A margin loan, also known as a share investment loan or gearing involves borrowing money to invest. The right sort of borrowing can help you create wealth by allowing you to take advantage of investment opportunities when they arise.
It could help you to grow your medium to long-term wealth faster, no matter whether you are just starting out, or if you have been trading for some time.
The benefits of a margin loan can include:
|Potential to increase investment returns|
By adding borrowed money to your own funds, you can have access to more funds for investing. Once invested, this can provide you with the opportunity to increase your returns if the value of your portfolio increases.
If you want to take advantage of investment or market opportunities a margin loan can provide you with immediate access to additional funds.
It means you don’t have to sell your existing shares to purchase additional shares.
|Diversification to reduce risk|
Diversification spreads the potential risks of your investments.
A margin loan can enable you to diversify your portfolio by providing increased buying power over a wider range of shares or investments. This can help to potentially reduce risk.
|A tax efficient way to help build wealth|
A margin loan can form part of a strategy to provide potential tax efficiencies. For instance:
Maximising the after tax return of your investment is something worth considering. However, tax efficiencies should not be the main reason for choosing a margin loan.
Like any investment, you should speak with a financial planner or tax adviser to see how the taxation rules apply to your own situation.
Generally there are no set repayments, as long as you maintain the required level of equity in your account. Plus the interest can be prepaid or paid monthly.
|More flexible than property|
With the rising cost of real estate, successfully gearing property is becoming more difficult.
Using a margin loan to fund share investments or managed funds may prove to be a better strategy to reach your long-term financial goals for the following reasons:
Margin loan interest rates
As with most loans you are charged interest on the drawn loan amount. You can select either a variable or fixed interest rate:
|Variable interest rate|
A variable rate loan acts like a line of credit. You can draw down when you need it, or repay part or all of the loan if you sell securities or receive dividends. The interest rate charged on your loan may change depending upon market movements.
|Fixed interest rate|
A fixed rate loan could give you greater peace of mind because your interest payments are 'locked-in' and you don't need to worry about interest rate rises for the term of the loan. The interest rate is usually less than a variable loan, and as an added benefit, you may be able to claim all of the interest expense as a deduction in the current tax year.
ANZ offers a wide range of fixed loan terms, from 3 months to 5 years. You can choose to:
It is important to note that prepaid interest is not refundable and break fees may apply if the loan is paid out while in a fixed rate period.
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. Before acting upon advice, you should consider whether it is appropriate for you. 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 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.
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), an ASX and Chi-X Australia Participant. 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.
You need Adobe Reader to view PDF files. You can download Adobe Reader free of charge.