Investment loan

There are times when borrowing to invest, (also known as leveraging) can be a useful strategy to help you grow your non-registered investment portfolio and help you build wealth. This strategy lets appropriate investors borrow money to take advantage of the long-term growth potential of investments.

A borrowing to invest strategy, or leveraging strategy, offers two main benefits:

• It allows you to invest a larger sum of money at one time rather than making smaller contributions over an extended period of time. This allows the investments more time to grow over the investment period and take advantage of potential long-term compounding returns.
• It can provide tax-savings benefits because the interest you pay on a loan used to purchase investment funds may be tax deductible.*

The strategy is not without risks, so investors should ensure they understand the potential negative impacts as well.

• In negative markets, the effects of market volatility and losses are amplified
• Interest rates can change, making the payments higher and reducing the potential benefits
• Borrowers are obligated to repay the loan and applicable interest regardless of the performance of the investment

If you use this strategy, it’s important to have the available cash flow to handle regular interest payments as well as the ability to accommodate changing market conditions and interest rates. Cash flow for interest payments typically doesn’t come from investment income on the investment for which you borrowed — you need to be capable of paying loan interest from other sources such as employment income or other investments.

Your financial security and investment representative can help explain the risks and benefits of borrowing to invest and help you determine if this strategy is right for you.  Seek the assistance of a tax professional to determine tax implications specific to your situation.

 
The Solutions Banking investment loan program has a number of attractive features:***

• Borrow a minimum of $10,000 (subject to credit approvals) to purchase eligible London Life segregated fund policies or Quadrus Group of Funds** mutual funds.
• There are no margin calls for loan amounts of $10,000 to $250,000. You won’t have to make an additional deposit if your investment declines in value.
• There is limited underwriting for loan amounts of $10,000 to $100,000. There is no additional security required. The investments purchased with your loan are the only collateral you need to provide.
• These investment loans are designed for amounts of $250,000 or less. Larger amounts will be considered case by case (depending on your specific situation) and additional conditions may apply.

*At this time, CRA indicates that Investments such as mutual fund trust, corporations and segregated fund policies are eligible investments for interest deductibility purposes. CRA can change its position at any time, so interest deductibility cannot be guaranteed.

** Mutual funds are available through Quadrus Investment Services, Ltd.

*** Solutions Banking loans are subject to terms and conditions as specified in the Credit application – Investment line of credit.

For Quebec income tax purposes investment expenses (which includes interest on loans that were used to purchase non-registered investments) are only deductible up to the actual amount of taxable investment income earned during a particular year.  Investment expenses in excess of the taxable investment income in a year may be carried back three years or carried forward indefinitely to offset taxable investment income.

While borrowing to invest can be a powerful means to build wealth, the risks involved make it a strategy that is not suitable for everyone.  Your financial security and investment representative and your tax advisor can help you determine if borrowing to invest is a strategy that is right for you.

Leveraging magnifies gains or losses.  It is important that you understand a leveraged purchase may involve a greater risk than a purchase using cash resources only.

Make your investment decisions wisely. Important information about London Life’s segregated funds can be found in the Information Folder, available from your Freedom 55 Financial security advisor and important information about the Quadrus Group of Funds can be found in the funds’ simplified prospectus. Please read these documents carefully before investing.

A description of the key features of Freedom Funds, Marketwatch, Freedom Funds RRIF, PRIF, LIF or LRIF is contained in the information folder, available from your Freedom 55 Financial security advisor.

Mutual funds are not guaranteed. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund and segregated fund investments. Their values change frequently and past performance may not be repeated.

ANY AMOUNT THAT IS ALLOCATED TO A SEGREGATED FUND IS INVESTED AT THE RISK OF THE POLICY HOLDER AND MAY INCREASE OR DECREASE IN VALUE.

August 2008