Hi Guillaume,

Thanks for the comment, I enjoy these “in the weeds” investment discussions quite a bit.

I think I see the appeal of the strategy your layout, using deducting the interest from the margin loan against the dividends to collect the tax-efficient income.

There are more risks in this approach than you mention. One is that the “solid” stocks today are less solid in the future and either collapse or simply fall in value and never fully recover. Another risk is that those dividend stocks cut their dividends in the future. There is also the risk that interest rates and the carrying cost of your margin account rise over time.

There is also the margin call risk if those stocks do drop significantly in value. Finally, there is the biggest risk which is the behavior risk. When things get dicey in the market, many investors sell their positions.

Not to say dividend strategies can never be effective, but it’s hard for me to conclude that there the most “rational” approach when looking at risk-adjusted returns.

Thanks for the comment and discussion!


Economic policy wonk by day. Personal finance writer by night. I write about investing, debt, and all things related to money. Editor of Making of a Millionaire

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