(January 23 – 18:00) – As RRSP season hits its stride, Canada’s securities regulators have issued a warning that leveraging can be a risky strategy not suited for all investors.

“The idea of borrowing money to purchase a car or a home is not unusual. However, the idea of borrowing money to invest is quite foreign to the average person,” says Doug Hyndman, chair of the Canadian Securities Administrators.

“If your financial advisor suggests leveraging, make sure they explain all of the risks involved. Don’t be persuaded into leveraging if you don’t fully understand the idea or you’re not comfortable with it,” Hyndman adds.

The CSA says that as long as an investment increases at a rate higher than the cost of borrowing, leveraging can be an effective way to magnify returns. It reminds investors that Interest and inflation rates must be carefully monitored because increased interest rates will increase the cost of borrowing, diminishing any gains.

Because of the very real possibility that investments could decrease and losses magnified, the CSA cautions investors to determine whether or not borrowing to invest is appropriate for them.
-IE Staff