OJ, great post!! I am always astonished by those who seem to love getting back a tax refund from their returns. Some just don't seem to get the mechanics of that annual loan to the govt.

As I said ...

... if you're interested in giving out interest-free loans ...

... let me know where the line-up starts, so that I can get into it before it gets too long.

I won't borrow to invest in consumer items, as that means that I eat stuff this year that I won't pay for till next year, which means a reduction in next year's income due to paying for this year's eating.

Not only that - I have to pay rent to the lender of the money for the use of his/her money.

However - I may borrow to invest and expect to be doing so, soon, as the markets stay low. I've made three purchases in recent months using cash and have another to do soon.

Plus I'm being forced out of one holding, which includes Canada's largest phone co., as it's being sold and taken private. That will free up some more cash in a few months.

My bank told me a few months ago that they'd charge me prime rate, 6.25% on a fully-secured (by certificates of mutual funds and stocks) Line of Credit.

I calculate that I can borrow to invest in high-quality stocks at almost no net cost.

As interest on loans for investment is deductible, if I'm in 25% tax bracket, that reduces my effective cost to just under 4.75%.

Core stocks, the kind that I'd planned to use for retirement, often pay about 3% dividend, which has been (Canadian) tax-advantaged for years and just became more so, meaning that I'll have about 2.5% in hand after the tax is paid ... which reduces my effective cost to just under 2.25%.

Suppose I borrowed $10,000.00 15 years ago, agreeing to pay interest-only, and had done that (which I don't like doing - I want to pay down some of the principal as I go along ... I'm using this calculation for illustration).

If I went in to pay off the loan now, how much would I have to pay?

Right - exactly $10,000.00. And it will buy a lot less now than 15 years ago when I borrowed it.

With inflation running at 2 -3%, that means that I borrowed the money at just about no cost.

A couple of days ago, the bank says that they'll charge me at prime interest rate, now, 5.25%.

Deduct tax at 25% is about 1.3%, moving down to slightly under 4%. As above, I receive about 2.5% after-tax from the stocks in which I invest, taking me down to just under 1.5% net cost.

But inflation is running at 2 - 3%, and some expect it to go higher, somewhat due to increased fuel costs, that affects most stuff that we buy, incl. strawberries from Mexico in January).

So it looks as though I'm gaining, at these rates.

Suppose you put $10,000. into the bank 15 years ago, enticed (seduced?) by the bank's highly touted guarantee that, apart from the rent on the money, they'd repay every dollar that you'd lent to them, at the end of the contract.

They never mention the corollary to that guarantee - that they won't pay one dollar more, either. Unfortunately for you U.S. folks, the inflation rat went into the bank and chewed off a corner of every dollar that you'd lent to the bank, every year that they'd held it. It'd have to be $5.00 bills for us Canadians, as our Loonies and Toonies are made of long-lasting, rat-tooth-hating metal.

Actually, the rat wouldn't find your money in the bank - they lent out about $8.00 for every dollar that everyone deposited. Money in their till is like dollar bills in your wallet/under your mattress - they ain't workin'.

So the bank took your $10,000. 15 years ago and lent it to me. Now, you want your money ... and I come to the bank to pay off my $10,000.00 loan ... that they then pay to you.

I paid my loan with lower-valued dollars, and you got the same number of lower-valued dollars.

I gained from inflation - you lost!

Have a weekend that includes some effort expended to learn how money works - an excellent hobby - that pays well!

ole joyful

This was very interesting ole joyful! I will ask my accountant how to cut down paying some of the taxes next year.

Thanks!

So you U.S. guys didn't ask your accountant that question?

S/he'll be much less busy, now ... so will be willing to give you longer time for discussion. Or maybe wait a couple of weeks, till the franticness of the tax season has been flushed from his/her blood!

Canadians ... you'll get a fuller answer/longer discussion ...

... after a couple of weeks or so - maybe wait a month, till the frantic tax-season's pressure's wound down!

ole joyful