Maximise your wealth potential
Borrowing money to invest, also known as gearing, is a strategy that can help you accelerate the value of your portfolio over time and increase your investment income.
A Margin Loan makes gearing simple and easy.
What is a margin loan?
A margin loan is simply borrowing money to invest in investment funds or shares.
You access additional capital from a margin loan by borrowing against your existing approved assets; including shares, managed funds or cash. With many margin lenders you can borrow up to 75% of your total investment.
Alternatively, you can start with a small amount and add to it each month from your own savings in addition to contributing a borrowed amount each month. This is called regular gearing.
Benefits of a margin loan
These include:
- having more money working for you to increase your potential investment growth
- your earnings can be multiplied in favourable market conditions
- potential for tax savings, as loan interest paid is generally deductible against income, and
- achieving greater diversification through increasing your portfolio size and spreading your investments more widely, helping you to reduce investment risk.
The risks of gearing
With any investment strategy, there are potential risks. You should understand what these risks are and how you can minimise them.
There are additional risks associated with geared investments, primarily because you're using borrowed money to increase investment returns.
Some of the common risks are:
- a fall in the share market could lead to your investment losses being magnified
- a change of your financial circumstances, for example illness or injury, could make it difficult for you to meet your loan repayment commitments
- a rise in interest rates could make it difficult for you to pay your loan or make interest payments, or
- there may be some termination penalties or fees attached to the loan.
To help minimise any investment risks associated with a gearing strategy, it's important you seek professional financial advice.
