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Subject:  time to leverage?? Date:  11/17/2008  1:48 PM
Author:  mikcra Number:  5650 of 5674

I'm considering the idea of leveraging [prudently] into high-yield div payers in this discounted market environment.

I was very lucky to have avoided much of the damage this year, I moved to 90% cash in March [switching jobs, felt it time to move to cash and focus my attention on the new job - pure luck, I do not believe in fruitless atttempts at market timing].

Besides moving 60-80% of my cash back into quality dividend-payers, I'm wondering if I should 'be greedy when others are fearful' and apply leverage.

With HELOC interest rates at 3-4%, I could use this borrowed capital to pick up a diversified basket of high-yield stocks. It's not too hard to find a handful of stable blue-chips that are growing their dividend payout. By picking stocks paying >4%, I would be coming out ahead on the dividends alone. By screening this same list of stock candidates to find companies trading at a steep discount to fair value, I stand to benefit when the market turns around.

I can get paid dividends while patiently waiting for the market rebound, and break even or even make a few $$$.
When the market rebounds, I can maximize my return of invested capital.

I just feel that right now is actually a less risky environment for stock investing, most are trading at a discount, and the long-term odds favor an overall market rise instead of a decline.

I would keep a large cash cushion to protect in the event of a precipitous drop in one or more positions, where a margin call would be forthcoming. Being diversified into several positions, I can't see how ALL the positions could significantly decline from here.

Obviously, I realize that this strategy involves a bet on the overall direction of the market in the medium term, and the bet is being placed with a portion of my home's equity. So yes, there is some risk involved. However, no risk = no reward.

Feedback from the group?? Risks I'm not taking into consideration??
Other factors to consider??
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