I am in my mid 30s and I have $50K that is currently in a line of credit account, but I would like to withdraw and invest it. Where is the best place to invest this money and what would be the best time to do this given the stock market is currently performing strongly?
Lana in Nerang, Qld
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Borrowing to invest of course comes with risks. When considering this option, you will first need to weigh up the interest rate and fees that you will pay on the line of credit vs the level of expected returns that you are hoping to get on the investment. Let’s assume that you are wanting to positive gear this investment, then you will be looking for the return to be more than what you are paying for on the line of credit.
The second thing to consider is the level of risk you are willing to take, because it is fine for an adviser to say “let’s put all your money into Australian Shares because I can get you an average return of around 8-9% over 10 years”, but then you might only want to invest the money for a couple of years before you draw it out. The problem with this strategy would then be what if, in a couple of years the market goes through what we are going through now and you want to take your money out during a time that you have made a loss, the risk would then be too high.
We need to determine your objectives. The biggest question will be, what do you want your money to do and are you comfortable with negative returns? It sounds like you are interested in investing in the stock market and if you are comfortable with loss, then considering your age, now is a good time to invest because over the long term (given the right mix of direct shares, ETF’s and managed funds) there is a decent return to be made especially considering the low cost of borrowing at the moment.
Now if you are not wanting high risk, you could look at other options like peer to peer lending, bonds or even commodities like gold. These options are less risk, but they will also give a lower return. The problem with low risk is trying to make enough from the investment to cover the cost of your loan, so the other option is diversification which essentially means don’t have all your eggs in one basket. Diversification will reduce your overall risk and provide reduced exposure to a single financial event.
Of course, don’t forget you also have your Superannuation that you can invest your money into and reduce tax payable, which will then give you an effective return as soon as you put the money in. This is quite often overlooked due to the cost of “locking the funds away” for so long, but definitely a strategy that should always be considered.
Lana, the best advice I can give you is to go and see an independent financial adviser that will tailor advice on the right investment for you based on your preferred risk and needs. It is always a good time to think about your finances and it really sounds like you would benefit from someone steering you in the right direction.
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