24. Commence an Investment Portfolio with a Margin Lending Facility We recommend that you borrow to invest, using a margin lending facility. The recommended investment portfolio will be used as security for the loan. We recommend you borrow $XXX with the balance of $YYY to be funded from your XXX account / existing investments. [Fixed Rate] We recommend you fix the interest rate at XX% as it is lower than the variable rate and gives you certainty of your payment. Based on the recommended loan value, the monthly repayments will be $XXX. [Variable Rate] We recommend you take the variable rate of interest at XX%. Based on the recommended loan value, the current monthly repayments would be $XXX. We recommend that you pay the loan interest directly from your cash flow and reinvest dividends and/or distributions into your portfolio / fund OR have dividends and / or distributions paid to you to assist in funding interest payments. Benefits:
Using debt to increase your investment portfolio gives you access to potentially more capital growth and income. Loan interest for investing is tax deductible to you as the borrower. You can bring forward this tax deduction by pre-paying the annual interest each financial year. Having a larger investment portfolio with the use of debt allows you to increase the diversity of investments which in turn reduces your portfolio risk by spreading the risk across different asset classes.
Points to Consider:
Just as having an increased portfolio size can magnify your gains, they can also magnify your losses when the markets go down. Volatility in your portfolio will be higher. It is important that you are comfortable with this type of strategy. A minimum of 7 years is recommended for this type of strategy. Interest rates on margin lending facilities are higher than other loans such as your mortgage. The current variable rate is XXX% and the fixed rate for XX years is XXX%. We have looked at your cash flow to make sure that if interest rates are to increase by 3%, you could still afford to meet the repayments. Please refer to our financial projections in the Annexure for further details. Interest rates are subject to change. [Variable rate] As the recommended rate is variable, the rate can change at any time. [Fixed rate] At the end of the fixed period, the interest rate may have changed significantly, impacting future cash flow. You cannot borrow 100% and each investment will have a different level of finance available (known as the loanto-value ratio or LVR). Margin loans are subject to margin calls. This means that if your investments fall below the required LVR, you are required to make a cash payment, sell down investments or provide additional security such as investments, to reduce the LVR back within the acceptable limits (to pay down the loan). Margin calls need to be met instantly so having cash or other assets available to meet these payments is recommended. Otherwise, the lender may sell down your portfolio to meet the margin call. Based on our recommendations here, we expect the overall LVR of your portfolio to start at XXX%. Borrowing to invest requires strong cash flow to support the strategy. Costs can be significant if the strategy is unwound prematurely. Please contact our office for immediate review if your cash flow changes.
25. Consolidate your Debt We recommend that you consolidate your debt. We recommend that you combine your credit card of $XXX / personal loan of $XXX / car loan of $XXX / overdraft of $XXX into a single loan. We estimate that your interest expense will reduce from $XXX to $YYY in the first year of consolidation. This will free up your cash flow for your goal to XXX / assist in meeting living expenses / building your cash reserves / other. Benefits:
We estimate that over the course of your debt repayment, you will save $XXX in interest costs. Reduce administration of your loan accounts. Reduce fees by reducing the number of loan accounts you have. We estimate this reduction to be $XXX in the first year. Reduce your interest expense by approximately $XXX in the first year. Reduce the financial stress of having multiple debts to service. Free up your cash flow for other needs / goals.
Points to Consider:
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