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Borrowing to invest

23 February 2024 |Gearing 101

Borrowing to invest

23 February 2024 |Gearing 101
Borrowing to invest, or gearing, is a strategy used to purchase shares, managed funds, or other investments. One way to do this is by taking out a margin loan.

What is a margin lending facility?

A margin lending facility is a type of secured loan which allows you to borrow money to invest in a range of financial products including shares and managed funds, which will be held as security for the loan. It can be an effective solution to increase your investment capacity through gearing. A margin loan will allow you to borrow against your existing investment up to a level permitted on each holding.

If you are an experienced investor and would like an opportunity to reach your financial goals sooner, or to take advantage of market fluctuations, a margin loan from Leveraged Equities could help by boosting your investment capacity. Leveraged Equities is an award-winning margin lender* with a range of loan options and a large investment menu.

How could a Leveraged Equities margin loan help you achieve your financial goals?

Our financial goals simulator can provide you an estimate of the investment value of your portfolio, with and without gearing, based on the information you provide. It’s important to understand both the benefits and risks of adding a gearing strategy to your portfolio. We recommend speaking to your financial advisor for advice.

Benefits of borrowing to invest.

You can use a gearing strategy for a variety of reasons, including increasing your exposure to the market and helping to grow your investment portfolio.

  • Diversify your investment portfolio.

If you have an existing investment portfolio, this can be mortgaged to the lender, and you may be able to borrow against this portfolio for further investment. This may allow you to diversify your investment portfolio without needing to sell any existing holdings.

  • Potential tax benefits

Depending on your situation, interest incurred from borrowings used for an investment may be tax deductible. It could also potentially be prepaid, allowing you to bring forward the deduction to the current tax year, which may be beneficial for tax planning.

  • A financial strategy building a portfolio for the future.

Smart investors know they need to put in place strategies for income – either for retirement, a career change, or unforeseen events. Borrowing today may help you invest for your tomorrow and can be part of a financial strategy to support your goals. Speak to your financial advisor to see if borrowing to invest is an appropriate option for your circumstances.

  • A flexible investment.

A margin loan can be used as a flexible loan facility because it does not require scheduled repayments, allows access to funds for investment purposes as required, and there is no maturity date.

What are the risks?

There are risk factors which may be relevant, depending on your circumstances. These could include regulatory changes, company dividend policies, or changes in the maximum lending value your lender will allow.

  • Market Risk.

Investing into equity markets and other investments is not without risk. By using a margin loan and gearing strategy, your losses can be magnified as you are exposed to a larger position in the market than you otherwise would be without gearing.

  • Interest rate risk.

Interest rates may rise which can impact your ability to service the loan or achieve a desired outcome.

  • Events may occur that result in the loan becoming due for payment within a short period.

It is possible for certain events (such as margin calls) to occur at any time that may result in some (or all) of the loan being due for payment immediately, depending on the nature of the event.

For example, at Leveraged Equities, a margin call occurs when the loan exceeds the portfolio’s security value and any buffer. To satisfy the margin call the lender will request for the shortfall amount owing to be paid. You can resolve this by adding equity, selling part of the portfolio, and using the proceeds to satisfy the margin call, or by repaying the amount owing.

If you have any questions or would like to find out more about a margin loan from Leveraged Equities, please contact us on 1300 307 807.

*Money magazine Margin Lender of the Year. Awards are only one factor to consider when choosing a financial product.
Gearing involves risk. It can magnify your returns; however, it may also magnify your losses. You should consider whether or not the product is appropriate for you.

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