How does an investment loan work?
With a traditional investment strategy you set aside a portion of your income to make regular contributions and your investment savings slowly build over time. With an investment loan you borrow a lump sum of money up front and set aside a monthly portion of your income to meet the loan requirements.
In consultation with your advisor, an investment loan has the potential to generate greater returns than a traditional investment strategy. Here's why:
- Accelerates your savings through a larger initial upfront investment and compound returns.
- Compound returns on an investment means that returns are calculated not only on the initial investment, but also on the accumulated growth from year-to-year.
- Generally speaking, interest paid to borrow money to earn investment income is tax deductible. When the interest is deducted, it can be an effective way of reducing the overall cost of an investment lending strategy.
Interest is not deductible in all circumstances. For example, if the only earnings your investment can produce are capital gains, you cannot claim the interest you paid. Additional restrictions apply for residents of Quebec. Please consult with a tax specialist for information on deducting interest.
Leveraging involves greater risk than purchasing investments using only your own cash resources because it has the potential to magnify investment losses.
Your advisor will help you determine what type of investment loan may be right for you.
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