What if I don't have enough cash to invest now?
It’s no secret that over the last decade sharemarkets globally – including Aussie shares, have recorded excellent gains. It’s great for those who were in the market. But if you don’t have much to invest, it can be easy to look on from the sidelines and wonder how you can get a slice of the action.
There is a solution that can help Australians invest sooner. InvestSMART has launched Fundlater, an interesting new product that lets you invest – and diversify, without the need for a sizeable deposit.
Before I go any further, please note I am biased as I am Chair of InvestSMART and own shares in the company. But this is a new idea, one that I think in time will be offered by many others. And for investors looking to get a head start, it’s worth knowing about.
Fundlater works like this. You make one initial deposit of $4,000, and InvestSMART backs this up with a $6,000 loan. So you can get started with $10,000. That’s a decent sum to cost effectively spread your risk. And when combined with InvestSMART’s professionally managed portfolios of exchange traded funds, you’re ticking the box for diversification from day one.
From there, you repay 20 instalments of $325 per month. That means repaying $6,500 in total. You can pay off whatever’s left of the $6,000 at any time with no exit fees and no further $25 monthly fee.
Of course, there’s nothing new about borrowing to invest. Margin loans to fund shares have been around for a long time. However, they come with the risk of a margin call. If your shares fall below a certain value the lender will ask you to tip cash into the loan to reduce the balance – often with just a few hours’ notice. What’s so unique about InvestSMART’s Fundlater is that it lowers the risk of borrowing to invest because even if the value of your investment portfolio falls, you don’t owe any additional money.
I reckon Fundlater is the nudge plenty of Aussies have been looking for to grow their wealth. It’s all about a simple savings strategy where you set up regular installments to pay off your investment while staying in the market to reap the rewards of compounding.
Click here to learn more about InvestSMART's Fundlater.
Paul Clitheroe is Chairman of InvestSMART, Chair of the Ecstra Foundation and chief commentator for Money Magazine.
Borrowing money to invest can increase gains in a rising market and magnify losses when a market declines. Click here for Fundlater terms and conditions.
Frequently Asked Questions about this Article…
InvestSMART's Fundlater is a new investment product that allows you to start investing with a smaller initial deposit. You begin with a $4,000 deposit, and InvestSMART provides a $6,000 loan, giving you a total of $10,000 to invest. You then repay the loan in 20 monthly installments of $325, with no exit fees or additional charges if you decide to pay off the loan early.
Fundlater helps with diversification by allowing you to invest in InvestSMART’s professionally managed portfolios of exchange-traded funds (ETFs). This means your investment is spread across various assets, reducing risk and increasing the potential for stable returns.
Unlike traditional margin loans, Fundlater does not require you to add more cash if your investment value falls. This reduces the risk associated with borrowing to invest, as you won't owe additional money even if the market declines.
With Fundlater, you repay the $6,000 loan in 20 monthly installments of $325, totaling $6,500. You can also pay off the remaining balance at any time without incurring exit fees or additional monthly charges.
As with any investment, there is a risk involved. Borrowing to invest can amplify gains in a rising market but also magnify losses if the market declines. However, Fundlater reduces some risks by not requiring additional payments if your investment value decreases.
Fundlater is ideal for Australians who want to start investing sooner but may not have a large amount of cash available. It provides a way to enter the market with a smaller initial deposit while benefiting from diversification and professional management.
Yes, you can pay off the remaining balance of your Fundlater loan at any time without facing exit fees or additional charges, providing flexibility in managing your investment.
Fundlater supports a simple savings strategy by allowing you to set up regular monthly installments to pay off your investment. This approach helps you stay invested in the market, potentially benefiting from the rewards of compounding over time.