One of the most frustrating things when someone first starts out their financial journey is that the dollars just don’t accumulate fast enough. It takes a very long time to turn $200 per month into a million bucks, even if someone has Warren Buffett’s investing prowess.
Most people focus on turning their $200 per month into much more, using a variety of different methods including embracing frugality, getting a raise at work, or starting a side hustle.
There’s also an easy way to supercharge the process. An investor can borrow a large sum of money and put it to work in the stock market.
Such a strategy is risky, but it does tend to work out over time. Markets generally go up. Borrowers who can get such a loan usually have the ability to repay it even if the selected stocks don’t do so well. And interest rates are so low today that dividends alone can often cover the cost of carrying the loan.
Additionally, borrowing to invest in an RRSP can really make sense. A $5,000 RRSP loan can easily trigger a $1,500 tax refund for someone in a higher tax bracket. It costs $150 to borrow $5,000 for a year at 3%.
But there are also downfalls to such a strategy. People tend to consider it after markets have gone up a long time, which isn’t an ideal time to invest aggressively. We want to buy when stocks are low, not when they’re high.
The bottom line? It’s probably better to be patient and slowly accumulate cash. There’s just too much risk. Nobody wants to lose all of their money and then some.
