Financial Planning -> Stocks, Bonds etc. -> Borrowing to Invest -> What to Do With the Dividends
What to Do With the Dividends When you Have Borrowed to Invest
You've borrowed to invest, and now you're collecting dividends on your investments. What should you do with the dividends?
When you receive dividends on the investments that you have purchased with borrowed money (leveraged), you could transfer the dividends less the interest to another account. This way, the amount of your debt will remain equal to the cost basis of your investments, making record keeping much easier. If you want to reinvest the dividends, this also keeps your leveraged investments separate from your non-leveraged investments.
We don't transfer dividends to a separate account. We use them to pay interest or to reinvest. However, we keep excellent records.
We also don't just purchase the stocks in our Recommended Stocks for Novice Investors article, so when stocks start to look overpriced, we sometimes dispose of a portion of them to reduce our loan amount.
Whatever you do, don't borrow to invest if it disrupts your ability to sleep well at night!
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Tax Tip: Transferring your dividends less interest out of your leveraged investment account can make your record keeping simpler.
Revised: June 15, 2021
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