What You Need to Know about Investment Loans
Investments provide a critical source of income and financial security for so many of us. Before you can begin investing, you need to finance your plans. This is easier said than done though, and plenty of people can’t afford to do so upfront. Many who are in this situation look to use investment loans to help them build up a portfolio. Borrowing to invest is not to be taken lightly, but with careful planning and execution the payoff can be significant.
Borrowing to Invest
Borrowing to invest is commonly regarded as a high risk/high reward financial strategy. With the right planning and a healthy dose of caution, people can capitalise on the market with their investments and significantly increase their financial standing. As with any investment, your profit or liability is directly linked to the course of growth and decline of the market. You should keep in mind if borrowing that regardless of what happens to your investment, you will need to pay off your loan, including principal and interest sums.
Anyone considering an investment loan should take time to research how it will affect their cash flow and taxes. Any income earned through investment must be declared on your tax statement and you will be taxed accordingly. Keep in mind that you will be taxed on all kinds of investment income, including what you earn in interest, dividends, rent, managed fund distributions and capital gains. Investment income tax is paid at your marginal tax rate.
Managing Risk in Investment Loans
Although investment loans are higher risk than other financial tactics, there are certain steps you can take which help to reduce the level of risk involved:
Explore the market – Shop around the loan market before committing to one option. Exploring the available options gives you the possibility of finding better interest rates or a structure which is better suited to your needs.
Avoid the maximum loan amount – The more you borrow, the higher your repayments and interest rate will be.
Diversify your investments – Investing in multiple different places is key to protecting you, should one of your investments fold.
Work with a broker – As with so many financial decisions, the investment loan process can benefit greatly with the assistance of a loan broker. Research is critical when it comes to investment loans and a broker will serve you well in this regard. A broker’s expert knowledge of the market and access to exclusive loan structures can leave you in the best stead to balance a loan and your investments.
In a dynamic economy, it’s always a wise decision to have multiple sources of income. When some of these can be passive – such as an investment, it makes things that much easier. Although risk is involved, investment loans can be one of the most effective ways to improve your financial standing. If you have any questions about any of the above matters or are looking to discuss investment loans, get in touch with the team at Provide Finance.