Discussion in 'General Investing Discussion' started by billionare, 27th Oct, 2008.
Is this a good strategy? I heard the interest charged to me is tax deductible?
only if share prices are going up
If you are asking the question then probably no. If you are gearing into a fund you would only do this on the premise that stocks are rising or are about to rise - otherwise you WILL lose money.
Obviously the market will go up at some point, in the interim you will need to consider:
1) What stocks you will buy (or managed funds or index stocks/funds)
2) Gearing ratio
3) Inestment timeframe
4) Risk strategy - will you hold if the market keeps dropping to a 60% fall?
5) How will you cover another 5-25% drop in the market when you are geared and how long can you/are you willing to hold this position for?
In simple terms - you need to be returning at least your rate of interest to justify it.
Eg. borrow $10,000 @ 10% = $1,000 pa in interest cost
Total return 6%pa on investment = $600 pa return
Net profit = -$400 ... you are going backwards.
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