Stress-free strategies
to accelerate your wealth.
A new guide to borrowing to invest in shares.
Act before 30 June 2011.
We understand that many investors
may still be nervous to get back
into the market let alone consider
a strategy of borrowing to invest.
That’s why we’ve introduced a range
of responsible leveraging strategies,
designed to help you increase your
returns, not your heart rate.
–
Successful investors know borrowing
to invest can work
Put simply, the more money you have to invest,
the more money you can make. And with increasing
demands on your finances, an extra boost to the
returns from your share portfolio can make all
the difference.
You should always remember that borrowing to invest
can magnify your losses as well as your gains, but with
the right information you can make the right decisions.
At Westpac, we have a range of borrowing solutions
to help you accelerate your wealth with less stress.
You don’t need to take big risks to boost your returns
Bigger returns don’t have to mean taking bigger risks.
By following some simple rules, you can take the
stress out of borrowing to invest.
1.Find the right level of borrowing for you
You don’t need to borrow huge amounts to enjoy
the benefits of borrowing to invest. Even with a
conservative borrowing level of 30%, you can still
increase your returns.
Ungeared vs Geared Portfolio
$ Net
investment
proceeds
3.Choose the right mix of investments
Investing in a good mix of quality investments helps
spread your risk to take the stress out of investing.
Start your acceleration now
The Australian share market is still well below
pre-GFC highs. The economic story is looking good
for Australia. If you think the market is good value,
now may be the right time to make your move.
Put simply, the more money
you have to invest, the more
money you can make.
Make your move before 30 June
Our borrowing strategies can also help you manage
your tax.
Depending on your individual circumstances,
you may be able to:
300,000
•free up capital from your existing portfolio without
requiring any disposal and capital gains tax liability;
250,000
200,000
•claim a tax deduction for the interest paid (subject
to the capital protected borrowing rules);
150,000
•pre-pay your interest to obtain certainty and claim
a tax deduction (subject to the capital protected
borrowing rules); and
100,000
50,000
0
2.Add the right level of protection
Protect your loan so you always have enough money
to repay your loan amount at the end of the term –
even if your investment falls in value.
1
2
3
4
5 6 7 8
Years
Ungeared Geared at 30%
9
10
•earn additional dividend income and
franking credits.
With an initial investment amount of $100,000
(comprising of initial equity of $70,000 and a margin
loan of $30,000), a 30% gearing strategy has resulted
in a net investment value of $257,787. An ungeared
portfolio would have resulted in a corresponding net
investment value of $173,329.
Assumptions: Initial client equity $70,000. Margin loan of $30,000 for a 30% gearing strategy. 30% gearing maintained throughout the life of the loan. Taxable
income at the highest marginal tax rate. Margin loan interest rate of 9.50% p.a. not capitalised to the loan and assumed to be fully tax deductible. Capital growth
of 5% p.a. Income growth of 5% p.a. Dividend reinvestment strategy. Net investment value after tax, loan and interest costs. Any change in assumptions could
significantly alter the results. All examples are provided for illustrative purposes only.
3
STRATEGY 01
“I’d like to step up my
returns but I think
borrowing to invest
is too risky for me.”
If you have a conservative risk appetite
or are new to investing, you may think that
borrowing to invest in shares is not for
you. Worries about margin calls or taking
big risks may put you off. But there is a
way to borrow to invest while still taking
a conservative approach.
Sensible borrowing with a margin loan
The great thing about a margin loan is that
you have the flexibility to choose your level
of borrowing so you can find a level that
suits you. You’ll need to factor in your risk
appetite and time horizon, but by choosing
an appropriate level of borrowing you can
start to accelerate your wealth with less risk
of receiving a margin call.
Our research shows that at a 30% borrowing
level you wouldn’t have received a margin
call over the past 74 years, even during the
global financial crisis. (Assumptions apply,
see the back of this booklet for details).
You can generally borrow up to 75% of the
value of your shares. With more money to
invest, you have the potential to receive
higher returns. You can also diversify your
portfolio, helping you spread your risk if
one of your investments underperforms.
A simple approach
You don’t need to borrow huge amounts
to enjoy the benefits of borrowing to invest.
The table above shows how, for some
investors, using a margin loan at different
levels of borrowing can work to accelerate
investment returns.
Performance of a Geared vs Ungeared ASX 200 Portfolio April 2001 to March 2011
Level of borrowing
0%
30%
50%
Your own money
$100,000
$100,000
$100,000
Margin loan amount
$0
$42,857
$100,000
Initial portfolio value
$100,000
$142,857
$200,000
Value of your portfolio after 10 years
$151,440
$216,343
$302,880
Dividends received over 10 years
$54,371
$77,673
$108,742
Amount of interest paid on your loan
$0
-$36,730
-$85,703
Tax deductions
$0
$17,079
$39,852
Franking credit
$17,010
$24,301
$34,021
Tax on dividends
-$16,182
-$23,117
-$32,364
Margin loan repayment
$0
-$42,857
-$100,000
Net position after 10 years
$189,629
$208,391
$233,407
Effective investment return (% p.a.)
6.61%
7.62%
8.85%
See Assumptions 1.
And at these levels of borrowing there still needs to be a substantial fall in the market before
a margin call is triggered.
Level of borrowing
30%
50%
Initial portfolio value
$142,857
$200,000
Fall in initial portfolio value to trigger a margin call
-62.5%
-37.5%
Portfolio value before a margin call is triggered
$53,571
$125,000
See Assumptions 2.
Make the move before June 30
This borrowing strategy can also help
you manage your tax:
• earn additional dividend income and
franking credits;
• claim a tax deduction for the interest
paid (subject to the capital protected
borrowing rules); and
• pre-pay your interest to lock in a
competitive interest rate and manage
your tax position.
Assumptions 1: Dividends are based on the annual yield of the index, calculated on an annual basis, using the average value of the index throughout the year. Interest cost of 8.57% p.a., being the average
of the historical BT Margin Loan rates over the period (April 2001 – March 2011). Interest is non-capitalised. Tax deductions assume the client is in the highest marginal tax bracket (46.5%). Franking
percentage is based upon the SPDR S&P/ASX200 Fund. Capital gains tax consequences are not considered. Brokerage and other fees and charges have been excluded. Any change in assumptions could
significantly alter the results. You should always remember that borrowing to invest can magnify your losses as well as your gains. You will need regular income to pay your loan costs. Tax deductibility
benefits may or may not apply to your interest payments – speak with your tax adviser. All examples are provided for illustrative purposes only.
Assumptions 2: Based on this portfolio, then the maximum LVR is 70% plus buffer of 10% . All examples are provided for illustrative purposes only.
Ask us today about
how a BT Margin Loan
can make borrowing
to invest work for you.
STRATEGY 02
“I want to reach
my financial
goals sooner.”
It often feels like it will take forever to reach
your financial goals - whether it’s buying
your first home, saving enough for an
overseas trip or starting your own business.
But if you already use your savings to invest
in, say, managed funds, you can speed up
the process and reach your goals sooner
by adding additional borrowed funds to the
amount you already invest. Regular gearing
is simply combining your regular savings
investment plan with additional borrowed
funds, which increases the amount you
invest on a monthly basis. It is a great
way to make sure you take a disciplined
approach to reaching your financial goals.
For example, if you want to buy your
own home in the next ten years you can
potentially reach this goal two years sooner
by including regular borrowing in your
investment strategy.
Reaching your goals sooner
We’ve assumed you need at least $200,000
to cover your deposit, legal fees and stamp
duty and that you have $20,000 in current
savings. You have the ability to save $1,000
per month.
•You could invest $20,000 directly into
shares and managed funds, adding your
$1,000 savings per month; or
•You can accelerate your savings with
a regular gearing plan. This would allow
you to immediately invest $40,000 your $20,000 savings plus $20,000 of
borrowed funds. And not only do you
start with more money invested, but
each month you can invest your $1,000
plus another $1,000 of borrowed money,
helping you grow your wealth faster.
6
The graph below shows that you can buy
your first home in just seven years from
now, by combining a margin loan with your
regular savings based on an initial gearing
level of 50% and market investment returns.
If you did not adopt a regular gearing
plan, it would take an additional two years
to accumulate a $200,000 deposit.
Ungeared vs Regular Gearing
Make the move before June 30
This borrowing strategy can also help
you manage your tax:
• earn additional dividend income and
franking credits;
• claim a tax deduction for the interest
paid; and
• pre-pay your interest to obtain a
competitive interest rate and manage
your tax position.
$ Net
investment
value
400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0
1
2
3
4
5 6 7 8 9
Years
Ungeared With regular gearing
10
You can also benefit from dollar cost
averaging – buying more when the market
is down, and buying less when the market
is up – smoothing out the highs and lows,
so you don’t need to ‘time’ the market.
Ask us today about
how a BT Margin Loan
can make borrowing
to invest work for you.
Assumptions: Initial client equity $20,000 and initial margin loan of $20,000 – i.e. gearing level of 50%. Taxable income at marginal tax
rate of 31.5%. Interest rate of 9.50% p.a. not capitalised to the loan. Dividends reinvested. Capital growth of 5% p.a. and income growth
of 5% p.a. Net investment value after tax, loan and interest costs. Dividends franked at 50%. Note that there is no guarantee that these
assumptions will prove correct, and any changes to the assumptions will result in a different outcome. All assumptions are for illustrative
purposes only.
STRATEGY 03
“I’d like to build up a share
portfolio over time but
I don’t have much money
to invest right now.”
If you want to invest regularly in the share
market, but you’re not sure which shares
to buy and you don’t want to pay high
brokerage costs, Westpac BlueChip20 is
a great stress-free solution.
Setting up a regular savings and investment
plan is one of the simplest ways to reach
your financial goals. And when you add
borrowing to this simple strategy you can
quickly build those small amounts into
something big.
With Westpac BlueChip20 you can own
a portfolio of shares in Australian blue
chip companies, which grows over time
through regular investment combined
with borrowing.
It’s easy to use
All you need to do is invest a set amount
each month and we’ll start building your
share portfolio for you. You won’t pay high
brokerage fees and you don’t need to worry
about balancing your portfolio or managing
the share trades.
You can start small (or big if you like)
You start with an initial investment of a
minimum of $2,500, and add the same
amount using a BT Margin Loan. Your
total of $5,000 is then deposited into your
Separately Managed Account (SMA) and
invested in the top 20 blue chip Australian
companies such as BHP, Woolworths
and Westfield.
Each month you add a minimum of $250
and match it with the same amount from
your margin loan, so you’re investing a total
of $500 each month.
You’ll quickly see your portfolio grow. For
example, if your initial investment is $5,000,
then you combine $500 of your savings with
$500 of borrowed funds each month, after
just 12 months you could own an investment
portfolio worth $17,000 or more (depending
on market movements of course).
Ask us today about how
Westpac BlueChip20
can make borrowing
to invest work for you.
You should always remember that borrowing to invest can
magnify your losses as well as your gains. You will need
regular income to pay your loan costs.
Make the move before June 30
This borrowing strategy can also help
you manage your tax:
• earn additional dividend income and
franking credits;
• claim a tax deduction for the interest
paid (subject to the capital protected
borrowing rules);
• pre-pay your interest to lock in a
competitive interest rate and manage
your tax position; and
• manage your portfolio more efficiently
by investing through an SMA.
9
STRATEGY 04
“I’d like to borrow
up to 100% but
I want to protect
my investments.”
As a more experienced or sophisticated
investor, you’ll already know that borrowing
to invest can accelerate your returns.
And you’ll know that to maintain long-term
growth at some point, you’ll need to get
back into the market and keep building
your portfolio – especially after a prolonged
period in cash. A protected borrowing
strategy can help you make that move
now while the market is still good value.
A reduced risk appetite post-GFC?
You don’t have to take big risks when you
borrow to invest in shares and Exchange
Traded Funds (ETFs). Borrowing with a 100%
protected loan gives you certainty. You
know that even if the market does go down,
you won’t have to repay any more than
your original loan amount at the end of the
investment term. And if you use a Westpac
Protected Equity Loan there are no margin
calls, you receive all dividends and franking
credits and there is no cap on your upside.
Share price at
19 January 2006
Make the move before June 30
This borrowing strategy can also help
you manage your tax:
Make your investment tax efficient
In the lead-up to 30 June, borrowing using
a 100% protected loan can help you reduce
your taxable income.
Ask us today about how
a Westpac Protected
Equity Loan can make
borrowing to invest
work for you.
The table below shows that by using a
Westpac Protected Equity Loan, you benefit
from unlimited market upside but you don’t
lose money if the market goes down.
BHP
Woolworths
Telstra
QBE
Total
$24.45
$16.92
$4.02
$19.71
n/a
Value when bought
$25,000
$25,000
$25,000
$25,000
$100,000
Share price at
19 January 2011
$46.05
$27.88
$2.81
$18.34
n/a
Value at maturity
$47,086
$41,194
$17,475
$23,262
$129,017
Gain/loss without a
protected loan
$22,086
$16,194
-$7,525
-$1,738
$29,017
Gain/loss with a
protected loan
$22,086
$16,194
$0
$0
$38,280
Source: ASX. The above example does not take into account fees payable during the term of the investment. You should always
remember that borrowing to invest can magnify your losses as well as your gains. You will need regular income to pay your loan
costs. It has been provided for illustrative purpose only. Past performance does not guarantee future results.
Westpac intends to issue the Westpac Protected Equity Loan PDS in due course. (Subject to internal approval).
• earn additional dividend income and
franking credits;
• claim a tax deduction for the interest
paid (subject to the capital protected
borrowing rules); and
• pre-pay your interest to obtain certainty
and claim a tax deduction (subject to the
capital protected borrowing rules).
11
STRATEGY 05
“I have an SMSF and
I want an easy way
to borrow to invest
with less risk.”
Self Funding Instalments (SFIs) are one
of the few eligible ways that SMSFs can
use to borrow to invest in shares and
Exchange Traded Funds (ETFs). So if
you need to increase the funds you’ll have
available for retirement, SFIs are a key
ingredient for your portfolio. And if you
haven’t borrowed to invest in the share
market before, this simple ‘set and forget’
strategy may suit you.
Westpac SFIs offer an easy way for you
to increase your exposure to the Australian
share market without the worry of margin
calls. Importantly, with this strategy you’ll
still get many of the benefits of share
ownership – like potential for dividends,
franking credits and capital growth –
all for less cash upfront.
Ask us today about
how Westpac SFIs
can make borrowing
to invest work for you.
SFIs make borrowing to invest simple
After the initial investment, the ‘self-funding’
nature of SFIs means your investment cash
flows are automatically managed. That is,
dividends paid on your investments are
used to pay down your loan balance and
annual interest is automatically added to
your loan balance.
The table below shows how by using Westpac SFIs you could increase your share portfolio
substantially for almost the same upfront cost.
Buying shares directly gives $99,934.97 of share exposure:
ASX code
Price
Units
Amount invested/
Share exposure
AMP
$5.09
4,911
$24,996.99
ANZ
$23.24
1,075
$24,983.00
BHP
$46.05
542
$24,959.10
WDC
$9.81
2,548
$24,995.88
Amount invested $99,934.97
Share exposure $99,934.97
Buying Westpac SFIs over the same shares will give $174,255.51 of share exposure:
ASX code
Price
Units
Amount invested
Amount invested/
Share exposure
AMPSWG
$2.84
8,803
$25,000.52
$44,807.27
ANZSWG
$13.47
1,856
$25,000.32
$43,133.44
BHPSWG
$27.16
920
$24,987.20
$42,366.00
WDCSWG
$5.58
4,480
$24,998.40
$43,948.80
Amount invested
$99,986.44
Share exposure
$174,255.51
Indicative pricing as at 20 January 2011. Source: ASX. Please note the securities identified above have been chosen without
reference to their particular economic profile or likely performance. This information should not be misconstrued as any opinion
or recommendation in relation to the securities mentioned. This has been provided for illustrative purposes only. You should always
remember that borrowing to invest can magnify your losses as well as your gains.
Make the move before June 30
This borrowing strategy can also help
you manage your tax:
• earn additional dividend income and
franking credits;
• claim a tax deduction for the interest
paid (subject to the capital protected
borrowing rules);
• pre-pay your interest to obtain certainty
and claim a tax deduction (subject to the
capital protected borrowing rules); and
• manage contributions tax.
13
Westpac Banking Corporation ABN 33 007 457 141, AFSL 233714
(‘Westpac’) is the issuer of Westpac Self-Funding Instalments. Westpac
BlueChip20 is issued by BlackRock Investment Management (Australia)
Limited ABN 13 006 165 975, AFSL 230523. Westpac BlueChip20 is not a
deposit with or other liability of Westpac or any other company in the Westpac
Group of companies. It is subject to investment risk, including possible
delays in repayment and loss of income and principal invested. Neither
Westpac nor any of its respective directors, officers, employees, associates
or its subsidiaries guarantee or give any assurance in regard to the capital
value, income return or performance of any investment offered in Westpac
BlueChip20. BT Securities Limited ABN 84 000 720 114, AFSL 233722 and
Westpac Banking Corporation are together the issuers of the BT Margin
Lending Margin Loan. Product Disclosure Statements (PDS) are available for
each of these products and can be obtained by visiting www.westpac.com.au.
You should consider the PDS before making a decision in relation to any of the
products referred to in this document.
This information has been prepared without taking into account your
objectives, financial situation or needs. Because of this, you should, before
acting on this information, consider its appropriateness, having regard to your
objectives, financial situation and needs.
The application of taxation laws depends upon an investor’s individual
circumstances. You should therefore seek professional advice on the taxation
implication of investing through the products referred to in this advertisement
and should not rely on this information which should be used as a guide only.
^Assumptions
Returns shown are illustrative, based on 5.5% p.a. asset price growth
and 4.3% p.a. dividend yield (70% franked with a 30% Corporate Tax rate),
i.e. total return of 10.0% p.a. compound before franking credits. The assumed
8.25% interest rate equates to average BT Margin Lending (under 12 months,
prepaid) fixed interest rates current as at 30 September 2010.
Shares are assumed to be sold at the end of the period; with income tax
payable during term and capital gains tax on realisation, at 2010-11 tax rates;
individuals obtain a 50% discount on capital gains tax liabilities. All cash flows
including interest, tax and tax refunds are paid/received in the same year.
The investor is assumed to maintain a 30% LVR as share prices rise; the dollar
value of the loan however is not reduced as share prices fall.
They do not represent returns which might have been obtained over any
specific period. The ASX All Ordinaries Index commenced in January 1980,
replacing the respective Sydney and Melbourne Indices. All Ordinaries Index
and All Ordinaries Accumulation Index data for share price performance
prior to this date is sourced by IRESS from ASX, and neither Westpac
Banking Corporation (Westpac) (or any of it’s related entities) nor IRESS are
responsible for its accuracy. 1936 is the earliest date for which IRESS data
is available. All Ordinaries Accumulation Index data from 31 March 1982
(earliest date available) to September 2010 shows compound annual returns
of 10.3% p.a.
Additional returns from gearing are calculated net of taxes and interest but
with no allowance for transaction costs or management fees. The maximum
leverage for an All Ordinaries portfolio is assumed to be 70% LVR, with a
margin call occurring when the Index falls far enough for the margin loan to
reach 80% LVR.
The All Ordinaries Index is used to illustrate the effects of gearing, using a
margin loan. Actual returns from a portfolio of securities may differ from those
of the Index. The actual risk of margin call for a particular portfolio may also
differ from that of the All Ordinaries Index. The maximum permitted LVR,
the buffer, and the trigger point for margin calls on any portfolio will depend
on the portfolio composition and the margin lender, and may vary from time
to time.
The actual benefits and risks of leverage will depend on the portfolio’s
construction including any adjustments to the portfolio, whether discretionary
or due to corporate actions; the maximum permitted LVR and the buffer
allowed for a particular portfolio, and the amount of leverage used; the
investment date and the holding period.
No representations are made as to future lending policies or interest rates,
nor to future returns available from any investment.
Gearing of any sort has the potential to magnify both gains and losses, and
you may receive back less than your initial investment.
Any changes to the above assumptions may significantly impact your
outcomes.
Neither the provider, nor any of its related entities, employees or directors
accepts any responsibility for any losses arising from the use of or reliance
upon any outcomes or conclusions reached by you in using this information.
This information is current as at 27 April 2011 and remains subject to change
without notice.
14
9
Have the
conversation.
Westpac has a variety of solutions that may suit
first time investors through to wholesale investors.
To find out more about how borrowing to invest
can work for you, call us before 30 June 2011.
Call 1800 990 107
© 2011 Westpac Banking Corporation ABN 33 007 457 141 AFSL 233714 ACL 233714
WO0099 (06/11)