For many Australians, borrowing to invest has traditionally meant one thing:
Buying an investment property.
But increasingly, investors are exploring another option that receives far less attention: borrowing to invest in shares.
While this strategy isn’t suitable for everyone, it may provide a compelling alternative for investors seeking long-term growth, flexibility and diversification.
The key is understanding how it works, where the opportunities lie, and what risks need to be managed along the way.
The Concept Is Similar to Property Investing
At its core, borrowing to invest in shares works much the same way as property investing.
An investor contributes some of their own capital and borrows the remainder. The borrowed funds are then used to purchase growth assets.
In the early years, the costs of the investment may exceed the income received, creating a tax-deductible loss.
However, the objective is not to maximise losses.
The real aim is to own a larger pool of growth assets than would otherwise be possible and allow those assets to appreciate over time.
Just as property investors hope for long-term capital growth, investors who borrow to invest in shares are seeking growth from a diversified portfolio of companies.
Accessibility Is a Major Advantage
One of the strongest arguments in favour of investing in shares is accessibility.
Property often requires:
- A substantial deposit
- A large borrowing commitment
- Significant transaction costs
- A long-term commitment from day one
There is very little middle ground.
With shares, investors can often start much smaller and build their investment progressively.
This means investors can:
- Start with a modest investment
- Increase contributions over time
- Build confidence gradually
- Gain experience before committing larger amounts
For many families, this flexibility makes investing feel considerably less intimidating.
The Tax Position Can Be Attractive
Borrowing to invest in shares may also create meaningful tax advantages.
Many Australian share portfolios generate:
- Dividend income
- Franking credits
- Potential capital growth
These features can improve after-tax outcomes when compared with other investment structures.
In modelling completed during our recent webinar, borrowing to invest in shares produced larger early-year tax benefits than comparable property investments in certain scenarios.
Of course, tax considerations should never be the primary reason for making an investment.
Tax benefits should be viewed as a bonus, not the purpose of the strategy.
The focus should always remain on building long-term wealth through quality assets.
Understanding the Risks
Any strategy involving borrowed money deserves careful consideration.
The biggest risk is not necessarily shares themselves.
The biggest risk is leverage.
When you borrow money to invest, several factors become critically important:
- Interest rates
- Loan structures
- Cash flow management
- Investment discipline
- Risk management
Investors need confidence that they can maintain their loan commitments even during challenging periods.
Borrowing can magnify gains, but it can also magnify losses.
That’s why appropriate planning is essential.
Share Markets Are Volatile
Unlike property, share prices are updated every day.
Investors can see gains and losses immediately.
During major market downturns, portfolio values can fall sharply before eventually recovering.
This volatility can be uncomfortable.
However, long-term investors who remain focused on fundamentals rather than short-term market movements are often better positioned to benefit when markets recover.
Successful investing usually requires patience, discipline and a willingness to think beyond today’s headlines.
Understanding Margin Calls
One risk often discussed when borrowing to invest in shares is the possibility of a margin call.
A margin call occurs when portfolio values fall sufficiently to breach the lender’s required security levels.
When this happens, investors may need to:
- Contribute additional funds
- Provide extra security
- Reduce the loan balance
While this risk is real, it can often be managed through:
- Conservative borrowing levels
- Diversified portfolios
- Appropriate loan structures
- Professional advice and ongoing monitoring
Not all lending arrangements operate in the same way, which makes the choice of loan structure particularly important.
A Different Way to Think About Wealth Creation
For years, many Australians viewed investment property as the only serious way to build wealth using borrowed money.
Today’s environment is challenging that assumption.
A diversified share portfolio can offer several advantages, including:
- Lower transaction costs
- Greater liquidity
- Broad diversification
- Increased flexibility
- Potentially attractive tax outcomes
That doesn’t mean shares are better than property.
It simply means they deserve a place in the conversation.
The Bottom Line
The most successful investors rarely become attached to a single strategy.
Instead, they focus on one question:
“What gives me the best chance of reaching my goals?”
For some people, the answer will still be property.
For others, borrowing to invest in shares may provide a more flexible, diversified and efficient path toward long-term wealth creation.
The important thing is to understand the opportunities, recognise the risks, and build a strategy that aligns with your personal financial goals.
If you’d like to explore whether borrowing to invest is appropriate for your circumstances, the team at CommonCents Financial Planning can help you evaluate your options and develop a strategy tailored to your long-term objectives.
