What is it?
Borrowing to invest lets you capitalize on market opportunities by giving you a larger sum of money to invest at once – instead of making smaller investment contributions over a period of time. This larger sum now has more time to grow, which helps you build more wealth through compound returns.
Things to consider
To help enable this strategy, investment loan provides 100% financing for the purchase of segregated funds. We can help you figure out if this strategy makes sense for your situation.
- Loan amounts starting at $25,000
- Make monthly interest-only payments.
- Get tax benefit of Interest paid for the whole year.
- Secure investment in segregated funds.
- Transfer the growth in TFSA Account (subject to TFSA limit) to grow it tax free.
- Take all the benefits of Segregated fund
Call us today to know more about this fantastic approach and grow your money exponentially.
Let’s look at some ways borrowing to invest can work for you:-
- You commit to making a big investment, rather than adding money to your account on a piecemeal, "when-I-can-afford-it" basis.
- Academic studies have shown that a lump sum investment will outperform a gradual investing approach most of the time.
- Interest on non-registered investment loans is tax deductible.
- Your gains are magnified through the use of borrowed money.
Here’s a quick example from Mr.Alex of how gains can be magnified. We start with $100,000 borrowed to invest with, a 4-per-cent interest rate and a 40-per-cent tax rate. Our interest cost is $4,000, or $2,400 after taxes. If the stock market goes up 10 per cent (that’s a highly optimistic number, but you’ll see shortly why Mr. Alex uses it), then your gain after interest costs but before taxes would be $7,600. That’s a gain of about three times the money that came out of your pocket.
What is a segregated fund?
Segregated funds combine many of the features of a mutual fund, with elements of an insurance contract. They include guarantees and advantages that are not available with traditional mutual funds, and are only available for purchase through an insurance company.
Benefits of segregated funds
Guarantee on principal investment
We know that investment returns are important, but so is your financial security. After all, nobody wants to lose money. With segregated funds you can reduce the effects of losses associated with market fluctuations because your principal investment, as well as any additional deposits, have a guarantee.
An efficient way to do an estate transfer
In a segregated fund, you are able to name a beneficiary. Upon your death, if you have named a beneficiary other than your estate, the proceeds are paid directly to the beneficiary bypassing probate. Probate can be a time consuming and expensive legal process as most governments charge a costly probate fee. Having the proceeds of the policy paid directly to your beneficiary reduces the stress on your loved ones, making it a very effective estate planning solution.
Protection from creditors
When you name a family member as a beneficiary, you have potential creditor protection in the case of unforeseen bankruptcy or litigation. This makes segregated funds especially attractive to a small business owner.
Growth potential and flexibility
Some types of segregated funds include reset options. As the market value in your policy increases, a reset allows you to increase your guarantee values to a percentage of the market value. This feature allows you to protect your original investment, as well as the growth in your portfolio. Keep in mind that a reset could extend the length of time before you are entitled to your maturity benefit guarantee, usually 15 years from the date of reset.
Protect your privacy
One significant advantage that segregated funds is the privacy that they offer you and your beneficiaries. With mutual funds and other types of investments, when you pass away the investment proceeds are paid directly into the estate and are subject to probate. Once a will is probated, it becomes a publicly available record in the province of residence. Segregated funds with a named beneficiary, does not form part of an estate, and therefore the proceeds are paid directly to the beneficiaries quickly and privately.