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Borrowing to invest just adds to market volatility


Borrowing to invest just adds to market volatility

Before I begin, let me add a caveat.  Here I am always referring to something of quality.  By that I mean the asset about which I speak has an enduring characteristic and or its long run worth will be higher because it will earn more in the future than it does today thanks to inflation or an ability to reinvest profits at attractive rates of return.


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This article first appeared in The Australian over the Easter weekend.


Roger is the Founder and Chief Investment Officer of Montgomery Investment Management. Roger brings more than two decades of investment and financial market experience, knowledge and relationships to bear in his role as Chief Investment Officer. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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  1. Hi Roger,

    This article seems to suggest that borrowing to invest is a bad idea. One would hope that investing with say Montgomery Investments over the long term should yield better results than the less than 4% that I am paying on my mortgage currently. Given that I have a mortgage. I have 2 choices. Either I push all my money into my mortgage or I invest my/the banks money else where ie. MI. So basically I’m borrowing money to invest with you guys which would appear to be contrary to what this article is suggesting. Could you provide your thoughts on this scenario please?

      • Yes and if that’s the case would you suggest that this is not the best way to go and if so why not.

      • Ok but that does complicate things slightly. To put all the investments on a similar footing the interest on the debt needs to be deductible against all the income in proportion to the debt allocated to each asset. The after tax return for each rises slightly. You can then decide which assets are worth having any debt against. residential property probably wouldn’t stack up.

      • Obviously it makes sense to apply the debt towards investments other than residential property but as stated in the above article.

        (In Buffett’s interview he also noted “you shouldn’t borrow money against stocks.”)

        Is this a statement you agree with? And if so… does that mean that if you were to be in my situation you wouldn’t be leveraged in order to invest in stocks or in this case your fund?

      • “A farmer told me the story of another’s grandfather who had wisely purchased large tracts of coastal land in NSW for a little less than the equivalent of $60/acre. That land today trades in excess of $4000/acre. Surely the man’s heirs are now very grateful for this far sighted purchase? Sadly not.” Problem is he borrowed to buy it all and lost the lot when prices fell to $10/acre.

  2. Peter Chapple

    Hi Roger (and team),
    I am a daily reader of the blog and so am generally familiar with your opinion on property investment, in terms of their low yield. I am interested though in your analysis of the benefits (if any) of negative gearing from a tax perspective. If an individual was going to pay the tax anyway isn’t there some benefit in using it for that purpose? Also, I appreciate the theoretical flaws in relying only on capital gains with property but like the national indices time has shown that property will be worth more in the long term than today.
    As a novice investor I can’t help looking at all the people around me benefiting from property investment and try to reconcile that with what I read on the blog.

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