There are times when borrowing to invest, (also known as leveraging) can be a useful strategy to help you grow your non-registered investment portfolio and help you build wealth. This strategy lets appropriate investors borrow money to take advantage of the long-term growth potential of investments.
A borrowing to invest strategy, or leveraging strategy, offers two main benefits:
The strategy is not without risks, so investors should ensure they understand the potential negative impacts as well.
If you use this strategy, it's important to have the available cash flow to handle regular interest payments as well as the ability to accommodate changing market conditions and interest rates. Cash flow for interest payments typically doesn't come from investment income on the investment for which you borrowed — you need to be capable of paying loan interest from other sources such as employment income or other investments.
Your financial security advisor and investment representative can help explain the risks and benefits of borrowing to invest and help you determine if this strategy is right for you. Seek the assistance of a tax professional to determine tax implications specific to your situation.
Contact a financial security advisor and investment representative to find out if borrowing to invest is a strategy that works for you. Or if you're already a Solutions Banking client,
call 1-866-888-1379 to find out more.
1 At this time, the Canada Revenue Agency (CRA) indicates that investments such as mutual fund trusts, corporations and segregated fund policies are eligible investments for interest deductibility purposes. CRA can change its position at any time, so interest deductibility cannot be guaranteed. For Quebec income tax purposes investment expenses (which includes interest on loans that were used to purchase non-registered investments) are only, at this time, deductible up to the actual amount of taxable investment income earned during a particular year. Investment expenses in excess of the taxable investment income in a year may be carried back 3 years or carried forward indefinitely to offset taxable investment income.
All tax laws subject to change.
While borrowing to invest can be a powerful means to build wealth, the risks involved make it a strategy that is not suitable for everyone. Your financial security advisor and investment representative and your tax advisor can help you determine if borrowing to invest is a strategy that is right for you.
Leveraging magnifies gains or losses. It is important that you understand a leveraged purchase may involve a greater risk than a purchase using cash resources only. To what extent a leveraged purchase involves undue risk is a determination to be made on an individual basis by each investor.
A description of the key features of segregated fund policies can be found in the information folder and important information about mutual funds can be found in the funds' simplified prospectus. Please read these documents carefully before investing. Mutual funds are not guaranteed. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund and segregated fund investments. Their values change frequently and past performance may not be repeated.
Any amount that is allocated to a segregated fund is invested at the risk of the policyowner and may increase or decrease in value.
The information provided is accurate to the best of our knowledge as of the date of publication, but rules and interpretations may change. This information is general in nature, and is intended for educational purposes only.
Solutions Banking products and services are provided by National Bank of Canada. Solutions Banking loans are subject to additional terms and conditions as specified in the credit application you complete. All loan features are subject to change.
All lending products are subject to credit approval by National Bank of Canada.