Margin is a term used to refer to money borrowed from a broker or dealer to purchase securities. The purchase of shares in such a fashion is known as buying on margin.
The main cost involved with this investment strategy is interest on the money you borrow. And of course, when you sell a security that you’ve bought on margin, you must first pay back the loan from your broker.
The main risk of buying stocks on margin is that it increases your leverage. Leverage works two ways: It magnifies your profits when the market moves in your favour, but it magnifies your losses just as effectively when the market moves against you. That’s because the amount you owe on your investment loan stays the same, so every dollar your portfolio loses comes out of your equity.
Margin buying can help you cut your tax bill. That’s because you’ll be able to write off your margin interest in full against ordinary income in the current year. At the same time, you’ll pay less than ordinary income-tax rates on dividends from Canadian stocks. If you buy qualified Canadian stocks, you’ll pay taxes on dividends you receive at a rate that is well below the rate you pay on ordinary income. This tax break alone—getting a full deduction on your interest costs, and paying a lower tax rate on dividend income—adds appeal to margin investing.
All in all, we feel you should focus your efforts on long-term investing and building a well-balanced portfolio—and to do that, follow TSI Network and use our three-part Successful Investor strategy:
The key to finding the “hidden gems” in penny stocks is to understand and avoid the risks that go with them. You get the benefit of Pat McKeough’s decades of experience—and his specific recommendations—in our special report, TSX Penny Stocks: Hot Canadian Penny Stocks and How to Invest in Penny Stocks in Canada, on TSI Network. Claim your FREE copy right now!
For 2023, we once again chose CGI Inc. as the #1 Aggressive Stock of the Year for our flagship newsletter, The Successful Investor.
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Tap into our mining investment resources to make sure you’re looking at all factors when investing in mining stocks
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This month we highlight two ETFs from Harvest that use leverage and call-option writing in an effort to enhance the returns of their portfolios.
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The long-term outlook for these two leading food makers remains solid. Their strong brands are also making it easier for them to raise selling prices to cover rising costs. However, the shares of both companies will likely remain in a narrow range while they restructure… Read More
With all the TSX ETF investments available, it’s not too difficult to diversify your portfolio. Here’s how.
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Investing in stock market futures for tomorrow can turn a modest stake into a fortune, but the odds favour the professionals and in reality you are likely to suffer big losses
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