4mo ago

Borrow money to max out TFSA?

I've just heard of someone doing that and it ended badly, but that was because the person over contributed. I wonder if it would be legal/smart for me to do that? I don't make enough to max out my TFSA and don't take risks investing (only invest in global ETFs and bonds).

7 comments

If you mean taking out a loan to put in your TFSA, that's a horrible idea.
The market is very volatile right now and there's a lot of uncertainty with what's going to happen next. Then you'll be stuck with a loan on top of your investment losing money. It's very risky.
It all depends on how cheap it is for you to borrow. My feeling is you’re unlikely to make more investing in bonds and “safe” ETFs than you’d pay in interest. In other words, you’d be paying more in interest than you’d be making in gains from your investment.
- For a regular personal loan it might be close. I can say over the last year my TFSA did a little better than the rate on my line of credit, but that’s just an anecdotal data point. Where it usually makes more sense is something like having a mortgage, which is generally a lower rate, making the minimum payments on a long amortization period and using any extra cash to invest. For a minimal risk investment like GICs and such the return is minimal. For a longer horizon, more volatile equity investments will do better, but also more risky for short term gains.
  
  Yeah, there might be some slight gain to be made especially now with interest rates falling again. But my feeling is OP is young and probably would benefit more from building up an emergency fund if they’re feeling a bit cash poor.
- I invest in VEQT.TO and XBB.TO. I use 65% stocks and 35% bonds. I did make a profit last year but this year's probably not gonna be as good so I'd just be losing on interests. I think it's not even legal to use borrowed money in a TFSA anyway
  
  It is legal but the interest on the loan is not tax-deductible, unlike other investment loans you might take out.
Usually borrowing to invest is a losing proposition, because if it wasn't, it would be a free money bug.
If you could find an impossibly good interest rate (maybe through another government program) you might be able to make a small profit, I guess. Just lend it back out as bonds at a normal interest rate. You better damn well know what you're doing, though.

7 comments