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Investors often ask us for our opinion on borrowing money to invest in stocks. We think that borrowing to make stock market investments can be a good strategy for some investors under certain circumstances. You’ll benefit most from this strategy by sticking with well-established, dividend-paying stocks, like the ones we recommend in our Canadian Wealth Advisor newsletter.
Here are 3 ways you can benefit from borrowing to invest. (We’ve also compiled a list of 6 ways to tell if your personal circumstances favour this strategy. See below.)
In addition, you are only liable for capital gains when you sell; if you buy high-quality stock market 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.
Borrowing to invest is not without 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 borrowing to invest only makes sense if all 6 of the following apply:
For our latest views on lower-risk investments suitable for borrowing to invest, you should subscribe to our Canadian Wealth Advisor newsletter. Click here to learn how you can get one month free when you subscribe today.Be the first to comment
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