This story illustrates how borrowing to invest may produce better results than traditional investing. Liz and Mike both need to finance a large expense 10 years from now.

Each has selected a different investment strategy to ensure they have sufficient funds for that future date. Liz's approach involved diligently making lump sum deposits at the end of each year, whereas, Mike has chosen to borrow $30,000 from Manulife Bank to invest immediately. Mike's cost of borrowing is 7.00% annually, and that expense is 100% deductible. At the end of each year, Liz makes contributions that are equivalent to Mike's net cost of borrowing. For both of them, the annual taxable portion of fund return is 33%, the tax rate on income allocations from funds is 35%, and the marginal tax rate is 40%.

After 10 years, their cost of investing has been the same, but Mike ends up with almost 50% more money than Liz. Even though both investors realized an 8% annual return, Mike's strategy put him in a better position to harness that growth by utilizing the tax deductibility and compounding power of his investment loan.

	Liz: Annual Investment Contribution	Mike: $30,000 Investment Loan
Initial Contribution	Nothing	$30,000
Annual Gain	8.0%	8.0%
Total Amount Contributed after 10 Years	$16,616	$0
Net Cost of Borrowing after 10 Years*	$0	$16,616
Portfolio Value after 10 Years	$22,804	$64,768
Less Loan Repayment	$0	($30,000
Less Capital Gain Tax on sale of Investment	($938)	($4,659)
Net Equity after 10 Years	$21,866	$30,109
Internal after-tax rate of return	6.2%	13.0%

* Net cost of borrowing includes the after tax investment cost plus annual taxes paid on the taxable portion of investment income.

Borrowing to invest is a proven investment strategy that can accelerate the growth of non-registered investments for clients who are comfortable taking on additional risk. For more information, with No Obligation, on how borrowing to invest can help grow your non-registered savings, please contact: Ken MacCoy, RHU, RHU