Jess' important life milestones

Image from video of Jess life goals

Jess, like most of us, has big life goals, such as buying a house, furthering her education, travelling and retiring comfortably.

But to achieve this, it's going to cost Jess money - money she currently doesn't have and money that may take a long time to save.

Plan of action

Jess has a plan to make sure she has the money she needs, at the times she needs it. She decides to implement an investment strategy to help her build wealth for her future. At 22, Jess lands her first ‘real’ job earning $70,000 p.a. and starts thinking about buying a house. Jess knows it’s going to be tough to save for a deposit through cash savings alone, so she decides to borrow money to invest in shares and managed funds.

Watch Jess' goals video

Matching Jess dollar for dollar

Jess starts her investment with $2000 of savings, matched with $2000 in borrowed funds. Jess continues to regularly save and invest, setting aside $1000 per month and matching it with $1000 of borrowed funds. After 6 years, Jess has saved around $110,000 and sells enough shares to cover a $90,000 deposit on a $450,000 home and the associated stamp duty. Jess has achieved this deposit faster than if she’d saved with cash alone.

Important life events

Soon after, Jess meets Michael and they have two children. Over the next 12 years, Jess’ savings capacity is reduced, as she pays for her wedding and honeymoon, takes maternity leave and has all the expenses entailed with a young family such as childcare. Jess manages to save an average of $500 per month over this time and continues to borrow to invest in shares and managed funds. At age 40, Jess has built up net equity of around $187,000, providing her with comfort as her children embark upon secondary education.

Over the next 8 years, Jess needs to put the regular savings plan on hold and use $15,000 of the dividends and redeemed investments per year to contribute to her kids' education and her own.

Retiring in comfort

At age 48, without making any monthly contributions, her savings have grown to $318,000. With the kids almost ready to leave home, Jess starts to focus on building wealth for her own retirement as she knows how important it is to not solely rely on superannuation. Jess’ savings capacity is now $1000 per month, which she invests matched with borrowed funds. By age 60, assuming Jess hasn’t had to dip into these savings for unexpected events, her savings have grown to $1.68m, giving her the ability to pay off her mortgage and retire on her own terms.

This investment strategy helped Jess through three important stages of her financial life ensuring she had the money she needs when she’s needed it. Borrowing to invest can be a great way to build wealth for medium to long term investments, but remember, there are risks involved, and just as it can magnify your returns, it can also magnify your losses.

Graph showing the power of regular investing

Assumptions

Cash rate 2.51%, Capital Growth rate 5.92%, Dividend Income rate 5.40%, Franking levels 57%, Entry Fees and brokerage 0.20%, Company Tax rate 30%, Medicare Levy 2%, Loan Interest rate 5.99%, Marginal tax rate 39%. All rates are p.a.

Important information

Leveraged Equities Limited ABN 26 051 629 282 AFSL 360118 is a subsidiary of Bendigo and Adelaide Bank Limited ABN 11 068 049 178 AFSL 237879.

This information contains general advice only. The views of the author may not represent the views of the broader Bendigo and Adelaide Bank Group of companies ("the Group"). This information must not be relied upon as a substitute for financial planning, legal, tax or other professional advice. You should consider your personal circumstances and whether or not the product is appropriate for you, read the relevant PDS and Product Guide, available to download from this website or by calling 1300 307 807.

Examples are for illustration only and are not intended as recommendations and may not reflect actual outcomes. Past performance is not an indication of future performance. The information provided in this document has not been verified and may be subject to change. It is given in good faith and has been derived from sources believed to be accurate. Accordingly no representation or warranty, express or implied is made as to the fairness, accuracy, completeness or correction of the information and opinions contained in this article. To the maximum extent permitted by law, no entity in the Group, its agents or officers shall be liable for any loss or damage arising from the reliance upon, or use of the information contained in this article.

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