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| Case Studies |
Reading about financial planning techniques and strategies is great and can provide you with some great insight as to what is available and how these methods work. However, to see it in action helps you to understand the advantages and effects these strategies can have in real life. Please click on the links below to see what significant impact, if done well, these techniques can have. |
 Power Strategy #1 – The massive effect of return and fees in the long run
 Power Strategy #2 – The power of gearing in the long run
Power Strategy #3 – The benefits of Salary Sacrifice
Power Strategy #4 – Self Managed Super Fund advantage
Power Strategy #5 – The Transition to Retirement opportunity
Power Strategy #6 – Are you paying unnecessary interest |
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| The power of gearing in the long run |
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Paul has decided to take up the TGS Partners Direct Portfolio Service with his $50,000 and has now been advised of the option of borrowing to increase his investment. If he was to take this option, Paul would borrow the recommended $50,000 to combine with his initial amount, allowing him to invest $100,000. To avoid having to pay for the monthly interest, Paul would pay for the interest of around $4,500 (assume constant rate of 9%) by selling down the investment. The total interest payable over 20 years is approximately $100,000.
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With the modest gearing in place, Paul’s investment at the end of 20 years has increased from $701,000 (no gearing) to $1,181,000 (50% gearing) after paying off his debt. This equates to approximately $480,000 increase in equity simply by conservatively gearing. Further to this, the $50,000 interest payable over the period is tax deductible and equates to $2,325 of tax savings per year (assuming MTR of 46.5%). This amount has been added to the investment each year.
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NB: Dividends, distributions and franking credits have not been taken into account for this example. Full tax implications have been ignored. The tax refund attributable to the gearing interest is added back to the investment value each year.
 Back to: Financial Planning / Power Strategy #2 – Gearing to Invest
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| Next:Power Strategy #3 – The benefits of Salary Sacrifice |
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