Investing Loans

Wanting to grow your investment portfolio can be quite challenging. Especially if you do not have a large amount of cash stored away for investments. By using a marginal (investing) loan it allows you to achieve a greater investment portfolio.

Marginal loans are a form of gearing  which enables an investors to borrow money in order to purchase financial products and assets. The financial products and assets are then used as security against the loan.

We can provide you with all the information and knowledge required to undertake an investment loan. In addition, we can provide a structured long-term investment plan to meet your financial goals and secure yourself a prosperous financial future.

Gearing or is often referred to as “leveraging”, it is simply borrowing money to invest. By taking out a loan, you are able to increase your investment opportunities. Allowing for an increase in exposure to certain growth assets (typically shares or property). The earnings generated from these assets is then used to help pay off the debt from the marginal loan.

It is important to understand the importance of loan-to-value ratio (LVR), also known as the “gearing ratio”. The LVR represents the actual amount that the lender is willing to provide to the borrower. A gearing loan with a LVR of 80% will mean that the deposit amount required will be 20% of the loan amount.

Marginal loans are typically borrowed against growth assets in order to provide a strong return. These assets include:

  • Shares (Australian and/or international)
  • Listed property trusts
  • Direct property
  • Managed funds

There is many benefits with using a marginal loan

  • Leveraging which allows for a greater exposure to assets which many not have been able to purchase due to limitation of personal funds.
  • Tax minimisation strategies can be utilised, such as prepaid interest, franking credits, reduced potential capital gains tax (CGT) implications and negative gearing.
  • Marginal loans allows you the ability to seize opportunities and to take advantage of opportunities when market conditions are favourable.
  • Wealth can be accumulated at a higher percentage due to increased money from borrowed funds.

There is also negatives to investment loans and must be carefully taken into consideration

  • Losses can be magnified greatly, however gains can also be magnified greatly.
  • If the value of your investments decreases below the LVR, margin calls can occur and then assets may have to be sold down to reach the desired LVR.
  • If interest rate increases the cost of investing will increase and could decrease the returns on investments.

Using an investment loan is considered a high risk strategy. In order to determine if you should use an investment loan several factors are taken into consideration.

  • Do you have a High (or High Growth) Risk Profile?
  • Do you have equity and/or cash or assets to borrow against?
  • Do you have a secure source of income/cashflow to meet repayments?
  • Do you have adequate levels of income protection?
  • Do you have an investment timeframe of at least 10 years?