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Unlock Financial Growth with Leverage Choice | Boost Your Investment Portfolio Today

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  1. Leverage Choice Martin May

  2. Outline • Leverage • Some History • The Proposition • Leverage Choice • Case Studies • The case against • Personal Investing

  3. Leverage • What is leverage? • Leverage is adding power to your investment equity • Why use leverage? • To enhance your investment returns

  4. Some History • ASX Accumulation Index • 13.3% p.a. • 1986 to 2000 • Longer term results similar • 13.0% • 1950’s to 1996

  5. Leverage is an effective way to achieve your financial goals • Challenger’s Leverage Choice offers a range of products that embraces the power of leverage • The choice of product is yours

  6. The PropositionWhy Leverage? By adding our funds to your equity, using “Leverage Choice”, you can potentially increase your wealth $10,000 $57,441 14 years @ 13.3% p.a.* $10,000 $81,464 *From 1986 to 2000 ASX Accumulation Index grew @ 13.3% p.a.

  7. The PropositionShares versus Leverage Assumes 50% Leverage

  8. Leverage Choice Leverage Choice Warrants Margin Lending Endowment Warrants Share Finance Portfolio Endowment Warrants Portfolio 25 targetonemillion.com Instalment Gearing Capital Plus Warrants Protected Equity Loans

  9. Introducing Leverage - Margin Lending • Share Finance • Portfolio 25 • Instalment gearing • Protected equity loans

  10. Introducing Leverage - Margin Lending Share Finance: • Lets you borrow - up to a limit • Add borrowed funds to your portfolio • Total portfolio secures loan • potential for margin call • Achieve return based on total portfolio • Choose from up to 350 shares and managed funds

  11. Introducing Leverage - Margin Lending Portfolio 25: • Pre-set list of 21 stocks and 4 managed funds • Choose a minimum of 3 securities and borrow up to 80% of their market value • Allows you to borrow more or have a greater comfort level • Existing portfolios can be converted

  12. Introducing Leverage - Margin Lending Instalment Gearing: • Regular investment into managed funds • Your equity contribution matched 1:1 or 1:2 with a loan drawdown • Accumulate a larger investment portfolio over time • Requires smaller amount of initial equity (as little as $1,000) and minimum ongoing equity contribution of $250 per month

  13. Introducing Leverage - Margin Lending Protected Equity Loans (PEL): • 1 year loan • Investor can repay loan by delivering shares • Single share portfolio • Interest rate higher than standard margin loan • Capped deductible amount for taxation purposes

  14. Introducing Leverage - Warrants • Endowment Warrants • Portfolio Endowment Warrants • targetonemillion.com • Capital Plus Warrants

  15. Introducing Leverage - Warrants Warrants: • Simple contract • Gives the investor the RIGHT to buy • but not the obligation • Listed on ASX • Available for periods up to 10 years • Costs a percentage of the share • NO margin calls

  16. Introducing Leverage - Endowment Warrants • Contract for 10 year period • One payment now • Final payment at maturity in 8 to 10 years • ASX listed • Individual shares-your choice • Introduces leverage without borrowing

  17. History of the CBA Endowment Warrant

  18. Introducing Leverage -Endowment Warrants Portfolio Endowment Warrants: • Endowment Warrant over portfolio of shares • 20 leading Australian companies • performs like the ASX All Ordinaries Index • Allows diversification • Listed on ASX

  19. Introducing Leverage -Endowment Warrants • targetonemillion.com • Monthly savings plan - allows smaller investors to get into Endowment Warrants Electronically based • Dollar cost averaging • Flexibility - allows investors to temporarily reduce, increase or halt monthly contributions • No entry/exit fees

  20. Introducing Leverage - Capital Plus Warrants • Based on individual shares • Contract term of 3 or 5 years, investors can choose not to complete • Returns based on a multiple of the change in share price • Ideal for investors looking for capital protection

  21. Leverage • Hypothetical investor • $100,000 p.a. of income • Present tax bill as PAYG • $39,102 • $50,000 of free equity • existing shares, cash or home equity

  22. A Leveraged Strategy • Investor contributes $50,000 equity • Challenger Share Finance lends $100,000 • Interest Rate of 7.95% • Investor creates a $150,000 portfolio • Yields 2% Fully Franked • Effective (potential) after tax cost of portfolio of 3.6%

  23. Comparative Performance The difference between investing $50,000 or $150,000

  24. Potential Income Tax Results

  25. Leverage Within Superannuation • Super funds cannot borrow • Super funds can invest in Endowment Warrants - leverage without borrowing • Every $1,000 of Endowment Warrants gives approximately $1,600 equivalent share value • $25,000 of Endowment Warrants equals $40,000 of shares

  26. Leverage and Superannuation

  27. Leverage - the case against • Investor now exposed to market movement on enlarged portfolio • Share Finance (Margin Lending) • Sudden market decline could lead to a margin call • the need to maintain adequate equity • potential for lender to sell part of portfolio • Endowment Warrants • decline in value of investment

  28. The Right Leverage Choice • If growth is king - Share Finance • If tax is an issue - Share Finance • If capital protection is vital – Protected Equity Loan

  29. The Right Leverage Choice • If margin calls are daunting use the Endowment Warrants • If super is the vehicle use the Endowment Warrant

  30. Personal Investing • Trading is good for brokers and the ATO • It’s time in the market NOT market timing • Compounding is enhanced by time • Diversification reduces risk • Leverage will enhance benefits • Manage your risk to suit your needs • Be patient

  31. Follow Up For further information please call Challenger Client Services on: 1800 635 355

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