Borrowing to Invest

Hey everybody... new member here

I'm looking at borrowing $200k to invest. After a work coleague went to a Peter Spann seminar last week, he's told me about the GIEF and Fusion funds they have with Macquarie where you can borrow 100% of the investment. Im considering investing $100k into the GIEF and $100k in to the Fusion with ability to offset the interest from the Fusion with the income from the GIEF.

Does anybody have any experience with this set up? It's pitfalls and risks? I'm new to the Share Market and have read through the prospectus on the Macquarie site however a lot of it is a bit difficult to fully understand.

Any advice or suggestions?

 

I invest by a simple maxim. It isn't mine but is attributed to Warren Buffett who is somewhat more successful than me to date.

"Never invest in something you don't understand."

So you have two choices if you believe WB knows a bit. Work on understanding it or find something simpler.

I was also at that event. I understood the Fusion fund to be an umbrella covering a choice of several managed funds most of which seemed quite attractive with a good track record.

I also understood the 100% loan that was offered.

Not so keen on the GEIF. I am already in the Navra fund which pays quarterly and has a similar cashflow target which is supposed to work in market conditions other than just straight up.

If I was selecting the 100% loan and the Fusion Fund I think I would personally use my Navra fund rather than the GEIF. No slur on the GEIF rather a reflection on my inability to make sense of it.

I would also go into it via a discount broker like Investsmart Managed funds and superannuation with 100% rebate of entry fees and research on funds and shares - InvestSMART or there are others. Investsmart is my favourite because of the trailing fee rebate.

None of the above is advice. Just my incoherent thoughts on your subject.

 

Thanks Simon. I'm very 'green' when it comes to the share market and all the different options available. I want to learn as much as possible before jumping in, however saying that.. i'm hearing and seeing guys at work making a killing in the share market, and i'm keen to get involved sooner rather than later.

 

Please don't be offended by what I am about to say - I am only trying to help.

But when we start hearing the average person who knows little about the market getting excited by the potential profitsit is an indication that it may be time to reconsider property. It was the same with the property boom. As the TV shows started, the average person started buying IPs, and everyone was talking property it was time to be positioning oneself in the sharemarket.

This is not a hard and fast rule but something many of us believe is true. The average person waits until they feel comfortable that others are doing Ok and then they get in. They are usually a step behindd.

As well as growth think about yield. Growth is a plus but over time yield is what makes you rich. At least I think so

By all means invest but don't go overboard. You have probably missed the biggest gains although I believe there is still life in this current boom.

Remember that the sharemarket should be a long term investment to someone at your experience level. Please don't invest money you need back in under 5-6 years. Don't overborrow to establish that portfolio. Keep it well within your means.

Also consider some high quality growth managed funds. Some of them have done a wonderful job these last few years. You will have an experienced fund manager on your side along with his whole team of researchers. In fact many of us here invest through fund managers as well as directly into the market - I know I do.

and read books. Then read some more

All the best mate - remember to think long term!

 

Appreciate that advice Simon. I do get the feeling the boat may have already sailed but I also know that I'm not going to become 'wealthy' by putting my money into a bank account and saving that way. I've got a bit of diversity in my investments so far (super and an investment property) and i've been keen over the past 6 months to get into the share market. Just this past week i've decided to do a bit more research into it. Am definately looking at a 6-10 year plan.

 

Simon's advice is right on.

My question to you is this: why lock yourself into a complex, expensive product just because it can offer 100% gearing when there are plenty of simple and better peforming alternatives where you can borrow to leverage your returns? One universal truth of investment products is that the more structured it is, the more it costs you. Simple is good.

Please don't think I'm being patronising when I say this but:

1) If your work colleagues are such gurus...why aren't they trading for a living from their laptop on a beach in bermuda? Talk's cheap. In a rising market it raises all boats. When the tide goes out is when you'll see who's not wearing any shorts!

2) What counts is not one hit wonders where you punt a few grand...rather you want to invest progressively in growth assets with good fundamentals and gear appropriately to hold more such assets.

3) As you're relatively new to the sharemarket avenues such as ordinary managed funds (not these high fees, complex products from the donut), listed investment companies, index funds and exchange traded funds are all good ways to dip your toe in the water whilst getting some professional management and adequate diversification.

4) I deliberately chose "prgressively" in 2 above. The market may have more legs in it yet (that's certainly my view) but you definitely don't want to just inject a huge sum in one lump into the market at this stage in the cycle (again in my view).

5) Read as much as you can, go to seminars if that's your thing (but leave your wallet and credit cards at home), keep asking questions on this forum and get some financial advice from one or more qualified financial advisers...Really, it's hard sometimes not to be swayed by family, friends and people at work you know and respect...but honestly most of them don't now very much about investing and are just repeating trite investment myths and misconceptions they learned from their own family and friends who were probably just as long on opinion and short on experience and knowledge.

Welcome on board and good luck with your investing

Cheers
N.

 

Thanks Nigel. Appreciate your advice. I'm currently reading through the 'Living on Equity' documents in the Articles section. Booking in to see a Financial Advisor is on the cards, however i'm scepticle from my last experience, as all he wanted to do was for me to invest my money with his company (albeit, it was the Commonwealth Bank). I need to get some unbiased advice.

I'm going to keep reading reading reading though.