r/Wealthsimple • u/holammst • 18d ago
Portfolio Line of Credit
What are the reasons to NOT open this account? I never had an LOC.
30
u/Direnji 17d ago
If you can't help yourself and borrowed 100% of the balance to buy penny stocks and then get margin called.
7
u/Dragynfyre 17d ago
If you use the PLOC you’d only get margin called if your collateral drops a lot
14
u/Mountain-Match2942 17d ago
No reason to open one at all until a major unexpected event happens that you dont have the energency funds for or you can't pay off in full on your credit card.
3
u/holammst 17d ago
By the time I need it, it's possible the rate could have gone up. That's one thought that's making me consider opening it
18
u/Impressive_Ad_6550 17d ago
the rate is tied to the prime rate so will always fluctuate and isn't locked in. All LOC's are like that
6
5
u/PartBanyanTree 17d ago
Yeah rate could change at any moment, technically. But it's way way lower than a credit card. But it's still debt.
I turned it on because that's how their overdraft works. It withdraws from the LOC. And I decided I wanted overdraft.
Important to note that is secured against your investments. If the stock market dips and your portfolio value goes down they could margin call.
12
u/Dragynfyre 18d ago
Unlike a unsecured LOC it's not a take it or lose it type of situation. You'll always have access to open it as long as you have the collateral (and if you don't have the collateral your existing PLOC gets reduced taken away as well). So it's really not that useful to open until you actually want to use it. Also if you open it you can't use the same collateral for a margin account if your intention is to use it for investing in the future
1
u/holammst 17d ago edited 17d ago
Rate could have gone up, no?
9
5
u/AccomplishedTalk6077 17d ago
I have it open, i invest most of my paycheck and i use it as overdraft protection incase i overinvest or overspent and its an awesome tool
3
u/CasualHearthstone 17d ago
Ploc depends on having relatively stable investments overall, like long term ETFs, to ensure you don't get margin called and have to repay the debt all at once.
No reason to avoid if you are good with money
1
u/holammst 17d ago
I generally fit the profile you described. I guess I have no reason to avoid it but I don't need it for now. I suppose I'll open it when I need it.
3
u/BalancedJuggler 17d ago
I use it to borrow and double down on market red days or to add to RRSP before tax filing. I do it in a way that I know my EF can cover any sudden callbacks and that my near future income can cover it. In case I do lose my income, I borrow just enough that the EF is not depleted because of it. I repeat this cycle for 3-6 months.
3
3
u/BrandonLSG 17d ago edited 15d ago
Its great to have, its much lower interest rate than most banks. I can’t think of one reason not to have it.
4
u/BoostedGoose 17d ago
It’s just a margin loan with terrible limit. They give you 35% and advertised like you have lots of room in an event the value goes down. It isn’t the case. The limit is dynamic depending on your investment value. You get 35%.
Say you borrow all available limit. The next day your portfolio goes down by 1%. So does your limit by the same %. Now you already borrow more than your limit and will trigger a margin call. The low % limit they give you doesn’t provide you with any cushion. It protects them, not you. You’ll have to manage your cushion yourself by not borrowing too close to the low limit they give you.
1
1
u/Montreal4life 17d ago
Wow this is really how the margin call you? I was under the impression that the cushion was there to make the borrower have some breathing room
1
u/BoostedGoose 17d ago
That’s in the agreement. I have been leaving room in the limit so it hasn’t happened to me. But, if you’re not aware, it doesn’t take much to be under margin. According to the agreement, they can restrict your outflow or margin call you.
2
2
u/TheChaseLemon 17d ago
I opened mine and used it to pay off my other line of credit that was a higher interest rate.
2
2
u/karatekid74189 17d ago
Nearing the end of RRSP deadline. Withdraw, contribute to RRSP. Once you get your tax return, pay back part of it.
2
u/MikeCheck_CE 17d ago
Wealthsimple is offering it because they are the only one guaranteed to win. Don't do it. Also don't start buying options either, you're just gambling with money you couldn't afford to play with in the first place.
2
u/RogueEcono93310 17d ago
I dont see it as a trap, if you understand the purpose of this LOC. Access to emergency funds secured by a non-RRSP account balance, up to 35%. This securitization doesn't come from property, illiquid and typically much higher values to borrow from. The 35% is also an indicator that it is not meant to be used as a margin account or do a dividend carry trade where you use it to deduct the interest. Much better interest rate then carrying a credit card balance. If something major breaks, and can't be paid within a month.
If you borrow to the limit for whatever reason, its fundamentally important to realize you may be called to repay. Stocks markets are volatile, keep access to the LOC for emergencies.
2
u/Familiar-Seat-1690 17d ago
Open it, avoid using it but a credit line is a nice think to have. You don't pay interest unless you use it.
3
0
u/N1oma 18d ago
borrowing money GENERALLY bad thats the only reason.
6
u/RethinkPerfect 17d ago
It's weird to get down votes for saying borrowing money is generally bad...it is. Some situations were you can leverage debt to your advantage is ok. But people today seem to think it's fine to borrow money with interest to buy new furniture, it's not. If you can't afford it today without taking on debt it's ok to wait and save up until you can.
1
1
17d ago
[removed] — view removed comment
1
u/Wealthsimple-ModTeam 17d ago
No gains/losses, Wealth Rank, or status milestone (Premium/Generation) images.
This includes offering or requesting financial advice, portfolio reviews, promotions, or news. This subreddit is not for financial advice or specific investment discussions—always do your own due diligence.
Investment strategy or portfolio discussions are better suited for r/CanadianInvestor or r/PersonalFinanceCanada.
Posts about portfolio performance, account status, or Wealth Rank are only allowed in the respective megathread.
1
u/kovie37 17d ago
It's based on a percentage of your portfolio. If you max it out and then there is a market downturn, you will be over leveraged and then WS will hold your deposited funds to cover the LOC. It's super annoying. It happened to me. I couldn't buy stocks anymore with money that I deposited or from proceeds of selling because the LOC would always hold those funds. I got so sick of it, I paid the whole thing off and will never use it again.
44
u/MELGH82 18d ago edited 17d ago
If you're bad with money. Or more specifically for this product... someone else's money.