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Podcast: Using Debt to Invest in the Sharemarket

January 25, 2022


In this episode…

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.

 

Listen to the show…


(or download the mp3 file here)

 

Discussion points…

  • Follow-ups on insurance and the pension  (1:34)
  • The benefits of borrowing to buy shares  (06:33)
  • Downsides of using debt to buy shares  (09:47)
  • How does tax work when we use leverage  (15:23)
  • Working out your profit margin on the borrowed money  (18:08)
  • Using home equity to buy shares  (21:36)
  • Margin loans  (24:10)
  • NAB Equity Builder  (35:40)
  • Leveraged ETFs  (41:26)
  • Should you invest differently with borrowed money?  (51:18)
  • Other considerations and reminders  (55:03)
  • How debt can affect early retirement  (57:36)
  • Which option we like the best and final thoughts  (1:01:00)

Resources and stuff mentioned…

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Have something to add to this discussion?  Share your thoughts in the comments below.

10 Comments

10 Replies to “Podcast: Using Debt to Invest in the Sharemarket”

  1. 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.

    1. 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?

  2. 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

    1. 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?

      1. 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.

  3. 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.

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