{"id":8055,"date":"2023-06-26T12:01:13","date_gmt":"2023-06-26T02:31:13","guid":{"rendered":"https:\/\/adelaideprivatewealth.com.au\/the-principles-behind-smart-borrowing-to-invest\/"},"modified":"2023-06-26T12:01:13","modified_gmt":"2023-06-26T02:31:13","slug":"the-principles-behind-smart-borrowing-to-invest","status":"publish","type":"post","link":"https:\/\/adelaideprivatewealth.com.au\/the-principles-behind-smart-borrowing-to-invest\/","title":{"rendered":"The principles behind smart borrowing to invest"},"content":{"rendered":"
\n

Australians are living longer and experiencing higher house-to-wage ratios. It makes good sense to consider how you can achieve a comfortable long term future.<\/p>\n

\"\"<\/p>\n

What makes a smart investor?<\/h3>\n

A webinar on borrowing to invest brought together financial advice commentator Noel Whittaker, REA Group\u2019s Chief Economist Nerida Conisbee and NAB Equity Head of Sales Craig Saunders to explore what makes a smart investor.<\/p>\n

Financial investment commentator Noel Whittaker summed up the panel\u2019s attitude to moving forward financially: \u201cI believe becoming wealthy is like a game of Monopoly. The aim is to get the most assets under your control as you can.\u201d<\/p>\n

The panel agreed on the importance of diversification and the basic steps to get a mix of performing assets. They also\u00a0discussed\u00a0the ins and outs of borrowing to invest in shares or property.<\/p>\n

1. Define your goal<\/h3>\n

Most of us want extra money to create a better life for ourselves and our loved ones. Setting specific goals and a time frame for achieving them will help you build a realistic plan. The strategies you\u2019d use to achieve each goal will probably look quite different, too.<\/p>\n

Say your goal is that, in 10 years time, you\u2019ll be receiving $100,000 p.a. in income from your investments so you can pay for your kids\u2019 education and then give them a home deposit later on.<\/p>\n

Needless to say, if you don\u2019t have the expertise to work this out for yourself and then put the investments in place, speak to us today.<\/p>\n

2. Compounding is everything<\/h3>\n

Compound growth means the more you invest early on, the greater your probable long-term return. Whittaker believes seven to 10 years is the minimum investment time frame because \u201cproperty is going to have long flat times and shares will be volatile\u201d.<\/p>\n

3. Embrace good debt<\/h3>\n

When borrowing money, Whittaker urges us to remember the difference between good and bad debt. \u201cWinners borrow money for things that will increase in value. This means buying or improving an asset that can grow in capital value. You also need to be aware of which investments are tax deductable and which aren\u2019t.<\/p>\n

\u201cLosers pay high rates of interest to borrow for things that have no long-term value and no tax deductions \u2013 like clothes, a car or holiday\u201d states Whittaker.<\/p>\n

4. Shares or property?<\/h3>\n

REA Group\u2019s Chief Economist Nerida Conisbee points out that every investment decision has good and bad points. \u201cIf you borrow to buy property, it\u2019s tangible, you get rental income, you\u2019ve got the potential of capital gain and it doesn\u2019t have the volatility of shares.\u201d<\/p>\n

Whittaker points out that if you borrow for shares, you can start with $1,000 and very low entry and exit costs. \u201cShares are liquid, the income can have franking credits to make it highly effective for tax purposes and you can diversify easily.\u201d<\/p>\n

Both agree that when weighing up what will suit you best, you have to factor in set-up costs, regular fees and any costs associated with an investment class, as well as loan interest rates and the capital gains tax you\u2019ll pay down the road.<\/p>\n

Include all these factors into your calculations and Whittaker believes \u201clong term, shares have greater potential capital gain than property\u201d.<\/p>\n

5. Tips for borrowing to invest in shares<\/h3>\n

Saunders reminds us that most people already have a substantial investment in property \u2013 their home. Drawing down on their mortgage to invest in diversified asset classes may be a practical solution.<\/p>\n

\u201cIt can be an effective way to build your equity so you have more money working for you sooner,\u201d he says.<\/p>\n

Saunders explains that most lenders, strongly recommend that you invest your loan in diversified funds. \u201cTo protect your investment, the approved vehicles are diversified assets like managed funds, EFTs and separately managed accounts.\u201d<\/p>\n

6. Tips for borrowing to invest in property<\/h3>\n

Conisbee says the vast majority of people buy property for capital gain rather than yield.<\/p>\n

\u201cCapital growth has been most prominent in capital cities, while the best yield tends to be in regional areas, so you have to know your goal before deciding where to invest,\u201d she says.<\/p>\n

Conisbee points out that another issue to consider is that capital growth has been highest for houses rather than units. \u201cHouses have performed better simply because there are more units than houses being built.\u201d She adds that REA\u2019s search data reveals people still want to live in a big family home on a big block.<\/p>\n

\u201cPeople are willing to trade lifestyle to get it. And that\u2019s behind the price rises in regional cities like Hobart and the Gold Coast.\u201d<\/p>\n

7. Maintain a safety net<\/h3>\n

The panel emphasised the need to maintain a safety net \u2013 or not to over-leverage. As Whittaker points out: \u201cBorrowing magnifies whatever is going to happen.\u201d<\/p>\n

It\u2019s also important to remember that, whichever asset class you choose, over time it will include dips as well as growth.<\/p>\n

Source: NAB<\/a><\/span><\/p>\n

Reproduced with permission of National Australia Bank (\u2018NAB\u2019). This article was originally published at\u00a0https:\/\/www.nab.com.au\/personal\/life-moments\/home-property\/pay-off-home-loan\/smart-borrowing<\/p>\n

National Australia Bank Limited. ABN 12 004 044 937 AFSL and Australian Credit Licence 230686. The information contained in this article is intended to be of a general nature only. Any advice contained in this article has been prepared without taking into account your objectives, financial situation or needs. Before acting on any advice on this website, NAB recommends that you consider whether it is appropriate for your circumstances.<\/p>\n

\u00a9 2022 National Australia Bank Limited (\u201cNAB\u201d). All rights reserved.<\/p>\n

Important:
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents\/information contained within the linked site(s) accessible from this page.<\/p>\n

The post The principles behind smart borrowing to invest<\/a> appeared first on MLC Contemporary<\/a>.<\/p>\n<\/div>\n

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Australians are living longer and experiencing higher house-to-wage ratios. 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