The equity markets are now offering up some unprecedented bargains in high quality, dividend paying stocks. I will continue to buy stocks that I feel offer exceptional value if the S&P 500 index continues to drop to (year) 2003 levels and beyond. I feel that as part of my long term strategy I have a responsibility to take advantage of massive downswings in the equity markets. I am now borrowing a very small amount of money from our unsecured line of credit, at a low interest rate, to fund purchases of quality dividend paying stocks. Aside from my attempts to time the market....I am able to claim interest paid on this loan when I file my taxes. Also, I gain the benefit of receiving the dividend income sooner, instead of later if I had waited to purchase the equities in 2009. We have established ourselves as great net savers. The saved money normally went directly into stocks (would occur in 2009), if this strategy is needed the money will be used instead to lower the line of credit balance (in 2009).
This strategy does not come without its risks, as any investing strategy does. I feel that given our current personal financial situation, age, and given the recent events in the market, the timing is ideal for such a strategy. If the S&P comes roaring back several percentage points I will likely halt stock purchases and dedicate funds to pay back the line of credit. The total quantity of leverage used will likely be modest when compared to my portfolio value.
To read an informative series on leveraged investing please look here at Quest For Four Pillars.