Leverage is what makes the housing market such a wealth juggernaut. Should ETFs get the same treatment?
Property investors have had a sizeable advantage over sharemarket investors.But as the housing crisis worsens, and with it, young Australians’ despondency about their chances of buying a home, there is a growing preoccupation with how to build wealth if you’re a renter.
The Wealth Builder ETFs are structured to minimise volatility and cost, which are two of the most commonly cited failings of leveraged ETFs, Betashares senior investment strategist Cameron Gleeson says. Betashares also takes out the loan on behalf of the investor at institutional rates, which are generally lower. However, Betashares does not disclose those rates.Another product on the market is FundLater. Investors stump up $4000 of their own money and borrow $6000 to spend a total of $10,000 on a portfolio of ETFs, paying off the $6000 over 20 monthly instalments of $325 – meaning they pay a total $500 in fees.
And while share investors generally need to stay in the market for a minimum of seven years to achieve decent returns, the period is close to 10 years for geared products because they are more volatile, Fleitmann adds., if they’ve got investing experience, and they’ve been through a few market cycles. We obviously limit it to a portion of a portfolio.”
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