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Bite-size strategies – Unlocking equity from a share portfolio

30 August 2017 |Investment strategies
Discover how gearing can be applied to the right client's investment strategy to support their financial goals on a chart background.

Bite-size strategies – Unlocking equity from a share portfolio

30 August 2017 |Investment strategies
At Leveraged we are often asked – What are some simple ways to get the most out of gearing?

Our new Bite-Size Strategies series will provide you with some easy to apply ideas you can share with your clients.

To start off – let’s have a look at how to get the most out of an existing share portfolio.

Let’s use an example:

As is common the case, an investor inherits some shares. For the purpose of illustrating this example we will assume the investor has inherited 1,000 shares in Commonwealth Bank (CBA).

But what does the investor do?

  • Do they sell the shares, take the cash now and risk triggering a potential capital gains tax (CGT) event?
  • Do they sit on them hoping that when they need the money they can sell them at a profit?
  • Or do they use them to grow their wealth/position by building a portfolio, use them to take advantage of great buying opportunities in the market when they arise, have the money when they need it for the things that are important to them – and all in a potentially tax effective way?

A margin loan is a simple way to unlock equity from an existing share portfolio. Investors simply lodge their existing shares into their margin loan account and, depending on the type of shares they have, Leveraged will then allow them to borrow money secured by the shares in order to further invest in financial products, all without having to sell shares or dip into their savings or additional funds.

Where to now?

  • The investor lodges their 1,000 shares in CBA as security for their margin loan account with Leveraged which has a market value of approximately $80,000. Leveraged will allow the investor to borrow up to 75% of market value (also known as the lending ratio or LVR). Lending Ratios over a range of approved investments are available to view on our website.
  • The investor then decides to invest $40,000 into an Exchange Traded Fund (ETF) that tracks the ASX200 or International Shares that instantly provide diversification while maintaining the income from their CBA shares and delays a CGT event.

Investors who unlock equity using their existing share portfolio are then able to employ a variety of strategies that may help them reach their investment goals sooner than by using their own money. In addition, using a margin loan to execute these strategies ensures they have access to a range of risk management tools that encourage diversification and a disciplined approach to gearing.

To find out more about how a margin loan can help your clients build wealth and achieve their financial goals, please contact your Relationship Manager or call Leveraged on 1300 307 807.

This information is correct as at 30 August 2017.

Things you should know

Gearing involves risk. It can magnify your returns; however, it may also magnify your losses. Examples are for illustration only and are not intended as recommendations and may not reflect actual outcomes. Past performance is not an indication of future performance. The information provided in this document has not been verified and may be subject to change. It is given in good faith and has been derived from sources believed to be accurate. Accordingly no representation or warranty, express or implied is made as to the fairness, accuracy, completeness or correction of the information and opinions contained in this article. To the maximum extent permitted by law, no entity in the Group, its agents or officers shall be liable for any loss or damage arising from the reliance upon, or use of the information contained in this article.

Issued by Leveraged Equities Limited (ABN 26 051 629 282 AFSL 360118) as Lender and as a subsidiary of Bendigo and Adelaide Bank Limited (ABN 11 068 049 178 AFSL 237879). This information is correct as at the time of issue, and is for general information purposes only. It is intended for AFS Licence Holders (or authorised representatives of AFS Licence Holders) only. It is not to be distributed or provided to any other person.

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