Gearing or borrowing to invest, allows individuals and couples to excel their wealth creation to help grow their retirement assets.
Pro’s:
Allows individuals wanting to accelerate their wealth creation by accessing a larger amount of money to invest and subsequently provides the opportunity to generate compound returns from the investment.
Provides an alternative retirement strategy compared to superannuation for those with longer timeframes and potentially wish to access their capital before the age of 60.
Con’s:
The value of the asset may fall, and the same overall debt still needs to be paid.
Possible margin calls with margin lending products – When the loan to value reaches a level where the lender forces you to inject further funds. Failure to inject further funds could result in part of the asset being sold at a depressed level to reduce the loan.
Suitable for:
Those with a longer timeframe to invest (i.e. 7 plus years) who have the timeframe to ride-out investment volatility.
Those with high and steady incomes looking to reduce their taxable income and have the capacity to service interest costs.