Investing

Manulife leverage loan for seg funds !!

  • Last Updated:
  • May 18th, 2021 11:32 am
[OP]
Member
Oct 18, 2012
222 posts
26 upvotes
GTA

Manulife leverage loan for seg funds !!

Basically a friend (broker) is suggesting taking a loan and investing in Seg funds. Monthly payment for the loan is $266 and minimum growth is 5% PA. Put the growth money in RRSP or tfsa and buy Seg funds. So it will kind of offset monthly cost for the loan + Tax credits.


Anyone got 100k loan from Manulife to invest in Seg funds with 75% protected ?

Is it good for long term ? Any thoughts on this ??
11 replies
Deal Fanatic
Jul 1, 2007
8547 posts
1724 upvotes
Holy crap man, RUN! That person isn't your friend, he's trying to take advantage of you. Run away and never talk to that person again.
Money Smarts Blog wrote: I agree with the previous posters, especially Thalo. {And} Thalo's advice is spot on.
Banned
Jan 16, 2021
35 posts
16 upvotes
In 10 years your 100k will be worth a 100k.
Fees will be astronomical.
SCAMMER
Deal Addict
Oct 1, 2006
2566 posts
3009 upvotes
Montreal
The only one getting rich of this will be your broker "friend" and Manulife
Deal Fanatic
User avatar
May 11, 2014
5776 posts
7797 upvotes
Rankin Inlet, NU
Segregated funds are mutual funds often charging 3-4% MERs.

The 75% guarantee means that if you were to die, and the mutual funds value dropped to 75% of your original investment, you would get back at minimum 75%.

But think about it, if investments usually do grow in value over time, when would you likely be in a position where the original investment drops and doesn't recover? Additionally, paying 3% more in fees per year is a bigger drag on your investments. And you are now borrowing money to invest in said expensive mutual funds, pocketing your "friend" with all these commissions. And that protection can become meaningless 5-20 years from now when your investment likely would have exceeded that value.

Better option: See what you qualify for in secured line of credit and buy quality, low cost mutual funds/ETFs/Stocks. Fees will be much lower. But it also depends on your interest rate you qualify for. If you have a HELOC or can remortgage, that also works. For real protection at death, you are likely better off with a term insurance policy.
Support your local Credit Union!

Sask Pension Plan Upto $7200/yr in Credit Card spending on RRSP contributions
sask-pension-6000-annually-credit-card- ... ns-2167222
Deal Fanatic
Jul 1, 2007
8547 posts
1724 upvotes
Keep in mind that the only reason your "friend" wants to put you into this scheme is not because it is of any benefit to you whatsoever, but because he wants to sell you insurance products (seg funds) and you don't have any money to buy them from him, thus the loan.
Money Smarts Blog wrote: I agree with the previous posters, especially Thalo. {And} Thalo's advice is spot on.
Jr. Member
Jan 13, 2021
114 posts
75 upvotes
Anyone who ever offers SEG funds should be fired and prohibited from ever selling any financial products. Ask him to come up with total time period in history in which SEG funds were actually superior to simple indexing
Deal Fanatic
User avatar
May 11, 2014
5776 posts
7797 upvotes
Rankin Inlet, NU
DamianK3021 wrote: Anyone who ever offers SEG funds should be fired and prohibited from ever selling any financial products. Ask him to come up with total time period in history in which SEG funds were actually superior to simple indexing
Uhm no. Segregated funds can and do have a function. Most employer DC plans even those that are "index" are segregated funds.

An example I can show you is Fiera Capital US Equity. It frequently beats the S&P500, but with the caveat that you need access to the fund with a reasonable fee which under many DC plans it works great. But sold separately with very high fee contracts, it can become debatable.
https://www.fieracapital.com/en/institu ... /us-equity

The point of segregated funds is generally limited. But they can actually be useful in some situations. The problem is that in most cases, they are sold inappropriately. There needs to be recourse on the actions of scrupulous dealers, this is where I agree. A segregated fund within a DC where the insurance cost is low. An elderly person who may want to invest in riskier equities but wants protection in case of downturns for example. The majority of people should avoid them.

I go with the adage demonize the people selling, not the product itself.

As an example, a work colleague got in a terrible loan contract to buy segregated funds to deposit into his RRSP. The reason was so he could utilize the Homebuyer's Plan in 2-3 years.
:facepalm:
-Most segregated funds generally have contract terms, so you need to hold for generally 7 years to not be penalized
-Borrowing to borrow for a home?
-Why these equity heavy funds with high fees?
So many red flags and sadly no recourse. His complaints went no where.
Support your local Credit Union!

Sask Pension Plan Upto $7200/yr in Credit Card spending on RRSP contributions
sask-pension-6000-annually-credit-card- ... ns-2167222
Deal Fanatic
Jul 1, 2007
8547 posts
1724 upvotes
Most at issue here is the leverage being recommended, not the fact that it's a seg fund.
Money Smarts Blog wrote: I agree with the previous posters, especially Thalo. {And} Thalo's advice is spot on.
Newbie
Jul 18, 2020
7 posts
windywalks wrote: Basically a friend (broker) is suggesting taking a loan and investing in Seg funds. Monthly payment for the loan is $266 and minimum growth is 5% PA. Put the growth money in RRSP or tfsa and buy Seg funds. So it will kind of offset monthly cost for the loan + Tax credits.


Anyone got 100k loan from Manulife to invest in Seg funds with 75% protected ?
a
Is it good for long term ? Any thoughts on this ??
IMO as long as the total growth of any investment is greater than the actual cost, you are happy. The MER is usually misunderstood. The yearly return is calculated 'after' MER. There is no mutual fund which 'locks' customer, there is always a way to come out. Compare yourself with other popular mutual funds with double digit returns and see if it's worth investing.
Leverge strategy works well if you have the ability to book partial profit whenever market is high without incurring extra expenses. I am a fan of leverage investment and have been able to make money so far.
Deal Fanatic
User avatar
May 11, 2014
5776 posts
7797 upvotes
Rankin Inlet, NU
curiousaboutmoeny wrote: IMO as long as the total growth of any investment is greater than the actual cost, you are happy. The MER is usually misunderstood. The yearly return is calculated 'after' MER. There is no mutual fund which 'locks' customer, there is always a way to come out. Compare yourself with other popular mutual funds with double digit returns and see if it's worth investing.
Leverge strategy works well if you have the ability to book partial profit whenever market is high without incurring extra expenses. I am a fan of leverage investment and have been able to make money so far.
Except in this case, it does lock people in unless they pay a penalty. Segregated Funds have minimum contract periods for the insurance to kick in. Early redemptions before the contract period may mean fees to redeem as well as reduced protection (not getting the minimum redemption value you were insuring for, or getting it pro-rated)

Leverage only makes sense if the investments are compelling. So why should the OP go with segregated funds to invest with leverage? Why should OP pay high fees for longer when the return will be much better with "lower cost" mutual funds (lower cost in 2-2.5% funds). More importantly, why has his friend offered leverage through segregated funds instead of just normal mutual funds? One word: Commission.

eg. Remember I could by Dynamic Power American Equity as a normal mutual fund vs the segregated version. So OP should ask why I need the insurance of segregated funds in the strategy.

OP could likely borrow and invest in normal funds. With the 1% savings, could buy a term insurance policy and built cash savings on the side to help with needed cash. If OP dies, the insurance policy will likely payout much more than the segregated funds could. Meanwhile the lower fees (not saying ETF low) will provide superior returns. Many of the segregated funds can be bought as normal mutual funds so can easily be switched.
Last edited by xgbsSS on May 18th, 2021 12:42 pm, edited 2 times in total.
Support your local Credit Union!

Sask Pension Plan Upto $7200/yr in Credit Card spending on RRSP contributions
sask-pension-6000-annually-credit-card- ... ns-2167222
Deal Fanatic
Jul 1, 2007
8547 posts
1724 upvotes
curiousaboutmoeny wrote: IMO as long as the total growth of any investment is greater than the actual cost, you are happy. The MER is usually misunderstood. The yearly return is calculated 'after' MER. There is no mutual fund which 'locks' customer, there is always a way to come out. Compare yourself with other popular mutual funds with double digit returns and see if it's worth investing.
Leverge strategy works well if you have the ability to book partial profit whenever market is high without incurring extra expenses. I am a fan of leverage investment and have been able to make money so far.
I can down-vote posts, but not replies to posts. Wish I could down-vote this one so that no one actually considers it advice.
Money Smarts Blog wrote: I agree with the previous posters, especially Thalo. {And} Thalo's advice is spot on.

Top

Thread Information

There is currently 1 user viewing this thread. (0 members and 1 guest)