1 00:00:01,880 --> 00:00:05,000 Speaker 1: Welcome back to start here the very special mini series 2 00:00:05,040 --> 00:00:08,000 Speaker 1: within Sugar Mauma's Fireplay, where I answer your real life 3 00:00:08,080 --> 00:00:14,160 Speaker 1: questions with practical, empowering steps to help you get started. Now, 4 00:00:14,160 --> 00:00:16,959 Speaker 1: a quick reminder, everything that I talk about in today's 5 00:00:17,000 --> 00:00:19,880 Speaker 1: episode and all of my other episodes is always general 6 00:00:19,880 --> 00:00:23,680 Speaker 1: in nature and for educational purposes only, so please always 7 00:00:24,160 --> 00:00:26,840 Speaker 1: bear that in mind, and please refer to my financial 8 00:00:26,840 --> 00:00:32,159 Speaker 1: planning license details in the podcast notes. So today's question 9 00:00:32,320 --> 00:00:36,479 Speaker 1: comes from Kat, who wrote, Hikenna, you inspired me to 10 00:00:36,479 --> 00:00:40,319 Speaker 1: start investing through your one thousand dollar project portfolio, and 11 00:00:40,600 --> 00:00:43,840 Speaker 1: three years later, my share portfolio is now worth eighty 12 00:00:44,040 --> 00:00:47,720 Speaker 1: thousand dollars and pays me over four thousand, two hundred 13 00:00:47,760 --> 00:00:52,120 Speaker 1: dollars a year in dividends, which I reinvest. I'm seriously 14 00:00:52,159 --> 00:00:54,960 Speaker 1: considering taking on a margin loan, but I'm a little 15 00:00:55,000 --> 00:00:58,240 Speaker 1: bit scared as others tell me this is risky. I 16 00:00:58,280 --> 00:01:01,040 Speaker 1: know your one thousand dollar project has fifty thousand dollars 17 00:01:01,120 --> 00:01:03,720 Speaker 1: margin loan. Can you tell me if this is risky 18 00:01:03,840 --> 00:01:06,800 Speaker 1: and can I reduce these risks to help make this 19 00:01:06,920 --> 00:01:10,800 Speaker 1: work for me like it has for you? Cheers? Cat? 20 00:01:11,240 --> 00:01:15,280 Speaker 1: All right, Cat, let's answer this question together and let 21 00:01:15,319 --> 00:01:17,760 Speaker 1: me help you through this so that you can get started, 22 00:01:17,800 --> 00:01:19,880 Speaker 1: whether it be taking out a margin loan or maybe 23 00:01:20,040 --> 00:01:23,920 Speaker 1: politely declining for the time being. So before we begin, 24 00:01:24,000 --> 00:01:28,000 Speaker 1: I'm going to say this in massive congratulations. In just 25 00:01:28,120 --> 00:01:33,319 Speaker 1: three years you have grown an eighty thousand dollars share portfolio, 26 00:01:33,640 --> 00:01:38,120 Speaker 1: literally starting from nothing, and clearly you've built a really 27 00:01:38,160 --> 00:01:42,240 Speaker 1: reliable passive income stream. You know, two hundred dollars year. 28 00:01:42,280 --> 00:01:44,479 Speaker 1: I mean that could pay for a holiday each year. 29 00:01:44,840 --> 00:01:49,360 Speaker 1: That is seriously phenomenal. And you've clearly done all the 30 00:01:49,360 --> 00:01:52,120 Speaker 1: hard work. You know, you're being consistent, and you've shown 31 00:01:52,200 --> 00:01:57,400 Speaker 1: exactly what discipline can actually achieve. All right, so now 32 00:01:57,400 --> 00:01:59,520 Speaker 1: it sounds like you're at the next level. There's a 33 00:01:59,520 --> 00:02:00,600 Speaker 1: bit of a shit. You have a bit of a 34 00:02:00,640 --> 00:02:05,600 Speaker 1: breakthrough ready for you, and that is, of course leveraging 35 00:02:05,760 --> 00:02:10,520 Speaker 1: your portfolio with the consideration of a margin loan. And yes, 36 00:02:11,360 --> 00:02:14,600 Speaker 1: these people are right, it can definitely be risky. But 37 00:02:14,639 --> 00:02:19,680 Speaker 1: the thing is with knowledge, the right structure and the 38 00:02:19,760 --> 00:02:23,720 Speaker 1: correct boundaries that you put in place, these risks can 39 00:02:23,760 --> 00:02:27,560 Speaker 1: actually be managed in a really proactive and responsible way. 40 00:02:28,280 --> 00:02:31,639 Speaker 1: So today I want to explain what a margin loan 41 00:02:31,800 --> 00:02:34,640 Speaker 1: is for our other listeners. I also want to explain 42 00:02:34,880 --> 00:02:37,880 Speaker 1: why margin loans are considered risky, and I'm going to 43 00:02:37,919 --> 00:02:40,600 Speaker 1: share with you the seven strategies that I personally use 44 00:02:40,639 --> 00:02:43,280 Speaker 1: for one thousand dollars project which has a margin loan, 45 00:02:43,840 --> 00:02:48,640 Speaker 1: to help proactively manage those risks. So let us begin 46 00:02:49,040 --> 00:03:09,640 Speaker 1: with start here, all right, kat, So step number one, 47 00:03:10,480 --> 00:03:15,760 Speaker 1: can we just tune out of this noise? So I 48 00:03:15,760 --> 00:03:18,560 Speaker 1: want to talk about the advice you mentioned people warning 49 00:03:18,600 --> 00:03:21,560 Speaker 1: you that a margin loan is risky, And look, they're 50 00:03:21,600 --> 00:03:25,400 Speaker 1: not wrong, but it's important to understand where those opinions 51 00:03:25,520 --> 00:03:32,040 Speaker 1: actually come from. Everybody sees money and investing and borrowing 52 00:03:32,080 --> 00:03:36,200 Speaker 1: money through their lens of experience, and some people have 53 00:03:36,360 --> 00:03:40,560 Speaker 1: seen others get really burnt by leverage, that is, burnt 54 00:03:40,560 --> 00:03:43,320 Speaker 1: by borrowing money they've got into deep or things have 55 00:03:43,360 --> 00:03:46,800 Speaker 1: gone against them and it's ended up in tears. Now, 56 00:03:46,960 --> 00:03:51,040 Speaker 1: others may not actually understand what a margin loan really 57 00:03:51,120 --> 00:03:53,400 Speaker 1: is and how it actually works. And most of the 58 00:03:53,480 --> 00:03:56,800 Speaker 1: time these people genuinely care about you. They're coming from 59 00:03:56,840 --> 00:04:00,000 Speaker 1: a good place ensuring this advice, but they don't necessar 60 00:04:00,000 --> 00:04:04,160 Speaker 1: necessarily know your goals, your experience, So like how much 61 00:04:04,200 --> 00:04:07,360 Speaker 1: you've got necessarily invested, or even like what your risk 62 00:04:07,400 --> 00:04:12,280 Speaker 1: profile might be. So whilst they have these well meaning opinions, 63 00:04:12,880 --> 00:04:16,920 Speaker 1: I recommend taking them with gratitude, but also caution. You know, 64 00:04:17,279 --> 00:04:20,560 Speaker 1: you're the one that's doing the homework. You're the one 65 00:04:20,560 --> 00:04:24,640 Speaker 1: that's building your wealth creation strategy and taking responsibility and 66 00:04:24,680 --> 00:04:28,000 Speaker 1: stepping up, and this is your money, so please make 67 00:04:28,000 --> 00:04:32,680 Speaker 1: sure that you are basing your final decisions on facts, 68 00:04:33,120 --> 00:04:37,159 Speaker 1: not on fear that has been planted by other people 69 00:04:37,240 --> 00:04:40,440 Speaker 1: who don't necessarily know all the facts. So all right, 70 00:04:40,480 --> 00:04:43,200 Speaker 1: now that I've clear that we can keep going. So 71 00:04:43,360 --> 00:04:46,120 Speaker 1: first of all, the listeners who aren't quite sure what 72 00:04:46,120 --> 00:04:47,640 Speaker 1: a marginal loaners, or just want a little bit of 73 00:04:47,680 --> 00:04:53,040 Speaker 1: a refresher, A margin loan is simply borrowing money to invest, 74 00:04:53,160 --> 00:04:56,040 Speaker 1: and a margin loan is typically just for shares, including 75 00:04:56,080 --> 00:04:59,080 Speaker 1: like listed investment companies and ets, but typically shares, and 76 00:04:59,440 --> 00:05:03,840 Speaker 1: the margin loan lender uses your existing share portfolio you 77 00:05:03,920 --> 00:05:07,479 Speaker 1: know whether licks or ets as security, and then lends 78 00:05:07,480 --> 00:05:11,840 Speaker 1: you additional funds to help you buy more. So for example, 79 00:05:12,080 --> 00:05:14,200 Speaker 1: you know, Kat, you said you got eighty thousand dollars 80 00:05:14,240 --> 00:05:17,240 Speaker 1: and shares, and say your lender allows, say a fifty 81 00:05:17,279 --> 00:05:21,240 Speaker 1: percent loan to value ratio or LVR, you could potentially 82 00:05:21,279 --> 00:05:25,080 Speaker 1: borrow up to half of that, so obviously forty thousand dollars. 83 00:05:25,800 --> 00:05:29,240 Speaker 1: That then gives you a total portfolio of one hundred 84 00:05:29,240 --> 00:05:32,279 Speaker 1: and twenty thousand, so eighty thousand dollars of your own equity, 85 00:05:32,279 --> 00:05:35,120 Speaker 1: which is what you've built from nothing, and then you've 86 00:05:35,160 --> 00:05:40,679 Speaker 1: borrowed forty thousand dollars. Now, if markets rise, say ten percent, 87 00:05:41,240 --> 00:05:44,039 Speaker 1: your one hundred and twenty thousand dollars portfolio becomes one 88 00:05:44,120 --> 00:05:46,479 Speaker 1: hundred and thirty two thousand, So you've got a twelve 89 00:05:46,560 --> 00:05:50,680 Speaker 1: thousand dollars gain on an eighty thousand dollars eighty thousand 90 00:05:50,680 --> 00:05:53,160 Speaker 1: dollars of your own money and that forty thousand dollars loan. 91 00:05:53,279 --> 00:05:55,640 Speaker 1: That's the power of leverage. And of course the more 92 00:05:55,680 --> 00:05:58,479 Speaker 1: that you are investing, the more shares that you're buying, 93 00:05:58,520 --> 00:06:01,400 Speaker 1: the more passive income streams your own. So hopefully the 94 00:06:01,440 --> 00:06:03,440 Speaker 1: goal is that you are not just earning four thousand, 95 00:06:03,480 --> 00:06:05,640 Speaker 1: two hundred dollars worth of dividends. You are now earning 96 00:06:05,880 --> 00:06:08,200 Speaker 1: say five and a half thousand dollars with the dividends. 97 00:06:08,240 --> 00:06:10,920 Speaker 1: So the goal is obviously to use this strategy to 98 00:06:10,960 --> 00:06:15,440 Speaker 1: help raw your dividends. But here's the risk. If markets 99 00:06:15,480 --> 00:06:18,520 Speaker 1: were to say pull back by say ten percent, your 100 00:06:18,560 --> 00:06:21,040 Speaker 1: one hundred and twenty thousand dollars share portfolio is now 101 00:06:21,080 --> 00:06:24,080 Speaker 1: worth one hundred and eight thousand dollars, but you still 102 00:06:24,160 --> 00:06:27,279 Speaker 1: owe that forty thousand dollars from the margin loan. So 103 00:06:27,800 --> 00:06:31,520 Speaker 1: suddenly your equity has dropped to sixty eight thousand. And 104 00:06:31,560 --> 00:06:36,800 Speaker 1: that's the true risk. You know, leveraging can amplify both 105 00:06:36,839 --> 00:06:40,360 Speaker 1: the gains but also the loss, so the pendulum swings 106 00:06:40,560 --> 00:06:45,599 Speaker 1: both ways. So why is this risky? Like, what's the problem. Well, 107 00:06:46,040 --> 00:06:48,760 Speaker 1: it really boils down to something called a margin loan. 108 00:06:49,320 --> 00:06:53,760 Speaker 1: When your portfolio's value drops beyond or below a safe LVR, 109 00:06:54,760 --> 00:06:58,520 Speaker 1: and the lender will basically pick up the phone, send 110 00:06:58,520 --> 00:07:00,320 Speaker 1: you a text message, or send you an email or 111 00:07:00,360 --> 00:07:03,360 Speaker 1: all the above, and they will demand that you either 112 00:07:03,360 --> 00:07:05,920 Speaker 1: repay part of that loan of the forty thousand dollars, 113 00:07:06,120 --> 00:07:08,560 Speaker 1: or if you can't repay part of that loan to 114 00:07:08,600 --> 00:07:10,800 Speaker 1: reduce the LBR, you have to then sell some of 115 00:07:10,840 --> 00:07:15,680 Speaker 1: the shares immediately. Now, if you're forced to sell your 116 00:07:15,720 --> 00:07:19,600 Speaker 1: shares during a downturn, you potentially run the risk of 117 00:07:19,840 --> 00:07:22,960 Speaker 1: locking in losses, and you can permanently damage your wealth 118 00:07:23,080 --> 00:07:26,960 Speaker 1: building momentum, which is obviously you want to avoid at 119 00:07:27,000 --> 00:07:28,840 Speaker 1: all costs. But that doesn't mean you don't do this. 120 00:07:29,440 --> 00:07:32,640 Speaker 1: So that's why I treat margin loans with so much respect. 121 00:07:32,800 --> 00:07:34,720 Speaker 1: And you know, that's why I took out that fifty 122 00:07:34,720 --> 00:07:38,040 Speaker 1: thousand dollars margin loan so conservatively, I think six or 123 00:07:38,040 --> 00:07:41,600 Speaker 1: seven years ago. And you know, margin loans are definitely 124 00:07:41,640 --> 00:07:44,400 Speaker 1: not for short term trading and most definitely not for 125 00:07:44,440 --> 00:07:48,800 Speaker 1: emotional investing. Therefore, investors that are disciplined, they've got a 126 00:07:48,840 --> 00:07:52,640 Speaker 1: long term focus, they've got a good strong cash flow, 127 00:07:52,920 --> 00:07:55,160 Speaker 1: you know, they're looking to build that passive income, and 128 00:07:55,640 --> 00:07:59,200 Speaker 1: they're really good at planning carefully and staying in control. 129 00:07:59,720 --> 00:08:02,400 Speaker 1: So I want to move on now that we've explained that, 130 00:08:02,440 --> 00:08:04,680 Speaker 1: I want to sort of focus now on how to 131 00:08:04,760 --> 00:08:09,760 Speaker 1: actually proactively and responsibly reduce the risks that come with 132 00:08:09,880 --> 00:08:13,760 Speaker 1: a margin loan, because you actually can reduce these risks 133 00:08:14,200 --> 00:08:16,360 Speaker 1: so that a margin loan can actually work to your 134 00:08:16,400 --> 00:08:19,160 Speaker 1: financial advantage and you're not carrying the same amount of 135 00:08:19,240 --> 00:08:22,560 Speaker 1: risks that maybe other people are. So I'll talk you 136 00:08:22,600 --> 00:08:25,880 Speaker 1: through each of these seven steps or things to consider. 137 00:08:26,280 --> 00:08:29,480 Speaker 1: So The first one is to keep your LVR under 138 00:08:29,520 --> 00:08:32,960 Speaker 1: fifty percent. Now, this is your set like call it 139 00:08:33,000 --> 00:08:36,679 Speaker 1: safety margin. If your lender allows, say a seventy percent LBR, 140 00:08:37,520 --> 00:08:41,280 Speaker 1: don't be I guess, tempted to borrow more. Try and 141 00:08:41,360 --> 00:08:44,000 Speaker 1: keep it conservative. Try and keep it at fifty percent 142 00:08:44,240 --> 00:08:46,520 Speaker 1: or a little bit lower. That means, for every eighty 143 00:08:46,559 --> 00:08:49,920 Speaker 1: thousand dollars you've invested, you borrow no more than forty 144 00:08:50,000 --> 00:08:53,120 Speaker 1: thousand dollars. Now, of course, as your portfolio grows over time, 145 00:08:53,160 --> 00:08:55,880 Speaker 1: you can increase that loan, but make sure you're doing 146 00:08:55,920 --> 00:09:00,800 Speaker 1: that in proportion of your portfolio's growth. By staying around 147 00:09:00,800 --> 00:09:05,319 Speaker 1: this fifty percent LBR mark, your portfolio could fall approximately, 148 00:09:05,320 --> 00:09:08,320 Speaker 1: say twenty five to thirty percent before you even come 149 00:09:08,440 --> 00:09:11,320 Speaker 1: close to getting a margin call, which gives you some 150 00:09:11,640 --> 00:09:14,560 Speaker 1: really safe breathing room. It gives you like the space 151 00:09:14,640 --> 00:09:17,240 Speaker 1: to write out you know, the normal short term market 152 00:09:17,280 --> 00:09:21,079 Speaker 1: volatility without having to panic or without having being forced 153 00:09:21,120 --> 00:09:23,080 Speaker 1: to go and sell. So you can think of this 154 00:09:23,120 --> 00:09:25,920 Speaker 1: as a bit of a sleep well buffer that keeps 155 00:09:26,080 --> 00:09:30,280 Speaker 1: the leverage working for you and not actually against the 156 00:09:30,320 --> 00:09:34,440 Speaker 1: second thing is to stress test your cash flow before 157 00:09:34,679 --> 00:09:37,959 Speaker 1: taking a margin loan out. And I did this. I 158 00:09:38,000 --> 00:09:40,560 Speaker 1: remember doing my numbers like I felt like it was 159 00:09:40,559 --> 00:09:42,160 Speaker 1: just the other day that I did this. You've got 160 00:09:42,200 --> 00:09:43,920 Speaker 1: to check your numbers. You've got to run your budget, 161 00:09:43,920 --> 00:09:46,439 Speaker 1: you've got to run your cash flow, and you ask 162 00:09:46,520 --> 00:09:51,720 Speaker 1: yourself this, could you still afford the margin loan repayments 163 00:09:52,360 --> 00:09:56,920 Speaker 1: if interest rates rose by three percent? Could you still 164 00:09:56,960 --> 00:10:03,280 Speaker 1: manage your portfolio if these dividends were reduced or even cut? Now, 165 00:10:03,320 --> 00:10:07,280 Speaker 1: if the answer is no, doesn't necessarily mean don't borrow, 166 00:10:07,280 --> 00:10:10,680 Speaker 1: but it means maybe don't borrow as much. The golden 167 00:10:10,760 --> 00:10:13,600 Speaker 1: rule around margin letting should be never to create stress 168 00:10:14,280 --> 00:10:17,199 Speaker 1: or compromise your lifestyle. It should be sort of quietly 169 00:10:17,280 --> 00:10:21,280 Speaker 1: working for you in the background. And those margin loan 170 00:10:21,320 --> 00:10:25,840 Speaker 1: repayments need to comfortably fit in your budget. So that 171 00:10:25,960 --> 00:10:28,720 Speaker 1: is extremely important. You've got to service that loan and 172 00:10:29,080 --> 00:10:33,320 Speaker 1: quite possibly slowly pay that margin loan off. The third 173 00:10:33,400 --> 00:10:36,360 Speaker 1: thing is to draw down your margin loan slowly. A 174 00:10:36,440 --> 00:10:38,360 Speaker 1: lot of people don't realize this, and they kind of 175 00:10:38,360 --> 00:10:40,640 Speaker 1: look at the big picture and don't realize it's you 176 00:10:40,640 --> 00:10:42,840 Speaker 1: don't borrow all the money necessarily in one big hit. 177 00:10:43,559 --> 00:10:47,160 Speaker 1: So when you get your margin loan of say forty 178 00:10:47,200 --> 00:10:50,480 Speaker 1: thousand dollars. You need to know that you don't need 179 00:10:50,520 --> 00:10:53,600 Speaker 1: to draw that full amount straight away. So you've got 180 00:10:53,600 --> 00:10:55,959 Speaker 1: the forty thousand dollars, you might maybe just want to 181 00:10:56,000 --> 00:10:59,000 Speaker 1: start with borrowing, say twenty thousand dollars of that loan, 182 00:10:59,520 --> 00:11:02,760 Speaker 1: or tens or even five thousand dollars per month, you know, 183 00:11:03,280 --> 00:11:07,480 Speaker 1: add to your portfolio and borrow for your portfolio gradually, 184 00:11:07,840 --> 00:11:10,080 Speaker 1: you know, and just take it slowly and steadily as 185 00:11:10,120 --> 00:11:13,720 Speaker 1: you feel comfortable and you can actually see how margin 186 00:11:13,800 --> 00:11:16,199 Speaker 1: lending really works and how it actually works for your 187 00:11:16,240 --> 00:11:19,160 Speaker 1: financial goals. Or perhaps not so you could, I guess, 188 00:11:19,200 --> 00:11:21,320 Speaker 1: think about it. As you're at the beach. You know, 189 00:11:21,320 --> 00:11:23,440 Speaker 1: you don't just jump into the ocean. You tend to 190 00:11:23,559 --> 00:11:26,480 Speaker 1: walk on the sand, getting slowly deeper and deeper as 191 00:11:26,520 --> 00:11:29,719 Speaker 1: you weide through. You know, don't dive headfirst. Just take 192 00:11:29,760 --> 00:11:32,679 Speaker 1: it slowly and steadily, and feel free to pause in 193 00:11:32,760 --> 00:11:38,360 Speaker 1: borrowing anymore at any stage. Point Number four is please 194 00:11:38,559 --> 00:11:42,440 Speaker 1: please please keep an emergency buffer and have this emergency 195 00:11:42,440 --> 00:11:45,240 Speaker 1: buffer is just for your margin lending. So this is 196 00:11:45,480 --> 00:11:51,600 Speaker 1: often an overlooked but vital safeguard. Have some money, some 197 00:11:51,720 --> 00:11:56,400 Speaker 1: cash set aside purely for your margin loan protection. It 198 00:11:56,440 --> 00:11:58,160 Speaker 1: doesn't need to be a huge amount of money, but 199 00:11:58,200 --> 00:12:00,680 Speaker 1: a small amount so that it's ready if the markets 200 00:12:00,760 --> 00:12:04,520 Speaker 1: drop and you need to reduce your loan and avoid 201 00:12:04,600 --> 00:12:06,480 Speaker 1: having to be backed into a corner where you have 202 00:12:06,559 --> 00:12:09,240 Speaker 1: to sell. So even something as little as say two 203 00:12:09,280 --> 00:12:11,960 Speaker 1: thousand dollars up to say five thousand dollars parked in 204 00:12:12,000 --> 00:12:14,720 Speaker 1: like an online high entrance savings account can give you 205 00:12:14,760 --> 00:12:17,200 Speaker 1: a huge amount of flexibility and peace of mind. And 206 00:12:17,520 --> 00:12:19,880 Speaker 1: it means that if that margin call happens, you get 207 00:12:19,880 --> 00:12:23,040 Speaker 1: that email, that call, that text message, you can immediately 208 00:12:23,080 --> 00:12:25,360 Speaker 1: throw some money on that loan and reduce that LVR 209 00:12:25,440 --> 00:12:28,559 Speaker 1: within seconds instead of having to liquidate part of your 210 00:12:28,559 --> 00:12:32,280 Speaker 1: investment portfolio crystallized losses at probably one of the worst 211 00:12:32,320 --> 00:12:36,840 Speaker 1: times to actually have to sell. It sounds really simple, 212 00:12:36,880 --> 00:12:39,360 Speaker 1: but a lot of people don't actually do this simple 213 00:12:39,400 --> 00:12:45,319 Speaker 1: protection strategy. Number five. Use your dividends strategically. Okay, so 214 00:12:45,920 --> 00:12:48,560 Speaker 1: dividends are important. Dividends are going to give us that 215 00:12:48,600 --> 00:12:50,880 Speaker 1: long term financial freedom. Dividends are going to you know, 216 00:12:50,920 --> 00:12:53,120 Speaker 1: yours are currently four thousand, two hundred a year. Let's 217 00:12:53,120 --> 00:12:55,480 Speaker 1: grow them. Let's turn them into forty two thousand dollars 218 00:12:55,480 --> 00:12:58,160 Speaker 1: a year. So your dividends are the secret weapon to 219 00:12:58,240 --> 00:13:02,160 Speaker 1: your financial dependence. You at the moment are reinvesting them 220 00:13:02,200 --> 00:13:04,760 Speaker 1: obviously to help grow your portfolio as fast as you 221 00:13:04,800 --> 00:13:07,439 Speaker 1: possibly can. But there are a couple of other things 222 00:13:07,440 --> 00:13:10,040 Speaker 1: you can do if you wanted to. I'm not giving advice. 223 00:13:10,080 --> 00:13:12,040 Speaker 1: I'm just letting you know. So you have these as options, 224 00:13:12,080 --> 00:13:15,280 Speaker 1: and you may change your course throughout your financial journey. 225 00:13:15,320 --> 00:13:17,840 Speaker 1: But if you wanted to, you could have those dividends 226 00:13:17,880 --> 00:13:22,560 Speaker 1: not actually reinvested, but perhaps paid towards the margin loan, 227 00:13:22,920 --> 00:13:25,240 Speaker 1: so that your interest repayments come down and obviously the 228 00:13:25,360 --> 00:13:30,439 Speaker 1: loan comes down. Now personally, again not advice, I reinvest 229 00:13:30,640 --> 00:13:34,640 Speaker 1: all of my dividends back into the share portfolio through 230 00:13:34,679 --> 00:13:37,920 Speaker 1: my personal cash flow of doing side hustles and hacks. 231 00:13:37,960 --> 00:13:39,640 Speaker 1: I every now and again I throw money towards my 232 00:13:39,679 --> 00:13:44,480 Speaker 1: margin loan, so I'm manually, I guess, through physical hard 233 00:13:44,480 --> 00:13:47,520 Speaker 1: work paying down that fifty thousand dollars margin loan whilst 234 00:13:47,520 --> 00:13:50,640 Speaker 1: I reinvest anything everything. But for you, if you wanted to, 235 00:13:50,880 --> 00:13:53,240 Speaker 1: you could also stop your automatic reinvestment plan and have 236 00:13:53,280 --> 00:13:56,400 Speaker 1: those dividends, or even part of those dividends paid towards 237 00:13:56,440 --> 00:13:59,360 Speaker 1: that margin loan to help keep that LVR reducing and 238 00:13:59,360 --> 00:14:01,920 Speaker 1: obviously up more and more equity within your portfolio, which 239 00:14:01,960 --> 00:14:05,400 Speaker 1: will help safeguard, you know, your wealth creation journey. And 240 00:14:05,880 --> 00:14:09,400 Speaker 1: you know, I love that this comfort of that the 241 00:14:09,440 --> 00:14:12,880 Speaker 1: passive income, the dividends can be redirected if I need 242 00:14:12,920 --> 00:14:14,840 Speaker 1: to at any point in time, and it will obviously 243 00:14:15,240 --> 00:14:18,880 Speaker 1: eases that cash flow pressure, which is really important when 244 00:14:18,920 --> 00:14:22,320 Speaker 1: you're doing something that's high risks like this point number six, 245 00:14:22,600 --> 00:14:24,960 Speaker 1: and that is to consider and this is not appropriate 246 00:14:25,120 --> 00:14:27,520 Speaker 1: for everyone, just worth considering or knowing about, and that 247 00:14:27,640 --> 00:14:31,800 Speaker 1: is prepaying your margin loan interest on an annual basis. 248 00:14:32,040 --> 00:14:34,000 Speaker 1: Now a lot of people do this at just before 249 00:14:34,040 --> 00:14:35,720 Speaker 1: the end of the financial year so they can get 250 00:14:35,720 --> 00:14:39,240 Speaker 1: a nice big tax deduction or it helps obviously maximize 251 00:14:39,240 --> 00:14:43,120 Speaker 1: their tax refund. But this is where you lock in 252 00:14:43,160 --> 00:14:45,880 Speaker 1: your interest rate for twelve months, and it gives you 253 00:14:45,920 --> 00:14:48,680 Speaker 1: a cash flow certainty around you know, the repayments and 254 00:14:49,080 --> 00:14:53,000 Speaker 1: protecting your budget, and it helps manage the cash flow 255 00:14:53,000 --> 00:14:56,560 Speaker 1: a lot easier in some cases depending on your circumstances. 256 00:14:56,760 --> 00:14:58,840 Speaker 1: You know, you also might be able to claim a 257 00:14:58,880 --> 00:15:01,600 Speaker 1: tax deduction when you pre pay your interest You do 258 00:15:01,680 --> 00:15:03,800 Speaker 1: need to be careful though with this. If you do 259 00:15:03,920 --> 00:15:06,960 Speaker 1: decide to slowly draw down that forty thousand dollar alone, 260 00:15:07,960 --> 00:15:11,480 Speaker 1: and you have prepaid the interest on that forty thousand 261 00:15:11,520 --> 00:15:14,440 Speaker 1: dollar alone, you could be potentially overpaying your interests because 262 00:15:14,440 --> 00:15:17,120 Speaker 1: you've prepaid on the forty thousand US You think it's 263 00:15:17,120 --> 00:15:19,240 Speaker 1: all going to be with drawn down, but you haven't 264 00:15:19,240 --> 00:15:21,040 Speaker 1: actually drawn it down. So you've got to sort of 265 00:15:21,120 --> 00:15:23,440 Speaker 1: think about how you're going to use this marginalone before 266 00:15:23,440 --> 00:15:26,880 Speaker 1: you go and potentially prepaid. And obviously the risk and 267 00:15:27,000 --> 00:15:29,440 Speaker 1: doing this is that interest rates go down and you've 268 00:15:29,480 --> 00:15:32,520 Speaker 1: paid an expensive interest rate. But for a lot of 269 00:15:32,520 --> 00:15:34,840 Speaker 1: people they do this, as I said, just before the 270 00:15:34,880 --> 00:15:36,680 Speaker 1: end of the financial year, and it really does work 271 00:15:36,720 --> 00:15:40,680 Speaker 1: for them. And then point number seven, and that is 272 00:15:40,720 --> 00:15:44,960 Speaker 1: to diversify your portfolio. Now, obviously I know nothing about 273 00:15:44,960 --> 00:15:48,280 Speaker 1: your share portfolio, your goals, and you know where that 274 00:15:48,320 --> 00:15:50,480 Speaker 1: money is sitting, and you know whether you're even what 275 00:15:50,520 --> 00:15:52,160 Speaker 1: type of trader you. I don't know if you're active 276 00:15:52,240 --> 00:15:54,760 Speaker 1: or you're passive like me, whether you're focused on the dividends, 277 00:15:55,160 --> 00:15:57,960 Speaker 1: whether you're like industrial or whether you like international, whether 278 00:15:57,960 --> 00:16:02,120 Speaker 1: you're like licks or ETFs. But please note this regardless, 279 00:16:02,560 --> 00:16:07,320 Speaker 1: well diversified portfolio is what helps reduce that market volatility, 280 00:16:07,880 --> 00:16:11,960 Speaker 1: that feeling of seeing your start your portfolio worth eighty 281 00:16:11,960 --> 00:16:14,200 Speaker 1: thousand dollars one day, eighty five the next, and then 282 00:16:14,400 --> 00:16:18,360 Speaker 1: seventy three the next. Please make sure that you don't 283 00:16:18,400 --> 00:16:21,800 Speaker 1: hold all your investments in one company, or one sector 284 00:16:21,920 --> 00:16:25,720 Speaker 1: or even one country. You know, I love Australian industrial shares, 285 00:16:26,040 --> 00:16:29,160 Speaker 1: gives me that income stability through the dividends, but I 286 00:16:29,280 --> 00:16:33,680 Speaker 1: still have some international ETFs in my portfolio. You know, 287 00:16:33,800 --> 00:16:38,280 Speaker 1: diversification spreads the risk and helping your portfolio stay really resilient. 288 00:16:38,320 --> 00:16:40,560 Speaker 1: So I have some ETFs focused around Asia, I have 289 00:16:40,640 --> 00:16:44,680 Speaker 1: some ETFs focused around the US and Europe and even 290 00:16:44,720 --> 00:16:48,760 Speaker 1: emerging countries. So you know, yes, a significant part of 291 00:16:48,760 --> 00:16:52,680 Speaker 1: my portfolio is in Australian industrial shares, but it was 292 00:16:52,720 --> 00:16:56,680 Speaker 1: also diversified and those companies, those Australian companies that is 293 00:16:56,680 --> 00:16:59,520 Speaker 1: that I have invested in, also have international exposure within 294 00:16:59,560 --> 00:17:02,640 Speaker 1: their own business operations. But my point is, don't put 295 00:17:02,680 --> 00:17:04,800 Speaker 1: all of your REGs in one basket. You want as 296 00:17:04,840 --> 00:17:09,879 Speaker 1: little volatility as wise and sensible to help reduce that 297 00:17:10,000 --> 00:17:14,520 Speaker 1: risk of a margin call. And then finally, I share 298 00:17:14,560 --> 00:17:17,159 Speaker 1: tell the Life there's actually eight tips, not seven, and 299 00:17:17,200 --> 00:17:20,520 Speaker 1: that is to treat your margin loan like a principal 300 00:17:20,600 --> 00:17:23,199 Speaker 1: and interest loan, almost like a home loan. You know. 301 00:17:23,280 --> 00:17:26,399 Speaker 1: Margin loans are often interest only. That's the most common 302 00:17:26,440 --> 00:17:29,280 Speaker 1: setup that people pick when it comes to the margin loan. 303 00:17:29,320 --> 00:17:30,920 Speaker 1: And the margin loan that you may go with may 304 00:17:31,040 --> 00:17:32,880 Speaker 1: only have an option to have it as interest only, 305 00:17:32,920 --> 00:17:37,440 Speaker 1: But personally, I like to make voluntary, like small once 306 00:17:37,480 --> 00:17:41,800 Speaker 1: off payments, like some transfers to my margin loan wherever 307 00:17:41,880 --> 00:17:45,679 Speaker 1: and whenever possible, you know, And actually even my interest 308 00:17:45,760 --> 00:17:48,280 Speaker 1: repayments or my direct debit that's set up is actually 309 00:17:48,359 --> 00:17:50,320 Speaker 1: a little bit more than what the interest is. So 310 00:17:50,760 --> 00:17:53,440 Speaker 1: even with just that automatic direct debit, that margin loan 311 00:17:53,480 --> 00:17:55,560 Speaker 1: is slowly and steadily coming down. And even you know, 312 00:17:55,560 --> 00:17:57,520 Speaker 1: if I'm talking like one hundred dollars extra a month 313 00:17:57,640 --> 00:18:00,600 Speaker 1: or seventy dollars extra month, the end of the day, 314 00:18:00,640 --> 00:18:03,600 Speaker 1: whatever you're putting onto that margin loan as an extra 315 00:18:03,640 --> 00:18:06,600 Speaker 1: repayment reduces the debt, and it's only going to strengthen 316 00:18:06,640 --> 00:18:11,119 Speaker 1: your equity and give you greater flexibility if markets dip, 317 00:18:11,640 --> 00:18:14,040 Speaker 1: and it's another buffer between you and potentially getting a 318 00:18:14,080 --> 00:18:16,959 Speaker 1: margin call. But also on the upside, it means that 319 00:18:17,000 --> 00:18:20,920 Speaker 1: as your portfolio grows, your ability to potentially borrow more 320 00:18:21,160 --> 00:18:23,200 Speaker 1: when you're doing this for the right reasons and in a 321 00:18:23,240 --> 00:18:26,320 Speaker 1: sensible way, are there because you've got more equity to 322 00:18:26,359 --> 00:18:30,359 Speaker 1: actually leverage upon. Now you probably already know this, but 323 00:18:30,400 --> 00:18:33,439 Speaker 1: I'm going to say it anyway. A margin loan is 324 00:18:33,520 --> 00:18:37,600 Speaker 1: definitely not a shortcut in building wealth. It's an amplifier, 325 00:18:37,760 --> 00:18:43,199 Speaker 1: a wealth creation amplifier. It magnifies whatever exists within you, 326 00:18:43,320 --> 00:18:47,760 Speaker 1: whether it be discipline or impulsiveness. So you've got to 327 00:18:47,760 --> 00:18:50,120 Speaker 1: be really careful in using this tool. And if you're 328 00:18:50,160 --> 00:18:52,640 Speaker 1: not ready, that doesn't mean don't necessarily do it at all. 329 00:18:52,680 --> 00:18:55,879 Speaker 1: It means perhaps wait until you are one hundred percent ready. 330 00:18:56,200 --> 00:18:58,680 Speaker 1: Because when you do use a margin loan, you've got 331 00:18:58,680 --> 00:19:01,880 Speaker 1: to be consistent. You've got to be patient, and you've 332 00:19:01,880 --> 00:19:04,719 Speaker 1: got to be focused on that income and what may 333 00:19:04,760 --> 00:19:07,800 Speaker 1: help you make that income grow whilst managing that debt 334 00:19:07,840 --> 00:19:10,879 Speaker 1: and the responsibility that comes without debt. And if you 335 00:19:10,920 --> 00:19:14,760 Speaker 1: can do this, it becomes a very powerful tool for 336 00:19:14,840 --> 00:19:17,280 Speaker 1: your financial independence and to be able to help you 337 00:19:17,400 --> 00:19:21,119 Speaker 1: hopefully retire early. However, if you are someone who is 338 00:19:21,840 --> 00:19:25,040 Speaker 1: highly emotional when it comes to investing. You're impulsive or 339 00:19:25,520 --> 00:19:29,400 Speaker 1: you're someone who maybe follows trends and the hype. Perhaps 340 00:19:29,440 --> 00:19:32,800 Speaker 1: this strategy may not be right for you, and I 341 00:19:32,840 --> 00:19:34,280 Speaker 1: would hate for you to take something on and then 342 00:19:34,320 --> 00:19:36,960 Speaker 1: have it backfire. So really think it through and obviously 343 00:19:37,080 --> 00:19:40,040 Speaker 1: go and get some advice when in doubt. And you've 344 00:19:40,040 --> 00:19:43,639 Speaker 1: got to remember, you know, marginalone mindset. It's about staying calm, 345 00:19:43,760 --> 00:19:46,560 Speaker 1: you know, focusing on the long run, being really disciplined 346 00:19:46,600 --> 00:19:48,959 Speaker 1: when it comes to your investing and managing debt, and 347 00:19:49,040 --> 00:19:53,280 Speaker 1: really respecting the boundaries and the rules so that you 348 00:19:53,320 --> 00:19:57,600 Speaker 1: can actually use this to your financial advantage. So Kat, 349 00:19:58,520 --> 00:20:01,560 Speaker 1: you've clearly proven that you got the discipline because you've 350 00:20:01,560 --> 00:20:05,320 Speaker 1: built an eighty thousand dollars from portfolio literally from nothing, 351 00:20:05,560 --> 00:20:08,200 Speaker 1: and you already have you know, four two hundred dollars 352 00:20:08,240 --> 00:20:11,240 Speaker 1: a year and passive income coming in through dividends like 353 00:20:11,280 --> 00:20:15,600 Speaker 1: that is incredible. That is so inspiring. So if you 354 00:20:15,720 --> 00:20:19,320 Speaker 1: want to explore margin loans, please make sure you do 355 00:20:19,359 --> 00:20:21,600 Speaker 1: it with the same care and patience that has helped 356 00:20:21,640 --> 00:20:23,920 Speaker 1: you get to where you are today. You know, keep 357 00:20:23,960 --> 00:20:27,800 Speaker 1: your LVR conservative, make sure you diversify your portfolio, have 358 00:20:27,920 --> 00:20:30,840 Speaker 1: that emergency buffer, you know, stress test your cash flow 359 00:20:30,840 --> 00:20:34,280 Speaker 1: and budget before you borrow. And remember this is definitely 360 00:20:34,320 --> 00:20:38,080 Speaker 1: not about chasing faster returns or being greedy and trying 361 00:20:38,119 --> 00:20:40,399 Speaker 1: to grow your portfolio for the wrong reasons. It's actually 362 00:20:40,400 --> 00:20:45,680 Speaker 1: about building long term, sustainable passive income through the dividends 363 00:20:45,840 --> 00:20:50,159 Speaker 1: which you accumulate from owning more of great quality businesses. 364 00:20:51,080 --> 00:20:55,040 Speaker 1: So again, just a reminder in doubt, get professional advice 365 00:20:55,119 --> 00:20:58,520 Speaker 1: before you take on any form of debt. And thank you, 366 00:20:58,560 --> 00:21:01,040 Speaker 1: by the way for sending in this question and for 367 00:21:01,119 --> 00:21:03,960 Speaker 1: sharing your incredible success. It's going to help so many 368 00:21:03,960 --> 00:21:07,280 Speaker 1: people who are curious about margin lending but are unsure 369 00:21:07,320 --> 00:21:11,680 Speaker 1: of exactly where to start. Now, for everyone who's listening 370 00:21:11,680 --> 00:21:14,440 Speaker 1: to today's episode, thank you for tuning in. But can 371 00:21:14,480 --> 00:21:17,440 Speaker 1: you give me a huge favor, actually have two huge favors. 372 00:21:17,640 --> 00:21:20,200 Speaker 1: Can you please go and share this with a fellow 373 00:21:20,280 --> 00:21:22,959 Speaker 1: investor friend of yours or tag me on Instagram at 374 00:21:22,960 --> 00:21:26,280 Speaker 1: sugar Mama tv or even Canna Campbell Official and tell 375 00:21:26,320 --> 00:21:30,920 Speaker 1: me what you're building on your own financial journey, because 376 00:21:30,920 --> 00:21:33,320 Speaker 1: I love hearing about what you guys are doing, and 377 00:21:33,480 --> 00:21:36,160 Speaker 1: I love to hear what's working and even what's not working, 378 00:21:36,200 --> 00:21:38,080 Speaker 1: because you never know I might be able to help 379 00:21:38,119 --> 00:21:42,280 Speaker 1: you through your own start Here episode. So I will 380 00:21:42,320 --> 00:21:44,560 Speaker 1: link in the podcast notes how to reach out to me, 381 00:21:44,840 --> 00:21:47,160 Speaker 1: how to send through your own start Here question, because 382 00:21:47,200 --> 00:21:49,639 Speaker 1: I want to make sure that you keep going, you 383 00:21:49,720 --> 00:21:52,879 Speaker 1: keep going from strength to strength with your financial journey, 384 00:21:52,880 --> 00:21:56,359 Speaker 1: and you reap all the amazing benefits, the intangible benefits 385 00:21:56,359 --> 00:21:59,359 Speaker 1: from working on your financial wellbeing. All Right, everyone, I 386 00:21:59,440 --> 00:22:03,320 Speaker 1: will see you next time on Sugar Mama's Fireplay this 387 00:22:03,480 --> 00:22:07,119 Speaker 1: Monday morning at five am. As per usual, have a 388 00:22:07,119 --> 00:22:08,040 Speaker 1: fantastic weekend.