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Posted August 20, 2018 by MoneyLink

A Good Time to Invest with Borrowings

The Reserve Bank’s positive outlook for the Australian economy expressed in its August review should trigger us to think of the opportunities ahead and how we can benefit. The RBA expects economic growth for several years with interest rates unchanged until at least the end of 2019.

While this is bad news for cautious retirees seeking higher interest on bank deposits it is good news for most others. People with home and business loans will obviously welcome continuing low interest rates.

Consider borrowing to invest

Now may be a good time to borrow to invest. Those who have always wanted to buy a business or farm could consider whether now may be a good time to go ahead with such a project.

Now may also be an ideal time to start a geared investment plan. Money could be borrowed to invest in residential property, managed funds or shares. If buying property it will be important to identify a location with growth potential as values have risen strongly in many areas recently.

If the RBA outlook is correct this should be an ideal time to borrow to invest in managed funds. Not only are borrowing costs likely to remain low, the shares and commercial properties the funds invest in should do well with a steadily growing economy here and in most advanced countries.

Younger people with a long-term outlook and higher, reliable incomes are most suited to gearing plans. They provide a way for people to harness those incomes and ensure they accumulate investments for the future.

Investment plans can be financed with a loan against a home or property. Alternatively savings can be used to pay a deposit with the loan secured against the new investments. Unlike buying an investment property, loans for managed funds can start small and be increased later if desired.

Investments can be cashed up when required

Investments can also be sold at any time to reduce the loan if necessary. Professional advisers can help set up the plans choosing specialised funds run by proven managers.

The interest on the loan is tax deductible and can reduce the tax paid on salary. For people with no deposit available it is possible to start a plan with a regular monthly contribution and a similar loan each month to boost the investments.

Solid future returns are forecast

Retirees who are comfortable including a proportion of shares, property and growth assets in their income portfolios will also welcome the RBA’s outlook as it should mean continuing sound returns ahead.

Even those cautious retirees who have been hoping for interest rate rises may find now is an ideal time to take a new path and add a small portion of growth investments to their retirement plans to improve returns.

This is general advice and should not be treated as personal advice.
Russell Tym is an authorised representative of MoneyLink Financial Planning Pty Ltd ASFL No: 247360.

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