2005 Property & Investment Expo

Macquarie is pleased to be participating in the 2005 Property & Investment Expo, an essential event for New Zealanders seeking to create wealth for their future.

Macquarie New Zealand - Stand #112
Property & Investment Expo 2005
Friday 20 May – Sunday 22 May, 2005
Ellerslie Convention Centre
Greenlane, Auckland

We'll also be presenting free information seminars at the Expo: “Creating wealth using other people's money”:

Creating wealth using other people's money

Investors have a history of gearing into property – for example, by borrowing funds to purchase an investment property. However many are becoming more aware of the benefits of borrowing to invest (otherwise known as gearing) into other assets, such as shares. Gearing can be a useful means of providing diversification, particularly for people who have the bulk of their wealth tied up in property..

Used prudently, gearing can help you achieve your financial goals faster than you could otherwise hope to using your own capital.

Gearing works on the principle that if you can earn a better return on borrowed money than it costs you by way of interest, and you can manage the risk involved, then it becomes an attractive proposition.

There are different approaches to gearing and a variety of products available. One of the common methods of gearing into shares is through a Margin Loan. This article examines how a Margin Loan works and how it can be a powerful tool in wealth generation.

A Margin Loan allows you to invest more, potentially increasing the size of your returns.

A Margin Loan is a flexible line of credit to invest in shares. Typically, this means borrowing against your existing assets. In the same way that property investors put down a deposit and borrow the rest, a Margin Loan allows you to buy a significant share portfolio with as little as a 25% deposit. This deposit can be in the form of cash or shares or a combination of these.

Most Margin Loans have a list of approved securities, that is, you use the funds provided to purchase shares on the lender's approved securities list. This can include domestic and international shares. Each approved security has its own Loan to Value Ratio (LVR), representing the maximum amount that the lender is prepared to advance against that security. This is usually between 40% and 75% of the market price of the security.

What's more, a Margin Loan can be a potentially tax efficient investment strategy. This is because interest on the loan is generally tax deductible.

How a Margin Loan works

The simple example below illustrates how, by increasing the amount you invest, a Margin Loan can potentially magnify the returns from your investments. As a Margin Loan can also magnify any losses, many people use the additional money they borrow to diversify into other asset classes, thus reducing their total portfolio risk.

The example below shows the performance of Sky City shares with and without gearing over the 6 year period to March 2005.

Note: This refers only to capital growth and grossed up dividends including imputation credits, assuming annual pre-tax capitalised borrowing costs of 9.85%. Brokerage, stamp duty, and tax considerations on interest are not included.

As illustrated above, Margin Loans have many benefits but there are also risks involved. They are not suited to everyone and it is important to seek independent financial advice if you are considering such a strategy. You should speak to your financial adviser to ensure you understand the potential risks and taxation aspects of margin loans.

The information contained in this article has been prepared by Macquarie Lending NZ Limited (Macquarie) and does not take account any of your objectives, financial situation or needs. Before acting on this general advice, you should consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision.

Macquarie Lending NZ Limited is not an authorised deposit-taking institution for the purposes of the Banking Act (Cth) 1959, and Macquarie Lending NZ Limited's obligations do not represent deposits or other liabilities of Macquarie Bank Limited ABN 46 008 583 542. Macquarie Bank Limited does not guarantee or otherwise provide assurance in respect of the obligations of Macquarie Lending NZ Limited.

Macquarie Lending NZ Limited is a company incorporated in New Zealand and is not authorised to conduct banking business in any jurisdiction. Neither Macquarie Lending NZ Limited, nor any member of the Macquarie Bank Group are registered as a Registered Bank by the Reserve Bank of New Zealand under the Reserve Bank of New Zealand Act 1989.


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