Investopoly Ep 300: Is it safe to borrow to invest in shares? If so, how?
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In this episode, Stuart discusses the feasibility and strategies of borrowing to invest in shares. He compares the practice of leveraging for share investments with the more commonly accepted approach of borrowing for property investments in Australia. Stuart highlights that gearing contributes significantly to property investment returns and the same principles can be applied to share investments.
The episode explores three borrowing options: margin loans, investment mortgages, and internally geared ETFs. Stuart addresses the higher volatility associated with shares and suggests mitigating strategies like regular investing and maintaining a conservative loan-to-value ratio.
He presents a case study demonstrating how an investor could accumulate substantial wealth by consistently investing borrowed funds alongside personal savings over an extended period of 24 years. Stuart estimates the investor would have tripled their investment by the end.
The episode concludes with Stuart's recommendations - for smaller portfolios under $500,000, he suggests internally geared ETFs, while for larger investments, he advises seeking professional guidance to ensure proper diversification and risk management through a mix of ETFs and low-cost managed funds.
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