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NAB Equity Loan

A friend recently told me that Nab also offers loan for equity investment @8%. It has its approved list of investment which includes all the major ETF’s in Australia. Property is the not the collateral for the loan, but the portfolio is. Considering a 8-10 yr horizon, if one can achieve a 10%+ CAGR, this might be a decent deal. Thoughts? Am I missing something? Is anyone experienced with this? Also, can the loan interest payments be treated as tax deductible as it is an investment ‘expense’? Keen to know your thoughts..

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Comments (2)

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Dave Gow - Strong Money Australia

Investor

Tue, 11th February 2025

Hi Sagar,

First, yes, if the portfolio is income producing (pays dividends or distributions), then yes, the interest is deductible.

And yes, if you expect a return of more than 8%, then this should be a profitable endeavor. But some things to keep in mind…

— 8% is a very high interest rate, and the nab loans are usually principal and interest, meaning the repayments will be quite high and can eat into your monthly savings quite a bit.

— Long term market returns for global/Aussie shares are somewhere around 8-10% or so, meaning there isn’t a whole lot of upside at current interest rates. You may outperform this, but you may also underperform it.

— Markets are volatile and there could be periods where you’ve invested say 100k using this loan and then the portfolio falls to 70k or less. While you won’t be margin called as far as I know, it will be a painful situation to be in. At that sort of time is when you should ideally be investing more, but due to the situation it may make you fearful and you end up wanting to pay off the debt, making it a less optimal outcome.

Cheers, Dave

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