Leveraged Investing

WHAT IS IT?
Leveraged investing simply means borrowing money to invest. The main benefit is having a larger sum of money working for you right away-the growth you earn on the underlying investment is yours.

TAX ADVANTAGES
Although leveraged investing is common practice to maximize RRSP contributions, borrowing to invest outside of your RRSP has distinct tax advantages. In a case such as this, interest payments on the loan are tax deductible. Also, if you need to access your funds in an emergency, withdrawals from the leveraged investments are generally taxed at a lower rate than RRSPs*.

A LOAN IS A LOAN
As with most loans, this strategy is available to those with assets to cover the loan. As long as your investment is making money, you will always have enough money in the leveraged investment to repay the principal.

RISKS
With all investment strategies, it is important to understand the risk prior to purchasing. If you have borrowed to invest in a mutual fund or the stock market, neither the interest nor your principal are guaranteed. If the markets perform poorly, you chance losing money on your investment, and yet still need to repay the loan. Only those comfortable with this risk should consider leveraged loans as the loan must always be repaid.

Visit your Rice Financial advisor for more information on this and other investment and insurance opportunities.

* There are restrictions to this. Consult your advisor.