This week on the show we have an in-depth discussion about borrowing to buy shares.
We look at the different borrowing options, the pros and cons of using leverage in the sharemarket, the things you need to consider before diving in, and which option we find the most attractive.
(or download the mp3 file here)
Check out our other episodes on the FIRE and Chill podcast page.
Thanks for tuning in! If you enjoyed the show, please share it to help spread the word.
Have something to add to this discussion? Share your thoughts in the comments below.
My thoughts on a behavioural trap I see in the FI community, how to recognise it and how to fix it. Far more common than you might think, and it can prevent you from enjoying the wonderful wealth you’re building.
Lizzie changed her career, moved location, sold her home and switched investment strategy. Now she’s looking to semi-retire in her 30s.
Get my latest content and thoughts straight to your inbox.
A fresh dose of financial motivation to power your journey.
This was my exact request from a couple of weeks ago. Thanks Dave
No worries at all, hope you enjoyed it!
This was a good one!
Couple of things with the NAB Equity builder that are useful to know – you can do a 15 year loan if LVR is under 65%, and you can do interest only if LVR is under 30%.
I prefer interest only because I don’t have any ability to increase my loan limit f I don’t work in a job.
Leveraged ETFs – there are similar products on popular crypto exchanges that can demonstrate the extreme results – these were very interesting to study over the last year! Once something is above a certain amount of volatility they tend to trend towards zero over the long term because of that decay effect you mentioned. In crypto leveraged tokens, something goes to the moon and then gets auto-levered up at the top = very bad result 🙂 Good money in short term, trends towards zero in long term… index funds are far less volatile but still something to be wary of if we have a long term choppy market like January has been.
Regarding margin loans – I’ve been thinking of taking a DCA strategy to increase growth with less risk. Something like borrowing a very small percentage each month so the purchases can be spread over 3 years or so to avoid large purchases prior to crashes, still studying my options on this.
Ahh that’s very good to know thanks for that Dan 🙂 I didn’t notice those loan options from NAB’s marketing material, very cool! If you’re on interest-only at a low LVR, does NAB still suggest you will not be margin-called in the event of a crash?
Yes but at 40 percent they then on repayments again.
Hi,
I enjoyed the podcast as a topic close to my heart / wallet 🙂
I use the BetaShares GEAR ETF for this topic. I dollar cost average every month into standard VAS/VGS funds, but then switch to this one, but only in times of negative sentiment like the Covid dip. It’s all to hold for the long term, so I like how this can give me ‘more bang for a buck’ when the prices are low.
Obviously you just have to try not to look at your $$ balance dropping like a stone in periods like the last 3 weeks and ride it out 🙂
cheers
Jeremy
That’s a really interesting way to approach it Jezza, thanks for sharing. I quite like that method. So right you now would be buying GEAR instead of your normal funds?
No, the current dip hasn’t got bad enough for me to choose this one yet. It makes up a decent size (25%) of what I own, so I was content in January to buy normal funds, as I’d like to gradually reduce that % over time (without selling).
I think it would take a 25% market decline to make me buy more. I don’t really want to be ‘Geared’ unless the odds are stacked in my favour long term.
Additionally on the subject of insurances with advisers if you go to a legally independent adviser they rebate the commission to the client which makes the policy 28% cheaper again. Consult the adviser’s FSG.
Source: I am a legally independent financial adviser.
Thanks for that extra info. I had another advisor email in and say the same thing, that’s good to hear.
Hi Dave, long time lurker, first time commenter. Thanks for a great pod as usual. If you search the ASX website for keywords gear or leverage, there are some interesting results. Under the keyword leverage, one of the “Document” results is a presentation called “ASX Investor Day May 2021 – Leverage Fireside Chat”. Slide 9 has a nice table of other ways in which leverage can be obtained.
Kind regards