Maximum Kaizen: instalment gearing
Maximum Kaizen: instalment gearing
Change is hard. Change is especially hard when there is a long time between effort and payback. It can be hard to put aside more money today for a comfortable retirement in 30+ years, for example. But a more distant horizon may work in your favour for larger financial goals.
The Japanese word kaizen means ‘good change’. It is the opposite of ‘go big or go home’. Small, incremental and automated steps, over time, can add up to substantial benefits.
More through less
Many retail stores offer ‘buy now, pay later’ arrangements. Even the pre-internet generation could buy on credit – they used credit cards. One key difference is standardised and automated payments.
People can apply this kaizen approach to their investment strategy. It is called borrowing by instalment. After an initial investment, you set up a regular program that automatically puts savings and borrowed money into your choice of investment.
The benefits of a regular borrowing-to-invest plan could be more than just convenience.
Layer on layer
Everyone must carefully judge their financial capacity before borrowing any money. If you can afford to borrow, then not all debt is the same. Borrowing to buy the latest fashion item gives a short term buzz. Borrowing to buy an asset that could increase in value gives you scope to get more of what you want in the future.
Borrowing by instalments still gives you the choice of investments, but avoids the pitfall of trying to time the market.
It is folly to believe anyone can reliably pick every up and down in investment value. The kaizen approach is to do less, not more to get the same or better outcome. Regular investing could provide a better chance of achieving a lower average investment purchase price in an overall rising market.
Step and repeat
It is important to take professional guidance on investment choices. First-time investors, who are building their confidence, may want to consider investments that are expected to pay a regular income as well as grow in value.
At the simplest level, you pay interest only on the amount borrowed. You earn income on the total investment value; the savings you have contributed plus the amount borrowed.
Such a seemingly small difference can have a big impact. It may support your capacity to borrow – the investment income may offset the cost of borrowing. Or you might reinvest the income. Digital natives call this scaling-up. Everyone else calls it the power of compounding
Incremental improvement means finding simpler ways to achieve a similar outcome. Of the various ways to borrow to invest, and particularly borrowing by instalment, a margin loan is flexible, has tools to measure progress against expected outcomes and can be quickly adjusted to changing circumstances.
Achieving a life-changing financial goal usually takes time and perseverance. But it doesn’t have to be all hard work. Some of us may receive a tax refund this year. This bonus might present an opportunity to make a small change to work toward achieving a financial goal.
As the saying goes - the best time to plant a tree is twenty years ago. The next best time is now.
Leveraged makes it easy to set up a regular savings and investment strategy through the Instalment Plus feature available on the Margin Loan and Investment Funds Multiplier.
To find out more about how instalment gearing can help your clients build wealth and achieve their financial goals, please contact your Relationship Manager, or contact Leveraged on 1300 307 807.
Things you should know
Gearing involves risk. It can magnify your returns; however, it may also magnify your losses. 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). Information is general advice only and does not take into account your personal objectives, financial situation or needs. The views of the author may not represent the views of the broader Bendigo and Adelaide Bank Group of companies (“the Group”). This information must not be relied upon as a substitute for financial planning, legal, tax or other professional advice. You should consider whether or not the product is appropriate for you, read the relevant PDS and product guide available at www.leveraged.com.au, and consider seeking professional investment advice. Not suitable for a self-managed superannuation fund.
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.