Investor Strategic Line of Credit
Investor strategic Line of Credit
Borrowing strategies to invest
This line of credit allows you to establish an investment strategy that aims to generate after-tax income that is greater than the after-tax interest on a loan.
Get this product - Investor Strategic Line of CreditKey features
- Amount available Minimum line of credit of $25,000
- Variable rate Based on the loan amount and other criteria, including total savings
- Flexible payment options Weekly or monthly, in part or in full before maturity
- Investor profile Seasoned, with a high risk tolerance and a long-term investment horizon
Who is it for?
Investors who:
- have excess cash flow
- have a high risk tolerance
- understand the potential benefits of leveraging
- want to get Desjardins savings products
- have a long-term investment horizon
Features
Interest rate
- Variable rate based on the loan amount and other criteria, including total savings
Amount available
- Minimum line of credit of $25,000
Payment options
- Weekly or monthly frequency.
- Pay off your loan whenever you want, in part or in full, without being charged a prepayment penalty.
Collateral
- No collateral required in most cases (depending on your caisse's financing criteria)
Other
- Only available only in Quebec
| With loan | Without loan | |
|---|---|---|
| Principal on hand | $5,000 | $5,000 |
| Amount borrowed | $25,000 | $0 |
| Amount invested | $30,000 | $5,000 |
| Loan rate1 | 7% | N.A. |
| Rate of return1 | 10% | 10% |
| Earnings | $3,000 | $500 |
| Tax deductible loan interest (7%) | $1,750 | N.A. |
| Earnings less interest paid | $1,250 | $500 |
| Return on principal on hand2 | 25% | 10% |
In this scenario, by leveraging to invest with the same initial $5,000 principal, the investor generated a return of 25% as opposed to the potential 10% return they would have generated without borrowing.
By borrowing to invest, you can generate potentially-higher returns. However, the potential losses you may incur are also greater.
What is leveraging?
Leveraging is an investment strategy whereby a person borrows to invest a greater amount. They have an opportunity to generate a greater return than they would have had they invested only the money they had on hand1.
- Fictional example based on a 10% rate of return and a 7% loan rate. Does not necessarily reflect the market.
- The return on principal on hand is the result of dividing net earnings by the initial principal on hand.
- This strategy requires a review of the investor's profile and may not be appropriate. A Desjardins advisor should discuss the risks of borrowing to invest with the investor.