I attended a Seminar hosted by Daniel Popescu(sp) yesterday. It was a 1 hour discussion about wealth management. His focus was to introduce a few ways to achieve wealth management, through "leveraging to invest" and Tax strategies. Not to get into too much detail, but one method caught my interest.
He discuss borrowing money to invest in the stock market. He provided examples of an RRSP portfolio of $300K earning a 6-8% average for 15 years against borrowing $300K from the Bank to invest in the stock market. Of course, he discussed placing your investment in good stock and went on to name sectors which would be "safer" investments.
The concept was to pay only interest to service the $300k loan, which the interest can be written off. The $300K would have a chance to grow at the same 6-8% for 15 years but the difference is:
1. You have $300K working for you right from day 1. Versus investing your current maximum allowable of $21K per year for the next 15 years.
2. With the RRSP, after 15 years, if you cash out. You would be subject to the full tax. With the leveraged loan, you would only be subject to tax of 50%of the gain.
There is more to this but, the side by side comparison of the two scenarios showed a significant increase in wealth with the leveraged method.
Just wondering how many of you have Leveraged Loans for investment?