Montréal – The Autorité des marchés financiers (the “AMF”) cautions consumers about leveraging and reminds them that borrowing for investment purposes involves risks for inexperienced investors.
Leveraging consists of borrowing money for investment purposes. This allows consumers to make a larger investment than if they only draw on their own savings.
Advice for investors
The AMF suggests the following before borrowing for investment purposes:
Check whether your representative is registered by calling the AMF Information Centre.
Read the documentation received on the risks of this strategy.
Determine your tolerance for risk. Make sure you have fully understood and evaluated the risks of borrowing to invest and that this strategy fits into your risk profile.
Make sure that your investment horizon is long enough (5 to 10 years minimum).
Make sure you fully understand the tax impact of this strategy.
Borrow only what you can repay without having to sell your investment. For example, do not borrow more than you can repay.
Know exactly how much money you would lose in a worse-case scenario. For example, would you be able to handle a 30% decline in the value of your investments?
Note the main points of conversations with your representative so you can refer to them if necessary. You can use the Take Notes When Talking to Your Representative form.
A leaflet titled Borrowing to Invest: Not a Strategy for Everybody that explains the risks associated with leveraging and provides advice on this strategy for investors is now available on the AMF’s website in the Brochures and leaflets for consumers section.
Reminder for representatives
In October 2009, the AMF published a notice for mutual fund dealers, insurance of persons firms and their representatives to remind them of the best practices to be followed when clients want to borrow money to invest in mutual funds or segregated funds. The AMF stressed the importance of ensuring that client profiles match this type of investment strategy.
The Autorité des marchés financiers (AMF) is the regulatory and oversight body for Québec's financial sector.
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Sylvain Théberge: (514) 940-2176
Québec City: 418-525-0337