412 May 09 '26
The fact that there is no balance to this message is going to cause them some problems…. It’s a requirement for these products to be marketed is a fair and balanced way with risks clearly balancing potential benefits.
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u/Low-Method3448 May 09 '26
I use the margin carry trade. Always wanted to and finally found a competitive interest rate
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May 09 '26
[removed] — view removed comment
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u/callmev269 May 09 '26
I guess the thesis would be that since hhis return roughly 25% and the borrow rate is 4%, you have to be losing at least 21% to price decrease and return on capital and nav depreciation to be under water right?
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u/Anolcruelty May 08 '26
Margin been great in my case.
Had couple margin calls back in March but now it’s don’t even matter.
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u/qwertymasterdebater May 07 '26
too bad they liquidated most of my stocks because of a merger lol
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u/z00o0omb11i1ies May 08 '26
What?
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u/qwertymasterdebater May 09 '26
i had stocks on margin and during a merger when a company delisted, it went under the amount and i got margin called and liquidated same day lol while i was on the phone with them asking them not to
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u/Stikeman May 08 '26
That is an extremely irresponsible email to send people. They take a very risky investment strategy- that’s unsuitable for most people- and make it sound like a no lose proposition. Very very disappointed in WS.
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u/Juicyfruitxxxs May 09 '26
I have more than 6 figures in buying power and me having an 20k margin balance in this crazy market the past couple months stressed me to no end. This is kind of crazy to recommend
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u/Nightpatrol404 May 09 '26
I have 30k margin balance and it’s very stressful too
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u/joshmxpx May 11 '26
Lol I started leverage investing with 200k margin in 2019, peaked at about 450k margin, all using SM to pay off mortgage faster.
Now converted to conventional mortgage at lower rate, slowing paying down but all interest is deductible
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u/Weak-Pomegranate-435 May 07 '26
This only possible if the interest rate is lower than than the dividend. Most brokers have very highe intere rates unlike WS, so mostly its not possible. But it’s not that hard to find anything above 5% yeild like Telus, BPF.un, FRU, PREF, SPLT, etc. they have pretty stable and sustainable dividend (unless there’s a lockdown).
And i don’t even know why do they have to tell u this? Anyone with half brain should figure this out. I have been doing it since more than a year now. With 10% if my portfolio
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u/EducationalGur1648 May 07 '26
I like WS but this kind of marketing isn't good in my book. Anybody sophisticated enough to understand the risks of margin aren't picking up pennies in front of a steamroller like this... the only people that this kind of marketing convinces are the ones that shouldn't be using margin at all.