Accelerate your wealth faster by changing gears
Most of us can sympathize with the frustration people feel over the time it can take to achieve their financial objectives. Getting to our goal would be a lot easier and quicker if we had a bit more money to begin with.
Gearing is one way of accessing the funds you need to invest and helping you reach your financial goals sooner. You can fund part of your investment in InvestSMART Market Leaders with a margin loan from Macquarie Investment Lending, at a rate of 10.10% pa.
What is gearing?
Gearing is simply using borrowed money to invest. Supplementing your own funds with an investment loan gives you a larger sum to invest. This can potentially increase the size of your returns and help you reach your financial objectives faster.
What is a margin loan?
One form of gearing is Margin Lending. A Margin Loan is a loan to finance an investment portfolio which operates as a line of credit to buy shares and units in managed funds. You can borrow against your existing assets or use your portfolio as security for the loan.
How does it work?
A margin loan for InvestSMART Market Leaders is simple. If you wish to use gearing, you will contribute 50% of your own funds to make the investment, the other 50% is funded through the margin loan. Combined, you have doubled your available funds which provides you with a larger investment portfolio.
What are the benefits?
If you earn returns on a larger investment portfolio, you can build your wealth faster. You may also be entitled to claim loan interest as a tax deduction where the loan funds are used for investment purposes.
What are the risks?
While borrowing to invest can magnify profits, it also has the potential to magnify losses. You should consider your personal situation and your appetite for risk before using a margin loan and consider getting advice from a licensed financial adviser.
What is a Margin Call?
If you employ a margin loan to help fund your portfolio in InvestSMART Market Leaders, your loan security will consist of your Equity (the value of your portfolio) and the amount borrowed will be your Current Loan Balance.
If the market value of your portfolio falls, your Current Loan Balance stays the same but your gearing level will rise.
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If your gearing level rises above the maximum gearing level, you will be asked to provide additional funds to reduce your gearing level. This is known as a margin call.
To help protect against small market fluctuations, there is usually a "buffer" (typically 5%) added to your maximum gearing level.
How much does the market value of your portfolio need to fall to cause a margin call?
If your gearing level was at 50%, and the maximum gearing level was 75%*, your InvestSMART Market Leaders portfolio would need to fall in value by 38% before a margin call would be made.
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Assumes buffer of 5%
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* The maximum gearing level (Loan to Value Ratio, or LVR) for the InvestSMART Market Leaders is 75%.
InvestSMART Market Leaders is issued by Macquarie Private Portfolio Management Limited (ABN 26 089 987 388, AFSL No. 237506). Macquarie Bank Limited (ABN 46 008 583 542) ("MBL") is the lender of the margin loans administrated by the Macquarie Investment Lending division of MBL. InvestSMART Financial Services Pty Ltd (ABN 70 089 038 531, AFSL No. 226435) is responsible for marketing and distribution of InvestSMART Market Leaders.
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