Borrowing to Invest: Smart or Risky for Long Term Investment?

Insights and Advice

Borrowing to Invest: Smart or Risky for Long Term Investment?

May 21, 2025

While taking out loans for a home or education is common practice, using borrowed funds for a long term investment strategy is less often discussed—but for some, it can be an effective and strategic financial move.

Borrowing to invest involves using loaned capital to increase your investment potential. While the possible gains are attractive, the risks demand close attention. Whether you’re just starting out or already managing a mature portfolio, knowing when and how to use investment loans wisely is key to building a long term investment plan that works.

The Basics: What Does Borrowing to Invest Involve?

Using an investment loan allows you to expand your purchasing power in the market. Instead of depending entirely on your own savings, you can invest in assets like stocks, bonds, mutual funds, or ETFs with borrowed money—building a more robust long term investment portfolio.

In some scenarios, the interest paid on these loans may be tax-deductible if the borrowed funds are used for eligible investments. However, there’s always the risk that your returns won’t cover the cost of the loan, especially if markets decline or the investments underperform. That’s why matching loan use to a carefully structured long term investment strategy is essential.

Who Uses Investment Loans—and Why?

Many assume that borrowing to invest is reserved for wealthy individuals, but that’s not the case. A recent financial industry study found that over half of Canadians list wealth accumulation as a top financial priority. Among younger investors, nearly a third have used investment loans to gain market exposure—often as part of a long term investment plan focused on equities and mutual funds.

Some younger investors use borrowing strategies to contribute to retirement accounts early. They may plan to repay part of the loan using future tax refunds, which lets them start investing sooner and take advantage of long-term compounding returns.

At Ai Financial, advisors often work with younger clients to help structure these early investment loan strategies in a way that aligns with long term investment goals and repayment capacity.

Common Investment Loan Strategies by Investor Type

The way investment loans are used varies based on life stage and financial circumstances:

Young Professionals: Those in their 20s or early 30s may consider borrowing to invest in retirement savings early. Even a 10-year head start can result in significantly higher long term investment growth thanks to compounding.
Seasoned Investors: Individuals with larger portfolios may borrow against their existing investments to diversify, reduce risk exposure in concentrated holdings, or pursue new opportunities.
Homeowners: Some opt to use a home equity line of credit (HELOC) as an investment loan. This approach requires careful planning, a reliable income, and a disciplined repayment structure.

Risks of Using Investment Loans

While borrowing to invest can amplify your gains, it also increases your exposure to downside risk. If your investments underperform, the interest and repayment obligations don’t go away.

For those who borrow against their portfolio, a decline in asset values can result in margin calls, potentially forcing you to sell investments at a loss. Because of these factors, investment loans are typically best suited for those pursuing a long term investment approach who are comfortable with risk and able to maintain a steady hand during volatile periods.

Staying Focused on Long-Term Goals

The success of any investment loan strategy depends on a long term investment outlook. Individuals saving for retirement or working to build intergenerational wealth may benefit most, as they can better withstand short-term market fluctuations.

One useful tactic is dollar-cost averaging—investing fixed amounts consistently over time. This helps reduce the impact of market timing and smooths out volatility over the long haul.

Why Flexibility and Professional Advice Are Crucial

In a climate shaped by inflation, unpredictable markets, and evolving tax laws, a flexible approach is vital. Personalized guidance from a financial professional can help ensure that borrowing to invest fits within your broader long term investment strategy.

Ai Financial provides tailored advice to help clients determine whether investment loans are suitable for their specific goals and risk profile. Their advisors also ensure your investment plan remains diversified, tax-efficient, and resilient in changing market conditions.

Final Thoughts: Should You Consider Investment Loans?

Using an investment loan to grow your portfolio is not a decision to take lightly. While it can accelerate returns, it also increases the stakes. Whether you’re an ambitious new investor or a seasoned wealth-builder, borrowing to invest should be done with a clear plan, a firm grasp of the risks, and expert support—especially if your goal is a stable and rewarding long term investment path.

Ai Financial Can Help You Decide

Not sure if an investment loan is the right fit for your financial strategy? Ai Financial specializes in helping individuals evaluate whether borrowing to invest aligns with their goals, risk tolerance, and long term investment vision. With expert advice and a personalized approach, Ai Financial can guide you in making confident, informed investment decisions.