Yes I know. Everyone who holds accumulating funds can see it when filing taxes that you still pay income tax on dividends.
After rethinking the only difference is that I don’t have to manually reinvest the dividend with optional currency conversion. I don’t want the dividend to pay down my margin loan but to stay invested and keep earning me money and hopefully outpace the growth of my margin loan.
If I choose VWRL the dividend will just pay down my margin loan (which I don’t want) but I can obviously buy shares with the difference but this incurs trading fees so in the end I should be slightly cheaper and, which is more important for me, much more “automated” than with a distributing fund.
I have retired last year and that’s exactly what I am doing. I borrow currently at 3% in CHF/EUR, USD at 4,5% with swissquote against my equities portfolio.
I used to borrow against my cryptos for 1% but after I have lost some money with Celsius that has become too risky recently
Living of dividends just earns too little for me and I don’t want to sell any assets in the current crash. I pay some taxes on dividends, but when I deduct my mortgage and my interest rates it’s very little
True, my current loan is with 15k CHF not that big. I wanted to be more defensive at that time but then my monkey brain got bored and I tried to be clever and bought a lot of gold with it as an “cashlike inflation hedge” in an ETF, which also went down in the meantime.
So at the moment I have both: Cash waiting on the sideline on my bank account and a loan on my trading account. This might seem a bit of a over reaction/contradiction, but my wife gets nervous when our shared accounts are too low. In the meantime I still trade a bit for fun (and mostly unsuccessfully). For the big bets I’ll wait for a clear uptrend.
Maybe I should get a job
Yes I know… Swiss bias again I guess. I know I get the correct documents for my taxes. Something that has been sometimes difficult with non-swiss companies.
What are their rates?
What is still messed up is that inflation is much higher than interest rates
e.g. swiss inflation 3.4% whilst IBKR interest rate is 1.5% → in real terms the loan decreases in value faster than interest accrues. Not to mention that interest is deductible from taxable income for a swiss investor
On the other hand if we borrow to buy equities, the risk is that if interest rates go up share prices are likely to go down (present value of future cash flows from equities decreases)
That is also true with our 10 year mortgage of 1,6%
The only way to really lower inflation would be to solve the global energy/deglobalization issues, something that seems unlikely for political/moral reasons. I don’t think this is necessary bad. Our reliance on cheap Russian energy has to end and people here will simply not work for the same wages as in China.
Still interest rates cannot stay highly elevated over a long time. High interest rates not only means destruction of the economy but also destruction of tax revenues and higher debt service costs for the governments. The US and the EU with their astronomical debt levels would either default quickly and the swiss export industry would get annihilated by a skyrocketing CHF.
I expect instead inflation will stay higher over the next few years (around 5%) and we will probably get a new creative way to obscure this so that the official number comes down to the target of 2%. Inflation is no longer in the headlines. Central bank are back to pumping liquidity into the markets and politicians can go back to throwing around money to keep the voters happy. Mission accomplished.
In short: I feel comfortable buying shares of companies with pricing power with debt that gets eaten away by inflation in the long term.