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Margin Lending
Margin Lending
Most people are familiar with the concept of borrowing money to invest in property and the same concept can apply to shares or managed funds. The basis of margin lending means that you can invest now and take advantages of opportunities to enhance your portfolio - rather than wait until you have the cash to invest. A margin loan is suitable for investors who want to:
- diversify their asset base in a potentially tax effective manner
- increase investment assets outside of superannuation
- effectively manage the cost of borrowing
- gain access to potential tax benefits
Risks of Margin Lending
Like any investment, a margin loan involves some risk. While borrowing to invest more money in shares and managed funds increases your potential returns, it can also increase potential losses. However, you can manage your margin loan to maximise the benefits and minimise the risks. The most common risks associated with margin lending are:
- Margin calls as a result of market volatility and/or high gearing levels
- Increase in borrowing costs, i.e. interest rate increases
- Changes to tax laws which may impact the strength of your tax deductions
By packaging protection, gearing and equity exposure into a single financial product, investors may be able to access risk return profiles that would otherwise be difficult for individual investors to access.
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