Have an account? Please log in.
While interest rates remain near historic lows, borrowing money to invest continues to look like an attractive investment strategy.
We believe that this strategy works best if you borrow to buy well-established, dividend-paying stocks. For instance, you could select from the 21 companies we recommend in the Income-Seeking Investors Portfolio of The Successful Investor newsletter.
Today, you can borrow for as little as 3.5% if you use your home as collateral. Over long periods, the total return on a well-diversified stock portfolio runs to as much as 10%, or around 7.5% after inflation. So you can expect to earn more than your borrowing cost.Get an inside look at the key steps that successful investors take as they build their portfolios—and at the potentially devastating mistakes they avoid. It’s all in Pat McKeough’s new FREE report. You can click here to download this timely report immediately: The 10 Best Practices of Successful Investors..
Borrowing to invest can also be a highly effective tax shelter. You can deduct 100% of your interest expense against your current income. What’s more, the investment income you earn brings three key tax advantages: you get the dividend tax credit on qualified Canadian stocks and you only pay income tax on 50% of your capital gains.
In addition, you are only liable for capital gains when you sell; if you buy high-quality investments, you’ll wind up holding some of them for as long as you live. It’s a great tax-deferral technique. And it’s perfectly legal.
As appealing as low rates and the undoubted tax advantages of this strategy are, borrowing to invest does entail risks. The amount you owe on your investment loan will stay the same, regardless of what the market does, so every dollar your portfolio loses will come out of your equity. In addition, if you take out a variable-rate loan, the interest rate you pay could eventually rise.
That’s why we invariably advise that you only consider borrowing to invest if all six of the following apply to you:
You get our recommendations on the best stocks for Canadian investors when you try a risk-free introductory subscription to The Successful Investor. As a new subscriber, you can save $50.00 — and you will also get FREE “My #1 Canadian Stock Pick for 2012.” Click here to take advantage of this special subscription offer.Be the first to comment
All of our articles are available for republishing as long as you provide a link back to the original article.
In today's economy, it's more important than ever to have clear investment advice that is tailored to your own personal goals. This is where Pat McKeough's conservative safe-investing philosophy comes in. Through TSI Network, you get access to reports, monthly newsletters and premium services that go beyond the daily headlines to give you all the advice and information you need to build a portfolio with long-term growth potential. Simply click on the links below to discover which service is right for you.
TSI Premium Services