Using PSLOC to Invest

[QueensDenning]

I'm going into second year law and thinking about opening up a $125K PSLOC soon. At the moment, I have about $17K in my TFSA, invested in an ETF that has risen over 20% since I put the $ in about a year or so ago. I also have about 3K in crypto (which is up around 40% since I invested a month or so ago). 

I can probably get by without relying on credit (savings from summer & will be working part time during the year). My question - should I use the PSLOC $ for investing in a safe ETF? Seeing as prime is 2.45%, and i'm planning on working in biglaw/have support such that I would never be in a pinch with repayment - i.e. if it's a shitty market when payments are due, I would be able to float the interest until a rebound - it just seems like a no brainer to me but I haven't heard any of my friends considering it.

[BlockedQuebecois]

Most banks prohibit you, as part of your loan agreement, from using the funds to invest. That’s why you won’t hear about it from your friends. 

With that said, a not-insignificant portion of my earnings from summer employment went into ETFs in a TFSA and crypto, and money is fungible and all that jazz.

At the end of the day, you’re making two bets and hoping they pay off: (i) you’re betting interest rates won’t rise dramatically; and (ii) you’re betting the market won’t crater shortly after you invest your money. You can mitigate those risks in various ways ((ii) most obviously by dollar cost averaging over an extended period of time), but those are still risks. 

Edited August 27, 2021 by BlockedQuebecois

[QueensDenning]

8 minutes ago, BlockedQuebecois said:

Most banks prohibit you, as part of your loan agreement, from using the funds to invest. That’s why you won’t hear about it from your friends. 

With that said, a not-insignificant portion of my earnings from summer employment went into ETFs in a TFSA and crypto, and money is fungible and all that jazz.

At the end of the day, you’re making two bets and hoping they pay off: (i) you’re betting interest rates won’t rise dramatically; and (ii) you’re betting the market won’t crater shortly after you invest your money. You can mitigate those risks in various ways ((ii) most obviously by dollar cost averaging over an extended period of time), but those are still risks. 

*not asking for legal advice* - you think they'd find out that I used it for investing? And if they found out - so what? What is the bank going to do about it?

Correct me if i'm wrong, but with a PSLOC I can transfer the $ into my chequing account, and from there I can put it wherever I want - no? 

[BlockedQuebecois]

3 minutes ago, QueensDenning said:

And if they found out - so what? What is the bank going to do about it?

Call your loan and demand immediate repayment. You’re in law school, you’re smart enough to read your agreement and see the consequences if you’re found to have materially breached it. 

[QueensDenning]

Just now, BlockedQuebecois said:

Call your loan and demand immediate repayment. You’re in law school, you’re smart enough to read your agreement and see the consequences if you’re found to have materially breached it. 

I know they can do that. But I also know it wouldn't be in their business interest to do so. What is the upside for the bank to do that? If the investment goes well, than great - they get paid back earlier. If it doesn't go well - also great for them - I pay more in interest, and there is no way that 100K could bankrupt me at this age - they'd get their money eventually. Not to mention I'm a potential long-term customer who's likely going to be investing with them for my whole career, including eventually getting a mortgage, car payment, possibly a mortgage for other properties to rent out. As a business person, I don't see why they'd care. 

[BlockedQuebecois]

Cool, then do it. You asked why people don’t do it or talk about it. It’s because it’s breaching your loan agreement. I’m not interested in debating whether the bank is likely to catch you or what it is likely to do if it does. 

This is a bit like the LSAT discussion the other day.

You’re in law school, you’ll soon be a lawyer. You’re going to be able to get away with all kinds of behaviour that breaches your professional obligations, or your legal obligations, or even the actual law. The odds of you being caught for doing so are always pretty low, and the odds that you’ll face significant consequences if caught is also often low. If you want to be the kind of lawyer who breaches their obligations because they think they won’t get caught, you’re free to do so. 

[QueensDenning]

18 minutes ago, BlockedQuebecois said:

Cool, then do it. You asked why people don’t do it or talk about it. It’s because it’s breaching your loan agreement. I’m not interested in debating whether the bank is likely to catch you or what it is likely to do if it does. 

This is a bit like the LSAT discussion the other day.

You’re in law school, you’ll soon be a lawyer. You’re going to be able to get away with all kinds of behaviour that breaches your professional obligations, or your legal obligations, or even the actual law. The odds of you being caught for doing so are always pretty low, and the odds that you’ll face significant consequences if caught is also often low. If you want to be the kind of lawyer who breaches their obligations because they think they won’t get caught, you’re free to do so. 

Fair enough, thanks for the response!

Not to beat this to death, but I think there is a difference between breaching contractual obligations and legal/professional obligations associated with my (future) position as a lawyer (the former of which, lawyers breach and advise their clients to breach all the time - i.e. 'efficient' breaches).   

[Telephantasm]

Not weighing into the advisability of doing this, but contrary to the above, I know at least 3 students who have done this. Again, not advocating that you do it, but it's not the case that no one does this. It's actually a running tax law exam joke.

[luckycharm]

A breach is a breach and whether the bank can find out or do they really care is another issue.

I had a $100,000 PSLOC from Scotia and they only released about $34,000 the first year and then $33,000 on 2L & 3L.

If you apply for PSLOC on 2L, they may not give you the full $125,000.

 

[123]

14 hours ago, QueensDenning said:

I know they can do that. But I also know it wouldn't be in their business interest to do so. What is the upside for the bank to do that? If the investment goes well, than great - they get paid back earlier. If it doesn't go well - also great for them - I pay more in interest, and there is no way that 100K could bankrupt me at this age - they'd get their money eventually. Not to mention I'm a potential long-term customer who's likely going to be investing with them for my whole career, including eventually getting a mortgage, car payment, possibly a mortgage for other properties to rent out. As a business person, I don't see why they'd care. 

I say this as someone who missed payments after starting a law practice in a pandemic year. The bank is not your friend. The bank doesn’t care about you. The bank might not find out about your proposed breach of contract, but the bank does care about breach of contract. If they find out you’ve been fucking around on them, they can and do come after you. 

[Kashi]

 

It’s not in the bank’s best interest to immediately call the loan even if they find out for obvious reasons i.e. they would rather you actually repay the damn thing over a period of time than go into arrears lol. Gotta think about it from the perspective of economic incentives, not just breaches of contract.
 

Anecdotally, this is an extremely ubiquitous practice for students to engage in. Whether it’s advisable or not is another issue.

Edited September 18, 2021 by Kashi

[123]

People can do whatever they want. Whether they should do something like this depends upon their ability to repay and overall risk tolerance. 

I didn't have this exact problem. But I applied all of those assumptions to my dealings with the bank. I thought the following. The Courts have closed due to the pandemic, and so business has been slow. Every knows that. Plus, this was a one-off: I was sick. I'm a business owner. I have a good credit rating (or still did, at that point). I will want to be a long term customer. This is a tiny percentage of the loan. I'll pay my other overhead so I can keep the lights on, rather than paying the bank. It's in everyone's interest that I continue generating revenue, so that I can repay the balance of my loan. I'll explain that to them, and they will understand. What are they going to do, put me in default? Call the loan in immediately?

The answer it turns out, was yes. That is exactly what they did. Because if a particular agent at the bank decides to do something, and they are entitled to do so, then that's what happens. I eventually worked it out, because business picked back up later in 2020 and I reached a settlement. But the stress was overwhelming - I would not subject my worst enemy to the emotional toll that staring down default and a potential insolvency takes on someone. And it ended up costing me a lot more financially than if I had just been able to abide by the contract in the first place. 

Again, it's about risk tolerance. I would guess that the financial risk for something like this is relatively remote. But, if you screw around with the bank and they decide to enforce, you can completely fuck your personal and professional life. My personal view is that the profits on this are low enough that they aren't worth the risk. I would wait a couple of years. By then, you should have steady income and more career stability. You won't be as highly leveraged in any particular investment, and are much better prepared to absorb a loss if things go south. 

Edited September 18, 2021 by realpseudonym

[Vizslaw]

I would also just add that if you have other accounts/products with the bank, you run the risk of them cancelling those accounts if they believe you have breached their agreement or terms of service. We see those files fairly often, and it can cause more trouble than it's worth.

[BlockedQuebecois]

I love how confident some people are that a major bank wouldn’t mind you tricking them into giving you a margin account without meeting the equity requirements or paying the proper interest rates.

If you want to invest with the bank’s money, you can do that. But the proper product is a margin account, not a PSLOC, and the banks generally don’t like it when you think you can outsmart them. 

Even if the individual business advisor didn’t mind, for some reason, the risk profile changes when you trade on margin. If you think a bank’s risk department is going to be cool with you trading on margin at a decreased interest rate with no equity at stake… 

Edited September 18, 2021 by BlockedQuebecois

[123]

16 minutes ago, BlockedQuebecois said:

I love how confident some people are that a major bank wouldn’t mind you tricking them into giving you a margin account without meeting the equity requirements or paying the proper interest rates.

If you want to invest with the bank’s money, you can do that. But the proper product is a margin account, not a PSLOC, and the banks generally don’t like it when you think you can outsmart them. 

I'm not a bank, but I do have a contract with every client. If I find out that a client is willfully evading the terms of my retainer, I view them as an inherently greater liability, which decreases their value as a client. I may not act on the knowledge. It might not be worth the trouble. But the idea that you can separate out economic incentives and breach of contract is absurd. My contract protects my business interests. The two are one and the same. 

Edited September 18, 2021 by realpseudonym

[Hegdis]

If I found out an interviewee took the position of “yeah but will I get caught” when making choices about abiding by contracts and agreements, I would end the interview. And half expect to see them again sometime on my client list.

[123]

5 minutes ago, Hegdis said:

If I found out an interviewee took the position of “yeah but will I get caught” when making choices about abiding by contracts and agreements, I would end the interview. And half expect to see them again sometime on my client list.

There's also a lot of reliance in here on how common the practice is and a historical failure to enforce against others.

I have clients who complain that "I know so many people who do this all the time and nothing happened to them, so it's unfair that they're coming after me." And while this shouldn't be relied upon as legal advice, most law students should be able to recognize that this would be a shit legal position.  

[Vizslaw]

1 hour ago, realpseudonym said:

There's also a lot of reliance in here on how common the practice is and a historical failure to enforce against others.

I have clients who complain that "I know so many people who do this all the time and nothing happened to them, so it's unfair that they're coming after me." And while this shouldn't be relied upon as legal advice, most law students should be able to recognize that this would be a shit legal position.  

This pretty much sums up insurance benefits fraud and scams.

"Everyone does it"

"I have $500 in coverage for physio so I'm entitled to those funds, so whats the big deal if the clinic bills my massage as physio, I was going to get that $$ anyway"

The thing that I find the most shocking is that these schemes are so common. Like people with good jobs are defrauding their insurance company for a couple thousand dollars over a few years. It's wild. Total definition of short-sighted behaviour. And then the shock after being told "well, there's a good chance you're going to lose your job, have to repay the amount anyway, and face a potential criminal investigation"

[Disbarred]

I haven’t read the contract in that much detail but I specifically asked my rep for my Scotia LOC if there were any restrictions and he told me I was free to do what I wanted (e.g., invest). He was the “official” rep for Osgoode at the time. Again not sure if it’s true, but that’s what I was told 

As for investing, with current interest rates and historic yields it seems silly not to invest 

[cherrytree]

From personal experience I gained from my work life before law school, sales reps from banks tend to play quite fast and loose with what they orally promise their clients. Not entirely their fault as their compensation is heavily tied to very aggressive sales targets and most incoming law students trying to get PSLOCs have the financial literacy of a sitting duck, but I wouldn't put too much weight on it, certainly not over what's written in the actual agreement.

[123]

2 minutes ago, Disbarred said:

I haven’t read the contract in that much detail but I specifically asked my rep for my Scotia LOC if there were any restrictions and he told me I was free to do what I wanted (e.g., invest). He was the “official” rep for Osgoode at the time. Again not sure if it’s true, but that’s what I was told 

2 minutes ago, cherrytree said:

From personal experience I gained from my work life before law school, sales reps from banks tend to play quite fast and loose with what they orally promise their clients. Not entirely their fault as their compensation is heavily tied to very aggressive sales targets and most incoming law students trying to get PSLOCs have the financial literacy of a sitting duck, but I wouldn't put too much weight on it, certainly not over what's written in the actual agreement.

My contract had something to the effect of "you will only use your line of credit for education purposes". It also had a bunch of catch-all clauses for which I can't remember the wording, but enabled them to limit your account use or close your accounts for lots of different reasons. I'd be pretty surprised if you didn't have something like this in there. It would be weird if Scotiabank was paying it's lawyers Bay St salaries to write "YOLO, have a good time with your PSLOC" contracts. 

My Scotia rep spent most of our meeting telling me about his plans once he'd finished his MBA, and complaining about the amount of time on the road as Scotiabank rep. So, people might want to be a little more careful about where they get legal and investment advice.  

[cherrytree]

The way I see it, using your PSLOC to invest is like not paying your GO train fare. Anyone who has experience taking the GO from the suburbs know that there are no fare gates or cameras around the fare machines to ensure that every passenger pays their fare for every trip, but at least before the pandemic, you'd know better than not paying because fare inspectors do check every single person's fare, and hiding in the bathroom won't save you forever. Not to mention the physical cringe and embarrassment of having a full train of commuters looking at you while you try to explain to the fare inspector why you didn't pay. Sure, you save maybe $20 a day, one ticket will cost you $85 in fines, if you manage to successfully dodge the train fare for a week or two (probably very feasible nowadays with decreased ridership and decreased frequency of fare inspection on the GO), it's still "worth it" even if you fork over the fine. But I just don't want to be that kind of person and take that kind of mental burden with me every single day, wondering if this is the day I will get caught for fare evasion.

In the same vein, I don't want to live with the risk of an investment portfolio funded with my PSLOC money that has to make above a certain percentage of return in order to be "worth it". I just don't want to live with it every single day of having that portfolio supposedly making money for me, I'd rather make money in other ways while I work on getting through law school okay. So I guess ultimately IMO it just comes down to what kind of life you want to live and whether you can be the kind of person who can live that kind of life. There's no right-or-wrong debate in a public forum involved in that kind of private decision-making; if you know yourself, you know.

[Disbarred]

34 minutes ago, realpseudonym said:

My contract had something to the effect of "you will only use your line of credit for education purposes". It also had a bunch of catch-all clauses for which I can't remember the wording, but enabled them to limit your account use or close your accounts for lots of different reasons. I'd be pretty surprised if you didn't have something like this in there. It would be weird if Scotiabank was paying it's lawyers Bay St salaries to write "YOLO, have a good time with your PSLOC" contracts. 

My Scotia rep spent most of our meeting telling me about his plans once he'd finished his MBA, and complaining about the amount of time on the road as Scotiabank rep. So, people might want to be a little more careful about where they get legal and investment advice.  

I just reviewed the loan agreement and don’t see anything at all related to how I spent the money. Again not saying there isn’t something further, I may have signed more paperwork that I don’t have handy. 

Obviously I’m not recommending anyone try without verifying it with their bank, but based on a review of my agreement and my discussions with the bank there doesn’t seem to be any restriction on the Scotia LOC

Edited September 18, 2021 by Disbarred

[CRYPTOLAW]

On 8/27/2021 at 3:38 PM, QueensDenning said:

I'm going into second year law and thinking about opening up a $125K PSLOC soon. At the moment, I have about $17K in my TFSA, invested in an ETF that has risen over 20% since I put the $ in about a year or so ago. I also have about 3K in crypto (which is up around 40% since I invested a month or so ago). 

I can probably get by without relying on credit (savings from summer & will be working part time during the year). My question - should I use the PSLOC $ for investing in a safe ETF? Seeing as prime is 2.45%, and i'm planning on working in biglaw/have support such that I would never be in a pinch with repayment - i.e. if it's a shitty market when payments are due, I would be able to float the interest until a rebound - it just seems like a no brainer to me but I haven't heard any of my friends considering it.

I made an account just to reply to you! Actually I responded to an almost identical thread on the old forum but I guess that's all gone now. This is 2017 redux for me.

What are you holding in your TFSA?

If you got into crypto only 1 month ago you got in very late this cycle (typical retail FOMO), but there's still some room for gains until late January. What crypto?

Yes, absolutely you should use the PSLOC for investing. 

Here is what I would do (literally what I am doing):

1. Wait until bear market in crypto somewhere around December 2022 (and possibly early winter-spring 2023) to fully load ALL IN all positions and diversify in crypto.

2. Fully load up crypto at the lows about a year from now. You could do it within your TFSA using the ETH ETF, the CI Galaxy Ethereum ETF has the lowest fees. I think ETH has way more upside so I'd go with that over BTC, plus ETH is becoming deflationary with interest income. Possible ETH $50k-100k target for 2024 to 2025 bull cycle, but it's important to load the cycle lows. 

3. Load up on some other crypto top projects December 2022 and January 2023 and maybe some new metaverse related crypto. I don't have any suggestions for those but keep an eye on the top 20 by market cap and also on new things metaverse related.

4. HODL for bull cycle top 2024-2025.

5. Cash out literal millions.

DO NOT, I repeat DO NOT hold crypto after this cycle's market top which is around December to February, because you will get REKT 80%+ loss in the bear market later in 2022. You want to save your capital and buy the cycle bottom in late 2022, early 2023.

I myself plan to load up crypto ETFs, ETH, some top 10 projects by market cap, and a few select speculative low market cap projects in late 2022 and early 2023. Until then I am trading $100-200k ETH and BTC positions on the way up with leveraged futures and will definitely enter some short positions for the bear market after January.

Buy the bottom of the upcoming bear market late 2022 into early 2023 and the returns by 2025 will be exponential.

I don't know about what the bank allows you or doesn't allow you do with the extra cash but it's your money in the end so none of their business really as long as you pay it back later. Don't ask, don't tell.

I myself mine several different coins like Ethereum, Ravencoin, and Raptoreum. The mining makes about $2k a month. I trade Ethereum and Bitcoin leveraged futures with about $15k in collateral on $100-200k positions which can make $2-4k a week in gains if I sell the spikes on small moves.  I also hold in a TFSA the CI Galaxy Ethereum ETF since the summer and it has already doubled. I also put the gains from the trading into FLOKI INU last few weeks which I think will be the next Doge and Shib except with NFT and metaverse utility. Since I first got FLOKI in October it's already 4x higher.

When the cycle market top hits around December and January I intend to dump most of my crypto and then open shorts on tokenized stock BITO (basically shorting the BTC futures ETF). And will also the get BITI (inverse Bitcoin ETF). I will also short the "Shitcoin Index Perpetual Futures" and whatever alt coin went up the most at the market top. Then hold shorts until fall 2022, and reverse to long crypto once the 2022 bear market bottoms later next fall.

Your post is literally a rehash of what happened in 2017 when myself and others were middle of law school and were sitting on LOCs and cash from loans. Just remember, it's a cycle. Top will follow bottom, and bottom will follow top. 

The point is if you have patience for the bear market bottom around December 2022 to March 2023 and load up diversified crypto then, you will have more money than what you will know what to do with by 2025. And almost all of it can either be in a TFSA, or alternatively offshore on an exchange or wallet and totally off the books. History repeats itself.  If you don't believe what I just said, go look at ADA, Solana, ETH, BTC, BNB etc., chart from January and March 2020 to December 2021. While you're at it also look at the Shiba Inu charts from August 2020 to late October 2021. That's what happens when you load the cycle bottom and wait for cycle top about a year or so later.

As for my goals, I intend to turn about $20k from this past summer into $200k by February going long. Then will short into next fall and hope to turn that $200k or so into $300-400k by December 2022. Then will go long fall 2022 and winter 2023 diversifying into various crypto, and will hope to be at anywhere from $10 Million to $100 Million by 2025. I think some of the upcoming metaverse projects will be key to some exponential and astronomical gains next few years. As a point of reference, just $10k into SHIB August 2020 would have been worth well over $1 billion by October 2021. Typical returns from cycle bottom to top are 20 to 100x or more. Such is the power of the cycle low and cycle top.

I'll post some charts below for illustrative purposes. 

 

On 8/27/2021 at 3:38 PM, QueensDenning said:

I'm going into second year law and thinking about opening up a $125K PSLOC soon. At the moment, I have about $17K in my TFSA, invested in an ETF that has risen over 20% since I put the $ in about a year or so ago. I also have about 3K in crypto (which is up around 40% since I invested a month or so ago). 

I can probably get by without relying on credit (savings from summer & will be working part time during the year). My question - should I use the PSLOC $ for investing in a safe ETF? Seeing as prime is 2.45%, and i'm planning on working in biglaw/have support such that I would never be in a pinch with repayment - i.e. if it's a shitty market when payments are due, I would be able to float the interest until a rebound - it just seems like a no brainer to me but I haven't heard any of my friends considering it.

I just noticed your avatar. You should also watch The Big Short and Margin Call.

Wolf of WallStreet was more about securities fraud than trading. Sort of a modern times GoodFellas of finance.

[CRYPTOLAW]

On 9/18/2021 at 9:45 AM, realpseudonym said:

People can do whatever they want. Whether they should do something like this depends upon their ability to repay and overall risk tolerance. 

I didn't have this exact problem. But I applied all of those assumptions to my dealings with the bank. I thought the following. The Courts have closed due to the pandemic, and so business has been slow. Every knows that. Plus, this was a one-off: I was sick. I'm a business owner. I have a good credit rating (or still did, at that point). I will want to be a long term customer. This is a tiny percentage of the loan. I'll pay my other overhead so I can keep the lights on, rather than paying the bank. It's in everyone's interest that I continue generating revenue, so that I can repay the balance of my loan. I'll explain that to them, and they will understand. What are they going to do, put me in default? Call the loan in immediately?

The answer it turns out, was yes. That is exactly what they did. Because if a particular agent at the bank decides to do something, and they are entitled to do so, then that's what happens. I eventually worked it out, because business picked back up later in 2020 and I reached a settlement. But the stress was overwhelming - I would not subject my worst enemy to the emotional toll that staring down default and a potential insolvency takes on someone. And it ended up costing me a lot more financially than if I had just been able to abide by the contract in the first place. 

Again, it's about risk tolerance. I would guess that the financial risk for something like this is relatively remote. But, if you screw around with the bank and they decide to enforce, you can completely fuck your personal and professional life. My personal view is that the profits on this are low enough that they aren't worth the risk. I would wait a couple of years. By then, you should have steady income and more career stability. You won't be as highly leveraged in any particular investment, and are much better prepared to absorb a loss if things go south. 

I'm sorry to hear about that.

However, you saying "the profits on this are low enough that they aren't worth the risk" is incredibly incorrect and misleading. And a huge mistake in terms of opportunity cost. See my previous crypto post. If I had done this exact thing in 2015 when Ethereum was $0.5 or $1...well it's now worth $4600. Let's imagine a hypothetical $25k investment in Ethereum in November 2015 at $1. That would now be worth 4600x or $115 Million in November 2021. The same hypothetical $25k initial position from October 2015 at around $0.5 ETH would now be worth $230 Million 6 years later. In fact it would have been worth the risk due to the asymmetrical return profile! It's fiat or dollars which isn't worth holding due to inflation and endless central bank money printing.

Edited November 14, 2021 by CRYPTOLAW