Gain extra leverage

Margin loans can help investors build and diversify their portfolio, but they're not without risks

- TOM WATSON

Investor appetite for margin loans took a considerable hit following the GFC- and it hasn't fully recovered. In fact, data from the Reserve Bank shows that the number of margin loan accounts and the total value of lending are both roughly 62% lower now than at their peak in December 2007.

That's not to say there aren't plenty of investors still utilising margin loans, though, as the latest figures show that there were 91,000 accounts and $15.8 billion in total loans in the September quarter of 2022.

For Glen Hare, financial adviser and co-founder of Fox & Hare Wealth, using a margin loan as part of an investment strategy is certainly worth investigating.

"I don't think there's any reason why you shouldn't at least consider margin lending, but there are certainly things to acknowledge and the first is obviously the risk associated with it.

"There can be upside, but there's definitely risk associated with it as well, so it really does depend on the individual's relationship with risk, their understanding of the risk they're taking and what the purpose of the margin loan is."

So, what are those potential risks, what are the benefits and what else should an investor consider before taking out a margin loan?

At its core, a margin loan is simply a loan that can be used to purchase shares, managed funds and exchange traded funds (ETFs) using existing shares or cash as security. Investors can potentially increase their investment exposure and, all things going well, their overall wealth, beyond what they would generally be able to do if they just used their own money.

Extra flexibility
Lily Elliott, head of the margin lending specialist Leveraged, says it can help investors execute a number of strategies.