The Australian share market performed strongly in February, with the All Ordinaries Index gaining 4.0% to close the month at 5,415 points. The stellar performance saw the Australian market recover its January losses, with the All Ordinaries Index closing at its highest level for 2014.
Key international share markets were also generally strong in February. The US Dow Jones Index gained 4.0%, in London the FTSE gained 4.6% and in Hong Kong the Hang Seng Index gained 3.6%. In Japan the Nikkei 225 Index bucked the trend and fell 0.5% for the month.
The turnaround in key markets came in amidst mixed first half domestic company earnings, key economic data in China and the US being below expectations and rising tensions in the Ukraine.
With the recent strong performance of both the sharemarket and property market, coupled with historically low interest rates, many clients have been showing an increasing interest in using 'equity' accumulated in their home to invest. This is often referred to as a ‘debt recycling strategy’.
The chart below highlights the benefit of a ‘debt recycling strategy’ for a 40-year-old client who utilises $100,000 of equity in their home to invest in a diversified portfolio of Australian sharemarket investments.
As noted above, a well-structured ‘debt recycling strategy’ can have the potential to enable a client to repay their non tax-deductible debt sooner than otherwise would be possible. In addition, there is the opportunity for long-term investment capital growth as shown in the net asset chart below.
As noted above, based on historical portfolio returns, a well-structured ‘debt recycling strategy’ can have the potential to significantly increase a client’s net wealth via long-term investment growth. In the example above, the client is projected to increase their net wealth by over $150,000 after 15-years.
A ‘debt recycling strategy’ is only suitable for those persons willing to accept investment market risk, that have ‘equity’ accumulated in their primary residence, have surplus cash flow and have other taxable income. Before proceeding with this strategy, it is important to seek financial advice as to the suitability to your own personal circumstances.
The Reserve Bank of Australia kept the Target Cash Rate on hold in February at 2.50% per annum. The RBA Board meet later today, with the expectation for remains to remain unchanged. The Australian Dollar strengthened by 1.5% in February, with 1 Australian Dollar currently buying 88.97 US cents.
For more information please contact Ryan Love on 1300 856 338 or e-mail ryan.love@apexpartners.com.au.
This article is general information only and is not intended to be a recommendation. We strongly recommend you seek advice from your financial adviser as to whether this information is appropriate to your needs, financial situation and investment objectives.