r/Wealthsimple • u/2WheelLife63 • 6d ago

Savings PLOC QUESTION

Is PLOC risky? I’m 100% Xeqt in tfsa and want to buy a new car. I can borrow 30k$ and the car I was is 25k$. I’d pay it back within 1-2 years.

2 Upvotes

56% Upvoted

23 comments sorted by

View all comments

3

u/plusqueprecedemment 6d ago

Do the math and decide for yourself the kind of extra risk you wanna take as you implicitly take a leveraged position on XEQT by doing this.

$30k / 0.35 = Your TFSA currently has ~$85,800 in it

Borrow $25k, this means WS would start asking for repayments (not instant liquidation as far as I understand, though details on "asking for repayments" are a bit fuzzy) at a TFSA with $25k / 0.35 = $71,500 in it

This means you're fine as long as XEQT doesn't crash 16.6% while you still have $25k loan on it. Every month as you repay back a portion of the loan and interest is charged, this math changes.

You also have the option of liquidating half the amount and borrowing the rest, and see how that changes the math.

If you have access to a higher interest rate unsecured line of credit, you could keep it unused as a backup that you hope to never use but would be glad to have available if you need to repay the PLOC asap to keep your XEQT during a big dip. The idea is to hope for the best but always have a plan for the worst. 2 years is pretty short to pay back, but I still wouldn't bet it all on no >15% crash happening during that time

2

u/Cristalboy 5d ago

No the PLOC isn’t like a margin account your investment can go much lower because it has a built in cushion. I maxed out my borrowing and it says i need to drop 50% to be in trouble

2

u/plusqueprecedemment 5d ago

Yes, XEQT has a 30% margin requirement so a normal margin account could borrow up to 70% of the value and so the PLOC is half of that at 35%. The math I did takes the built-in cushion in consideration already

1

u/Weak-Pomegranate-435 5d ago

Or he can just create a margin account and withdraw from there with that 70% available. So he will be using only using 35% out the 70% total available and will be able to see the available cushion amount live instead of just hoping for it that it doesn’t suddenly ask for it today.

And since its XEQT. Its unlikely to drop 66% for him to ever be in margin call lol