Contributing to a Registered Retirement Savings Plan (RRSP) is one of the most important strategies you can use to build your wealth for a worry-free retirement. If you don't have the money today, an RRSP loan can help you stay on track.
A $5,000 loan could mean a $17,406.45 difference in the value of your RRSP over 25 years*. And the interest costs on the loan would only be $168.37* over two years**
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Borrowing to invest, or leveraging, may be an effective wealth accumulation strategy. It can:
increase the potential returns on your investments, since a larger amount is invested and starts compounding right away
create tax savings - the interest on leveraged loans may be tax-deductible if you use the proceeds to generate business/investment income..
It is important to remember that leveraging can also magnify your losses and increase your risk. This strategy may not be for everyone. Please speak to your financial advisor to determine if an investment loan is right for you.
Reduce the risk of leveraging with these simple steps
Borrow less than you can afford. If interest rates go up or your circumstances change, you can still afford to pay your loan
Invest for the long term to reduce the effects of market volatility
Diversify your investments to help you achieve more consistent returns
And always work with a trusted, knowledgeable advisor who can help you understand and manage the risks
* For illustration purposes only. Assumes $25,000 in your RRSP, earning a 5% average annual compound return over 25 years and a 2-year variable loan rate at 3.20%, compounded monthly. The monthly RRSP loan payment is $215.35 and is composed of a blended payment of principal and interest. Variable loan rate is calculated using the Empire Life RRSP Loan Calculator. Actual returns and loan rates may be higher or lower and are not guaranteed. ** Using borrowed money to finance the purchase of an RRSP involves greater risk than a purchase using the cash you have. If you borrow money to purchase an RRSP, your responsibility to repay the loan and pay interest as required by its terms remains the same even if the value of the investment holdings purchased declines. Please speak to your advisor and a tax professional to determine if an investment loan is right for you.
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