Saturday, October 3, 2009

Investment Loans


Everyone has financial goals but sometimes finding the cash to support an investment plan can be difficult. We can help. A Manulife Bank Investment Loan can provide you with the cash you need to help you achieve your goals sooner.

Let our money work for you
Traditional investing is simple: earn money . . . save a portion of that money . . . invest money. But your money may not be working as hard as it could be for you.

With investment leverage, rather than making a series of small contributions over a long period of time, you borrow a larger amount and invest it all at once. This allows a much larger investment to grow for your full investment period. Then, instead of making additional contributions to your investment, you make interest payments on your loan.

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An effective wealth creation strategy
There are two powerful forces driving this strategy:

1.Compound returns. An investment loan allows a larger amount to grow for longer which could generate a much larger long-term return.
2.Tax deductibility. Interest charged on an investment loan is generally tax-deductible. This can reduce your cost for the investment loan. By deducting loan interest, you're reducing your cost of investing and increasing the chance that leveraged investing will out-perform traditional investing.

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Two investment loan programs
Manulife Bank offers two investment loan programs – Quick Loans and Multiplier Loans. Each program offers no margin calls due to market fluctuations and other unique features.

Quick Loans feature:
  • 100% loans of $10,000 to $50,000.
  • A quick and simple application process.
  • Interest-only payments.
Multiplier Loans feature:
  • 3:1 personal loans of $50,000 or more.
  • 3:1 business loans of $250,000 or more.
  • Choice of interest-only or interest and principal (up to 20 years) payments.
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A case study – the story of Mike and Liz
The story of Mike and Liz illustrates the power of an investment loan strategy. Liz and Mike both want to invest to save for a dream vacation in 10 years. Liz diligently makes a lump sum deposit at the end of each year. Mike borrows $30,000 from Manulife Bank to invest immediately.

During the next 10 years, Liz contributes $16,616 to her investment plan and Mike's after-tax cost of borrowing is the same $16,616. Both investors earn an 8% return on their investment. After 10 years, they sell their investments, pay their taxes and Mike pays off his loan.

They compare their results and find that even though their cost of investing has been the same, Mike ends up with over $8,000 more to spend on his vacation!



Assumptions: Liz makes end-of-year contribution equivalent to Mike's net cost of borrowing. Cost of borrowing for Mike is 7.0% annually; loan interest is 100% deductible. Both clients: Annual taxable portion of fund return is 33%, tax rate on income allocations from funds is 35%, marginal tax rate is 40%. All assumptions are for illustration purposes only. Results will vary slightly for Quebec investors.

For more information, view the "Understanding Investment Leverage" Flash presentation.

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Is leveraged investing right for you?
If you have a higher tolerance for risk, an investment horizon of at least 10 years and sufficient income to comfortably service an investment loan and applicable taxes, leveraging may be an appropriate strategy for you. Your financial advisor can help you understand investment leverage and help you decide whether an investment loan is right for you.

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Important note about the risk of investment loans
There are risks and rewards associated with leveraged investing. Borrowing to invest can magnify losses as well as gains. If you are interested in leveraging, please read thisimportant leveraging information and discuss this strategy with your financial advisor.

Getting started
To find out more about Manulife Bank's Quick Loans and Multiplier Loans
  • Contact your financial advisor.
  • To be referred to an independent advisor, please call 1-888-MANULIFE (1-888-626-8543) OR
  • Contact us.

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