What are investment loans?
We tend to think of debt as something to be avoided or paid off as quickly as possible. But there are times when taking out an investment loan can be a strategy to increase wealth.
Borrowing money to buy investments is a good example. And despite its fancy name, “leveraged investing” it is a strategy that can benefit many different types of investors, not just the wealthy.
How investment loans work
Leveraged investing via investment loans is quite a simple concept:
- You borrow a lump sum
- You invest the money
- You pay interest on the loan
- You keep any investment growth
The risks of investment loans
Because investment loans enable you to invest more than you could if you only used your own money, you can accelerate wealth accumulation. When you invest $10,000 in an investment that goes up 5% in a year, you’re $500 ahead. When you invest $100,000 in the same investment, you’re $5,000 ahead.
However, just as your potential gains could be magnified, so could your losses. A $10,000 investment that goes down 5% in a year loses $500, but a $100,000 investment that goes down 5% in a year loses $5,000. For this reason, leveraged investing is only appropriate for people with a higher tolerance for risk.
Investment loans come with different features. With Manulife Bank, you can borrow the full amount you want to invest, or you can invest some of your own money and borrow up to three times that amount to add to your investment. You can also choose to pay interest only or to pay a combination of interest and principal. Learn more about Manulife Bank’s investment loans.
Talk to your advisor
Because leveraged investing isn’t for everyone, it’s important to talk to your advisor about whether it’s right for you. If it is, it can be a powerful tool for helping you achieve your financial goals more quickly.
Because leveraged investing enables you to invest more than you could if you only used your own money, you can accelerate wealth accumulation.