By now, most of us are aware of the recent turmoil in financial markets.
For the last financial year superannuation funds have returned their biggest losses since the introduction of compulsory superannuation, 17 years ago! The average “balanced” fund is expected to return a loss of approximately 13%.
We have all heard that, over time, markets eventually recover. One way to take advantage of the recent weakness in financial markets is to invest a portion of your superannuation in an “internally geared” superannuation fund.Gearing is simply borrowing to invest (like your mortgage).
With an internally geared superannuation fund, the fund adds borrowed money to your own and invests more money in the market.
When the market increases in value at a rate greater than the borrowing cost, your returns are magnified. Conversely, when the market falls in value your losses are magnified.
With an internally geared superannuation fund there are no “margin calls” as the gearing is managed at the fund level, and the cost of borrowing is obtained on a wholesale basis.
Whilst investing a portion of your superannuation in an internally geared superannuation fund can be a great way of recouping losses faster, they aren’t for everyone.
You should consult a financial adviser to determine if an internally geared superannuation fund is right for you.