Investors show strong interest in using leverage, study shows
Australians have shown strong interest in using leverage to invest, millennial online investors are driving strong interest for gearing to invest, while margin lending investors are “in it for the long haul,” according to a new study from Investment Trends.
The 2018 Borrowing to Invest Report is an in-depth study of the attitudes and behaviours of Australian online investors who use gearing to invest in direct shares, ETFs or managed funds. It is based on a survey of 8,718 Australian-based online investors conducted between July and August 2018.
The report showed the population of retail online investors in Australia surpassed 700,000 for the first time in 2018 after remaining stagnant between 2015 and 2017. Along with a growing number of online investors, the research showed that many investors also use debt to finance their investments.
“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, an 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 number of Australian investors who utilise gearing in their portfolios has significant room for further growth, with Investment Trends modelling indicating 81,000 intend to begin using gearing in the next 12 months (but not all will do so), and a further 230,000 could be encouraged to do so.
At present, Investment Trends said the use of gearing to invest is highest in the late-accumulation stage, with 16 per cent of online investors aged 35-50 and 19 per cent aged 50-64 using gearing, compared to 5 per cent of millennial investors.
However, the report showed there is substantial interest among millennials, with 52 per cent saying they would like to or can be encouraged to begin using borrowings to invest.
With 52,000 users, Investment Trends said margin lending is the most popular credit product for those borrowing to invest in shares, ETFs and managed funds.
Investors who use margin lending see themselves using the service for many years to come, with 62 per cent saying they intend to continue using margin lending for 5 or more years, and a further 18 per cent saying they will continue until they reach a specific wealth or savings target.
“Margin lending investors predominantly see borrowings as a long-term investing tool, not for short-term gains. This is also reflected in their level of gearing, with an average margin loan LVR of 42 per cent,” Carver said.
Recommended for you
The FSCP has announced its latest verdict, suspending an adviser’s registration for failing to comply with his obligations when providing advice to three clients.
Having sold Madison to Infocus earlier this year, Clime has now set up a new financial advice licensee with eight advisers.
With licensees such as Insignia looking to AI for advice efficiencies, they are being urged to write clear AI policies as soon as possible to prevent a “Wild West” of providers being used by their practices.
Iress has revealed the number of clients per adviser that top advice firms serve, as well as how many client meetings they conduct each week.
