More than 12% of online investors are gearing their investment portfolio and this could double in the next 12 months, the latest Investment Trends study reveals. And millennials are playing catchup.
The research house recently released its 2018 Borrowing to Invest Report, a study of the attitudes and behaviours of Australian online investors who use gearing to invest in direct shares, ETFs or managed funds. It's based on a survey of 8718 Australian-based online investors conducted between July and August this year.
It is estimated 86,000 online investors are gearing their investment portfolio. It's about 12% of more than 700,000 online investors, the research shows.
Investment Trends analyst John Carver said these geared investors are using several methods, the most common being margin lending products. Next is a line of credit secured against home equity and home loan redraw facilities.
"These borrowers firmly believe in gearing's effectiveness as a wealth creation strategy and on a net-basis agree others their age should also use leverage to achieve their goals," Carver said.
Investment Trends modelling suggests a further 81,000 online investors intend to begin using gearing in the next 12 months, and a further 230,000 could be encouraged to do so.
The use of gearing to invest is highest in the late accumulation stage, with 19% of online investors aged 50-64 using gearing. This is compared to 5% of millennial investors.
However, the researcher notes there is substantial interest among millennials, with more than half (52%) saying they would like to or can be encouraged to begin using borrowings to invest.
"In addition, millennials tend to consider a wider range of lenders before selecting a margin loan provider (3.8 on average versus 2.2 for the industry), meaning that lenders must establish a wider range of hooks to attract millennials who tend to be more demanding," Carver said.
"Lenders must recognise the unique set of needs and wants of younger investors, such as their greater desire for ETFs. Those who best understand these preferences will stand out."
Margin lending is the most popular credit product for those borrowing to invest in shares, ETFs and managed funds.
"Margin lending investors predominantly see borrowings as a long-term investing tool, not for short-term gains," Carver said.
This is also reflected in their level of gearing, with an average margin loan LVR (loan-to-value ratio) of 42%.