“I want to set myself up for a passive income but feel as though I'm a long way off having enough savings specifically for investing. I have no prior debts and I want to know if there's a way to borrow funds to begin my investment journey?"
- Question from Paul in Watermans Bay, WA
Top answer provided by:
James Rawlings
Investing is a great way to grow your wealth over the long term, and can help you achieve your financial goals. But what if you don't have the capital to get started? Borrowing money to invest can be a good way to get started, but it can also be risky.
In Australia, it is possible to borrow money to invest in stocks, property or other securities through margin loans or mortgages. Before you consider borrowing money to invest, you need to be sure that your investment strategy is sound and that it is appropriate for your financial circumstances.
There are a number of things to consider before borrowing money for investment purposes in Australia. Firstly, you need to be aware of the risks involved. Any borrowing carries its own set of risks and investing magnifies the risks you take. Borrowing to invest can amplify the potential returns you can expect, but it also amplifies the potential losses beyond what you could expect if you use your own money. As an investor, you need to carefully manage the risks involved with your investments.
Additionally, you need to look for the best borrowing rates and investment types once you've considered the risks. In Australia, mortgage rates are lower compared to margin loans rates that apply for share market investments. Keep in mind that every lender will have its own rates and terms for margin and mortgage loans, so it's best to do some shopping around to get the best loan suited for you at the lowest rate.
When investing in Australia, the ATO provides incentives to retire into shares of tax-advantaged investments. Dividends and capital gains are both subject to allowable deductions, and excess franking credits can be turned around as additional payouts for retirees. The ATO recommends a knowledgeable adviser if you require help investing tax-efficiently.
While some people can benefit from borrowing money to invest in Australia, this is not the right investment option for everyone. In order to determine if you can borrow money to begin investing in Australia, you need to evaluate your financial situation, your risk tolerance, and your investment goals.
In conclusion, before deciding on borrowing money to invest in Australia, make sure to weigh the risks and the returns involved, look for the best borrowing rates, and understand that investing is a long-term strategy to build wealth. Seek advice from experienced financial advisers and tax professionals who can help evaluate your financial and tax situation and create a tailored financial plan for you.
As always borrowing money does have risks however if you buy quality assets and have an appropriate time frame it is worth considering.
While the Adviser Ratings Website facilitates the question and answer functionality, all such communications are between users and authorised financial advisers, of which Adviser Ratings has no affiliation. Adviser Ratings is not the advice provider and does not provide financial product advice and only provides information that is general in nature.
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