What are the benefits?
Guidelines for adding leverage to a portfolio
How long does a loan take to pay off?
This is a model not a prediction. Results are only estimates, the actual amounts may be higher or lower. We cannot predict things that will affect your decision such as movements in investment markets. This calculator is not intended to be your sole source of information when making a financial decision. You should consider whether you should get advice from a licensed financial adviser.
How we create smart leverage
Whilst we have access to traditional forms of debt like margin loans, lines of credit and contracts for difference, we generally find the interest costs are too high to create a positively geared investment in the ASX. We typically utilise what is called a box spread as our preferred financing tool due to its low cost structure.
Low Interest Cost
Access interest rates similar to those available to financial institutions who then add on a profit margin before offering it to retail investors.
Since they are booked with ASX Clear neither the borrower or lender are exposed to the credit risk of the counter party and are protected by the financial safeguards of the Australian centralised counter party (CCP) clearing mechanism.
The ideal time frame to create a loan is around 12 months to allow for re-financing at potentially lower rates, however loans can be created over longer or shorter time periods if desired.
You are able to exit your loan by repaying the owed amount at any time during market trading hours.
Speak to an adviser who will be able to handle identifying opportunities, implementation and ongoing management.
What is Positive Gearing?
Positive gearing requires the return on an investment to be greater than the cost of debt. The result is an investment which costs nothing to maintain and will actually repay the funds borrowed over time. An increase in interest costs or lower than expected income can mean your investment becomes negatively geared. We aim to avoid negative gearing by increasing yield or decreasing costs.
So, if we assume we cannot increase the income of investments without increasing the risk, positive gearing requires very low cost gearing to be successful. Speak to an adviser to discuss how we solve the above issues and create fully diversified positively geared portfolios with extremely low borrowing costs.Contact us
What are the risks?
Like any investment strategy, leverage does not prevent you from making a bad investment decision, although diversification can reduce this risk.
Magnification of Losses
Market movements both up and down will be amplified through the use of leverage creating a more volatile portfolio. Investments may fall and may result in the value of your portfolio being insufficient to repay your loan. A long time horizon is essential. Returns will also be affected by any potential tax effect from your investments, including interest deductions or franking credits.
Interest Rate Risk
An increase in interest rates will general increase the cost of an investment loan. Increased rates may not be factored into current loans but will affect future ones.
Cash Flow Risk
Rising interest rates has a ripple effect on your cash flow if investments are negatively geared as you may be required to contribute cash to service the loan.
Margin Call Risk
If the value of your investments fall below the maximum allowable loan to value ratio, an investor will be required to add additional funds to reduce the loan to value ratio. Please be aware that a leverage exposes you to unfavourable movements in the value of investments, and possibly to margin calls. Investors are personally liable for any shortfall that occurs should their entire portfolio have to be sold to answer a margin call where there have been falls in the market value of investments. Only investors who fully understand the risks associated with gearing into investments should apply.