Are you sitting on a gold mine?

If you have been a homeowner for a few years, chances are the value of your property has risen whilst your mortgage has reduced.  This equity in your home is a potential gold mine because you can borrow against it to invest.  What?  Bet the house?  Agreed, the strategy is not for everyone, but in the right circumstances it can significantly increase your wealth over the long term by increasing your investments in growth assets.

Many people have taken this opportunity but before you jump into the strategy, answer the following questions:

1.    Are you a disciplined borrower who can manage their debt and resist the temptation of easy access to cash?
2.    Do you have a steady and reliable income to service the debt?
3.    Are you willing to invest in growth assets that may fluctuate in value over the short term?
4.    Do have at least a ten-year time horizon?

If you answered “yes” to all four, read on.

A gearing strategy is not for short-term speculation but can be an effective one for long-term investing in quality growth assets.  Advantages of a home equity loan include:

• A simpler application process.
• Lower interest rates than on other loans.
• Interest costs for investment purposes are tax deductible.
• Higher loan-to-value ratio than margin loans.

Of course, the key question is what sort of investment to make with your borrowed funds.  There are costs associated with borrowing so over the long term the return from the investments must be greater than these costs.

Your adviser can help you determine if a home equity loan is appropriate for you.

KK’s gut instinct

Nothing to report!

Sporting tip of the month

Lights of Heaven will win Caulfield Cup, Whobegotyou the Cox Plate and you will have to wait for my Melbourne Cup tip.