How does Fundlater compare to a margin loan?
You know investment markets move up and down. Our own Alan Kohler tells you about this every night on the news. But, unfortunately, it’s par for the course when it comes to investing. So, if we know small and large movements are commonplace, why would we let you borrow to invest only to punish you when markets fall?
Understanding Margin Loans
A margin loan, the traditional vehicle for borrowing to invest, has the potential to punish you during market falls through margin calls. Your margin loan account will have a predetermined Loan to Value Ratio (LVR) set by the lender. This ratio is typically 70% but will vary depending on the assets you invest in.
If the value of your investments falls and the LVR exceeds the lender’s limit, you will receive a margin call, where you will need to add more money to your account to reduce the LVR. The lender usually sells your investments to recoup the loan if you cannot add more funds to cover this margin call.
In practice, what does this look like?
- You become a forced seller when your portfolio is at its lowest.
- It can happen even if you’re able to make your standard repayments.
- A margin call ignores if you are happy to ride out the volatility, even though you know that it is part of investing.
- You crystallise (realise) your losses and amplify them as you still need to pay back the loan.
It’s counterintuitive to everything we learn about investing. It’s the opposite to “buy low, sell high”.
And this is the significant difference between using a margin loan to borrow to invest and using Fundlater.
What is Fundlater?
Fundlater is for those who understand that markets move up and down but want to invest through those short-term movements.
- They have a focus on compounding and growing wealth over time.
- Fundlater means you will never have a margin call.
- With Fundlater, there is no focus on an LVR.
What matters is you are making your monthly loan repayments. The movement in value is irrelevant. This means you can focus on the long term rather than the short term.
Fundlater is a positive alternative to a margin loan. Investments handpicked by our experts diversified for a balance between risk and return. In addition, a long-term focus helps investors see through the short-term noise.
Read more about Fundlater here.