I've seen a concerning number of posts from people investing with margin lately. The FINRA margin debt level is at an all time high of $1.28 Trillion in January 2026. Let's talk about why investing with margin or debt is so risky. Margin or a margin account is a loan that your brokerage will offer to purchase investments with. It's essentially debt that you don't have in order to have more purchasing power for your investments. Say you have $10,000 in your TFSA, you may be able to receive a margin account of $10,000 which gives you a purchasing power of $20,000 total to buy investments. Sounds like free money right? There are in fact multiple issues with using a margin account. The first is that a margin account is a LOAN. Loans don't get given out for free, they charge interest. Your interest on the loan may be upwards of over 4% a year. You must pay this monthly and take it out of your margin account. If you make 10% during the year, 4% of that will go just to pay interest. The second issue is you are putting yourself at greater risk. Not only are you using debt, you also have to use your own investments at collateral in case of what's called a "margin call". If you have a $10,000 TFSA and a $10,000 margin account, your TFSA will be used as collateral. If the balance of your margin account goes down too quick or too much, the brokerage has a right to sell your investments in the TFSA at any point to cover the losses. A margin call is where the brokerage demands you immediately pay back some of your margin account in order to maintain the suggested rate. This means selling your TFSA investments, paying interest AND potentially paying back losses that you don't even own. This is the greatest risk of playing with margin, you may have to pay back way more money than you even own. If your investments on margin crash you owe the interest for the loan, the losses you incur, and you likely will have to liquidate your portfolio and pay back extra. The third and biggest risk that probably isn't talked about enough is the investments you pick. Not only do you pay interest and risk paying the debt with money you don't have, but you ALSO have to pick the right investments in the first place. Some might use margin to buy more of an index like $VFV or $XEQT to enhance their returns, others may choose to buy a single company like $AMZN or $GOOGL, others may choose income funds to "pay back" the interest and try to earn extra, and some might gamble on highly leveraged plays. Whatever you pick, the problem is you still have to be good at making investment decisions. Not only do you have to make money on your investments, you have to make enough to pay for interest, not have significant losses, and go above and beyond to actually make a profit WITHOUT being margin called. Put aside all the risks of the margin account, if you can't make good investments you won't make any money, and then add all that extra risk back on. My personal stance and what I would tell anyone is to avoid margin completely, doesn't matter how good of an opportunity there is. A "good" investment long-term may still experience years of 10-50% drawdowns that would get you margin called. You not only have to pick the right investment, but you need to make money at the right time, sell at the right time, and be able to cover the interest all while not getting margin called. Doesn't sound so easy? I would encourage you to fully consider your situation if you're currently using margin. Could you afford to pay back money you don't currently have? As always, do your research and happy investing!
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