Margin loans, like all loans, carry risk.
When taking out a loan to invest in property, there is always the risk the property value can go down. That same risk applies to a margin loan. That is, the value of your portfolio can fall instead of rise.
If the value of the shares or managed funds you have as security for your margin loan drops below a certain point, relative to how much you have borrowed, a margin call will be triggered.
Suggested ways to minimise risk:
| Research before you buy |
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When purchasing shares, you are buying a piece of a company. Research and understand what you are buying before you make the purchase. A professional adviser can guide you on selecting investments to suit your needs.
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| Diversify your investment |
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By investing in a broad range of shares or managed funds there may be limited impact on your overall portfolio if one performs poorly.
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| Take a long-term approach |
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The sharemarket will typically experience peaks and troughs. However, the longer you stay invested the less likely you will be affected by short-term volatility.
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| 'Average in' to the market |
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You can also gradually increase your investments, over one to two years, to reduce the chances of buying in when the market is at its peak. This is sometimes referred to as ‘dollar cost averaging’.
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| Create your own additional buffer |
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Just because you can borrow up to, say 75%, of your portfolio doesn’t necessarily mean you should borrow the full amount. Investing below your maximum could provide you with a cushion, should there be fall in the sharemarket and the value of your portfolio.
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| Reinvest |
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Dividends and fund distributions from your share investments can be used to offset your loan balance, or purchase additional units or shares. In time, this could help reduce your gearing level.
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| Monitor your account |
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It pays to regularly check the changing values of the investments within your portfolio. You can quickly and conveniently do this by logging onto ‘My Portfolio’, the online reporting tool for your ANZ Share Investment Loan. That way you can be prepared to take action when necessary.
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Important information
Leveraging a share portfolio is fast becoming a popular wealth creation strategy. However, you should be aware that whilst leveraging into investments increases the potential return, it is important to recognise that it can also multiply the effects of falls in sharemarket values. We therefore strongly advise you talk to your financial planner, tax adviser and/or stockbroker and ensure you understand the risks, the specific tax implications as well as the legal and financial ramifications of a share investment lending facility.
The information provided is general in nature only and has not been prepared taking into consideration your particular needs, circumstances or objectives. ANZ recommends you read the ANZ Share Investment Loan Product Disclosure Statement and the ANZ Investment Lending Terms and Conditions which are available by calling the Client Services Team or from anz.com/investmentlending before acquiring the product. Fees and charges apply. All ANZ Investment Lending applications are subject to ANZ’s credit approval criteria.
References to an ‘ANZ E*TRADE Share Investment Loan are references to that product or, where appropriate, to the division of ANZ that administers that product. BPAY® is registered to BPAY® Pty Ltd ABN 69 079 137 518. E*TRADE Australia does not provide investment advice to its clients.
The ANZ E*TRADE Online Investing service is provided by ETRADE Australia Securities Ltd (trading as “E*TRADE Australia”) (ACN 078 174 973, AFSL No.238277), a Participant of the ASX Group. E*TRADE Australia is a subsidiary of ANZ and is a separate entity from ANZ. ANZ does not have any liability to you in respect of any information, product or service offered by E*TRADE Australia. Similarly, E*TRADE Australia does not have any liability to you in respect of ANZ’s activities and services. © 2003 E*TRADE Financial Corporation and E*TRADE Australia. All rights reserved. E*TRADE Australia does not provide investment advice to it’s clients. E*TRADE and the Asterisk Logo are registered trademarks of E*TRADE Financial Corporation or it’s subsidiaries and are used with permission.
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