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Borrow to Invest
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Financial Planning   ->   Stocks, Bonds etc. -> Borrowing to Invest in Stocks

Borrowing to Invest in Stocks and Exchange Traded Funds (ETFs)

 - Outside of an RRSP

You should not consider this strategy unless you have owned stocks for many years.  We recommend this because investing is a learning experience, and you may make more mistakes when you are just starting out.  These mistakes are magnified if you borrow to invest, because you will have more money invested.  At times the stock market is very volatile, and if you have no experience you may panic and make bad decisions. Individual stocks and ETFs will rise and fall continually, and the whole portfolio will suffer a large drop (10% to 20%) approximately once a decade.  For more on this, please read our article Risk as it Relates to Investing.

We started to borrow to invest in the early 1990s.  We changed our strategy and were trading options from 2001 to 2007, but finally decided they were a lot of work for not very much money.  We again started borrowing to invest in 2008, and we are still doing this.  At certain times when stocks seemed to be too expensive, we have sold some to reduce our debt.

Hopefully you have already bought stocks and ETFs in your RRSP, and have become comfortable owning them.  If you have no debt, your next step could be to borrow to invest in stocks and ETFs in a non-registered account.

If you have debt, it still might be a good idea to borrow to invest.  However, you will have to do some financial analysis to make sure you do not overextend yourself.  If you are worried about taking on too much debt, it would be better to either

- borrow VERY slowly, or

- don't borrow until you have all your debt paid off.

You also have to be able to sleep at night!  If borrowing to invest keeps you awake at night, it is not for you!!

When you borrow to invest in Canadian stocks that pay eligible dividends, you are converting regular income, which is fully taxed, into Canadian dividends and capital gains, which are taxed at lower rates and/or allow you to defer tax.  The advantages of borrowing to invest in stocks and ETFs are

 - interest expense is deductible, reducing your regular income, which is fully taxed.  Note that if a corporation has a stated policy that it will not pay dividends, interest on funds borrowed to buy shares of that corporation will not be deductible.

 - dividends from Canadian corporations are taxed at low tax rates

 - only 50% of capital gains are taxed

 - capital gains are not taxed until investments are sold, so if the investments are held forever there is no tax until death

 - investments in stocks are liquid, easy to sell if necessary

In most cases, the interest on the debt is only tax deductible as long as you own the stocks.  See our article regarding interest expense on investments, and the complication regarding return on capital if you borrow to invest in mutual funds or exchange traded funds (ETFs).

Record-keeping is quite important with this.  You cannot write off interest if the debt is more than the cost of the stocks!

See our recommended portfolio for Canadian stocks in a non-registered account.

Methods of borrowing

Setting up the brokerage account

Buying the stocks and ETFs

What to do with the dividends

Selling the stocks and ETFs

Each person's financial and tax situation differs.  One solution is not best for everyone.  Use the resources on to help determine the best plan for you.  Get professional tax and financial planning advice. Resources

Borrow to Invest calculator - check out different scenarios by inputting different borrowing rates, rates of return on investments, and other data.

Recommended stocks (ETFs) for inside or outside of your RRSP - for Novice Investors

How to get money out of RRSPs/RRIFs tax free (sort of), which also uses the strategy of borrowing to invest.

Tax Tips:

Be cautious, don't overextend yourself, invest in good quality stocks and ETFs.

Don't borrow to invest if you are novice investor!

Revised: October 20, 2020


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