Invest
Gearing, borrowing gains traction with pre-retirees
Aussie investors are increasingly using gearing to finance their investments, a new study has found.
Gearing, borrowing gains traction with pre-retirees
Aussie investors are increasingly using gearing to finance their investments, a new study has found.
The 2018 Borrowing to Invest Report, released today by Investment Trends, has found that many Australian investors are using debt to invest in direct shares, ETFs and/or managed funds.
The report, which analysed 8,718 Australia-based online investor’s attitudes and behaviors, discovered that gearing has become a popular means of acquiring capital for investment across most investor age groups.
“Nationwide, an estimated 86,000 online investors are gearing their investment portfolio through a variety of methods, most commonly with margin lending products, line of credit secured against their home equity and home loan redraw facilities,” said John Carver, analyst at Investment Trends.
“These borrowers firmly believe in gearing’s effectiveness as a wealth creation strategy and on a net-basis agree others their age should also use leverage to achieve their goals.”
The report found that most investors who are utilising gearing are in the ‘late-accumulation stage’ of between 50 and 64 (19 per cent). This is followed by the 35-50-year-old age bracket, in which 16 per cent of online investors are using borrowings.
Millennials are the smallest group of investors using gearing, at just 5 per cent, however the report found there is significant interest from the group to begin to use debt in financing their investments. Fifty-one per cent of Millennials cited interest in using gearing this way in the future, coinciding with the report’s modelling that indicates 81,000 investors will begin utilising borrowing in the next 12 months.
“Millennial borrowers recognise many benefits of leverage-funded investing, particularly its ability to facilitate greater investment given their cash flow and ability to achieve increased diversification in their portfolios,” said Mr Carver. “These benefits are cited more often than older borrowers, who are more likely to cite negative gearing as a key advantage.
“In addition, Millennials tend to consider a wider range of lenders before selecting a margin loan provider (3.8 on average vs 2.2 for the industry), meaning that lenders must establish a wider range of hooks to attract Millennials, who tend to be more demanding.
“In particular, lenders must recognise the unique set of needs and wants of younger investors, such as their greater desire for ETFs. Those who best understand these preferences will stand out.”
Margin lending was found to be the most popular credit product for those using gearing to finance their investments, with 52,000 utilising such loans.
The popularity of this style of lending is predicted to endure for years to come, as 62 per cent of investors surveyed admitted they intended to continue using margin lending for five years or more. A further 18 per cent also said they wanted to continue such lending until they reach their wealth or savings goals.
“Margin lending investors predominantly see borrowings as a long-term investing tool, not for short-term gains,” said Mr Carver. “This is also reflected in their level of gearing, with an average margin loan LVR of 42 per cent.”
Investors indicated they saw utilising margin lending as offering good investment opportunities, with 40 per cent saying they intended to increase their margin loan borrowings to continuing investing into the future.
Stock market
2 big questions investors should ask as Australia reopens
Investors need to stop thinking about how to profit from the mineral sector’s struggles, and start looking at when the best time to ride the recovery will be. ...Read more
Stock market
Trading app popularity skyrockets as retail sector booms
In 2021, trading has never been easier for retail investors, meaning the number of users on trading applications has exploded to an all-time high. ...Read more
Stock market
ETF rush predicted to intensify
The Australian ETF sector advanced AU$6.3 billion in August to hit a new milestone, as its popularity among financial advisers soared. ...Read more
Stock market
The 6 unique Australian market affects that all active managers can exploit
The uniqueness of the Australian equities market is providing fund managers with an opportunity to essentially beat the market, new research has revealed. ...Read more
Stock market
‘Don’t believe the hype’: ASIC warns of risks for new market participants
ASIC has expressed concern that inexperienced or uninformed investors are putting their capital at unnecessary risk when tempted into the market by questionable marketing strategies from market promot...Read more
Stock market
How do you choose the best ETFs?
In recent years, exchange-traded funds have become an increasingly popular option among Aussie investors. ...Read more
Stock market
Lockdowns instigate a rise in new investors
Despite COVID-19 leaving individuals and businesses to face an uncertain future, retail investors’ appetites for shares have increased throughout the pandemic, a new report has found. ...Read more
Stock market
‘Code red for humanity’ a wake-up call for private and public investment
Retail investors that have been advocating for sustainable and ESG investing are hoping a new report released by the United Nations will serve as a wake-up call to the financial industry and governmen...Read more
How the post-lockdown period will influence property, what the soaring NFT market means, and defining financial wellness
Listen now
APRA’s mortgage crackdown, the power of DeFi and last-minute tax tips
Listen now
What to expect as the end of lockdown looms? Will the Stage 2 tax cuts boost your tax return? Where should investors be looking as the economy reopens?
Listen now
Could property prices inflate by another 20%? What’s happening in recent dividend announcements? Did your fund fail the YFYS test?
Listen now
Stock market
2 big questions investors should ask as Australia reopens
Investors need to stop thinking about how to profit from the mineral sector’s struggles, and start looking at when the best time to ride the recovery will be. ...Read more
Stock market
Trading app popularity skyrockets as retail sector booms
In 2021, trading has never been easier for retail investors, meaning the number of users on trading applications has exploded to an all-time high. ...Read more
Stock market
ETF rush predicted to intensify
The Australian ETF sector advanced AU$6.3 billion in August to hit a new milestone, as its popularity among financial advisers soared. ...Read more
Stock market
The 6 unique Australian market affects that all active managers can exploit
The uniqueness of the Australian equities market is providing fund managers with an opportunity to essentially beat the market, new research has revealed. ...Read more
Stock market
‘Don’t believe the hype’: ASIC warns of risks for new market participants
ASIC has expressed concern that inexperienced or uninformed investors are putting their capital at unnecessary risk when tempted into the market by questionable marketing strategies from market promot...Read more
Stock market
How do you choose the best ETFs?
In recent years, exchange-traded funds have become an increasingly popular option among Aussie investors. ...Read more
Stock market
Lockdowns instigate a rise in new investors
Despite COVID-19 leaving individuals and businesses to face an uncertain future, retail investors’ appetites for shares have increased throughout the pandemic, a new report has found. ...Read more
Stock market
‘Code red for humanity’ a wake-up call for private and public investment
Retail investors that have been advocating for sustainable and ESG investing are hoping a new report released by the United Nations will serve as a wake-up call to the financial industry and governmen...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
