How to Borrow to Invest: Using Margin to Accelerate Your Financial Goals
Investing on margin — borrowing against your existing investments in order to invest further — can seem risky and complicated. Like many financial tools, it’s not for everyone. But when used carefully, a margin account can help you grow your wealth by maximizing the amount of money you have invested.
August 18, 2025
The key is understanding when it makes sense, and when it doesn’t. We’re going to walk through a scenario where using margin could work for you — and a few things to watch out for.
A Primer on Margin Loans
First, a quick primer on margin loans. A margin loan (sometimes called a portfolio line of credit, or a secured line of credit) allows you to borrow from your brokerage, but not strictly for the purpose of buying investment assets in your margin account. A margin loan enables you to withdraw borrowed money from your non-registered account, functioning more like a line of credit in that you can use the borrowed money at your own discretion — subject to any specific terms the brokerage may have. The investment assets in your non-registered account serve as the collateral for the loan, and at Wealthsimple, you can link your TFSA to your non-registered margin account to access additional buying power.
Why would you opt for a margin loan over a more traditional line of credit or bank loan? Margin loans can come with lower interest rates than other forms of lending, and they can often be quicker to access than a more traditional loan, because they don’t require the same amount of paperwork or additional credit checks.
With that in mind, let’s walk through a situation where taking a margin loan on your non-registered account might make sense.
How Margin Loans can be Used for Registered Contributions
How it works
Imagine you have contribution room left for the year in a tax sheltered account like an RRSP, TFSA, FHSA or RESP, but you don’t have access to the funds to top up your account. Perhaps you have non-registered assets, but they have large unrealized gains or high selling costs (foreign exchange or transaction fees). You could borrow on margin to fund a short-term need, like maximizing registered account contributions, and repay the loan with regular savings (or the tax refund you receive in the case of an RRSP contribution).
This approach could help you take full advantage of growing your tax-advantaged accounts. The idea is that the benefits you gain - whether from tax-sheltered growth, tax benefits on your registered contributions, or tax deferral advantages of not selling investments today - can outweigh the cost of borrowing.
When it could work
- You need a relatively small amount within your margin lending limit.
- You are a high income earner ($100K+) with demonstrated savings habits. This is important to make sure you have sufficient cash flow to repay the margin loan. This also delivers bigger tax savings if you were to contribute to your RRSP.
- You have a long investment horizon (many decades remaining) so that your investment has a greater runway to grow.
- You have a sensible, diversified investment approach, with an equity-heavy portfolio (80%+). The target return for your portfolio should aim to exceed the cost of borrowing.
- You have a demonstrated ability to stick with investments through market downturns. Margin amplifies gains and losses, and it can be especially challenging for investors to stay invested through market drawdowns.
- You do not need to make any near-term major purchases (like a home).
Key considerations
The interest on loans used to fund registered contributions is not tax-deductible, so plan your repayment carefully by borrowing an amount that’s small relative to your portfolio and can be repaid quickly through regular savings or tax refunds.
Risks
- If there’s a significant market drawdown: If the market has a drawdown, the value of the collateral you’ve pledged against the margin loan could decrease to the point of triggering a margin call, requiring you to add funds to your non-registered account to avoid selling investments. At the same time, a drawdown could mean the value of the investments you’ve made with the margin loan is less than the value of the loan. Margin amplifies wins and also amplifies losses. If you pursue a sub-optimal investment strategy (that lacks diversification, or involves chasing performance) the odds of a meaningful failure increase dramatically. This could largely erase the benefits of the strategy.
- If you don’t stick with a repayment program: Unlike other types of loans, a margin loan doesn’t have a prescribed repayment schedule. It is critical to be diligent in repaying the loan to ensure borrowing costs don’t accumulate and reduce the benefit.
A word about margin calls
When you invest on margin, you're borrowing against your investments, which act as collateral for the loan. Your broker requires that your equity (which is the value of your investments minus what you've borrowed) remains above a certain percentage of your account's total value. This minimum percentage is called the "maintenance margin".
If the market drops and the value of your investments falls, your equity might dip below this maintenance level. When that happens, your institution makes a "margin call" to ask you to bring the account back to a healthy level. You'll typically need to either deposit more funds into your non-registered account, or sell some of your holdings to pay down the loan.
The best way to handle a margin call is to avoid triggering one in the first place by being proactive. Here are three ways to do that::
Don't borrow the maximum amount
Give yourself a buffer by borrowing less than you’re able to.
Rationale: This is the simplest and most effective strategy. Using only a portion of your available margin gives you a significant safety cushion. If the market dips, your account is much less likely to fall below the required maintenance level.
Diversify your holdings
Holding a range of different securities can help you withstand market fluctuations.
Rationale: “Diversify” is the investor’s golden rule. In this case, it can help you avoid the risk that a decrease in a single security will dramatically impact the value of your account.
Have a clear paydown schedule, and stick to it
Unlike other loans, margin loans don’t come with a set payment schedule. By being diligent in paying down your loan, you can not only lower your total borrowing costs, but also increase your maintenance excess - the dollar amount your account can drop before you get a margin call. Paying down the loan builds your maintenance excess, giving you more cushion before a margin call is triggered.
Self-directed Investing is offered by Wealthsimple Investments Inc. (“WSII”). WSII is a member of the Canadian Investment Regulatory Organization. Customer accounts held at WSII are protected by Canadian Investor Protection Fund (“CIPF”) within specified limits in the event WSII becomes insolvent. A brochure describing the nature and limits of coverage is available upon request or at CIPF.