• QFS

Borrowing to Invest



At our last school day we had a wealth presentation from SSQ and B2B. My thinking behind having these two providers on the agenda was to combine SSQ’s distribution funds with leveraged lending from B2B.

Using someone else’s money to create wealth is nothing new and you have the opportunity to help your clients grow their wealth by using a leveraged lending concept.

Simply put, clients borrow money from B2B, invest the proceeds in one or more of the four funds from SSQ that pay out distributions. These distributions can be used to pay some or all of the interest on the leveraged loan.

Let’s consider an example, the SSQ Guardian Conservative Monthly Income Fund has a current distribution of 3 cents per unit. The unit price on April 7, 2017 was $9.9590.

Therefore, $100,000 would buy 10,091.33 units. These units would create a monthly distribution of $302.74.

Now let’s look a $100,000 B2B non-registered investment loan. The current interest rate is 3.7% or $3,700 per year. The distributions from the fund are currently $3,632.88. The interest charges and the distributions are very close in value. Why not use this fund to almost fully finance a leveraged loan and enjoy the long-term capital appreciation of the fund?

And there are tax benefits too, the distribution is a return of capital and the loan interest is tax-deductible.

Remember, your client has to be able to support the loan, the amount of the distribution could change, borrowing rates could go up, the value the fund could decrease, and future tax rules could change.

Leveraging is not for the conservative investor, it certainly adds another element of risk to a client’s financial plan. However, for those with the appropriate risk tolerance and a long-term investment strategy, leveraged lending is a great way to create additional wealth.

I want to thank all of you for a great first quarter, deposits are way ahead of the same period last year. We really appreciate all your efforts.

Next time, I will continue with the borrowing-to-invest theme and discuss using borrowed money inside a TFSA.

Take care,

Scott Edgington

Director of Wealth

Qualified Financial Services

scott.edgington@qfscanada.com

416 786 4140


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