Investments

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Borrowing money to invest, otherwise called gearing, is a strategy that can help you accelerate the value of your portfolio over time and increase your investment income.

For years many Australians have borrowed money to purchase investment properties. Now, with more Australians than ever before investing in shares and investment funds*, many also want to borrow to invest in these assets.

The Select Margin Loan from Aviva makes gearing simple and easy. Not only will you benefit from a competitive interest rate, but also hassle-free loan administration and straight forward investment reporting.

* 2008 Australian Share Ownership Study, Australian Stock Exchange

What is a margin loan?
A margin loan is simply borrowing money to invest in investment funds or shares. It lets you access investment opportunities now that you couldn’t otherwise without own capital – so you end up with a larger investment portfolio working for you sooner, helping you to achieve greater asset diversification and possibly accelerate the value of your portfolio over time, whilst also benefiting from potential tax deductions.

You access additional capital from a margin loan by borrowing against your existing approved assets – shares, managed funds or cash. The more you borrow and invest, the greater the opportunity for you to multiply the value of your capital. With many margin lenders you can borrow up to 75% of your total investment.

Alternatively, you can start with a small amount and add to it each month from your own savings in addition to contributing a borrowed amount each month. This is called regular gearing.

Benefits of a margin loan
These include:

• having more money working for you to increase your potential investment growth
• your earnings can be multiplied in favourable market conditions
• potential for tax savings, as loan interest paid is generally deductible against income
• achieving greater diversification through increasing your portfolio size and spreading your investments more widely, helping you to reduce investment risk

Did you know?
Aviva’s Select Margin Loan is one of the few margin loans integrated with a portfolio administration service.

This means:

• you receive consolidated reports
• your money is invested quickly
• simple switching process – helps you take advantage of investment opportunities without delay
• fast access to your money, as withdrawals are instantly confirmed*

* subject to terms and conditions and lender’s approval

The risks of gearing
With any investment strategy, there are potential risks. You should understand what these risks are and how you can minimise these. There are additional risks associated with geared investments, primarily because you are using borrowed money to increase investment returns.

Some of the common risks are:

• a fall in the sharemarket could lead to your investment losses being magnified
• a change of your financial circumstances, for example illness or injury, could make it difficult for you to meet your loan repayment commitments
• a rise in interest rates could make it difficult for you to pay your loan or make interest payments there may be some termination penalties or fees attached to the loan

To help you minimise any investment risks associated with a gearing strategy, it is important you seek professional financial advice.

Credit provider update
 
As at 1 December 2008, Leveraged Equities Limited ('the Lender') became a wholly owned subsidiary of Bendigo and Adelaide Bank Limited ABN 11 068 049 178 as a result of a merger between Adelaide Bank and Bendigo Bank.

For more information call, 1300 4 AVIVA (1300 4 28482) or speak to your financial adviser.